Evaluating Front Office Operations v It is an

Evaluating Front Office Operations v. It is an important management function v. Without thoroughly doing so, managers will not know whether the planned goals is attained or not v. Successful FOMs evaluate the results of department activities on a daily, monthly, quarterly and yearly basis v. The tools that FOMs can use to evaluate the success of front operations include:

Evaluating Front Office Operations v. The Daily Operations Report v. Occupancy Ratios v. Rooms Revenue Analysis v. The Hotel Income Statement v. The Rooms Schedule v. Rooms Division Budget Reports v. Operating Ratios v. Ratio Standard

The Daily Operations Report v. Also known as Manager’s Report / Daily Revenue Report v. It summarizes the hotel’s financial activities during a 24 hour period v. It provides a means to reconcile cash, bank accounts, revenue and accounts receivable

Occupancy Ratio v. It measures the success of the front office in selling the hotel's primary product, i. e. GUESTROOMS v. The following rooms statistics must be gathered to calculate basic occupancy ratios: • No. of rooms available for sale • No. of rooms sold • No. of guests • No. of guest per room • Net rooms revenue

Occupancy Ratio • Occupancy Percentage = No. of Rooms Occupied No. of Rooms Available • Multiple Occupancy Ratio = No. of Rooms Occupied by More Than One Guest No. of Rooms Occupied

Occupancy Ratio • Average Guests per Room Sold = No. of Guests______ No. of Rooms Sold • Average Daily Rate = Total Room Revenue_____ No. of Rooms sold • Rev. PAR (Revenue per Available Room) = Total Room Revenue_______ No. of Available Rooms. Sold

Occupancy Ratio • Rev. Pac (Revenue per Available Customer = Total Revenue______ No. of Guests • Average Rate per Guest = Total Room Revenue_____ No. of Rooms Guests

Room Revenue Analysis v. FO staff members are expected to sell rooms at rack rate unless a guest qualifies for an authorized discounted room rate v. A room rate variance report lists those rooms that have been sold at other than their rack rates v. This report helps FO mgmt. to review the performance of the FO staff v. The other way to evaluate the sales effectiveness of the FO staff by FOM is to generate a YIELD STATISTIC

Room Revenue Analysis v. Yield Statistic is the ratio of actual rooms revenue to potential rooms revenue v. In other words, it is the amount of room revenue that can be generated if all the rooms in the hotel are sold at rack rate on a given day, month or year • Yield Statistic = Actual Room Revenue____ Potential Rooms Revenue

The Hotel Income Statement v. It provides important financial information about the results of hotel operations for a given period of time that is used by the management to evaluate the overall success of operations v. It is an important financial indicator of operational success and profitability v. The hotel income statement relies in part on detailed FO information that is supplied through the room schedule

The Hotel Income Statement v. The amount of income generated by the rooms division is determined by subtracting payroll and related expenses v. Revenue generated by the rooms division is usually the largest single amount produced by revenue center with in a hotel

The Rooms Schedule v. The hotels statement of income shows only summary information v. The separate department income statement prepared by each revenue center provide more detail v. Departmental income statements are called ‘Schedules’ and are referenced on the hotel’s statement of income

Rooms Division Budget Report v. Hotel’s accounting division prepares monthly budget reports that compare actual revenue and expense figures with budgeted amounts v. It helps in evaluating front office operations whether it is favorable or unfavorable v. A typical budget report format should include both monthly variances and year to date variances for all budget items

Rooms Division Budget Report v. Favorable Variance: • Revenue: Actual exceeds budget • Expenses: Budget exceeds actual v. Unfavorable Variance: • Revenue: Budget exceeds actual • Expenses: Actual exceeds budget v. For e. g. the actual amount of salaries and wages for Room Division personnel for a given month was $20, 826, while the budgeted amount was $18, 821

Rooms Division Budget Report v. It resulted in an unfavorable balance of $2, 005 v. Percentage variances alone can also be deceiving v. Any budgeting process is unlikely to be perfect v. So FOM should analyze only significant variances and take action v. GM and Controller normally provides criteria and determines which variances are significant

Operating Ratios v. It assists managers in evaluating the success of front office operations v. Payroll and related expenses tends to be the largest single expenses for the entire hotel v. For control, labor costs must be analyzed on a departmental basis v. Room sales fluctuates but payroll and related expenses relatively remains constant v. Hence any differences between actual and budgeted labor cost percentages must be carefully investigated

Ratio Standards v. Operating ratios are meaningful when compared against useful criteria such as: v. Planed ratio goals v. Corresponding historical ratios v. Industry averages v. Ratio standards are only indicators and not solution v. When ratios vary significantly form planned goals, previous results, or industrial averages, they indicate that problem may exist v. More analysis and investigations are necessary to determine appropriate corrective actions