1. Chapter 2 The Control Process Principles of Food, Beverage, and Labour Cost Controls, Canadian Edition

2. Learning Objectives After reading this chapter, you should be able to: 2.1 Define control and provide examples of its significance in food and beverage management. 2.2 List the four steps in the control process in food and beverage operations, and pinpoint responsibility for control. 2.3 Cite eight control techniques used in food and beverage operations. 2.4 Describe the steps involved in preparing an operating budget, and prepare a budget given fixed and variable costs for a restaurant. 2.5 Explain why the cost–benefit ratio is significant when making control decisions. 2.6 Identify what to consider when deciding whether to make a product in-house or to outsource.

3. Important Control Definitions Control: Process to direct, regulate and restrain the actions of people so that the established goals of an enterprise may be achieved Cost Control: Process used to regulate costs and guard against excessive costs Standards: Rules or measures established for making comparisons and judgments Standard cost: Cost of goods and services identified, approved and accepted by management

4. Important Control Definitions Standard procedures: Established as the correct methods, routines and techniques for day-to-day operations Budget: Realistic expression of management’s goals and objectives expressed in financial terms Control system: Collection of interrelated and interdependent control techniques and procedures

5. Steps in the Control Process 1.Establish standards and standard procedures for operation. 2.Train all individuals to follow established standards and standard procedures. 3.Monitor performance and compare actual performances with established standards. 4.Take appropriate action to correct deviations from standards.

6. Control Techniques 1.Establishing standards 2.Establishing procedures 3.Training 4.Setting examples 5.Observing and correcting employee actions 6.Requiring records and reports 7.Disciplining employees 8.Preparing and following budgets

7. The Budget The operating budget will detail the operational direction and your expected financial results. The operating budget may be broken down into periods, if costs and sales do not meet targets, Identify causes Take remedial action Consider a flexible budget

8. The Budget Just as the income statement tells you about your past performance, the budget is developed to help you achieve your future goals. Budgeted Revenue - Budgeted Expense = Budgeted Profit

9. The Budget To prepare the budget and stay within it, assures you predetermined profit levels. The effective foodservice operator builds a flexible budget, monitors it closely, modifies it when necessary, and achieves the desired results.

10. Developing the Budget To establish any type of budget, have the following information available: 1.Prior period operating results 2.Examine the external environment to assess any conditions that could affect sales volume in future 3.Review any planned changes in the operation that would affect sales volume 4.Determine the nature and extent of changes in cost levels 5.Have the projections for sales, costs and profits approved by management

11. Monitoring the Budget In general, the budget should be monitored in each of the following three areas: 1.Sales 2.Expense 3.Profit

12. Monitoring the Budget As business conditions change, changes in the budget are to be expected. This is because budgets are based on a specific set of assumptions, and as these assumptions change, so too does the budget that follows from the assumptions.

13. Monitoring the Budget Budgeted profit must be realized if the operation is to provide adequate returns for owner and investor. The primary goal of management is to generate the profits necessary for the successful continuation of the business. Budgeting for these profits is a fundamental step in the process.

14. Cost/Benefit Ratio The cost/benefit ratio is the relationship between the costs incurred in instituting and maintaining a control system, and the benefits or savings derived by doing so. Benefits must always exceed costs. Before instituting any new procedures for control, management should first determine that the anticipated savings will be greater than the cost of the new procedures.

15. In-House or Outsource Consider quality standards Reliability and service of distributor Compare true cost of house-preparation Raw ingredients Labour Skilled staff Utility and energy Customer satisfaction Staff morale

16. Key Terms Budget, p. 52 Control process, p. 42 Control system, p. 58 Control, p. 40 Cost control, p. 42 Cost–benefit ratio, p. 61 Flexible budget, p. 58 Make in-house versus outsource determination, p. 63 Operating budget, p. 52 Procedures, p. 48 Quality standards, p. 46 Quantity standards, p. 47 Sales control, p. 43 Standard cost, p. 47 Standard procedures, p. 48 Standards, p. 46 Static budget, p. 54 Training, p. 49

17. Chapter Web Links Food Cost Control: http://foodcostcontrol.blogspot.com/http://foodcostcontrol.blogspot.com/ BNET Cost Control resources: http://resources.bnet.com/topic/cost+control.html http://resources.bnet.com/topic/cost+control.html

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