Student Handout

Food & Beverage Cost Control

In Food &Beverage operations, the control system and control procedures consist of three phases.
These phases are:
1. Planning Phase
2. Operational Phase.
3. Post event control Phase or Management after the event Phase.
The Food &Beverage control cycle may be schematically shown as follows:

Planning Phase Financial Policies Marketing

Polices
(Set by Senior Management)

Catering Policy

Continuous Feedback
Operational Phase Purchasing
(Controlled by middle level
Management/ Supervisors) Receiving

Storing & Issuing

Production

Selling

Management after Management control

The event Phase after the Event
(F&B Control Dept)

Planning Phase:
In order to efficiently run an F&B Operation, it is crucial to first define and write down the basic
policies with ref. to Handling Finance, Marketing and Production or Catering activity. Policies are
guidelines designed by senior management which outlines all important issues which help run an
operation. For example, the policies will outline market segment to focus upon, range of products to
offer to target client, level of profits to be earned etc. Each catering operation will have its unique
policies which will vary from other similar operations. Policies must be clearly defined before any
commercial activity is initiated and must be flexible to accommodate any major changes in the
business. They must be reviewed regularly in relation to current business and immerging or future
trends in the market.
The Financial Policy determines the profit levels to be achieved, subsidy or the cost levels to be
maintained in the operation as a whole and the contribution to the total profits, subsidy or cost levels
by individual units of the business. At the unit level, profitability levels and the cost levels will be
determined for the departments and them for the different sections within the department. In a
commercial hotel, the financial policy will determine the overall profit targets of the operation along
with the cost limits. Since the performance of the Hotel will be governed and determined by
different depts., the targeted profits and the cost will be divided among the major depts. like
Accommodations, Food and Beverage, etc. In the F&B dept.the departmental profit and cost targets
will be apportioned to Restaurant, Coffee shop, Bar, Banquets etc. The F&B outlets are given daily
sales targets as well as cost targets so that desired profitability targets may be realised on a
daily/monthly basis. In subsidized operations, the concern will be on cost or subsidy limits as
generating profits is not a concern but performing within the given cost budget is the objective. Thus
in a welfare catering operation, the focus is on subsidy, management fees and cost per meal.
The Marketing Policy tends to identify the general or broad market for the operation and within the
broad market, the section which it wants to focus upon. Understanding consumer’s needs is vital and
since consumer needs will not remain constant, the marketing policy must address their future needs
as well. The policy will focus upon creating awareness and inquisitiveness about the operation
through predetermined promotions as applicable in the area where located. Breaking down of
general market into specific segments will identify the nature and type of product (Restaurant, coffee
shop, function catering etc) to be offered in the operation. The marketing policy of a hotel or a
classic restaurant will give rise to a market plan having specific objectives like:
1. To create a image or identity by unique design, service procedure, product, quality standards and
meeting customer expectations.
2. To identify the profile of the customer which will help achieve organizational objectives. This
will include consideration to age, income level, profession, travelers etc.
3. To achieve a definite market share and to increase the same.
4. To achieve sales turnover by a certain percentage over the previous fiscal.
5. To generate higher percentage of profits over the previous fiscal.
6. To establish level for average spending by guest and to increase it by definite percentage over the
previous year.
7. Maintain the quality of the product.
8. To achieve customer satisfaction and customer loyalty at all times.
The Catering Policy defines the major objective of running the F&B operations and provides
methods to achieve the objectives. Following are the important considerations of a catering policy:
1. Profile of the customer who will use the catering facility like family, business executives, high
spending individuals, foreigner travelers, shoppers, patients etc.
2. The type of menu to be offered.
3. Provision of Beverages.
4. The quality standard of the food items on offer.
5. Purchasing methods
6. Style of service
7. Degree of comfort and décor
8. Operational timings.
The Operational Phase
This phase comprises of day to day control activities in various stages of production activity and
sales which will be initiated depending upon the directives in the policies. In this phase interpretation
of policies into day to day control activities are governed. The operational phase is further split-up
into following:

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Purchasing
This stage will lay emphasis upon the following issues:
A) Product Testing: To evaluate products through a series of sensory evaluation and to select
products for listing on menu.
B) Yield Testing: This activity involves determination of yield obtainable from all major food items.
The ingredients undergo some amount of pre preparation losses and cooking losses and the
obtainable yield will always be lesser than actual quantity purchased.
C) Purchase Specification: Specifications are concise descriptions of particular food or beverage
items in terms of their weight, color, size, dimensions, brand or quality.
D) Buying Methods: To identify the possible methods of buying the ingredients, Cash & Carry,
Contract purchase, Hedging etc.
E) Documentation: It is important to assign the responsibility of creating the order of requirement,
its approval or sanction, place the order with the supplier, maintain relevant documents and
formats, to an individual.
Receiving
This stage is important from the point of view of F&B controls and will concern itself with activities
concerning acceptance of material purchased as per the standards and quantity ordered. It will
involve the following:
A) Inspection of material: Physical inspection of all the material purchased by the organization by a
person through counting, weighing. The delivery is matched with the purchase order in terms of
size, shape, color, quantity, boxes etc. Shortages must be informed to the departmental heads.
B) Quality Inspection: Quality of perishable and non perishable commodity is done by an expert/
chef/ head cellar man or representative of quality control Dept. purchase Specifications may be
used for checking the quality of a product purchased.
C) Documentation: Acknowledgement of receipt, preparation of credit note for returned goods and
short deliveries with the signature of the delivery person. The documents must be carefully
maintained.
Stores and Issues
This stage will deal with following:
A) Maintain Stock Records: Maintain relevant record of stock like stock ledger, Receipt Book,
Cardex etc.
B) Pricing of Issues: The material issued from the store must be priced so that consistency in the
operation may be achieved. This may be done by following Actual pricing method, Average
price method, weighted average price method or Standard price method.
C) Stocking Taking: This activity involves control of level of stocks to be held, rate of Inventory
turnover, discrepancies, sow moving items etc.
D) Documentation: Maintain stock records, requisitions, Bin Cards, stocktaking reports etc.
Preparing
This is a critical activity and requires a lot of planning and organizing. The production activity needs
focus upon the following:
A) Volume Forecasting: This is a management tool to predict number of customers using the facility
on a particular day. This also involves prediction of what menu items or beverages will be in
demand.
B) Pre costing: This involves control on food and beverage cost before production or service
activity through use of standard recipes and portion control equipment.

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 C) Documentation: Maintain recipes files, Standard recipes, sales records, sales analysis record etc.
how the information will be utilized and distributed is determined at this stage.
Sales:
This stage will deal with following:
A) Check System: The check system should be able to control on the numbers of covers sold, sale of
food items In terms of no’s of dished sold, ASP etc. This is done thru implementation of waiters
check system, sales summery etc.
B) Control of Cash: It is important to ensure that the food or beverage items sold to the customers
have been charged for as the billing instructions. The cash sales and the credit sales should tally
with the price of goods sold during a trading period. Discounts offered, complimentaries should
be as per the instructions from the control dept.
C) Documentation: It is necessary to keep records of guest checks (KOT/BOT), Guest bills, Sales
summery, Cash Sheets etc to ensure income or revenues are controlled.
Management control after the Event phase
This is the final stage of the F&B controls and will involve compilation and generation of statements
concerning costs, sales, profitability etc. The control is executed in three stages:
A) Reporting of F&B Costs: Uncertainty of sales, short cycle of catering operation and perishibility
of product makes it necessary for estimation of costs daily, especially in large catering
operations, or weekly for a smaller operation.
B) Evaluation or Assessment of reports: The data generated in the reports needs to compared with
the budgets set by the management and with the performance figures of the same trading period
last year. This allows determination of deviations from the expected performance in terms of cost
levels and sales levels.
C) Initiation of corrective action: The deviations, as highlighted in the MIS, may then be addressed
immediately by the management for corrective actions so that problems are solved at the earliest
and losses minimised. The control system will only point out the problems but will fail to rectify
them on its own. It needs management attention to determine ways to tackle or solve the problem
highlighted.

Questions for self evaluation

1. Explain what you understand by F&B Control.
2. Explain the basic policies which lay the basis for an effective control system.
3. Why it is not possible to design or finalise the Catering or the Production Policy before the financial
policy?
4. What is the impact of financial policy and the Marketing Policy on the Catering Policy?
5. Explain the objectives of Marketing Policy for an F&B operation.
6. Why controls on each activity in the operational phase are important?
7. What is Management after the Event Phase? Explain.
8. Write a note on Degree of efficiency of F&B Controls in actual F&B service operation.
9. What are the three phases of F&B control?

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