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8/12/2019 Front Office Management and Budgeting
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Front Office BudgetingThe most important long-termplanning function
FOM is responsible for:
1. Forecasting Rooms Revenue
Use historical trend data
2. Estimating ExpensesVary directly with rooms revenue
Payroll, laundry & supplies
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Forecasting Rooms Revenue
Example100 Room Hotel
100 x 365 days = 36,500 Rooms Available
75% Occupancy Percentage
.75
$50 Average Daily Rate
36,500 x .75 x $50 = $1,368,750
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Room Forecasting
Ten-Day ForecastDone by FOM and Reservations Manager
House CountExpected number of guests in the hotel
Divided into group and non-group
Three-Day ForecastUpdated with current information
Identifies changes in staffing needs
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Forecasting Room AvailabilityThe most important short-termplanning function
Hotel Occupancy HistoryThe past few months and last year at this time
Reservation TrendsHow far in advance are reservations being made?
Scheduled EventsCity-wide conventions; sporting events, etc.
Group ProfilesPickup history
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Forecasting DataNo-shows Expected guests who did not arrive.
Walk-ins Guests without reservations.
Overstays Guests who stay beyond their departure date.
Understays Guests who check out before departure date.
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Percentage Of No-showsNumber of Room No-Shows
Number of Room Reservations
Purpose:Helps front office managers decide
when (and if) to sell rooms to walk-in.
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Percentage Of Walk-insNumber of Room Walk-Ins
Total Number of Room Arrivals
Purpose: Helps front office managers know
how many walk-ins to expect.
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Percentage Of Overstays
Number of Overstay Rooms
Number of Expected Check-Outs
Purpose:
Alerts front office managers to potentialproblems when rooms have beenreserved for arriving guests.
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Percentage Of Understays
Number of Understay Rooms
Number of Expected Check-Outs
Purpose:
Alerts front office manager to additionalroom availability.
20%of hotels charge understay guests
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Rooms Availability FormulaTotal number of guestrooms
- Out of order rooms
- Stayovers- Reservations
+ Reservations x no-show percentage
+ Understays- Overstays
Number of Rooms Available for Sale
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Rooms Availability Formula
Example150 Guestrooms
- 5 Out of Order
- 45 Stayovers- 50 Reservations
+ 10% No-show
+ 5 Understays
- 20 Overstays
40 Rooms Available for Sale
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Establishing Room RatesMarketing Positioning Statement
Room rates reflect service expectations to the
hotels target markets.
1. Market Condition Approach
2. Rule-of-thumb Approach
3. Hubbart Formula Approach
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1. Market Condition Approach Common sense approach.
Often used, but has many problems.
Base room rates on your competitions rates.
Doesnt take into account new properties andconstruction costs.
Allows the local market to determine the rate
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2. Rule-of-thumb Approach Sets the minimum average room rate at $1
for each $1,000of construction & furnishingcosts per room.
Assumes 70 % occupancy
$125,000 in construction and furnishings
- $125 room rate
Doesnt take inflation into account
Doesnt include other hotel services
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2. Rule-of-thumb Approach
Average per-room cost for hotel development:
Segment Per-room cost
Budget/Economy $52,800
Midscale w/o $85,600
Midscale with F&B $103,100
Full Service $165,900
Luxury/Resorts $516,300
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3. Hubbart Formula Approach
Bottom-upapproach
Begin with desired profitbased upon expected Return
on Investment (ROI)
Calculate pretax profits, fixed charge, management fees,& operating expenses
Estimate other departmental income
Determine the required rooms department income
Add expenses to get rooms department revenue
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Occupancy PercentageNumber of Rooms OccupiedNumber of Rooms Available
What does rooms occupied include? Rooms sold + comp rooms
What does rooms available include? Use the rooms availability formula
2001= 59.20%
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Occupancy Percentage ExampleNumber of Rooms OccupiedNumber of Rooms Available
Sold 95 rooms with 5 comps
150 room hotel with 25 out of order
95 + 5 = 100 =
150 - 25 = 125
80%
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Daily Occupancy Rates
47.8
62.4
67.7 68.365.3 66.5
70.1
0
10
20
30
40
50
60
70
Sun Mon Tues Weds Thurs Fri Sat
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Average Daily Rate (ADR)
Rooms Revenue
Number of Rooms Sold
Number of Rooms Sold includes comps
2001 = $83.48
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RevPar Example
Actual Rooms Revenue
Number of Available Rooms
$10,000 Rooms Revenue
150 room hotel with 25 out of order
$10,000 $10,000 =
150 - 25 125
$80
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Revenue per Available Room
ExampleOccupancy Percentage x ADR
80% x $100 = $80
RevPAR Limitations:* Does not include Revenue& Costsfrom F&B and other outlet
Is RevPAR higher or lower than ADR ?
When will they be equal?
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RevPAR Index - ExampleHotel RevPAR
Competitive Set RevPAR
Your Hotels RevPAR is $58; Comp Set is $60
$58/$60 = .966 x 100% = 96.6%
Below 100%= Under Performing Hotel
100%= Fair Share
Above 100%= Over Performing Hotel
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RevPAR IndexMissed Revenue Example
If your Hotels RevPAR is $58 and your Comp Sets is
$60, you are losing $2 per room in potential revenue
Calculate your potential lost revenue per month
RevPAR Difference x Number of Rooms x Days in Month
Ex.
Missed Revenue for 150 room hotel in December
$2 x 150 x 31 = $9,300
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