Budgeting for Housekeeping Expenses.Budgeting is one of the main planning activities of an executive

housekeeper. It is the process by which, based on the actual performance of

establishments in the past, estimates of expenditure and receipts are made

and adjusted for forecasting future outcomes. Budget can be defined in

many ways:

“A budget is a plan by which resources required to generate revenues are

allocated.”

‘A budget is a plan which projects both the revenues the hotel anticipates during the period covered by the budget and the expenses required to generate the anticipated revenues.’

The advantage in preparing a budget is that it provides an opportunity for taking a critical look at the cost of the department, reviewing past planning and present accomplishments, and then taking appropriate steps to accomplish more in the coming financial years. The executive housekeeper’s responsibilities in the budgetry process are two-fold.

First, the executive housekeeper is involved in the planning process that leads to the formulation of the budget. This entails informing the room’s division manager and general manager what expenses the housekeeping department will incur in light of forecasted room sales.

Second, since the budget represents an operational plan for the year, the executive housekeeper ensures that the department’s actual expenses are in line with the budgeted costs and with the actual occupancy levels.

The budget thus acts as a guide that provides the managers with the standards by which they can measure the success of operations. By comparing actual expenses with allocated amounts, the executive housekeeper can track the efficiency of housekeeping operations and monitor the department’s ability to keep its expenses within the prescribed limits. Budgets provide a financial framework within which the housekeeping department operates. Thus, budgets should be carefully prepared and used to govern the department’s spending.

The budget also acts as a guide as to which things need repair or replacement. It helps to determine what valuable pieces of equipment may be purchased and to pinpoint the areas where emphasis will be placed for the coming year.

TYPE OF BUDGETS

Budget may be of different kinds, based on the types of expenses involved,

the departments and the flexibility of expenses.

Categorized by Type of Expenditure

Based on the types of expenses and assets involved, budgets may be

categorized into capital, operating and pre-opening budgets.

Capital budgets – These allocate the use of capital assets that have a life

span considerably in excess of one year, these are assets that are normally

used up in day to day operations. Furniture, Fixture and Equipment (FFE)

are typically examples of capital expenditures. Capital expenditures in

the housekeeping department may include room attendant’s carts, vacuum

cleaners, general floor machines, carpet shampoo machines, sewing

machines and laundry equipment. The hotel building itself is also a capital

asset.

Operating budgets – These forecast expenses and revenues associated

with the routine operations of the hotel during a certain period. Operating

expenditures are those costs the hotel incurs in order to generate revenue

in the normal course of doing business. In the housekeeping department,

the most expensive operational cost is the salary and wages or labor cost.

The cost of all-recycled inventory items, such as cleaning and guest 

supplies, are also operational costs.

Pre-opening budgets – These force the planning necessary for the smooth

opening of a new hotel. These budgets allocate resources for opening

parties, advertising, generation of initial goodwill, liaisons and PR. Pre-

opening budgets also include the initial cost of employee salaries and

wages, as well as supplies, crockery, cutlery and other items.

Categorized by Department Involved

Base on the department involved, budgets may be categorized into master

budgets or department budgets.

Master budget – These represent the forecasted target set for the whole

organization and incorporate all incomes and expenditures estimated for

the organization.

Department budget – each department of the hotel forwards a budget for

its estimated expenses and revenues to the financial controller. For

instance,  there would be a housekeeping budget , an F&B budget,

a maintenance budget, and so on. In fact, the room division budget is in this

case the combine budget of the front office and housekeeping department.

Categorized by Flexibility of Expenditure

Budget may also be classified on the basis of the flexibility of expenditure:

Fixed budget – These budgets remain unchanged over a period of time and

are not related to the level of revenues. Such budgets include budgets for

advertising and administration.

Flexible budgets – These budgets pre-determine expenditure based on the

revenue expected and differ with different volumes of sale.

HOUSEKEEPING EXPENSES

Expenses that need to be budgeted for by the housekeeping department may be operating expenses or capital expenditures

1) Operational Budget is the allocation of expenses for each item/s

required by the department in order to operate smoothly. In case of hotel

operation, controls of expenses are based on occupancy percentage. The

budgeted amount for the month can be variable since there are certain

periods where occupancy forecasts in other areas or countries are

unreliable or unpredictable.

The basic Housekeeping operational budget are as follows: 

a) Staffing 

b) Linen & Towels 

c) Guest Supplies & Amenities 

d) Cleaning Supplies 

e) Laundry Supplies 

f) Machine, Tools & Equipment 

g) Decoration 

h) Miscellaneous 

i) Printing and stationeries

There are budgeted item/s or sections in Housekeeping that are usually

divided between other departments such as follows:

1) Repairs and Maintenance

This type of operational budget is usually divided between housekeeping

and Engineering

2) Uniform Budget

Uniform expenses is prepared by the Executive Housekeeper with all the

elegance, comfort, durability, styles, colors and functionality of the uniform

chosen for each department. Once a specific style of uniform has been

chosen, it is then coordinated with the concern department and when the

Executive Housekeeper gets the approval she then submits them to the

General Manager for overall coordination of styles, colors, functionality etc.

that reflects the proper image perception of the entire hotel in the eyes of

the guests. The last step will be to endorse them to the Financial Controller

for allocation of budgeted amount to each department.

3) Decoration

Housekeeping is one of the department in the hotel which helps and assists

in the beautification of the hotel inside and outside the building. Decoration

can be flower arrangements, fresh and artificial depending on the policy of

the hotel since there are hotels that prohibit the use of artificial flower

arrangements for fire hazard issue, picture frames, statuary, carvings,

tapestry, artifacts and many others are examples of decorations. Requests

for flower arrangements seemed to be the most needed items in the hotel

whether for the guestrooms, Food and Beverage functions, Outside

Catering, Lobby of the hotel, Convention centers and other areas that

requires flower arrangements.

4) Printing and Stationeries

Front Office and Housekeeping are the two departments that share this

budget.

5) Miscellaneous

This type of budget can be charged between Housekeeping and any other

department depending on what type of expenses is incurred.

The second type of Housekeeping budget is Capital Expenditure

(CAPEX)

Capital Expenditure Budget is the allocation of funds for a specific project

or items that will help and assist the operation of the hotel. In case of

Housekeeping, projects can be something that require replacement or

additional Housekeepers cart, Laundry washer & dryer, building a new

Laundry Shop for outside customers, replacement of vacuum cleaners,

replacement of worn out beds or furnitures which is usually done floor by

floor or by segments. Usually the CAPEX fund is allocated same way as how

the operational budget has been allocated for the coming year. Therefore on

a yearly basis project/s is/are accomplished and completed especially if the

item/s have specific life span where replacement are made specifically each

year. This way the hotel or facility is well maintained, equipped and

preserved like new. It is through CAPEX fund that maintenance of the hotel

works best and at the same time avoiding depreciation of items in large

quantities where it is difficult to resolve since they require huge amount to

achieve.

Capital expenses include the cost of equipment and machines; furniture and

fittings, etc.

Equipment and machines This category OF expenses involves the

equipment and machines used by the housekeeping department( such as

floor-cleaning machine, vacuum cleaners) and those provided in the guest

rooms for guest use.

Furniture and fittings The budget for guestroom furniture and fittings is

under the purview of the housekeeping department since it is responsible

for their cleaning and maintences.

BUDGET-PLANNING PROCESS

The room division’s budget-planning process depends on two main factors.

1. Forecasted room sales or occupancy levels

2. Cost per occupied room.

The hotel’s reservations department is charged with two primary tasks; setting rates

and selling rooms. Before successfully accomplishing either of these tasks, the

reservations department needs an accurate count of the number of rooms available for

sale. Knowing how many rooms are available for sale on a given date is a logical

firststep for the task of selling rooms. Less clear, however, is the relationship between

the number of rooms available for sale and the setting of rates 

for a given period. This second relationship forms the basis for the key objective of any

hotel: to maximize revenues through yield management. Yield management is the

process of maximizing gross rooms revenues by carefully managing both the number of

rooms sold for a given period (occupancy) as well as the average rate – known as 

average daily rate (ADR) or sometimes average room rate (ARR) – received for each

room sold. Yield management is based heavily on the ability of the hotel to forecast the

number of rooms available for sale in advance of the date in question. 

The dual role of forecasting availability 

The definition of yield management points clearly to the dual role of forecasting

availability; maximizing rate through accurately estimating demand and maximizing

rooms sold through systematic forecasting. Yield management in the lodging industry

rests on an irrefutable foundation; the rate charged for remaining rooms tends to

increase with rising occupancy projections. In other words, hotels generally receive a

higher rate from the last few rooms sold than they do from the first few rooms sold. The

first rooms may have been sold (reserved) a year or more in advance, a period filled

with uncertainty in terms of occupancy for the date in question. As such, hotels tend to

discount room rates early in the cycle as they attempt to gauge their business levels for

the date in question. Through regular forecasts of the date in question, the hotel grows

more and more confident in its understanding of the business levels it will experience.

As confidence grows and occupancy for the date becomes more and more certain, the

room rate rises. In the end, the last rooms sold receive the highest rate. By

raising rates, step-by-step, as the room forecast grows in accuracy, the hotel reaps

maximum yield for the period in question. Underlying the premise that rising

occupancy gives way to rising rates is the logic that systematic  forecasting of room

availability affords the hotel less errors of fact with regard to under- or over-booking

rooms sold. It takes little to imagine the problems which might befall a hotel that

incorrectly forecasts available rooms. A substantial error one way or 

the other can be costly to the hotel’s bottom line. An error resulting in underbooking

rooms available for sale can occur a number of ways. A few examples might include: a

reservations department which holds more rooms for a group than they actuallyoccupy,

a heavier number of checkouts than forecast, or a high last-minute cancellation rate.

Any of these examples will result in more available rooms than projected. And unsold

rooms are costly! Overbooking the hotel is equally costly. 

Examples of overbooking errors might include: projecting a higher number of check-outs

than actually experienced, forecasting more no-shows and cancellations than occurred,

or holding less rooms for a group room block than were actually required.While

underbooking the hotel is costly to the bottom line, overbooking the hotel can be costly

to good will and guest satisfaction. Certainly no guest wants to arrive for the night only

to be told the reservation cannot be honored and the guest must be walked to another

property because the hotel overbooked. (For more see entries on Overbooking, Walking,

and No-show.) 

Reservation types 

The ultimate goal of every hotel is to achieve the ‘perfect fill,’ defined as a paid guest in

every hotel room. To reach this elusive benchmark, however, the hotel needs to make

some difficult (and often risky) decisions. One of the first steps in the 

decision-making process is to understand which types of reservations are acceptable to

the hotel. Hotels seeking to reach perfect fill generally book a very high percentage of

their rooms as guaranteed or advance deposit reservations. Conversely, they generally

book very few nonguaranteed reservations. Some hotels refuse nonguaranteed 

reservations altogether. Here is a quick look at the three classic types of 

reservations: 

- Advance-deposit reservations: Advance-deposit reservations are another form of

guaranteed reservation. However, rather than guaranteeing the room to a credit card or

corporate account, an advance-deposit reservation requires the guest to send payment

in advance. Payment may come in the form of a cashier’s check, personal check, money

order, or even authorized credit card payment. In any case, hotels 

that require advance-deposit reservations often establish more rigid cancellation

policies (longer lead time for cancellations) in order for the guest to receive full refund. 

- Guaranteed reservations: Reservations guaranteed against a guest’s credit card or

corporate account have higher credibility than non-guaranteed reservations. That’s

because the guest has something to lose if he or she fails to arrive. Depending on the

hotel’s cancellation policy,failing to arrive for a guaranteed reservation usually costs the

guest or the corporate account a night’s room and tax. 

- Non-guaranteed reservations: Non-guaranteed reservations (sometimes called 6 p.m.-

hold reservations) have no monetary promise associated with the reservation. Should

the non-guaranteed reservation fail to materialize, the hotel has no recourse against the

guest. As such, non-guaranteed reservations are very risky and uncertain

reservations. Many hotels refuse to accept non-guaranteed reservations (though they

may accept them on occasion as favors to particular guests or in 

unique circumstances). Because there is a very high no-show factor associated wit non-

guaranteed reservations, accepting such reservations impacts the hotel’s ability to

reach perfect fill. 

Calculating availability 

If guests never changed their minds, it would be very easy to fill hotels. The formula

would simply be: 

Stayovers + Today’s reservations 

= Rooms committed 

How to Prepare a Housekeeping Budget??

Housekeeping is one of the departments in the hotel that has the most bulk

expenses and consumable items. Items like bathroom amenities such as

shampoo, conditioner, body lotion or moisturizer, eau de cologne, facial

soap and body soap; bath towel, hand towel, face towel, bath mat, bathrobe,

rubber mat; bed sheet, pillow, pillow case, throw pillow, neck pillow,

mattress pad, blanket, duvet/ duvet insert, bed cover; toilet paper, facial

tissue; coffee maker, coffee sachet, sugar condiments; ironing board, flat

iron; alarm clock; cooking utensils, crockery's and cutlery; give away

toothbrush and toothpaste; printing materials, stationery, envelope, note

pad, ball pen, folder, telephone directory, Bible or Holy Qur'an can have a

substantial impact in the hotel's overall expenses.

These are variable assets that when consumed, damaged, lost or become

sub-standard are being discarded or removed from circulation, Once

removed from circulation or consumed, the same quantities must be

replenished or replaced with additional mark-up in order to maintain the

high standard or quality of service in the hotel.

Fixed assets like the room's furniture and fixtures such as beds, fridges,

television sets, mirrors, sofas, easy chairs, reclining chairs, tables,

telephones, lamps, headboards, air-conditioning/heating equipment etc. can

be very costly when damaged or become sub-standard. These items are

usually included in the Capital Expenditure Budget especially when

refurbishment is required. But if its only one or two pieces, this amount can

be allocated in the operating budget.

For the machine and equipment, Housekeeper's cart and vacuum cleaners

are the most important tool used in the overall cleaning and maintenance of

the hotel guestrooms and public areas. Machines like carpet shampoo and

water extraction machine, rotary machine for carpet shampoo, floor

scrubber and floor polishing, wet and dry vacuum cleaner. hydraulic lift etc.

are additional heavy duty machines that help in the overall cleaning

requirements of the hotel. These too are included in the Capital Expenditure

Budget.

For Laundry area there will be the laundry machine, washer, dryer, dry

cleaning machine, laundry folding machine/ calendar, tables, carts, laundry

sorter boxes, movable clothes hanger rails, guest laundry printer etc. are

Capital Expenditure items, while detergent, bleach, stain remover, dry

cleaning fluid, ph level water treatment solution etc. goes to the operational

budget.

Listing all the detailed items involved in preparation of budget gives you an

idea how intricate housekeeping budget preparation is.quote>

With the above numerous items, the consumable or fast moving items are

the most important items in the preparation of budget. The consumable

items are included in the operational budget. The fixed asset items are

included in the Capital Expenditure Budget or CAPEX.

Operational Budget is being prepared annually and submitted to the

Director of Finance for further study and to finalize the total amount in

coordination with the department head. Operational Budget is always based

on the next year's forecasted occupancy percentage. For example:

Item: toilet roll @ $0.50/roll 

2008 consumption @ 50% occupancy = 50,000 @ $0.50 =$25,000.00 

2009 forecasted occupancy percentage is 75%

75%- 50% = 25% ( 25% of 50,000 =12,500)

(50% + 25%= 75%) = ( $25,000.00 +$12,500.00 = @37,500.00)

Remaining items are calculated in the same manner till all the items

required are included in the next year's budget.

Capital Expenditure Budget is for specific items or project that needs to be

replaced, made and built in the improvement of guest service or the hotel

itself. For example:

The hotel management with the approval of the owner of the hotel would

like to extend the Laundry service to non-hotel guest or outside customer.

The project will be a "Laundry Shop", therefore a quotation will be required

from the contractor for the cost of building the Laundry Shop, the additional

guest/customer laundry bag, laundry and dry cleaning list, and additional

manpower for customer service etc. To sum up the amount of Construction

of laundry shop = $35,000.00; additional laundry bags and lists = $5,000.00

and additional manpower = $9,000.00 annually.

The $35,000.00 will be included in the Capital Expenditure while the

additional laundry bags/lists and manpower will be added in the operational

and staffing budget.

Therefore, the operational budget is for the consumable items and Capital

Expenditure is for special project or items that are costly. There are also

certain items being shared by the Front Office and Housekeeping. The

charges on these items are being split between the two departments. When

it comes to Maintenance, Engineering Department charges the

Housekeeping for any services rendered like maintenance of the machine

wherein they have to supply machine parts and labor, so these are being

coordinated with Engineering. It is important that housekeeping machines

are handled with care to avoid such charges.

Monitoring the Operational budget is the most crucial part in the operation

of business. With the modern technology and the computer software, daily

updated total expenses against budgeted amount are made possible and

easy to trace in order not to exceed the budgeted amount. Every end of the

month, the Accounting Department distributes copies of last month's budget

outcome to the General Manager and the Department Heads in order for

them to review and analyze where their budget is in line and where it is not.

General Manager will require the department head that have exceeded

their budget a reasonable report since he is accountable to the corporation

as well as the owner of the hotel.

Cost per occupied room (CPOR)

The CPOR order type is for processing hotel/motel cost per occupied room business. In this case, the customer is invoiced an amount based on how many occupied rooms they had for the month, not how much product they 'purchased' for the month.

Notice above that the invoice is based on room count and month. It's important that a new order is started at the beginning of each month and used throughout the month. When a CPOR order is created, an automatic billing block is applied. The billing block is necessary because we do not want to bill the delivery(s) until we receive the room count from the customer.

When a CPOR customer calls in an order, customer service must search for an existing CPOR order for the current period. If one is found, the existing order is added to by either the addition of lines to the order or by increasing the order quantity of existing materials.

The order is then delivered in the normal fashion. During the month, it's possible to make several deliveries to the customer. For a standard order, we would invoice each one of these deliveries as soon as possible. For a

CPOR order, we must invoice all deliveries at the same time after we obtain the room count and apply a header condition.

Cost/occupied room = Operating Expenses / Room sales.

CALCULATING INDIVIDUAL OPERATING EXPENSES.

An operating expense, operating expenditure, operational

expense, operational expenditure or OPEX is an ongoing cost for running a

product, business, or system . Its counterpart, a capital

expenditure (CAPEX), is the cost of developing or providing non-consumable

parts for the product or system. For example, the purchase of a photocopier

involves CAPEX, and the annual paper, toner, power and maintenance costs

represents OPEX[2]. For larger systems like businesses, OPEX may also

include the cost of workers and facility expenses such as rent and utilities.

In business, an operating expense is a day-to-day expense such

as sales and administration, or research & development, as opposed

to production, costs, and pricing. In short, this is the money the business

spends in order to turn inventory into throughput. Operating expenses also

include depreciation of plants and machinery which are used in the

production process.

On an income statement, "operating expenses" is the sum of a business's

operating expenses for a period of time, such as a month or year.

In throughput accounting, the cost accounting aspect of the theory of

constraints (TOC), operating expense is the money spent

turning inventory into throughput. In TOC, operating expense is limited to

costs that vary strictly with the quantity produced, like raw materials and

purchased components. Everything else is a fixed cost, including labour

(unless there is a regular and significant chance that workers will not work

a full-time week when they report on its first day).

In a real estate context, operating expenses include costs associated with

the operation and maintenance of an income-producing property

Below is an outline of the considerations in each category.

Salaries and wages to calculate these expenses, the salaries and wages paid to all job positions- such as the executive housekeeper, assistant housekeeper, supervisors, GRAs, linen room attendants, housemen and so on.- have to taken into an account. The executive housekeeper first works out the number of employees required at various positions. If the occupancy levels are fluctuating considerably, the executive housekeeper should employ only the minimum staff required on the payroll and the rest of the staff should be hired on daily wages basis if labor is easy available. Duty rotas need to be planned efficiently so that annual leaves and weekly off days can be given on days of low occupancy.

Employee benefit these calculation depends on the number of labour hours expected to be scheduled, the job positions involved, and hotel’s policies regarding employee benefit. In most properties, Employee benefit include the cost of on-duty meals, payroll taxe, provident funds, medical expenses for the employees and their immediate family or insurances.

Contract service the cost of all contract service is averaged throughout the budget period of one year. Considering the historical data of contract services already used will lend an insight into the expense level to budget for.

OPERATING SUPPLIES. The major types of operating supplies include guest supplies and cleaning supplies.

Guest supplies. These are non-recycled inventory items and variable in cost. This expense category will depend on the cost per occupied room. The executive housekeeper finds out the consumption factor arrived on for soap is 0.8 the budgeted room sales is 4000 for a month; and the cost of a bar of soap with the hotel’s monogram is 2.00, the budgeted expense for soap will be.

Consumption factor * budgeted room sales * cost of one unit.

= 0.8*4000*2

= 6400

In case of two soap bars are to be placed in one guest room, the amount obtained is multiplied by2. In all case, the amount needs to be further multiplied with thw par number to be maintained for each guest supply.

Cleaning supplies these are non- recycled inventory items that are semi variable in cost. The higher the occupancy, the higher the volume of cleaning supplies used. It also needs to be remembered that the executive housekeeper schedules deep cleaning tasks during slack period.

LINEN

For budgeting linen expenses, the executive housekeeper need to calculate the cost of linen per occupied room based on historical data. The higher the occupancy, the more the frequency of washing the linen. Historical data gives some guidelines in calculating linen expenses.

LAUNDRY

The laundry expenses are primarly variable, except for uniforms. The executive housekeeper can refer to the historical data for calculation of laundry expenses. Laundry expenses include.

Chemical cost

Water cost

Energy cost

Labour cost.

The cost of laundering is expressed as follow

Cost per piece or weight unit -= total number of pieces or total weight of linen/ total cost incurred in a month.

A 1000 room hotel uses 2000 bath towels per day at 100% occupancy. During the past year the hotel purchased and inserted 1200 dozen new bath towels to maintain an adequate supply of towels in working inventory.

• What are the number of launderings the hotel experienced and the linen replacement ratios for this item?

Number of Launderings = Pieces Laundered 2000 X 365 730,000

New Pieces Inserted = 1200 X 12 = 14,400 = 50.7

Linen Replacement Ratio = New Pieces Inserted 14,400

Pieces Laundered X 100 = 730,000 X 100 = 2.0

We can now use our historical experience to plan future linen replacement expenses.

FORECASTING PIECES LAUNDERED:

To forecast Pieces Laundered we need to use a historical benchmark.

• This benchmark is achieved by using the following formula:

Pieces Laundered per Occupied Room = Pieces Laundered

Total Occupied Rooms

• Using the preceding formula, our Pieces Laundered per Occupied Room would be computed as follows:

Pieces Laundered Per Occupied Room = Pieces Laundered or 2000

Total Occupied Rooms 1000 = 2.0

• Now we can easily compute a forecast for any level of occupancy and a time period by using the following formula:

‰ If our 1000 room hotel has 2.0 pieces laundered per occupied room, how many total pieces will be laundered per year if the forecasted occupancy is 87%?

Annual Occupancy: = 1000 Rooms X 365 x .87 = 317,550

Total Pieces Laundered: = Total Occupied Rooms X Pieces Laundered per Room

= 317,550 x 2.0

= 635,100 4

CONTROLLING EXPENSES

Controlling expenses in the housekeeping department means comparing actual costs with budgeted amounts and measuring the variances. While

doing this, be careful to check whether the forecasted occupancy levels were achieved or not. e.g. if the occupancy is lower than forecasted, decrease in expenses must be expected proportionally. Serious deviations from the budgeted plan needs investigation in e.g. staff scheduling, supervision, efficiency and cost of products used etc.

Controlling housekeeping expenses means ensuring that actual expenses are consistent with the expected expenses on the operating budget. There are four methods;

accurate recordkeeping effective scheduling

careful training and supervision

efficient purchasing

Accurate recordkeeping; helps to monitor the usage rates, inventory costs, and variances with standards

Effective scheduling; with the help of the staffing guide, personnel costs stay in line with occupancy reports

Careful training and supervision; important for controlling the cost of inventoried items. E.g. training in the proper use of cleaning supplies can improve usage rates, and lower the cost of cleaning supplies per occupied room

Efficient purchasing; ensures that the hotel’s money is well spent and the maximum value is received from products.

CONTROLLING OPERATING EXPENSES

As far as controlling operating expenses is concerned, the executive housekeeper must ensure the following.

Effective documentation all inventories should be documented to monitor their usage rates and costs.

Zero-based scheduling this refers to hiring employees by taking into account the actual occupancy for a specified period of time.

Right purchasing the executive housekeeper coordinates with the purchase department to purchase for the housekeeping department. The onus of controlling expenses on purchasing is entirely on housekeeper.

Efficient training and supervisors training for new employee as well as training on new methods for older employees is a tool for controlling expenses. Efficient training ensures that the productivity and performance standards are met by all employees consistently.

COST CONTROL IN SPECIFIC AREA

Some specific methods of controlling expenses in various areas in housekeeping department’s purview are outlined below.

Guestrooms and public areas the following measures can be taken in these areas.

Staff must be trained to use cleaning supplies and equipment efficiently and economically. Supervisors must control and monitor their use.

Appointing multi-skilled staff and giving them proper training to retain them control expenses.

The use of key- tag or electronic lock system helps conserve power by ensuring that are light are switched off automatically when the guest is out of his room.

A lacquer finish helps brass items longer and show less wear, which reduces the use of proprietary polishes such as brasso and indirectly saves labour, time and money.

In VIP rooms, replace only those flowers that are shedding petals instead of changing the entire arrangement.

Restrooms and toilets in public areas can have motion sensors to control power.

Linen room the following practices can be adopted for cost control in these areas.

Old, condemned white sheets may be cut up and used in banquet halls as tablecloths for exhibitions and such.

Old shower curtains can be cutup and stitched into aprons for the butchery department instead of traditional aprons.

Condemned towels can be turned into dusters and mop cloths for cleaning surface

Stores for controlling expenses in stores, effective stock-taking and control must be ensured as it significantly reduces the expenses involved in the provision of cleaning and other service.

PURCHASING

The expenses for housekeeping purchases are planned mainly in the form of a capital budget or an operating expense budget. The purchase can be of local or imported items. Intends for the purchase of stock items are usually generated from the main stores on the basis of re ordering levels. The housekeeping department generates the indents of non stock items.

Stock items are regular operating supplies such as soaps, shampoos, letterhead and cleaning supplies.

Non-stock items are non consumable items such as crystal vases for flower arrangement, wooden hangers and so on.

Efficient purchasing practices can make a significant contribution to the

executive housekeeper’s role in controlling expenses. The housekeeping

department coordinates with the purchase department for all his purchase.

Though the main aspect of purchasing function is to produce a certain

material or item, the material has to be the best buy at the right price. This

calls for regular market surveys on the part of the housekeeping and

purchase department. Salespeople and vendors are regularly met for

updates on the latest developments in other hotels and the industry as

whole. Purchasing managers/directors, and procurement

managers/directors guide the organization’s acquisition procedures and

standards. Most organizations use a three-way check as the foundation of

their purchasing programs. This involves three departments in the

organization completing separate parts of the acquisition process. The three

departments do not all report to the same senior manager to prevent

unethical practices and lend credibility to the process. These departments

can be purchasing, receiving; and accounts payable or engineering,

purchasing and accounts payable; or a plant manager, purchasing and

accounts payable. Combinations can vary significantly, but a purchasing

department and accounts payable are usually two of the three departments

involved.

When the receiving department is not involved, it's typically called a two-

way check or two-way purchase order. In this situation, the purchasing

department issues the purchase order receipt not required. When an invoice

arrives against the order, the accounts payable department will then go

directly to the requestor of the purchase order to verify that the goods or

services were received. This is typically what is done for goods and services

that will bypass the receiving department. A few examples are software

delivered electronically, NRE work (non reoccuring engineering services),

consulting hours, etc.

Historically, the purchasing department issued Purchase Orders for

supplies, services, equipment, and raw materials. Then, in an effort to

decrease the administrative costs associated with the repetitive ordering of

basic consumable items, "Blanket" or "Master" Agreements were put into

place. These types of agreements typically have a longer duration and

increased scope to maximize the Quantities of Scale concept. When

additional supplies are required, a simple release would be issued to the

supplier to provide the goods or services.

Another method of decreasing administrative costs associated with

repetitive contracts for common material, is the use of company credit

cards, also known as "Purchasing Cards" or simply "P-Cards". P-card

programs vary, but all of them have internal checks and audits to ensure

appropriate use. Purchasing managers realized once contracts for the low

dollar value consumables are in place, procurement can take a smaller role

in the operation and use of the contracts. There is still oversight in the

forms of audits and monthly statement reviews, but most of their time is

now available to negotiate major purchases and setting up of other long

term contracts. These contracts are typically renewable annually.

This trend away from the daily procurement function (tactical purchasing)

resulted in several changes in the industry. The first was the reduction of

personnel. Purchasing departments were now smaller. There was no need

for the army of clerks processing orders for individual parts as in the past.

Another change was the focus on negotiating contracts and procurement of

large capital equipment. Both of these functions permitted purchasing

departments to make the biggest financial contribution to the organization.

A new terms and job title emerged – Strategic sourcing and Sourcing

Managers. These professionals not only focused on the bidding process and

negotiating with suppliers, but the entire supply function. In these roles

they were able to add value and maximize savings for organizations. This

value was manifested in lower inventories, less personnel, and getting the

end product to the organization’s consumer quicker. Purchasing manager’s

success in these roles resulted in new assignments outside to the traditional

purchasing function – logistics, materials management, distribution, and

warehousing. More and more purchasing managers were becoming Supply

Chain Managers handling additional functions of their organizations

operation. Purchasing managers were not the only ones to become Supply

Chain Managers. Logistic managers, material managers, distribution

managers, etc all rose the broader function and some had responsibility for

the purchasing functions now.

In accounting, purchases is the amount of goods a company bought

throughout this year. it is also refers to information as to the kind ,quality,

quantity and cost of goods bought that should be maintained. They are

added to inventory. Purchases are offset by Purchase

Discounts and Purchase Returns and Allowances. When it should be added

depends on the Free On Board (FOB) policy of the trade. For the purchaser,

this new inventory is added on shipment if the policy was FOB shipping

point, and the seller remove this item from its inventory. On the other hand,

the purchaser added this inventory on receipt if the policy was FOB

destination, and the seller removes this item from its inventory when it was

delivered.

Goods bought for the purpose other than direct selling, such as

for Research and Development, are added to inventory and allocated to

Research and Development expense as they are used. On a side

note, equipments bought for Research and Development are not added to

inventory, but are capitalized as assets.

PRINCIPLES OF PURCHASING

The success of any manufacturing activity is largely dependent on the

procurement of materials of right quality, in the right quantities, from the

right source, at right time and at right price – popularly known as five ‘R’s

of the art of efficient purchasing .

They are also described as the basic principles of purchasing as under:

1) To purchase the right quality of materials;

2) To purchase the materials in right quantities;

3) To make the materials available at right time;

4) To purchase the material at right price;

5) To purchase the materials from the right source.

They briefly explained as under:

Right quality: The materials are the basic input and the quality of the

output. It should be noted that best quality is not always the right quality.

The right quality is determined by the cost of the material and the technical

characteristics as suited to the specific requirements. The right quality

should be defined clearly and should be described in terms of specifications.

Generally the quality decisions are made by the technical staff. The quality

specifications are controlled before the materials are issued for the

manufacturing processes. The quality testing is done through the inspection

either at supplier’s plant or at buyer’s plant.

Right quantity: The right quantity of the materials is determined on the

basis of economic ordering quantity (E.O.Q). It is advantageous to purchase

the materials on the basis of EOQ lots. The EOQ describes the size of the

order at which the ordering costs and the inventory carrying cost will be the

minimum. The ordering cost consists of the cost of paper processing such as

paper, typing, postage, filing, cost of personnel; the costs incidental to order

placing such as follow up, receiving, inspection etc. If the size of the order

is large, the annual requirements will be met with little of the ordering cost

as the number of orders placed would tend to be less. Conversely, storing

cost consists of interest on funds locked up in storing, cost of storing, cost

of insurance and taxes etc. If few orders involving large quantities are

placed, the carrying cost will increase; however, the ordering cost will

decrease due to less number of orders. Thus ordering cost and carrying

costs are mutually exclusive. At EOQ level both these cots equate each

other and at this point, the total inventory cost would be at the minimum.

The EOQ is calculated on the basis of the following formula:

EOQ = √2RD /CS

Where R = annual requirements of the materials in units

D = Ordering cost per order

C = Cost per unit

S = Storing cost as the value of materials stored.

Right time: The materials should be purchased at right time so that it may

not result in either excess investment in the stocks or may result into stock

outs. Efforts must be made to replenish the materials at a point where they

are reaching at the reordering level. The purchase action is initiated at a

tome when the material reaches to its pre-decided reordering level. The

reordering level is decided on the basis of the rate of consumption and the

lead time. It should be decided on the basis of the probability of maximum

periodic consumption and maximum lead time. As stock holding is directly

related with the lead time, efforts should be directed towards the reduction

of the lead time so that carrying costs can be reduced to the minimum.

Right price: The investments in inventories are determined by the prices

charged for them. All attempts should be made to procure the materials at

right price because a slightest reduction in the price results in substantial

absolute monetary gain. It should be noted that the low bidder is not always

the best bidder. The right price can be availed through searching for the

proper sources of supply and comparing all such sources on some scientific

basis. The quotations of various suppliers are compared after bringing them

all on some common footing. Due considerations are also given to the

factors such as regularity of supply, character of the supplier his financial

standing etc. The price is an agreement between the buyer and the

suppliers the former considers his utility while the latter takes into account

his cost of production. The market conditions greatly effect the price

determination.

Right source: The right source is a key consideration in purchasing as all

other ‘R’s. The suppliers are not only supplying the required materials but

they also supply the information such as probable market conditions and the

resultant price trends, general industrial climate and the business

environment. The selection of right source involves the considerations such

as search for the more and more sources, selection of the appropriate

source through some scientific analysis, negotiating with the selected

supplier and post purchase rating of the supplier.

TYPES OF PURCHASING

The effectiveness of purchasing activities can be enhanced by proper organization and coordination of the activities. There are four types of purchasing system:-

1. Purchase made as per requirement: No purchase is made in advance.

Purchase is done as need arises. Method usually applied for emergency

requirement or infrequent goods.

2. Contract Purchasing: Contract of material is given to an agency. It has

an advantage that low price of those materials whose cost fluctuates highly.

3. Market Purchase: Purchase is made from the market to take

advantage of price fluctuations.

4. Schedule Purchasing: It is a cyclic purchase model. A schedule of

purchase is made and it is used for those commodities whose price does not

fluctuate.

Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system. The responsibility and authority to purchase, lease, or rent materials, supplies, goods, equipment, or services are placed with the Division of Finance and Operations, Purchasing and Stores Department.Purchasing is centralized to:

realize economy, efficiency, and effectiveness in the procurement

function;

pursue quality assurance and standardization;

maintain the highest standards of ethics;The control by a central department of all the purchasing undertaken within an organization. In a large organization centralized purchasing is often located in the headquarters. Centralization has the advantages of reducing duplication of effort, pooling volume purchases for discounts, enabling more effective inventory control, consolidating transport loads to achieve lower costs, increasing skills development in purchasing personnel, and enhancing relationships with suppliers.Advantages of Centralized Purchasing

Volume purchasing – When the district is able to purchase a single

item in mass, vendors are often willing to provide a discount. Purchasing

in mass to take advantage of discounts is called volume purchasing.

Warehouse – In order to take advantage of volume pricing, the district

purchases items in bulk. Vendors typically require that the district take

delivery of the items in mass. These bulk purchases are stored in the

warehouse until the items are requested by the sites.

Save time in researching products – Individuals spend hours to

research the products and to find best price. The purchasing department

has resources to help reduce the time to research products.Disadvantages of Centralized Purchasing

Good processes are not without their shortcomings. Listed below are

some of the challenges of buying in a school district and suggestions on

how to help the Purchasing department minimize their effects.

Extended procurement time – One problem that is commonly

associated with centralized purchasing is the perception “it takes too

long”. In reality, the purchasing department processes vendor requisitions

typically within one (1) day. Typically the delay in the request is either:

time spent to research the product, funding sources (account code check

and budget approval), vendor stock status, and shipping.Decentralized purchasing is the opposite where each plant or office buys what it needs. This operation allows any employee to buy what he needs. You can also run this operation with a designated buyer assigned to the site to do the buying. The more decentralized an operation is, the less control the home office has. You have a duplication of effort in buying and

less buyer specialization. You lose discounts on quantity buys. You lose freight options based on dollars or weight. Also some support is lost from the supplier as there is no single contact for the supplier to deal with. Volume buying may not be calculated for all your sites.Advantages of decentralized purchasingAdvocates of decentralization claim that local management has the incentive to control cost when the local operation is set up as a profit center. Many companies operate with a mixed system. The central operation may buy major commodities but allow local operations to buy all MRO supplies.It is difficult to change from decentralized purchasing to centralize purchasing. Employees feel their privileges are being taken away. They feel they are losing control of their site. Some will refuse to really cooperate in the changes in hopes to making the program look unsuccessful.