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  • Front Office Management and Budgeting

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    Front office budgeting and forecasting involves three key steps: 1) forecasting rooms revenue using historical data on occupancy rates and average daily rates, 2) estimating variable operating expenses, and 3) creating short-term room forecasts based on reservations, events, and historical occupancy trends. Hotel performance is evaluated using key performance indicators like occupancy percentage, average daily rate (ADR), and revenue per available room (RevPAR). Maintaining a RevPAR index above 100% relative to competitors is ideal, as it indicates outperforming the market.

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    Front office budgeting and forecasting involves three key steps: 1) forecasting rooms revenue using historical data on occupancy rates and average daily rates, 2) estimating variable operating expenses, and 3) creating short-term room forecasts based on reservations, events, and historical occupancy trends. Hotel performance is evaluated using key performance indicators like occupancy percentage, average daily rate (ADR), and revenue per available room (RevPAR). Maintaining a RevPAR index above 100% relative to competitors is ideal, as it indicates outperforming the market.

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    2K views31 pages

    Front Office Management and Budgeting

    Uploaded by

    damianuskrowin
    Front office budgeting and forecasting involves three key steps: 1) forecasting rooms revenue using historical data on occupancy rates and average daily rates, 2) estimating variable operating expenses, and 3) creating short-term room forecasts based on reservations, events, and historical occupancy trends. Hotel performance is evaluated using key performance indicators like occupancy percentage, average daily rate (ADR), and revenue per available room (RevPAR). Maintaining a RevPAR index above 100% relative to competitors is ideal, as it indicates outperforming the market.

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    of 31

    Front Office Budgeting

    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
    Forecasting Rooms Revenue
    Forecasted Annual Rooms Revenue =

    Rooms Occupancy Average
    Available Percentage Daily Rate



    Rooms Available = Total Rooms X 365 Days
    Forecasting Rooms Revenue
    Example
    100 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
    Room Forecasting
    Ten-Day Forecast
    Done by FOM and Reservations Manager

    House Count
    Expected number of guests in the hotel
    Divided into group and non-group

    Three-Day Forecast
    Updated with current information
    Identifies changes in staffing needs
    Forecasting Room Availability
    The most important short-term planning function

    Hotel Occupancy History
    The past few months and last year at this time

    Reservation Trends
    How far in advance are reservations being made?

    Scheduled Events
    City-wide conventions; sporting events, etc.

    Group Profiles
    Pickup history
    Forecasting Data
    No-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.


    Percentage Of No-shows
    Number of Room No-Shows
    Number of Room Reservations


    Purpose:
    Helps front office managers decide
    when (and if) to sell rooms to walk-in.

    Percentage Of Walk-ins

    Number of Room Walk-Ins
    Total Number of Room Arrivals


    Purpose:
    Helps front office managers know
    how many walk-ins to expect.
    Percentage Of Overstays

    Number of Overstay Rooms
    Number of Expected Check-Outs


    Purpose:
    Alerts front office managers to potential
    problems when rooms have been
    reserved for arriving guests.

    Percentage Of Understays

    Number of Understay Rooms
    Number of Expected Check-Outs

    Purpose:
    Alerts front office manager to additional
    room availability.

    20% of hotels charge understay guests
    Rooms Availability Formula
    Total number of guestrooms
    - Out of order rooms
    - Stayovers
    - Reservations
    + Reservations x no-show percentage
    + Understays
    - Overstays

    Number of Rooms Available for Sale
    Rooms Availability Formula
    Example
    150 Guestrooms
    - 5 Out of Order
    - 45 Stayovers
    - 50 Reservations
    + 10% No-show
    + 5 Understays
    - 20 Overstays

    40 Rooms Available for Sale
    Establishing Room Rates

    Marketing 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
    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 and
    construction costs.

    Allows the local market to determine the rate
    2. Rule-of-thumb Approach
    Sets the minimum average room rate at $1
    for each $1,000 of construction & furnishing
    costs per room.

    Assumes 70 % occupancy

    $125,000 in construction and furnishings
    - $125 room rate

    Doesnt take inflation into account

    Doesnt include other hotel services

    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


    Hotel & Motel; Jan. 12, 2004
    3. Hubbart Formula Approach
    Bottom-upapproach

    Begin with desired profit based 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

    3. Hubbart Formula Approach

    Average Room Rate =
    Rooms Department Revenue
    Expected Number of Rooms Sold


    Sets a Target Average Price

    Lets you determine if your target is too high

    You may have to finance the difference

    Evaluating
    Front Office Operations
    Occupancy Percentage
    The most commonly used operating ratio

    Average Daily Rate (ADR)
    Average of all room types and rates

    Revenue per Available Room (RevPAR)
    Measures revenue capabilities of hotel

    Occupancy Percentage
    Number of Rooms Occupied
    Number 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%
    Occupancy Percentage Example
    Number of Rooms Occupied
    Number of Rooms Available

    Sold 95 rooms with 5 comps
    150 room hotel with 25 out of order

    95 + 5 = 100 =
    150 - 25 = 125
    80%
    Daily Occupancy Rates
    47.8
    62.4
    67.7
    68.3
    65.3
    66.5
    70.1
    0
    10
    20
    30
    40
    50
    60
    70
    Sun Mon Tues Weds Thurs Fri Sat
    Average Daily Rate (ADR)

    Rooms Revenue
    Number of Rooms Sold


    Number of Rooms Sold includes comps


    2001 = $83.48

    Average Daily Rate Example
    Rooms Revenue
    Number of Rooms Sold

    $10,000 Rooms Revenue
    Sold 95 rooms with 5 comps

    $10,000 $10,000 =
    95 + 5 = 100
    $100
    Revenue per Available Room
    (RevPAR)
    Actual Rooms Revenue
    Number of Available Rooms

    or:

    Occupancy Percentage x ADR


    2001 = $49.36

    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
    Revenue per Available Room
    Example
    Occupancy Percentage x ADR

    80% x $100 = $80


    RevPAR Limitations:
    * Does not include Revenue & Costs from F&B and other outlets

    Is RevPAR higher or lower than ADR ?
    When will they be equal?

    RevPAR Index
    Hotel RevPAR
    Competitive Set RevPAR

    You decide what hotels make up your competitive
    set of hotels that you compare yourself too.

    Get your Comp Set RevPAR figures from the STAR
    Report or the HRM (HotelRevMax) Report

    RevPAR Index - Example
    Hotel 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

    RevPAR Index
    Missed 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
    RevPAR Index

    You need to select a realistic Comp Set of hotels

    Comparing a luxury hotel to economy hotels inflates
    your RevPAR Index but doesnt help your revenues

    A consistent increase in RevPAR Index is your goal

    Ideally, you want a RevPAR Index above 100% and
    a positive percentage change from month to month

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