Unit –1

MANAGEMENT
FUNCIONS
The management process

Initial activities Pre-operating activities Operating activities

Appraisal activities

Organising
Leading
Planning Evaluation
Coordinating
Controling
Staffing

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 Change in procedures

Revision in plans

Planning
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Planning refers to both the organizational process of creating and
maintaining a plan; and the psychological process of thinking about the
activities required to create a desired goal on some scale. As such, it is a
fundamental property of intelligent behavior. This thought process is
essential to the creation and refinement of a plan, or integration of it
with other plans, that is, it combines forecasting of developments with
the preparation of scenarios of how to react to them. An important,
albeit often ignored aspect of planning, is the relationship it holds
with forecasting. Forecasting can be described as predicting what the
future will look like, whereas planning predicts what the future should
look like.

Planning in front office is a process for accomplishing purposes. It is a

blue print of business growth and a road map of development. It helps in
deciding objectives both in quantitative and qualitative terms. It is setting
of goals on the basis of objectives and keeping in the resources.

It is the most important of all managerial functions. Without planning

Front Office would be chaotic. Without the direction and focus planning
provides the FOM will become overly involved with tasks that are
unrelated or inconsistent with the department’s goals.

What should a plan be?

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A plan should be a realistic view of the expectations. Depending upon the
activities, a plan can be long range, intermediate range or short range. It
is the framework within which it must operate. For management seeking
external support, the plan is the most important document and key to
growth. Preparation of a comprehensive plan will not guarantee success,
but lack of a sound plan will almost certainly ensure failure.
Planning - a result-oriented process - can be summarized in 3 easy steps:
1. Choosing a destination,
2. Evaluating alternative routes, and
3. Deciding the specific course of your plan.

Purpose of a plan
Just as no two hotels are alike, so also their plans. It is therefore
important to prepare a plan keeping in view the necessities of the hotel.
A plan is an important aspect of business. It serves the following three
critical functions:

 Helps management to clarify, focus, and research their hotel’s

development and prospects.
 Provides a considered and logical framework within which a
hotel can develop and pursue business strategies over the next
three to five years.
 Offers a benchmark against which actual performance can be
measured and reviewed.

Planning teams have to determine which concepts produced in a

brainstorming session Warrant further consideration. This task is not
always easy, but if the team refers to stated
Goals and objectives, then the job is much simpler. In this case, the
overall purpose of the Program would be to maximize sales by the front
office staff of front office, food and Beverage department, gift shop, and
health facilities products and services. The team must decide which area
or areas would be most profitable. During the brainstorming part of
planning for a point-of-sale front office, the team should also consider
supporting concepts that will play an important part in the success of a

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sales program—incentives. The point-of-sale plan should include an
incentive program,
Which entails understanding employees’ motivational concerns and
developing opportunities for employees to achieve their goals? This will
encourage cooperation among the frontline employees who will
implement the point-of-sale plan. The front office manager is responsible
for determining how each employee is motivated. Many motivational
strategies require a financial commitment by management. These costs
must be included as a budget line item. When the owner can see
additional
Sales being created as a result of these programs, the idea of sharing
some of the profit is more acceptable.
Motivation, understanding employee needs and desires and developing a
framework for meeting them, is an essential part of developing a point-
of-sale front office. The question Becomes, How does a front office
manager discover what employees want?

In a nut shell

At the planning stage, the front office manager shall determine the
department’s goals. Later, the front office manager shall use these goals
as a guide for planning more specific and measurable objectives. Lastly,
the front office manager shall determine the strategies and tactics to
reach these objectives.

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 Planning tool

VISION

MISSION STATEMENT

LONG RANGE PLAN

BUSINESS PLAN

MARKETING PLAN OPERATING BUDGET

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 Vision

Vision: outlines what the organization wants to be, or how it wants the
world in which it operates to be (an "idealized" view of the world). It is a
long-term view and concentrates on the future. It can be emotive and is a
source of inspiration.

For Example, The vision of a business hotel may be to be the best hotel
for business travelers in Bangalore . To provide comfort as well as all
business related facilities and to build a name and a brand in India

Mission

Defines the fundamental purpose of an organization or an enterprise,

succinctly describing why it exists and what it does to achieve its vision.

For Example: The mission statement of a business hotel may be to meet

the needs of the business traveler by providing desired products and
services (sleeping and meeting rooms, food and beverage) and a business
center.

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 Mission of the Front office Department

 To establish and maintain the standards of quality within the

department
 To implement hotel policies
 To have all material required to administer department for maximum
profits
 To achieve recognition for the finest and personnel and guest services
available
 To provide consistent and ongoing training for all employees
 To provide each arriving and departing guest the opportunity to obtain
assistance with their luggage and transportation and ensure their
predetermined rooming procedures on a consistent basis.
 To display friendly and courteous service at all times.

Long range plan

These are long term plans made keeping in mind a longer duration of
time.

AN EXAMPLE of a long range plan of a business hotel may be: To obtain

60 % of all business meeting revenues in Bangalore within the next 7
years. To conquer the business market segment and achieve operational
profits double that of the initial 2 years.

Marketing Plan

Marketing strategies adopted by the front office Managers vary from

hotel to hotel, some of the common strategies mostly followed are :

 Reservations is done directly without the help of middlemen like

travel agents
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  Hotel provides prompt service to the enquiries of the customer
mails. Usually the queries are answered within an hour
 The services provided by the housekeeper must be excelled

 80% of the customers are repeated which means there is customer

loyalty to the maximum extent.
 The hotel shall use its perishable capacity 3 times a day for the
purpose of maximizing the revenue.
 Overbooking to be done at 5 %
 Average occupancy rate to be maintained at 60%
 Providing 35-40% discount on off season.

Revenue stratergy

 One to one revenue management to be followed , meaning each

individual will be a market segment in itself.
 Technology will support calculating the total customer Value and
the potential total customer spend, based on history and future
potential from demographics, to determine the rate and what
availibilty to offer to a potential guest.
 Focus on the Revenue per available guest (REV PAG ) and total
customer Value.

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 Model for quality

Focus on guests

Emphasis on quality Guest satisfaction

Top level leadership Increased Revenue

(executive committee)

 Higher rates (value)

 Incremental sales
 Repeat business
 Increased guest
base

Increased competitiveness: higher profit levels

Increased market share

Survival in the market

place

Reduced operating costs

Emphasis on work process Rework is reduced

Improvement Unnecessary work is

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Focus on guest eliminated

3 important Planning functions:

1. Establishing room rates.
2. Forecasting room availability
3. Budgeting for operations

Establishing Room Rates

 Front office will always have more than one rate category for
each of its guest rooms.
 Differences are based on criteria such as room size, location,
view, furnishing and amenities.
 There could be different types of rack rates. For example the
commercial hotels have rack rates based on the no of people in
the room whereas the resorts have same rates for one or two
people.
 Rack rate gets its name form the manual filing system at the
front desk called a “Room Rack” hence the term “Rack Rate”.
 FO employees are expected to sell rooms at rack rate unless he
qualifies for special rates.

Special Rates:
1. Corporate / Commercial rates: The rates offered to companies that
provide frequent business for the hotel or its chain.
2. Group Rate: The rate offered to groups, meetings and conventions
using the hotel for their functions.
3. Promotional rates: The rate offered to individuals who may belong
to an affinity group such as the Automobiles Association of
America. This may also be extended during especially low
occupancy periods to any guest to promote occupancy.
4. Incentive Rate: Rates offered to affiliate industries such the travel
agencies and airlines because of potential referral business.
5. Family Rate: The rate reserved for families with children.
6. Package plan rate: A rate that includes a room in combination with
other events or activities such as breakfast, golf, sightseeing etc.

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 7. Complimentary rooms: A rate provided to special guests or
important industry leaders. It means the guest will not be charged
for the room during the stay however he/she might have to pay for
the extras such as the telephone, dining etc.

Sales of the rooms at special rates are rigidly controlled as it may affect
the ARR and the room revenue.
Some guidelines to be implemented by the FOM:
 Ensure FO staff adheres to the prescribed policies.
 They should be explained the circumstances under which these
rates can be given.
 Obtain roper approval when applying a special room rate Eg.
Complimentary room.
 Should consider factors such as operating costs, inflationary
factors and competition.
Establishing rack rates for room types, determining discount categories
and special rates are major managerial functions.
Room rates serve as market positioning statement since they directly
reflect service expectations to the hotel’s target market.
Room rate positioning is critical to a hotel’s success.

Pricing strategy

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 What is Price?
Price is the summation of all sacrifices made by a consumer in order to
experience the benefits of the products.
Pricing Objectives:
Objectives are what we want to accomplish. Without them it is hard to
where we are going or how we are going to get there.
Pricing Objectives can be divided into 3 categories. The first is Profit
Oriented Pricing Objective. This is established in order to attain a certain
targeted profit or to generate the maximum profit. In the former target
profits are expressed as a percentage returns on investments or sales.
The Hubbart formula which is applied in the hotel business is a typical
application. In case of profit maximization the firm sets the price that will
give the maximum profit. Yield management responds to this objective.
The second category is of Sales Oriented Pricing Objectives focusing on
sales volumes and/or larger market share and not so much on profits.
Needless to say this is not without danger. Sales oriented pricing can fit
into competitive strategy on a firm. An example is low cost carriers.
Last but not the least is Status Que-Oriented Pricing Objectives, where
the position related to the competitors is the main target. This can be
called competitive pricing. A firm tries to match its competitor’s price
closely. This is the follow the leader approach.

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 Pricing Approaches:
Before dealing with few of the most popular methods of pricing let us
start with the distinction made by Morrison (1989) between
unsophisticated, sophisticated and multistage approach. We limit
ourselves to an overview.
Unsophisticated approaches are made on not so much on research or
costs but more on the intuition of the entrepreneur. Morrison mentions 4
such approaches:
1. The Competitive Approach: Here the firm sets prices based on the
competitors’ prices.
The approach is also called as the Common Sense Approach.
Management looks at comparable hotels and see what they are
charging for the same product. These properties are often called as
the “competitive-set”. Usually they comprise of 6-10 properties in a
market that are most important competition for a property. The
competition is based on Location, Property ratings, Property Type,
Brand Identification etc. The thought behind this approach is that
the hotel can charge only what the market will accept, and this is
usually dictated by the competition. This information is available
through various public domain sources, including a periodic ‘Blind-
Call’ to competing hotels.
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 The Blind call does not identify the hotel making the call and simply
asks for availability and rates on specific days.
Market Condition would be determined by:
 How does the product rates compare to those in the
competition
 Are the rates higher or lower than competing hotels
 How are the rates affecting revenue and the business share in
the market
 What is the occupancy percentage of the hotel and what is
the occupancy percentage of the competing set
 Trends that have emerged during the last six months of study.
Problems with this approach
 If the property is new, construction cost will most likely be
higher than those of the competition
 The value of the property is not taken into consideration.
With the property being new and perhaps having newer
amenities, the value of the property to guests can be greater
The Market Condition Approach is really a marketing approach
which allows the hotel market to determine the rate. It may not
take fully into account what a strong sale effort may accomplish. It
can in effect, allow the competition to determine the rates and this
could significantly affect the profitability of a hotel’s operation.

2. The Rule-of-Thumb or Traditional Approach: there are two well-

known rule-of-thumb approaches. The first concern the hotel
sector, where it is believe that $ 1 should be charged per $ 1000
investment cost at 70% occupancy. In other words a hotel
investment of $ 100000 per room should have a room rate of $ 100.
The second concern the restaurant sector, where multiplying the
food cost of a particular dish by a factor 2.5 is still common
practice. Tax inspectors might sometime apply this rule.
Problems:
 The emphasis placed on the hotel’s construction cost fails to
consider the effects of inflation and increased costs of labour,
furnishings and supplies.
E.g. A well maintained hotel worth $ 100,000 per room today
may have been constructed ay $ 20,000 per room 40 years
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 ago. $ 1 per $ 1000approach would suggest on average selling
price of $ 20 per room, however much higher rate would be
more appropriate.
 The rule of thumb approach to pricing of room also fails to
consider the contribution of other facilities towards the
hotel’s desired profitability.
E.g. Guest pays for services such as food, beverage, telephone
and laundry. If these services are there than the hotel might
have less pressure to charge higher room rates
 This approach also doesn’t consider the occupancy level of
the hotel. This approach assumes 70% occupancy when
determining the ARR. However if a lower Occupancy % is
expected, the hotel will have to capture a higher ARR to
generate the same amount of Room Revenue.

Solution: for the above problems, the management might

consider the current replacement cost of the hotel, rather
than its original construction and furnishing cost.
Another way of accounting for inflation would be to index
current costs against original costs. E.g. Hotel built 5 years ago
and inflation has increased at an annual rate of 3%, the $1 for
every $ 1000five years ago would require $ 1.16 per $ 1000
today.

All these approaches are based on little or at most one factor and
do not consider the cost / profit structure of the firm and neglect
the customers’ expectations.
Sophisticated approaches take more factors into account. Morrison
(1989) refers to the following methods:

Pricing Methods:
The Bottom Up Approach
This approach was formerly known as the Hubbart formula and was
introduced in the United States in the 1950s. It is known as the bottom-
up approach because, contrary what we do in normal accounting
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practice, we first decide how much profit is required (return on
investment) and then determine the expenses for the following period
(usually one year).

The Hubbart formula can be summed up as:

Operating Costs + required return – income expense of other

departments ----------------------------------------------------
---------------------- = ARR Expected number of room
nights

The steps are best described as follows:

1. Calculate the total amount invested in the hotel.
2. Decide on the required annual rate of return on the investment
(this may be a percentage of the amount invested)
3. Estimate the overhead expenses.
4. Combine 2 and 3 to find the required gross operating income.
5. Estimate the probable profits from all other sources (i.e.
Restaurants, bars etc)
6. Deduct 5 from 4 to find out how much profit you need to make
from room lettings.
7. Estimate accommodation department’s expenses (include fixed and
variable costs based on the occupancy forecasted)
8. Add 6 and 7 to find out how much you need to make from the
rooms.
9. Estimate the number of room nights you are likely to achieve per
annum (based on occupancy forecasted)
10. Divide 8 by 9 to find out the average room rate you should
charge.

Example
A hotel company operates a 150-room hotel. The capital invested is
Rs.2,500,000 and the Company is expecting a net profit of 10% after
paying tax at the rate of 50%. We expect an average occupancy rate of
70%. Department expenses are expected to amount to Rs.375,000 and
profits from other departments are expected to be in the region of Rs.
200,000. These are the overhead expenses:

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Administrative and genera 120,000
Advertising and promotion 75,000
Utilities 50,000
Repairs and maintenance 95,000
Depreciation 205,000
Insurance, licenses and local taxes 80,000
Loan Interest 140,000

Step 1: Total Invested in Hotel = Rs. 2,500,000

Step 2: 10% of Rs. 2,500,000 = Rs. 250,000

Tax = Rs. 250,000

Step 3: Overhead expenses = Rs. 765,000

Step 4: The required gross operating income is Rs. 500,000 and

Rs.765,000 is Rs. 1,265,000.

Step 5: Profits from other sources are expected to amount to Rs. 200,000

Step 6: We need total room revenue of Rs. 1,065,000

Step 7: To this amount we need to add Rs. 375,000 which is the

departmental cost.

Step 8: In total we need to make Rs. 1,440,00 from rooms.

Step 9: 150 rooms x 365 days = 54,750 = 100% room occupancy

Therefore = 38,325 = 70% room occupancy

Step 10: Average room rate = Rs. 1,440,000 ÷ 38,325 room nights Rs.
37.57
The Hubbart formula can be used for varying percentages of occupancy.
To do so we would simply need to review Steps 7 to 9.

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 Forecasting room availability

In simple words it is forecasting predicting the number of room available

for sale on any future date. It helps in managing reservations & effective
room management especially when full house.

Advantage of forecast: -
a. Management of reservation.
b. Effective room management.
c. Scheduling of employees in front office.
d. Scheduling of employees in house keeping.
e. Scheduling of employees in Restaurants.
f. For ordering supplies in HK & KITChen.

Information helpful in room availability forecasting: -

1) A thorough knowledge of the hotel & the surrounding areas.
2) Market profile of the hotel services.
3) Occupancy date of the past several months &for the same period
of the previous year.
4) Reservation trends & a history of reservation lead time (how far
advance reservation are made)
5) A listing of special events schedules in the surrounding geographic
area.
6) Business profiles of the specific groups booked for the forecasted
dates.
7) The number of non-guaranteed & guaranteed reservation
&estimate of number of no-show.
8) The percentage of rooms already reserved &the ‘cut off date’ for
rooms’ blocks held for the forecasted dates.
9) The impact of city wide or multi hotel groups &then potential
influence on the forecast dates.
10) Plans for remodeling or renovating the hotels that would change
the number of available rooms.
11) Construction or renovation plans for competition hotel in the
area.

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Why forecast rooms?
 To determine the projected income & related expenses &then effect
on profit & house statistics.
 F&B, HK, Engg rely upon the house count for scheduling staff, using
facilities, planning, renovations, ordering supplies, etc.
 Revenue in terms of cash flow into the hotel.
 Forecasting data are important because they are used in calculating
various daily operating ratios that help determine the number of
rooms available for sale.

A) Percentage of no-show: - The proportion of reserved rooms that the

expected guests, did not arrive to occupancy on the expected date of
arrival. This ration helps us to decide when to sell rooms to walk-in
guests.

% of no-show = Number of rooms of no show * 100

Number of rooms reserved

They may be measured in relation to various different types of

reservation & based on business mix for a better occupancy in
forecast.
How to control no- show?
a) Advance deposits.
b) Calling guest before arrival date/time.
c) Over booking rooms (FOM decides this factor).
d) Sources of booking rooms should be as per management policies.

B) Percentage of walk-in. It is calculated = Number of room walk-in *

100
_________________________________
Total Number of room arrival

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 Walk-in offer better ratio than those with reservation.
Walk-in guest sales improves both occupancy, room revenue &
Better relations with nearby properties help to set this benefit.

C) Percentage of over-stay: Rooms occupied by guests who stay beyond

The originally scheduled departure dates.
Percentage of overstay = Number of over-stay rooms * 100
Number of expected departure

How to regulate over-stay?

Confirm/reconfirm each guest’s departure date at registration. Some
guests may already know of a change in plans or a mistake may have
been made in the original processing of the reservation.

Note: that overstay are a problem if specific rooms e.g. Suites are blocked
for arriving guests.

D) Percentage of under-stays. Rooms occupied by guest who checkout

before their scheduled departure dates.

Percentage of Under-stay = Number of under-stay * 100

Number of expected departure
Note: it becomes difficult to sell vacant rooms, which subsequently result
in loss of room revenue.

How to regulate under-stay?

Confirm/reconfirm each guest’s departure date at registration. Some
guests may already know of a change in plans or a mistake may have
been made in the original processing of the reservation.

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A. Forecast formula
Number of rooms available for sale =
Total number of rooms
-Number of out of order rooms
-Number of stay-over
-Number of reservations
+Number of room reservations*No-show factor (% of no-
show)
+Number of room under-stays
-Number of room over-stays

B. Sample forecast forms

Different forecasts are prepared for different purpose:
I. Monthly forecasts- Reviewed by FOM, F&B Mgrs, to forecast
revenues, project expenses & to develop staff schedule.
II. Ten-day forecasts- this consists of (jointly prepared by FOM &
reservations manager.
a) Daily forecasted occupancy figures, which include room
arrival, room departure, rooms sold & number of guests.
b) Number of group commitment, with a listing of each group’s
name, arrival & departure dates, number of rooms reserved,
number of guests & also the quoted room rates (CVGR) or
group rate.
c) A comparison of previous periods forecasted & actual room
count & occupancy percentage.
It may also be prepared by F&B/ other departments. The forecast should
be distributed to all the departments concerned to help them plan their
staffing for the said period.
The FO manager & the reservation manager jointly develop the 10-
day forecast, at most hotels, possibly in conjunction with a forecast
committee. Many properties develop their 10-day forecast from their
yearly forecast. A 10-day forecast usually consists of:

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  Daily forecasted occupancy figures including room arrivals, room
departures, rooms sold & no. Of guests
 The no. Of group commitments with a listing of each groups
name, arrival & departure dates, no. Of rooms reserved, no. Of
guests & perhaps quoted room rates.
 A comparison on previous periods forecasted & actual room
counts & occupancy percentages.
A special 10-day forecast may also be prepared for F&B, banquets &
catering operations. This forecast usually includes the expected no. Of
guests which is often referred to as the house count. Sometimes the
house count is divided into Group & Non Group categories so that the
hotel’s restaurant managers can better understand the nature of their
business & their staffing needs.
It helps various hotel depts. Plan their staffing & payroll levels for
the upcoming period. The 10-day forecast should be completed &
distributed to all dept offices by midweek for the coming period. This
forecast can be especially helpful to the HK dept. A 10-day forecast form
is developed from data collected through several FO sources.
First, the current no. Of occupied rooms is reviewed. The estimated
no. Of overstays & expected departures are noted.
Next, relevant reservation information is evaluated for each room
by date of arrival, length of stay & date of departure. These counts are
then reconciled with reservation control data. Then the actual counts are
adjusted to reflect the projected occupancy percentage of No shows,
anticipated understays & expected walk-ins. These projections are based
on the hotel’s recent history, the seasonality of it’s business & the known
history of specific groups scheduled to arrive.
Finally conventions & other groups are listed on the forecast to
alert various dept managers to possible periods of heavy/light check-in
check-outs. The no of rooms assigned to each group may also be noted
on the sheet.

How to go about it?

1. Review the current room occupancy.
2. Note the estimated number of under-stay &over-stay.

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 3. Evaluate relevant reservation information for each room & guest
(date of arrival, date of departure, etc.)
4. Adjust actual counts based on projected percentage of no-show,
anticipated under-stay & expected walk-in.
5. List conventions, groups, to alert everyone concerned.

III. Three day forecast- It is updated reports that reflect a more current
estimate of rooms’ availability. It details any changes from the 10-day
forecast. It is intended to guide management in fine-tuning its plans.
A 3-day forecast is an updated report that reflects a more current
estimate of room availability. It details any significant changes from the
10-day forecast. The 3-day forecast is indented to guide management in
fine tuning labour schedules & adjusting room availability information. In
some hotels, a brief daily revenue meeting is held to focus on occupancy
& rate changes for the next few days. The result of this meeting is often
included in the 3-day forecast.

A 3-day forecast is an updated report that reflects a more current

estimate of room availability. It details any significant changes from
the 10-day forecast. The 3-day forecast is indented to guide
management in fine tuning labour schedules & adjusting room
availability information. In some hotels, a brief daily revenue meeting
is held to focus on occupancy & rate changes for the next few days.
The result of this meeting is often included in the 3-day forecast.

CHECKLIST FOR REVISING FORECAST

 List all group bookings & transient reservations on the books.

 Examine arrivals, departures & group information for given period.
 Determine if demand for the particular period is high or low.
 Chart the peaks & values on the graph to better identify high/low
demand.
 Have sales agents call competing properties for rates & consider
adjusting your rates.
 Make decisions to maximize revenue during each time period.

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Room count considerations
It is important to know exactly how many rooms are available for sale for
a hotel to operate near 100% occupancy.
Once procedure for gathering room count information is established
planning procedure can be extended to longer periods of time to form a
more reliable basis for revenue, expense & labor forecasting.
And with the advent of computerization, most hotels have their room
inventory on the property management system, which automatically
accomplishes various tasks.

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