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Evaluating Front Office Operations

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Presentation on theme: "Evaluating Front Office Operations"— Presentation transcript:

1 Evaluating Front Office Operations
It is an important management function Without thoroughly doing so, managers will not know whether the planned goals is attained or not Successful FOMs evaluate the results of department activities on a daily, monthly, quarterly and yearly basis The tools that FOMs can use to evaluate the success of front operations include:

2 Evaluating Front Office Operations
The Daily Operations Report Occupancy Ratios Rooms Revenue Analysis The Hotel Income Statement The Rooms Schedule Rooms Division Budget Reports Operating Ratios Ratio Standard

3 The Daily Operations Report
Also known as Manager’s Report / Daily Revenue Report It summarizes the hotel’s financial activities during a 24 hour period It provides a means to reconcile cash, bank accounts, revenue and accounts receivable

4 Occupancy Ratio It measures the success of the front office in selling the hotel's primary product, i.e. GUESTROOMS The following rooms statistics must be gathered to calculate basic occupancy ratios: No. of rooms available for sale No. of rooms sold No. of guests No. of guest per room Net rooms revenue

5 Occupancy Ratio Occupancy Percentage = No. of Rooms Occupied
No. of Rooms Available Multiple Occupancy Ratio = No. of Rooms Occupied by More Than One Guest

6 Occupancy Ratio Average Guests per Room Sold = No. of Guests______
No. of Rooms Sold Average Daily Rate = Total Room Revenue_____ No. of Rooms sold RevPAR (Revenue per Available Room) = Total Room Revenue_______ No. of Available RoomsSold

7 Occupancy Ratio RevPac (Revenue per Available Customer =
Total Revenue______ No. of Guests Average Rate per Guest = Total Room Revenue_____ No. of Rooms Guests

8 Room Revenue Analysis FO staff members are expected to sell rooms at rack rate unless a guest qualifies for an authorized discounted room rate A room rate variance report lists those rooms that have been sold at other than their rack rates This report helps FO mgmt. to review the performance of the FO staff The other way to evaluate the sales effectiveness of the FO staff by FOM is to generate a YIELD STATISTIC

9 Room Revenue Analysis Yield Statistic = Actual Room Revenue____
Yield Statistic is the ratio of actual rooms revenue to potential rooms revenue In other words, it is the amount of room revenue that can be generated if all the rooms in the hotel are sold at rack rate on a given day, month or year Yield Statistic = Actual Room Revenue____ Potential Rooms Revenue

10 The Hotel Income Statement
It provides important financial information about the results of hotel operations for a given period of time that is used by the management to evaluate the overall success of operations It is an important financial indicator of operational success and profitability The hotel income statement relies in part on detailed FO information that is supplied through the room schedule

11 The Hotel Income Statement
The amount of income generated by the rooms division is determined by subtracting payroll and related expenses Revenue generated by the rooms division is usually the largest single amount produced by revenue center with in a hotel

12 The Rooms Schedule The hotels statement of income shows only summary information The separate department income statement prepared by each revenue center provide more detail Departmental income statements are called ‘Schedules’ and are referenced on the hotel’s statement of income

13 Rooms Division Budget Report
Hotel’s accounting division prepares monthly budget reports that compare actual revenue and expense figures with budgeted amounts It helps in evaluating front office operations whether it is favorable or unfavorable A typical budget report format should include both monthly variances and year to date variances for all budget items

14 Rooms Division Budget Report
Favorable Variance: Revenue: Actual exceeds budget Expenses: Budget exceeds actual Unfavorable Variance: Revenue: Budget exceeds actual Expenses: Actual exceeds budget For e.g. the actual amount of salaries and wages for Room Division personnel for a given month was $20, 826, while the budgeted amount was $18, 821

15 Rooms Division Budget Report
It resulted in an unfavorable balance of $2,005 Percentage variances alone can also be deceiving Any budgeting process is unlikely to be perfect So FOM should analyze only significant variances and take action GM and Controller normally provides criteria and determines which variances are significant

16 Operating Ratios It assists managers in evaluating the success of front office operations Payroll and related expenses tends to be the largest single expenses for the entire hotel For control, labor costs must be analyzed on a departmental basis Room sales fluctuates but payroll and related expenses relatively remains constant Hence any differences between actual and budgeted labor cost percentages must be carefully investigated

17 Ratio Standards Operating ratios are meaningful when compared against useful criteria such as: Planed ratio goals Corresponding historical ratios Industry averages Ratio standards are only indicators and not solution When ratios vary significantly form planned goals, previous results, or industrial averages, they indicate that problem may exist More analysis and investigations are necessary to determine appropriate corrective actions

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