8Why Do We Need to Prepare a Budget? 4/6/2017Why Do We Need to Prepare a Budget?To determine and clearly list our objectivesTo provide us with a guide to achieving our objectivesTo serve as a basis for evaluating performanceWhy do we need to prepare a budget?To determine and clearly list our objectivesTo provide us with a guide to achieving our objectivesTo serve as a basis for evaluating performancePlanning forces management to look ahead to set out detailed plans for achieving targets for each department. This prevents managers from relying on uncoordinated purchases which may be detrimental to the performance of the department.As budgets are prepared in advance (quite often the year before), they should be reviewed on a monthly basis (as a minimum) as the hotel industry is dynamic and fluctuations will occur within occupancy, F&B and external factors, e.g. increased rise in cotton, etc.
9“…. Is The Backbone Of An Organization.” 4/6/2017House Keeping….“…. Is The Backbone Of An Organization.”
10Preparing a Budget for Housekeeping 4/6/2017Preparing a Budget for HousekeepingDifferent Types of BudgetsZero-based budgetingIncremental budgetingDifferent Types of BudgetsZero-based budgeting (ZBB) – this approach treats the preparation of budget for each period as an independent planning exercise. The initial budget is zero and every item of expenditure has to be justified in its entirety to be included.Incremental budgeting (IB) – this involves adding a certain percentage from last year’s budget to allow for growth and inflation. It encourages slack and wasteful spending to creep into the budget.Advantages of ZBB – identifies and removes inefficient and/or obsolete operations and forces employees to avoid wasteful expenditure.Disadvantage of ZBB – it involves a lot of work, costs and benefits of different alternative can be difficult to quantify10
11Preparing a Budget for Housekeeping 4/6/2017Preparing a Budget for HousekeepingCapital BudgetOperating BudgetFixed CostVariable CostOperating EquipmentCapital Budget – it is prepared to replace fixed assets, expand the business or for H&S reasons, not all of which may be financially beneficial.The importance of capital budgeting is so that the organization will commit substantial sums of money, the purchase will affect a long period with potential uncertainty, it will be almost impossible to reverse and it may result in success or failure of the business.Example: Rooms Refurbishment >>>>>>>> show excel slideOperating BudgetThis predicts the Profit and Loss results for the forthcoming period.Advantages – commitment and motivation of managers, sets targets and standards, looks forwards and considers both internal and external factorsDisadvantages – time taken and the cost of this time, may be unexpected events (e.g. volcanic ash clouds, terrorism) that affect later result.The main steps to achieving successful operating budgets are:Planning for attainable goals and objectivesComparing actual to budget and analyzing the differencesTaking corrective action if required11
12Fixed Costs and Variable Costs 4/6/2017Fixed Costs and Variable CostsFixed costA cost or expense that will not change as a result of changes in revenue or level of businessVariable costA cost that changes in direct proportion to the revenue or volume of businessFixed costA cost or expense that will not change as a result of changes in revenue or level of businessExample: Cleaning ContractsVariable costA cost that changes in direct proportion to the revenue or volume of businessExamples: Cleaning and Guest SuppliesThen show excel slide to show how it all works….
13Fixed Costs and Variable Costs Payroll 4/6/2017Fixed Costs and Variable Costs PayrollPayroll is an example of fixed and variable costs (the largest cost we control)Depending on Hotel Occ % this needs to be budgeted to flex.However this is one of the costs that needs to be monitored on a day by day basis.Payroll costs can be a combination of fixed and variable. We won’t be focusing on payroll costs today as this could take up the whole day.
14Operating Equipment How much you will use during a period? 4/6/2017Operating EquipmentHow much you will use during a period?How much is the cost to order?How much is the cost to carry the items in inventory?Operating EquipmentHow much you will use during a period?How much is the cost to order?How much is the cost to carry the items in inventory?Then show excel slide to show how it all works….
15The Impact of Inventory on Cash 4/6/2017The Impact of Inventory on CashThe cost of:The itemStoring the itemMoneyThe impact of inventory on cashThe cost of:The itemStoring the itemMoneyThis is where we need to work with Finance (that’s me!) to see if the organization can commit funds to purchase the items as we in Finance need to balance the funds for our cash budget and, occasionally, orders might have to be staggered in order to manage the company’s cash flow.
16TEAMWORK! Financial Success is about teamwork. 4/6/2017TEAMWORK!Financial Success is about teamwork.It is EVERYONE’S responsibility to ensure that the hotel is as profitable as possible and, therefore, meets its financial targets!
17More Information Contact: Arletty Jooron Executive Housekeeper 4/6/2017More InformationTemplates of the Slides are available from the UK HouseKeepers Association.Contact: Arletty JooronExecutive HousekeeperCavalry & Guards ClubTemplates of the Slides are available from the UK HouseKeepers Association.Contact: Arletty JooronExecutive HousekeeperCavalry & Guards Club