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Budgeting

The document discusses front office budgeting, including defining what a budget is, the process for making a front office budget, factors that affect budget planning, evaluating front office operations, capital budgets, operative budgets, and refining budgets. It provides formulas and examples for calculating key metrics like occupancy percentage, average daily rate, and forecasting room revenue. The front office manager is responsible for forecasting rooms revenue and estimating expenses to develop the front office budget.

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Mandeep Kaur
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180 views5 pages

Budgeting

The document discusses front office budgeting, including defining what a budget is, the process for making a front office budget, factors that affect budget planning, evaluating front office operations, capital budgets, operative budgets, and refining budgets. It provides formulas and examples for calculating key metrics like occupancy percentage, average daily rate, and forecasting room revenue. The front office manager is responsible for forecasting rooms revenue and estimating expenses to develop the front office budget.

Uploaded by

Mandeep Kaur
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FRONT OFFICE BUDGETING

 The money that is available to a person or an organization, and a plan of how it will be spent over
a period of time. Thus,
 It is prepared in advance & is based on a future plan of action.
 It is a statement expressed in monetary and/or physical units.

MAKING OF FRONT OFFICE BUDGET


 The front office manager in the FO budget planning process includes forecasting rooms revenue
and estimating related expenses.
 The accounts department is responsible for coordinating the front office budget plan to individual
department managers .
 The hotel general manager and controller review the departmental budget plans and prepare a
budget report for approval by the property’s owners.

FO Budgeting - - It is the most important long-term planning function

FOM is responsible for :


1. Forecasting Rooms Revenue - Use Historical Trend Data
2. Estimating Expenses
- Vary directly with Rooms Revenue
- Payroll , laundry & supplies

Factors affecting Budget Planning


1. Forecasting Rooms Revenue - Use Historical Trend Data

% of No-Show's -
FORMULA

PERCENTAGE OF NO-SHOWS
No-show percentage = Total Number of no-shows in a specific duration X 100
Total Number of reservation's in that specific duration
Will give
Helps FOM decide when ( and if ) to sell rooms to walk -in

% of Under-Stay's -
FORMULA

PERCENTAGE OF UNDERSTAY

Under- stay percentage = Total Number of under-stay in a specific duration X 100


Total Number of check-outs in that specific duration
Will
Alerts FOM to potential problems when rooms have been reserved for arriving guests .
FORMULA

PERCENTAGE OF OVER-STAY

The over stays represent rooms occupied by guests who stays beyond their originally schedule departure
dates.
The percentage of over stays is calculated by dividing the number of expected room check outs for the
same period.

Number of over stays rooms


% of = ______________________________________________ x 100
over stays Room check outs – under stay rooms + over stays room

= 47 / 346 – 33 + 47 x 100
= 47 / 313 + 47 x 100
= 47 / 354 x 100
= 13.06 %

To help regulate room over stays, front office agents are trained to verify an arriving guest’s departure
date at check-in.

% of UnderStay's -
FORMULA

PERCENTAGE OF UNDERSTAY
Example :-

Numbers of under stay rooms


% of = _______________________________________ x 100
Under stay Room check outs – under stays rooms + over stay rooms

= 33 / 346 – 33 + 47 x 100
= 33 / 346 + 47 x 100
= 33 / 360 x 100
= 9.17 %

 In an attempt to regulate under stay and over stay rooms, front office staff should Confirm or
reconfirm each guest’s departure date at registration.
 The sooner data are corrected the greater the chance for improved planning.
 Present an alternate guest room reservation form to a registered guest, explaining that an arriving
guest holds a reservation for his/her assigned room.
 A note card may be placed in the guest room a day before or the morning of the scheduled day of
the registered guest departure.
 Hotels that have a lot of association business or a history of transient guests departing before their
schedule day may apply the reservation deposit to the last of the night of the stay not the first
night.
 Contact potential over stay guests about their scheduled departure date to continue their intension
to check out.
 Room occupancy data should be examined each day, rooms with guest expected to check out
should be flagged.
 Guest who have not left by check out time should be contacted and asked about their departure
and intensions.

Evaluating FO Operations
 Occupancy % - The most commonly used operating Ratio
 Average Daily Rate (ADR ) - Average of all room types & rates
 Revenue per Available Room ( RevPar ) - Measures Revenue capabilities of hotel

Occupancy %
Formula

Occupancy = Number of Rooms sold by Hotel + Complimentary Rooms X 100


Percentage Total Number of Lettable Rooms

OR

Occupancy = Number of Rooms occupied by more than one guest X 1000


Percentage Total Number of Rooms in Hotel – OOO Rooms

Example :-

- Sold 95 Rooms with 5 Comps


- 150 Room Hotel with 25 OOO Rooms

95 + 5 = 100
_______________ = 80 %
150 - 25 = 125

Average Daily Rate ( ADR )


Example -
- $10000 - Room Revenue
- Sold 95 Rooms with 5 Comps

$10000 $10000
______ = ______ = $100
95 + 5 100

Capital Budget for Front Office


 Capital expenditure budgets allocate the use of capital assets that have a life span in excess of one
year ;
 They add to capital investment of the company .
 Large equipment and machinery.
 Fixtures and fittings.
 They are subject to depreciation .
 The Hotel Building is a capital asset that is depreciated in 25-30 years .
 Furniture , fixtures , and equipment's (FFE ) are capital assets whose depreciation schedules are
shorter ( 3 , 5. or 7 years )

Operative Budget for Front Office


Operative Budget
 An operating budget makes provision for all those items, which are needed for day-to-day
operation of the department.
o -Cleaning agents.
- Small items of cleaning equipment such as rubber gloves, doorsteps, buckets,
duster clothes.

 control profit ( or loss ) is the result of the comparison .


 The FOM is responsible for controlling the costs associated with revenue generated from the sale
of guestrooms .

Refining Budgets
Refining Front Office Budget Plans
 Departmental budget plans are commonly supported by detailed information gathered in the
budget preparation process and recorded.
 If no historical data are available for budget planning, other sources of information can be used to
develop a budget.
 Many hotels refine expected results of operations and revise operations budgets as they progress
through the budget year.
 Reforecast is normally suggested when actual operating results start to vary significantly from the
operations budget. reforecast provides a more realistic picture of current operating conditions

Forecasting Room Revenue


 Historical financial information is very important for the front office managers to forecast the
rooms revenue.
 One method of rooms revenue forecasting involves an analysis of rooms revenue from past years.
 Dollar and percentage differences are noted and the amount of rooms revenue for the budget
years is predicted.
 Another way is revenue projection on the basis of past room sales and average daily rates.

Forecasted Rooms Revenue = Rooms Available X Occupancy % X Average Daily Rate

A more detailed approach would consider the variety of different rates according to [These are some
factors which affect room revenue forecasting. ]
 Room types,
 Guest profiles,
 Days of the week, and
 Seasonality of the business.
Room Forecasting
 10 Day Forecast - Done by FOM & Reservation Manager
 The most important short term planning function
- Hotel Occupancy History - The past few months & last year at this Time
- Reservation Trends - How far in advance are reservations being made ?
- Scheduled Events - City-wide conventions ; sporting events
- Group Profiles - Pickup History

Forecasted Annual Room Revenue =


Rooms X Occupancy X Average
Available Percentage Daily Rate

Rooms Available = Total Rooms X 365 days

Forecasting Room Revenue Example


- 100 Room Hotel
100 X 365 Days = 36500 Rooms Available
- 75 % Occupancy Percentage = .75
- $ 50 Average Daily Rate

Then , Forecasted Annual Room Revenue =


36500 X .75 X $ 50 = $1368750

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