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Front Office Budgeting

Yvonne Yang - RDM HAIII LRJJ

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Contents• Forecasting room revenues

• Estimating expenses for rooms • Evaluating front office operations

Yvonne Yang - RDM HAIII LRJJ

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FO Budgeting

The Front Office budgeting:• is a long-term planning functions for FOM and RDM• is normally on a yearly base (annual budgets), but commonly divided into monthly, then weekly, even daily plan• is mainly focus on forecasting rooms revenue and estimating expenses

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Forecasting Rooms Revenue

Forecasted Annual Rooms Revenue =

Rooms X Occupancy X AverageAvailable Percentage Daily Rate

Rooms Available = Total Rooms X 365 Days

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Forecasting Rooms Revenue Example

100 Rooms Hotel100 x 365 days = 36,500 Rooms

Available

75% Occupancy Percentage0.75

$50 Average Daily Rate36,500 x0.75 x $50 = $1,368,750

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Estimating Expenses in Rooms• According to the historical data, each expense item may represent a approximate percentage of rooms revenue• Expenses in Rooms are:- Payroll and related expenses- Laundry (linens + guest laundry)- Guest supplies (bathroom amenities + stationeries)- Commission and reservation expenses- Other expenses (telecommunications, satellite cables, transportation, guest relocation, training, uniforms, complementary guest services, operational supplies )

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Rooms DivisionIncome Statement

• Provide important financial information about the results of hotel department operations for a given period of time.

• Departmental income statements are called “schedules” and are referenced on the hotel’s statement of income.

• Example: Exhibit 17 on Page 457

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Evaluating Front Office Operations

Important tools that FOMs could use to evaluate the success of FO operations, to check if FO reaching planned goals:

The daily operations report Occupancy ratios

Rooms revenue analysis

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The Daily Operations Report

• Also called as “ Daily revenue report” or “Manager’s report”

• A summary of a hotel activities during 24 hours• Served as a posting reference for various accounting

journals• Including occupancy summary (different room types,

revenue summary (all the outlets), Rooms revenue analysis (different rate groups), Group analysis (MICE + Tour), Food & Beverage analysis, Complimentary rooms, OOO rooms

• Distributed to all division heads

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Occupancy Ratios Occupancy Percentage:

Number of Rooms Occupied/Number of Rooms Available

Average Daily Rate (ADR): Total Room Revenue/

Number of Rooms SoldIncluding

from single to suitesboth individual and group

both weekday and weekend

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Occupancy Ratios

Multiple Occupancy Percentage: Number of Rooms Occupied by

more than One guest/Number of Rooms Occupied

Average Guests per Room Sold: Number of Guests

/Number of Rooms Sold ＞ 1

To forecast food and beverage revenue and indicate clean linens requirements

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Occupancy Ratios Revenue per Available Room (RevPAR):

Total Room Revenue/Number of Available Rooms

Benchmark for comparison with similar hotels

Revenue per Available Customer (RevPAC): Total Revenue/

Number of Guests

Average Rate per Guest (ARG): Total Room Revenue/Number of Guests

Used often by Resort

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Exercise of Occupancy Ratios The Hilton Hotel has 100 rooms and a rack rate is 1100

￥ RMB. 2 rooms are out of order. 75 rooms were sold at varying rates. 78 rooms were occupied including 3 complimentary

rooms. 8 rooms were occupied by 2 guests, therefore, a total of

86 guests were in occupancy. 66080 ￥ RMB in rooms revenue were generated. 81860 ￥ RMB in total revenue were generated,

including rooms, food beverage, telephone calls, meeting room rental, laundry and other.

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Calculation

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Occupancy percentage

Multiple Occupancy Percentage

Average Guests per Room Sold

Average Daily Rate (ADR)

Revenue per Available Room (RevPAR)

Revenue per Available Customer (RevPAC)

Average Rate per Guest (ARG)

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Answers

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Occupancy percentage 78/100-2=79.6%

Average Daily Rate (ADR) 66080/75=881.07

Multiple Occupancy Percentage 8/78=10.3%

Average Guests per Room Sold 86/75=1.15

Revenue per Available Room (RevPAR) 66080/98=674.29

Revenue per Available Customer (RevPAC) 81860/86=951.86

Average Rate per Guest (ARG) 66080/86=768.37

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