1. BUDGET
Unit VI

2. Characteristics of a budget
A good budget is characterized by the following:
· Participation: involve as many people as possible in drawing up a budget. · Comprehensiveness: embrace the whole organization. · Standards: base it on established standards of performance. · Flexibility: allow for changing circumstances. · Feedback: constantly monitor performance. · Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres.

3. A budget is a financial plan for a business, prepared in advance.
WHAT IS A BUDGET?
A budget is a financial plan for a business, prepared in advance.
A budget is a document that translates plans into money - money that will need to be spent to get your planned activities done (expenditure) and money that will need to be generated to cover the costs of getting the work done (income). It is an estimate, or informed guess about what you will need in monetary terms to do.

4. Why budget?
The budget is an essential management tool. Without a budget, you are like a pilot navigating in the dark without instruments.
The budget tells you how much money you need to carry out your activities.
The budget forces you to be rigorous in thinking through the implications of your activity planning. There are times when the realities of the budgeting process force you to rethink your action plans.
Used properly, the budget tells you when you will need certain amounts of money to carry out your activities.
The budget enables you to monitor your income and expenditure and identify any problems.
The budget is a basis for financial accountability and transparency. When everyone can see how much should have been spent and received, they can ask informed questions about discrepancies.

5. Who should be involved in budgeting?
Budgeting is a difficult and responsible job. Your organization’s ability to do what it has planned to do and to survive financially depends on the budgeting process. Whoever does the budgeting must:
Understand the values, strategy and plans of the organization or project;
Understand what it means to be cost effective and cost efficient
Understand what is involved in generating and raising funds.

6. BUDGETARY CONTROL
Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:
"The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision".

7. Budgetary control and responsibility centres
These enable managers to monitor organizational functions.
A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit.
There are four types of responsibility centres:
a) Revenue centres
b) Expense centres
c) Profit centres
d) Investment centres

8. OBJECTIVES OF BUDGETARY CONTROL
Planning
Communication
Coordination
Motivation
Control
Approved Plan

9. BENEFITS OF BUDGETS AND BUDGETARY CONTROL
the budget assists planning
the budget communicates and co-ordinates
the budget helps with decision-making
the budget can be used to monitor and control
the budget can be used to motivate

10. LIMITATIONS OF BUDGETS AND BUDGETARY CONTROL
The benefit of the budget must exceed the cost
Budget information may not be accurate
The budget may de-motivate
Budgets may lead to dis-functional management
Budgets may be set at too low a level

11. Heritage Institute of Hotel And Tourism
ESTIMATING EXPENSES
Room’s division expenses are basically payroll and related expenses, laundry of room linen and bathroom provisions, guest supplies, commissions and reservation expenses, and other expenses.
Heritage Institute of Hotel And Tourism

12. ESTIMATING EXPENSES
Pay roll and related expenses = Forecasted Rooms Revenue X Average expense percentage
Room linen laundry, guest supplies Etc. expenses = Forecasted Rooms Revenue X Average expense percentage
Commissions and Payroll expenses = Forecasted Rooms Revenue X Average expense percentage
Other Expenses = Forecasted Rooms Revenue X Average expense percentage

13. Revenue Management Methods
Capacity management: Balances risks of overbooking against potential loss of revenue from reservation cancellations, early departures, and no-shows.
Discount allocation: Restricts time period and product mix (rooms) available at reduced or discounted rates
Duration control: Places time constraints on accepting reservations in order to protect rooms for multi-day reservations (which represent higher levels of revenue)

14. Revenue Management Formulas
Formula 1: Potential average single rate
Formula 2: Potential average double rate
Formula 3: Multiple occupancy percentage
Formula 4: Rate spread
Formula 5: Potential average rate
Formula 6: Room rate achievement factor
Formula 7: Yield statistic

15. Revenue Management Formulas
Formula 8: Rev PAR
Formula 9: Identical yields
Formula 10: Equivalent occupancy
Formula 11: Required non-room revenue per guest
Rev PAG
GOPPAR
Heritage Institute of Hotel And Tourism

16. Yield Statistic Formulas
Actual Rooms Revenue
Potential Rooms Revenue
Formula #2
Room Nights Sold Actual Average Room Rate
___________________ X _______________________
Room Nights Available Potential Average Rate
Formula #3
Occupancy Percentage  Room Rate Achievement Factor

17. Occupancy Percentage  Average Daily Rate
Rev PAR Formulas
Formula #1
Actual Room Revenue
Available Rooms
Formula #2
Occupancy Percentage  Average Daily Rate

18. Elements of Revenue Management Strategies
Group room sales
Transient room sales
Other revenue opportunities
Local and area-wide activities
Special events
Fair market share forecasting

19. Revenue Management Meeting Participants
General manager
Sales managers
Catering managers
Reservations manager
Front office manager
Food and beverage manager

20. High-Demand Tactics Close or restrict discounts
Apply minimum length of stay restrictions carefully
Reduce group room allocations
Reduce or eliminate 6 p.m. holds
Tighten guarantee and cancellation policies
Raise rates to be consistent with competitors
Consider a rate raise for packages
Apply full price to suites and executive rooms
Select dates that are to be closed-to-arrivals
Evaluate the benefits of sell-throughs
Apply deposits and guarantees to last night of stay

21. Low-Demand Tactics Sell value and benefits Offer packages
Keep discount categories open
Encourage upgrades
Offer stay-sensitive price incentives
Remove stay restrictions
Involve your staff
Establish relationships with competitors
Lower rates

22. Four Revenue Management Tactics
Hurdle rate
Minimum length of stay
Close to arrival
Sell-through

23. Revenue Management Software
Revenue management software provides:
Continuous monitoring
Consistency
Information availability
Performance tracking
Special reports