HAMG 1313 Front Office Procedures The Functions of Management

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HAMG 1313-Front Office ProceduresThe
Functions of Management
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POSDCORB

• P Planning
• O Organizing
• S Staffing
• D Directing
• CO Coordinating
• R Reporting
• B Budgeting

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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

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Forecasting Rooms Revenue

• Forecasted Annual Rooms Revenue
• Rooms Occupancy Average
• Available Percentage Daily Rate
• Rooms Available Total Rooms X 365 Days

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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

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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

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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

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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.

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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.

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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.

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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.

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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

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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

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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

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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

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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 and
  construction 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
  1,000 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

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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 FB 103,100
• Full Service 165,900
• Luxury/Resorts 516,300

Hotel Motel Jan. 12, 2004
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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

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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

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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

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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

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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
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Daily Occupancy Rates
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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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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
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Revenue per Available Room (RevPAR)

• Actual Rooms Revenue
• Number of Available Rooms
• or
• Occupancy Percentage x ADR
• 2001 49.36

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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 RoomExample

• Occupancy Percentage x ADR
• 80 x 100 80
• RevPAR Limitations
• Does not include Revenue Costs from FB and
  other outlets
• Is RevPAR higher or lower than ADR ?
• When will they be equal?

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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

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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
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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

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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