CHAPTER ONE

Front office communications

Front office communication involves
 Memorandums
 Face to face conversations
 Message sent over computer terminals
 Log books, information directories, mail and telephone.

Front office communication is directly related to the number of guest

rooms, and the size and extent of the hotels public areas and facilities. The
larger the hotel the more people involved, the more complex the
communication network.
A. Guest communications
Communications takes many forms in a hotel, but none is more important
than how the hotel employees communicate with guests. Guest
communications must present a professional, positive image for the hotel,
whether it is in person or through the telephone. The proper greeting,
attitude, tone of voice, and follow-up all set expectations and influence how
the guest perceives the hotel. Person-to-person communications is just as
important, especially eye contact.
B. interdepartmental communication
(Refer your class notes)

CHAPTER 2
Inters ales at front office
2.1. What is inters ales
2.2. Front desk employees as sales please refer your class notes
representatives
2.3. Selling techniques)
Reminder:
Don’t forget your reading assignment on property management system.

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UNIT FOUR: CREDIT CONTROL
4.1.Meaning of credit control
Credit control refers to the various measures taken by a hotel to ensure
that guests settle their accounts in full at an agreed time. Controlling credit
is the responsibility of the credit manager or clerk, who is a member of the
accounts department. However, the process also necessitates that specific
measures to be taken by various departments of a hotel at different phases
of the guest cycle. A credit manager cannot fulfill his or her role unless all
hotel staff cooperate and perform their own credit control duties.
4.2.Why credit control is necessary
Hotels, like any other businesses, need to have a healthy cash flow in order
to survive and succeed, and try to achieve this by exercising control over
the credit given to guests. The cash flow of a hotel is the money which
moves in and out of the business.
Objectives of credit control measures
To prevent walk-outs(skips).
Deliberate or those who do not realize that they have to check out with the
cashier. This is because they know that their companies have agreed to
settle their accounts. To reduce the problems caused by walk-out guests. As
well as the lost revenue, they cause a great deal of inconvenience to cashier
who will not have verification of bills, the housekeeper who will not know
room status, the management – who may decide to instigate legal
proceedings , police who would have to alert other properties in their search
for the guest.
To prevent late settlement of accounts.
To avoid guests’ dissatisfaction. Guests feel embarrassed and annoyed if, on
checking out, they discover that they cannot satisfactorily settle their
accounts for reasons such as a credit card not being accepted by the hotel ,
possession of insufficient cash to pay the account, refusal by the hotel to
accept certain foreign currency, their balance being over the hotel’s floor
limit, the credit card organization refusing to approve higher limit. Many of
the possible causes for walk-outs, late payments and guests’ dissatisfaction
when settling their accounts are the responsibility of the front office
cashier and accounts department. Common causes for these problems may
include: Unclear instructions to the guest at check-in ( e.g. not informing the
guest which credit card or foreign currency is or is not acceptable. Lack of
communication between departments ( e.g. the credit manager not notifying

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the cashier when a guest’s account is over the hotel’s credit limit).
Breakdown in front office procedures (e.g. the front desk or reservations
clerk not checking the blacklist for previous walk-outs)
Various procedures necessary to ensure that these problems are minimized,
Give the guest clear instructions at check-in regarding account settlement.
Notifying the guest when their account has reached the hotel’s credit limit.
Provide a list of previous skips to all relevant departments.
Ensure good coordination and communication between all departments on
matters relating to guests’ charges.
Ensure the guests with company accounts have been notified that the
account has to be verified and signed before check-out.
No settlement and delayed payment of accounts seriously hamper the cash
flow of a hotel. However, most of these problems can be avoided or
minimized of credit control policies are set up by a hotel, and if all the staff
concerned take great care in following credit control procedures.
4.3.Hotel credit control policy
Hotels will normally allow guests to charge their hotel expenses to their
room account. To ensure that final settlement is paid , hotels must be
certain that the guests are able to pay their bills in full before they are
given credit. The credit limit (sometimes called the house limit) refers to
the maximum level to which guest’s bill can amount before some form of
settlement is required. Credit limits may vary, and often depend on the
guests’ reservation status and the method of payment. In general, hotels
tend to allow credit to three types of guest (although this depends very
much on a hotel’s policy)
 Those who have guaranteed booking
 Those whose account will be settled by their company
 Those who will settle their accounts by credit or charge cards

Guests with guaranteed booking

Most hotels give credit to guests who have guaranteed their booking (either
by a credit card or deposit). These guests are allowed to enjoy the hotel
facilities and services on credit, and to settle their accounts personally at
check-out. On the other hand, walk-in guests and guests with non-
guaranteed bookings or late bookings are usually not given any credit if they
settle their bills by cash or cheque. They are usually required to prepay
their room rate, together with a deposit for incidental expenses, at check-
in. If a walk-in guest pays an advance deposit or gives a credit card for

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imprint in order to cover accommodation and incidental expenses, then
credit status may be allowed.
Settlement by corporate accounts
When a company wishes to have credit facilities at a particular hotel, the
hotel will have to check to ensure that the company is solvent, i.e. that it is
capable of paying its accounts. The hotel will need a reference from the
company’s bank; if the reference is favorable, the company is approved to
receive services on credit. The obtaining of a credit rating of a company can
be conducted through organizations that specialize in this type of work. The
company will then be listed on the list of credit approved companies
prepared by the accounts department. This list will be distributed to the
reservations department, reception and sales office so that other sections
or departments can know clearly which companies are entitled to credits at
the hotel. However, you should note that a hotel often approves different
credit limits for different companies.
For example:
A large local firm which regularly reserves a large number of rooms at the
hotel and which has a good record of settling bills promptly will have high
credit rating. It may be allowed to have a large balance outstanding on
individual accounts and the company’s total account before payment is asked
for. A new company, a small company, or a company which has been late in
settling its account may be given a low credit rating. The company will be
required to settle the bill once the account has reached a certain limit.
Accounts settled by credit or charge card
In most hotels, credit is also given to guests who settle their accounts by
credit or charge cards that are accepted by the hotel. The type of charge
or credit card which are accepted by hotels vary from hotel to hotel.
Reasons for this may be the popularity or otherwise of the card, the fee the
hotel pays on accepting a particular charge or credit card, and the time
period taken by the charge or credit card company to settle the account. To
ensure that guests and hotel personnel are aware of which charge or credit
cards can be used, signs are displayed at the front desk and relevant
payment areas, showing which charge or credit cards are acceptable. This
policy can be emphasized to hotel personnel during training sessions and
their induction programs, so as to ensure that guests are not embarrassed
at check-out. It is important that they and all hotel personnel are fully
aware of which cards are accepted.

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Remember that different charge or credit cards may have different floor
limits agreed by the card-issuing company.

5
Credit control measures required when receiving reservations
Checking the type of reservation
Inform guests with non-guaranteed or
late bookings that they are required
to prepay at check-in.
Ensure that the correct room rate is
quoted
Request payments for group bookings
or special packages(e.g. Christmas
promotion packages). Inform guests
of charges in the case of late
cancellation.
Check the method of payment
Check the corporate account details
for those whose company settles their
account
Credit control measures required at check-in
Guaranteed bookings are allowed
credit, non-guaranteed or late
bookings have restricted credit
To avoid misunderstanding and guest
dissatisfaction at check-in
To prevent any revenue loss to the
hotel in quoting a lower rate, and to
prevent any later dispute
To avoid loss of revenue in the event
of cancellation. To guarantee the
group booking or package.
To avoid misunderstanding and ensure
the guest will settle cancellation
charges(thereby reducing the loss of
hotel revenue)
Credit is allowed to those whose
accounts are settled by their
companies, or by charge or credit
cards. This ensures the guest is
aware of which methods of
settlement are acceptable. Only
companies on the credit approved
companies list are to be allowed to
credit
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Summary of the main credit control measures at check-in
Credit control measures
Check reservation status: collect
payments from walk-ins and non-
guaranteed bookings
Check type of accounts
• Travel agent voucher. Ask for
voucher and check what charges
are covered. Check with the
guest the method of settlement
for incidentals.
• Tour groups. Check with the tour
leader about the billing
arrangements (e.g. master
account to the travel agent and
incidentals to the tour members.
• Corporate accounts. Check
whether the full account is to be
settled by the company; if not,
agree with the guest on the
methods of settlement for
incidentals.
Check methods of settlement:
• For cash settlement, record the
room rate on the registration
card and key card, and remind
the guest of the room rates;
inform the guest of the hotel’s
policy on house limits
• For charge or credit card
settlement check that the card
Reasons
Credit is given to those with
guaranteed bookings; walk-ins and
guests with non-guaranteed or late
bookings have restricted credit if they
pay by cash or credit card, depending
on the hotel’s policy.
To ensure that the guest will pay for
incidentals by an agreed method of
settlement.
To ensure that the incidentals will be
paid for
To ensure that the incidentals account
will be properly settle
Guests can estimate their account total
and the amount of cash they need on
check-out
Guests will not be annoyed when asked
to settle part of the account should
the bill be close to the house limit
Ensure that guests will settle their
accounts by methods which are
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 is accepted by the hotel acceptable to the hotel, to prevent the
guest’s dissatisfaction when a card is
refused at check-out

Take an imprint of the card To check the validity of the card; to

seek authorization; to guide against
walk-outs

Credit control measures during occupancy

Most transaction between a guest and a hotel take place during a guest’s
occupancy. Therefore, during this phase of a guest’s stay the hotel needs to
monitor the credit given to guests very closely. This is achieved by
monitoring bills with high balances. The cashier will monitor all the bill totals
against the hotel’s set credit limit. Each day, a the high-balance report will
be produced which lists all the accounts whose totals are near to or in
excess of the limit.

King’s hotel
Guest Ledger High-balance Report
Date: __________________________
Auditor:__________________________ Received
by:_____________________________

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 Room no. Guest name Amount Action taken

103 Green , L. 498.00 Contacted. Paid $200.00.

Address and credit verified

122 Church, W. 155.00 Direct billing.

247 Smith, D. 355.70 Left three messages

No contact
Action necessary.

259 Tong, L. 285.50 Amex. Approved .

The cashier, night auditor or the credit manager is usually responsible for
handling accounts with high balances. The guests will be asked to settle their
account to date, and a new account will be started for the rest of their stay.
The credit manager will send the bill, together with an accompanying letter,
to the guest’s room, asking the guest to settle the account with the cashier.
If the guest has any queries about their account or the credit policy, the
cashier or the assistant manager should explain them to the guest.
Sometimes, guests may fail to call at the cashier’s desk as requested. In this
case, the assistant manager has to contact the guest personally. They may
telephone the guest in their room, or contact them when they next collect
their keys from the front desk. In serious cases, where the guest cannot be
reached and has made no attempt to see management or the front desk
staff, their room will be double-locked. This means that the guest has to
contact the assistant manager before they can be let into their room.
Credit control measures by other sales departments
Whenever a guest wants to charge a service from a sales outlet to their
account, the staff in that outlet must check the credit status of the guest
carefully. They must check that:
 The guest is a resident and/or has an account at the hotel
 The guest is allowed to charge services to their account.

Remember :
A walk-in may not be allowed to charge services to their account and
consequently will have to settle the incidentals by cash or credit card at the
sales outlet.

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If the guest is part of a tour, their package may allow a meal in the hotel
but only up to a certain value(e.g. $10.00). Any excess on the bill must be
settled at the sales outlet. Often the front desk will issue these guests with
vouchers, which the guest will hand to the restaurant captain or head waiter
upon entering the hotel restaurant.
The advantages of using computers
Computerized system speeds up the transfer of charge information from
different departments. Computers help to ensure that guests’ accounts are
always accurate and up to date. A computerized accounting system is also
useful in controlling credit. Modern computers can automatically monitor bill
totals and produce high-balance reports, thereby notifying the cashier when
to seek higher approval on credit cards. The computer can also be
programmed to prevent charges from being added from other departments
when the guest is not allowed credit.
Credit control measures at check-out
This is the last time that the guest will be physically accessible to
the hotel
a. Cash payments: confirm the currency and amount taken from the
guest and ensure accuracy of conversion of foreign currency.
b. Credit card payment: ensure signature matching, expiry dates,
authorization, etc.
• give a copy of the signed voucher to guest and retain one copy
for the hotel.
c. Travel agent vouchers: ensure that the guest pays for his incidental
folio.
• He need not sign the bill as that is to be paid by the travel agent.
d. Direct billing/corporate account: ensure that the guest settles the
incidental folio.
• Ensure his signature on the bill that is required by his
company.
• Ensure there are no late charges.
• Ensure return of the room key.

Credit control measure after guest departure

You are aware that corporate accounts or travel agents’ accounts are not
settled at check-out. Therefore, after a guest’s departure these forms of
account will be transferred to the city ledger held by the accounts
department, which holds an individual account for each company. At the end

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of each month, the accounts department will send statements of these
accounts to the companies for settlement. It is expected that payment will
be made within 30 days.
However, some companies may be late in settling their accounts. In such
cases, follow-up measures need to be taken by the accounts department to
speed up the payment. An example of the procedure is as follows:
1. After having failed to receive payment within 30 days, telephone the
company as a reminder.

2. After 45 days, write officially to the company, requesting immediate

payment.

3. After 60 days send a strongly worded letter. Possibly threaten legal

action.

4. If nothing has been received after 90 days, proceed with legal action
through the hotel’s solicitor. At this point the hotel accountant may
have to consider writing off the bill as a bad debt

Preventing walk-outs (skips)

Because a walk-out costs the hotel not only in lost revenue, but also in actual
food and drink costs, much is done to prevent this type of occurrence. Front
office staff should take great care when dealing with newly arrived guests.
It may be possible for staff to identify potential walk-outs by paying closer
attention to the behavior of the guest, and to thus take measures to guard
against them.
On arrival
When guests arrive, the bell staff should check the number of bags, and
assess their weight. People who intend to walk out sometimes have very little
luggage, or carry empty suitcases which they will leave behind in the room
when they walk out.
During the stay
Extravagant purchasing patterns can be a feature of walk-outs, so the
cashier should monitor the guest’s account carefully. A person who intends
to walk out is more likely to order expensive meals, and eat and drink from
room service. The hotel credit limit can be reached quickly.
On the day of departure
The hall porter may contact a departing guest to request the time to collect
the luggage. By doing this, the porter will keep the bags in store until the

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guest has paid their account. Some hotels have a system of luggage passes.
When the guest has checked out with the cashier they are issued a receipt
or luggage pass. The guest will then show the receipt to the porter who,
knowing that the account has been settled, will release the luggage.
The right of lien
On some occasions a guest may be unable to pay the account, and in this case
the hotel can exercise right lien. The right of lien means that a hotel has
the legal right to detain a guest’s suitcase, and the belongings which they
bring into the hotel, if they are unable to settle the account. However, the
hotel is not allowed to keep the clothes which the guest is wearing. If a
guest cannot pay the account (e.g. if they have lost their traveler's cheques)
then the hotel may keep some of the luggage as security until the account is
settled. This means that the guest could leave the hotel to arrange finance
and then return to pay the bill and have the luggage returned. If the guest
cannot pay the bill and the luggage has to be held, the hotel does have the
right to sell that luggage to recover the debt. However, there are various
conditions attached to the sale: The luggage or belongings must be held by
the hotel for at least six weeks and then sold by public auction. The sale
must be advertised in the press. After the sale any surplus of cash (after
deducting the amount of the guest’s account ) has to be returned to the
guest.

The right of lien

On some occasions a guest may be unable to pay the account, and in this case
the hotel can exercise right lien. The right of lien means that a hotel has
the legal right to detain a guest’s suitcase, and the belongings which they
bring into the hotel, if they are unable to settle the account. However, the
hotel is not allowed to keep the clothes which the guest is wearing.

If a guest cannot pay the account (e.g. if they have lost their traveler's
cheques) then the hotel may keep some of the luggage as security until the
account is settled. This means that the guest could leave the hotel to
arrange finance and then return to pay the bill and have the luggage
returned.

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Unit 5: Front Office Audit
Audit is a daily review of guest account transactions recorded at the front
desk against revenue center transactions.
- Ensure the accuracy, reliability, and thoroughness of front office
accounting.
Night audit is generally performed during the late evening hours/ early
morning with minimal interruption.

4.1. Functions of front office audit

Specifically, the front office audit is concerned with the following functions
Verify posted entries to guest and non-guest accounts.
Balancing of all front office accounts.
Resolving room status and rate discrepancies.
Reviewing guest credit transactions against established limits.
Generating operational and managerial reports.
The role of the front office auditor
Front office auditor – is an employee who checks the accuracy of front
office accounting records and compiles a daily summary of hotel financial
data as part of the audit.
Performing the front office audit requires attention to
 Accounting details
 Procedural controls and
 Guest credit restrictions

End of Day
An end of day: - is an arbitrary stopping point for the business day.
Transactions done during audit work time are not shown as posted until the
end of day audit is completed. These transactions are considered part of
next business day. So, hotels must decide what time will be considered the
end of its accounting (hotel) day. Usually the closing time of revenue outlets
determines the end of the day.

Bucket check (deriving the name from the storage file, which is frequently
called “Bucket”.)
The night auditors check of room rate postings on guest folio against the
housekeeping department’s report of occupied rooms and the registration
cards in the file. This procedure helps ensure the rates have been posted
for all occupied rooms and helps reduce the occupancy errors caused when

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front desk agents do not properly complete check-in and check-out
procedures.
Account integrity
The front office auditor establishes guest and non-guest account integrity
by cross-referencing account postings with departmental source
documentation. The audit process completes when the total for guest, non-
guest, and departmental accounts are in position, the audit considered
incomplete. In this case, you may require thorough review of all account
transactions, statements, vouchers, support documents, and departmental
source documentation.
However, for automated hotels, out-of-balance conditions are rare. Today, it
is almost entirely handled by the front office computer. In the past, or with
manual and semi-automated hotels, there were many different forms of
records that had (have) to be reviewed, totaled, and combined as part of the
balancing process.
Audit posting formula
Regardless of when the front office audit is conducted, the basic account
posting formula applies;
Previous balance + Debits – Credits = Net Outstanding Balance
PB + Dr - Cr = NOB

4.2. Front office audit process

The following steps are common to the sequence of a front office audit:
1. Complete outstanding postings
The front office auditor will need to verify that all vouchers for revenue
center transactions are posted. This can be done by generating printed
posting reports from the interfaced systems and comparing them with the
totals reported by the front office accounting systems. If the figures are
identical, the systems are in balance. If they are not the same, the front
office auditor should compare transactions between the two systems to
identify the transactions that have been omitted or improperly posted.
2. Reconcile room status discrepancies
Room status discrepancies must be resolved in a timely manner since
imbalances can lead to lost business and cause confusion in the front office.
For example, if a guest checks out but the front desk agent fails to properly
complete the check-out procedure, the guest’s room may appear elsewhere in
the system as occupied when it is really vacant. The auditor should verify

14
the guest folio against the housekeeping status report to ensure that all are
consistent.
3. Balance all departmental accounts
When errors are discovered, it is generally considered more efficient to
balance all departmental accounts and then look for individual posting errors
within an out-of-balance department. The front office auditor typically
balances all revenue center departments using source documents that
originated in the revenue center.
4. Verify room rates
The front office auditor will need to review a system-generated room
report. This report provides a means for analyzing room revenues since it
shows the rate for each room.
Further verification is usually done by comparing the registration card to
the front office system record because the registration card provides the
guest’s information including room rate, at the time of check-in.
5. Verify no-show reservations
Auditor is also responsible for clearing the reservation file or filing and
posting charges to no-show accounts. When initiating the electronic posting
of no-show charges, the auditor must be careful to verify that the
reservation was guaranteed and the guest never registered with the hotel.
6. Post room rates, taxes, and service charges
The posting of room rates, room taxes, and service charges to guest folios
typically takes place at the end of the day. System postings are highly
reliable since automatic charge postings are guaranteed to be accurate, with
no chance for pick up, tax calculation, or posting errors. And once room
rates, taxes, and service charges are posted, the rate posting report may be
generated for front office management review.
7. Prepare reports
The front office auditor typically prepares reports that indicate the status
of front office activities and operations. The following reports are usually
prepared.
 Final department detail and summary reports: these reports help
prove that all transactions were properly posted and accounted for.
They may be filed along with their source documents for accounting
department review.
 Daily operation report: this is the summary of the day’s business and
provides insight in to revenue, operating statistics and cash

15
 transaction related to the front office. This report is typically
considered the most important outcome of the front office audit.
 High balance report: this report identifies high balance accounts.
8. Deposit cash
The front office auditor frequently prepares a cash deposit voucher as part
of the audit process. If front office cash receipt have not yet been
deposited in a bank (cashier drop safe), the front office auditor compares
the postings of cash payments and paid-outs with actual cash on hand. A
copy of the front office cashier shift report may be included in the cash
deposit envelope to support any overage or shortage. Since account and
departmental balancing often involve cash transactions, accurate cash
deposit may depend on an effective audit process.
9. Clear or back up the system
A system back up in the front office audit routine is unique to a front office
system. Back-up reports such as in house guest list, expected arrival list,
expected departure list, and room status report must be run and various
media duplicated in timely manner so that the front office can continue to
run smoothly.
Optionally, guest ledger and front office activity report are also printed. In
some front office accounting systems, the next day’s registration cards are
pre-printed as part of the front office activity report.
System-generated front office information should also be copied (back up)
on to magnetic tape or other media, depending on the system configuration.
Many front office systems have two types of system back up;
1. Daily back-up: a copy of front office electronic files
2. System back-up: eliminating account and transaction information
deemed to no longer be of value.
10. Distribute reports
Due to the sensitive and confidential nature of front office information, the
front office auditor must promptly deliver appropriate reports to
authorized individuals (department heads).

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UNIT 6: Planning and Evaluating Operations
Introduction
Resources (people, money, time, material, energy and equipment) are limited
in supply. So, front office managers should plan to apply these resources to
attain the department objective and he/she has to evaluate the success of
front office activities to meet the department objectives.
Management functions: Include planning, organizing, coordinating, staffing,
leading and controlling, and evaluating. They are different from one property
to another but fundamental management functions are similar in scope.

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6.1. Management Functions
1. Planning: 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.
2. Organizing: The front office manager shall organize the work to be done
through dividing it among staff members. While doing so, the work shall be
distributed fairly and shall be completed in a timely manner.
3. Coordinating: Involves bringing together and using the available resources
to attain planned goals.
4. Staffing: Involves recruiting applicants, selecting those best qualifies for
positions, and scheduling employees.
5. Leading: Involves overseeing, motivating, training, disciplining, and setting
an example for the front office.
6. Controlling: Ensures that the actual results of operations closely match
planned results.
7. Evaluating: Determines the extent to which planned goals are, in fact,
attained. Moreover, it involves reviewing and, when necessary, revising or
helping to revise front office goals.

6.2. Establishing room rates

Rack rate and other rates
Establishing rack rates for room types and determining discount categories
and special rates are major management decisions. To establish room rates
that will ensure the hotel’s profitability, management should carefully
consider such factors as operating costs, inflationary factors, and
competition. Front office has 1/more room rates category for each of its
guest rooms. Room rate category corresponds to room type and furnishings,
amenities, size, location, and view.
Room rates often serve as a market positioning statement since they
directly reflect service expectations to the hotel’s target market. Room
rate positioning can be critical to a hotel’s success.
Rack rate
Employees used to identify the retail room rate from a manual filing system
at the front office desk called a ‘room rack’, hence the name ‘rack rate’.

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Rake rate is the standard price determined by front office management.
The rack rate is listed on the room rate schedule to inform front office
desk agents of the selling price of each guestroom in the hotel. Front office
employees are expected to sell rooms at the rack rate unless a guest
qualities for a discounted room rate.
Other discount rates
These includes: corporate rate, commercial rate, group rate, promotional
rate, incentive rate, family rate, package plan rate, complimentary rate, and
FTP rate.

There are three popular approaches to pricing rooms

a. Market condition approach
An approach to pricing that bases prices on what comparable hotels in the
geographical market and sees what they are charging for the same product.
These properties are often called as a competitive set. The competition can
be based on location, property ratings, property type, brand identification,
or other factors.
Disadvantages
1. If the property is new, construction costs will most likely be higher
than those of the competition. Therefore, the hotel cannot be as
profitable as the competition initially.
2. This approach does not take the value of the property in to
consideration. With the property being new, and perhaps having newer
amenities, the value of the property to guests can be greater.
TIMS (Travel information management system) report
The TIMS report lists one month’s rate information for property and five
local competitors. The rates are broken down daily and include information
and sold-out nights, low rate, low rate variance from the subscribing
property, low corporate rate, low corporate rate variance, special rates date
available, high-low comparisons, and an index of room types and rates for the
period.

b. Rule of thumb approach

A cost approach to pricing rooms; using this approach, the room rate is set
at $1 for each $1,000 of construction and furnishings cost per room,
assuming occupancy of 70 percent. For example, assume that the average
construction cost of a hotel room is $ 80,000. Using $1 per $1,000 approach
results an average selling price of $80 per room. Single, doubles, suites, and

19
other room types would be priced differently, but the minimum average
room rate would be $80.

Disadvantage
1. The emphasis placed on the hotel’s construction cost fails to consider
the effects of inflation.
2. This approach also fails to consider the contribution of other
facilities and services towards the hotel’s desired profitability. In
many hotels, guests pay for services such as food, beverage,
telephone, and laundry. If these services contribute to profitability,
the hotel may have less pressure to charge higher room rates.
3. This approach should also consider the occupancy level of the hotel.
As pointed out, the rule-of-thumb approach assumes 70 percent
occupancy when determining the appropriate average room rate.
However, if a lower occupancy percentage is expected, the hotel will
have to capture a higher average rate to generate the same amount of
room revenue.

c. Hubbart formula approach

It is a bottom-up approach to pricing average room rate; in determining the
average price per room, this approach considers costs, desired profits, and
expected rooms sold.
Hubbart formula is considered a bottom-up approach to pricing rooms
because its initial item net income (profit) appears at the bottom of the
income statement. It is important to note that the hubbart formula
generates an average room rates as a target price at the hotel’s point of
profitability.
Disadvantage
 A variety of data such as tax, insurance, and administrative costs
need to calculate

How to determine single& double room rates from average room rate
Singles sold(x) + double sold(x + y) = Average rate x Room sold
x : price of single
y : price differential between singles and doubles
x + y : price of doubles

6.2. Forecasting room availability

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Forecasting is a process of predicting events and trends in business; typical
forecasts developed for the rooms division includes room availability and
occupancy.
Room availability forecast is a short-term planning performed by f/o
manager. It can also be used as occupancy forecast.
Occupancy forecasts are:
The foundation for making room pricing decisions.
To help managers schedule the necessary number of staff for an
expected volume of business.

Forecasting is a difficult skill to develop. The skill is acquired through

experience, effective record keeping, and accurate counting methods.
Experienced front office managers have found that several types of
information can be helpful in room availability forecasting;
 A through knowledge of the hotel and its surrounding area.
 Market profiles of the constituencies the hotel services.
 Occupancy data for the past several months and for the same
period of the previous year.
 Reservation trends and a history of reservation lead times
(how far in advance reservations are mad).
 A listing of special events scheduled in the surrounding
geographical area.
 Business profiles of specific groups booked for the forecast
dates.
 The number of non-guaranteed and guaranteed reservations
and an estimate of the number of expected no-shows.
 The percentage of rooms already reserved and the cut-off
date for group room blocks held for the forecast dates.
 The room availability of most important competition for the
forecast dates (as found through the blind call).
 The impact of city-wide or multi-hotel groups and their
potential influence on the forecast dates.
 Plans for remodeling or renovating the hotel that would change
the number of available rooms.
 Construction or renovation plans for competitive hotels in the
area.
Forecasting Data

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The process of forecasting room availability generally relies on historical
occupancy data as well as what is already on the books. Historical data can
take the guesswork out of forecasting. To facilitate forecasting, the
following daily occupancy data should be collected:
1. Number of expected arrivals
2. Number of expected room walk-ins
3. Number of expected room stayovers
4. Number of expected room no-shows
5. Number of expected room understays
6. Number of expected room checkouts
7. Number of expected room overstays (check-outs occurring after the
originally reserved departure date).

Overall these data are important to room availability since they are
used in calculating various daily operating ratios that help determine
the number of available rooms for sale. Most statistical ratios that
apply to front office operations are expressed as percentages. The
ratios examined in the following section are percentages of no-show,
walk-ins, stayovers, and overstays.

Managers should look for consistency in ratios, not only the forecasting
figures. Consistency may be roughly the same ratio every day or identifiable
patterns.

Occupancy history of the Holly Hotel /Given/

Occupancy history first week of March

Day Date Guests Room Room Room Room

arrivals walk-ins reservation no-
s shows

Mon 3/1 118 70 13 63 6

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Tues 3/2 145 55 15 48 8
3/3
Wed 176 68 16 56 4
3/4
Thurs 117 53 22 48 17
3/5
Fri 75 35 8 35 8
3/6
Sat 86 28 6 26 4
3/7
Sun 49 17 10 12 5

Totals 766 326 90 288 52

Occupied Overstay Understay Room

rooms rooms rooms check-
outs

90 6 0 30

115 10 3 30

120 12 6 63

95 3 18 78

50 7 0 80

58 6 3 20

30 3 3 45

Total 558 47 33

 Percentage of no-shows

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This indicates the proportion of reserved rooms that the expected guests
did not arrive to occupancy on the expected arrival date. The ration helps
the front office manager decide when to sell rooms to walk-in guests.
% of no-show = No. of Room no-shows
No. of room reservations
 Percentage of walk-ins

Walk-in guest often brings higher rate, however, from a planning

perspective, it is always considered better to have reservation in advance
than to count on walk-in traffic. 
% of walk-ins = No. of Room walk-ins
Total no. of Room Arrivals
 Percentage of overstay

When the hotel has a full occupancy date approaching, front desk agent
should be careful to check with guest when the check-out date will be upon
arrival.
% of overstays = No. of overstay rooms
No. of expected check-outs
The no. of expected room check-outs equals the no. of actual check-outs on
the books minus understays plus overstays.
 Percentage of understays

To avoid having unexpected empty rooms, front desk staff should confirm
each guest’s departure date at registration.
% of understays = No. of understay rooms
No. of expected check-outs

Forecasting formula

Total number of guest rooms

-  Number of out of order rooms
-  Number of room stayovers
-   Number of room reservations
+ Number of room reservations x Percentage of no-shows
+ Number of rooms under stays
- Number of rooms overstays
   Number of rooms available for sale  

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10 days/ 3 days forecast
10 days forecast
This forecast may be used to update labor scheduling and cost projections.
A ten day forecast usually consists of

1. Daily forecasted occupancy figures, including room arrivals, room

departures, rooms sold, and number of guests.

2. The number of group commitments, with a listing of each group’s name,

arrival and departure date, number of rooms reserved, number of guests,
and perhaps quoted room rate.

3. A comparison of the previous period’s forecasted and actual room counts

and occupancy percentages.

A special 10 day forecast may also be prepared for food and beverage, BQT,
and catering operations so that the hotel’s dining room managers can better
understand the nature of their business and their staffing needs.  

3 days forecast

It is an updated report that reflects a more current estimate of room

availability. It details any significant charges from the ten-day forecast.
The tree-day forecast is intended to guide management in fine-tuning labor
schedules and adjusting room availability information.  

House count

The forecasted or expected number of guests for a particular period,

sometimes broken down in to group and non-group business.  
 

6.3. Budgeting for operations

Room division profits are usually greater than those of any other
department. Therefore, an accurate room’s budget is vital to creating the

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overall budget of the hotel. The primary responsibilities of the front office
manager in budget planning, are forecasting room revenue and estimating
related expenses.

1. Forecasting room revenue

 One method of room revenue forecasting involves an analysis of rooms’
revenue from the past periods.  

Year Rooms revenue Increase over Prior year %

dollar
2001 $1,000,000             -             -
2002 $1,100,000 $100,000 10%
2003 $1,210,000 $110,000 10%
2004 $1,331,000 $121,000 10%
 

E.g. if it increases 10% every year, then the next year increment will also be
10% $1464, 100

 Another approach bases the revenue projection on past room sales

and average daily room rate.

Year Rooms Sold Average Daily Net room Occupancy

rate revenue percentage
2001 30,660 $50 $1,533,000 70%
2002 31,974 $52 $1,662,648 73%
2003 32,412 $54 $1,750,248 74%
2004 32,850 $57 $1,872,450 75%
 
E.g. if increment of occupancy and rate are different each year, just guess
those of the next year based on the increment trend. 76% occupancy, $3
increase in ADR (= $60)  
Forecasted
room revenue = Rooms available x occupancy percentage x average daily rate

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 = 43,800 x 0.76x $60
= $1,997,280
Variety of different rates corresponding to room type, guest profiles, days
of the week, and seasonality of business may affect rooms revenue
forecasting.

2. Estimating expenses
Most expenses for front office operations are direct expenses in that they
vary in direct proportion to rooms’ revenue. Typical room division expenses
are payroll and related expenses: guest room laundry (linen, towels); guest
supplies (bath amenities, toilet tissue, matches); hotel merchandizing (in-
room guest directory and hotel broachers); travel agent commissions and
reservation expenses; and other expenses. When these costs are totaled and
divided by the number of occupied rooms, the cost per occupied room is
determined.  The cost per occupied room is often expressed in dollars and as
a percentage.

Year Payroll related Laundry linen and Commissions and Other

expense guest supplies reservation expenses
expenses
2001 16.5% 2.6% 2.3% 4.2%
2002 16.9% 2.8% 2.5% 4.5%
2003 17.2% 3.0% 2.6% 4.5%
2004 17.4% 3.1% 2.7% 4.6%

Based on the above historical information and management's current

objectives for the budget year 2005, the percentage of room revenue for
each expense category may be projected as follows:

2005 will be 17.6%           3.2%       2.8%                   4.7%  

Using these percentage figures and the expected rooms revenue calculated
previously, room division expenses for the budgeted year estimated as
follows:

 Payroll and related expenses

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 $1,997,280 x 0.176 = $251,521.28

 Laundry, linen, terry, and guest supplies

$1,997,280 x 0.032 = $63,912.96

 Commissions and reservation expenses

$1,997,280 x 0.028 = $55,923.84

 Other expenses

$1,997,280 x 0.047 = $93,872.16

In this example, management should ask why costs continue to rise as a

percentage of revenue. If costs continue to rise (as a percentage, not in real
dollars) profitability will be reduced. One of the outcomes of the budget
process will be to identify where costs are rising as a percentage of revenue.
Then management can analyze why these costs are increasing
disproportionately with revenue develop a plan to control them.      

3. Refining Budget plans

Departmental budget plans are commonly supported by detailed information

gathered in the budget preparation process and recorded on worksheets
and summary files. These documents should be saved to provide an
explanation of the reasoning behind the decisions made while preparing
departmental budget plan. Such records may help resolve issues that arise
during the budget review. These support documents may also provide
valuable assistance in the preparation of future budget plans.

If no historical data are available for budget planning, other sources of

information can be used to develop a budget. For example, corporate
headquarters can often supply comparable budget information to its chain-
affiliated properties. Also, national accounting and consulting firms usually
provide supplemental data for the budget development process.

Many hotels refine expected results of operations and revise operations

budgets as they progress through the budget year. Reforecasting is normally
suggested when actual operating results start to vary significantly from the

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operations budget. Such variance may indicate that conditions have changed
since the budget was first prepared and that the budget should be brought
into line.

6.4. Evaluating front office operations

Occupancy ratios
A measurement of the success of the hotel in selling guest rooms; typical
occupancy ratios include occupancy percentage, average daily rate (ADR),
revenue per available room (RevPAR), average rate per guest (ARG) , and
multiple occupancy statistics.
The following room statistics must be gathered to calculate basic occupancy
ratios:
 Number of rooms available for sale
 Number of rooms sold
 Number of guests
 Number of guests per room and Net room revenue
Case study
The Gregory hotel has 120 rooms (all rooms are salable) and a rack rate of
$98(both single and double).
83 rooms were sold at varying rates.
85 rooms were occupied by guests (2 rooms were on complementary, but
handling of complementary rooms may differ among hotel properties).
10 rooms were occupied by 2 guests; therefore, a total of 95 guests were in
occupancy.
$6,960 in rooms’ revenue was generated.
$7,363.75 in total revenue was generated, including rooms, food, beverage,
telephone and other.

Occupancy percentage
An occupancy ratio that indicates the proportion of rooms sold to rooms
available for sale during a specific period of time
Occupancy percentage = Number of rooms occupied
Number of rooms available
= 85/120
= 70.8%

Multiple(Double) occupancy ratio

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A measurement used to forecast food and beverage revenue, to indicate
clean linen requirements, and to analyze daily revenue rate; derived from
multiple occupancy percentage or by determining the average number of
guests per room sold; also called double occupancy ratio.
Multiple occupancy percentage = Number of rooms occupied by more than
One guest _____________
Number of rooms occupied
= 10/85
= 11.8%
Average guests per room sold = Number of guests
Number of rooms sold
= 1.14
Average Daily Rate (ADR)
An occupancy ratio derived by dividing net rooms’ revenue by the number of
rooms sold.

Average Daily Rate = Actual rooms revenue = $6,960/ 83

Number of rooms sold = $83.86

Revenue per Available room (RevPAR)

It is the revenue management measurement that focuses on revenue per
available room.
RevPAR = Actual room Revenue = $6,960/120 = $58
Number of available rooms

Average rate per guest (AGR)

This rate is normally based on every guest in the hotel, including children.
Average rate per guest = Actual room revenue = $6.960/ 83 = $73.26
Number of guests

Revenue per available customer (RevPAC)

It measures the average revenue generated by each guest. For hotels with
high multiple occupancy, this figure is especially important, since it shows an
average spend per guest.

RevPAC = Total Revenue

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 Number of guests
= $7,363.75/95
= $ 77.51

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UNIT 7: Revenue management
Revenue management: is a technique based on supply and demand used to
maximize revenues by lowering prices to increase sales during periods of low
demand and by raising prices during periods of high demand.
7.1. Concept of revenue management
The concept of revenue management is originated in the airlines industry.
Most travelers know that passengers on the same flight often pay different
fares such as fourteen-day advance purchase fare and Saturday night
package. This concept is also successful in other tourism industries.
Revenue management plays an important role in the financial success of
lodging properties today. This is based on supply and demand. Prices tend to
rise when demand exceeds supply. To increase revenue, the hotel industry is
attempting to develop new forecasting techniques that enable it to respond
to changes in supply and demand with optimal room rates. Revenue
management is about making predictions and decisions-predictions about how
much and what type of business to expect, and the subsequent decisions a
manager makes to get the most revenue from that business.

Benefits of applying revenue management

Improve forecasting
Improve seasonal pricing and inventory decisions
Identifications of new market segments
Identification of market segment demands
Enhance coordination between the front office and the sale divisions
Determination of discounting activities
Improve development of business plans
Establishment of a value-based rate structure
An increase in business and profits
Savings in labor costs
Reduce expenses caused by poor planning

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 Initiation of consistent customer contract scripting (that is planned
responses to customer inquiries or requests regarding reservations).

Revenue management can be supported by

1. Capacity management
2. Discount allocation and
3. Duration and control

1. Capacity management
Controlling and limiting room supply. Ex. Overbook at lower rate category
room and upgrade
Balances the risk of overselling guestrooms against the potential loss
of revenue arising from room spoilage( rooms going unoccupied after
the hotel stopped taking reservations for a given date)
How many walk-ins to accept on the day of arrival, given projected
cancellation, no-shows, and early departures.
2. Discount allocation
Restricting the time and period and room available at discounted rate. Ex.
selling rooms at low rate is better than zero revenue.
To protect enough remaining rooms at a higher rate, satisfy the projected
demand for rooms at that rate.
3. Duration control
Time constraints on accepting reservations in order to protect sufficient
space for multi-day requests.

6.2. Measuring yield

Revenue management is the hotel’s yield statistic: The ratio of actual room
revenue to potential room revenue.
Potential revenue can be determined in more than one way. Reports generally
have a high percentage of double occupancy while commercial hotels often
calculate their potential revenue by taking in to account the percentage mix
of room normally sold at both single and double occupancy.

Potential average single rate

If the hotel had not varied its single rate by room type (ex. All singles were
at the same rate), the potential average single rate would equal its rack rate.
Potential average single rate = Single room revenue at rack rate
Number of rooms to be sold as singles

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Room type No. of rooms Double rack rate Revenue at
100%occupancy(double)
1 bed 100 $90 $9,000
2 beds 200 $100 $20,000

Total 300 $29,000

Potential average double rate

If the hotel had not varied its double rate by room type (ex. All doubles
were at the same rate), the potential average double rate would equal its
rack rate.
Potential average double rate = Double room revenues at rack rate
No. of rooms to be sold as double

Room type No. of rooms Double rack rate Revenue at

100%occupancy(double)
1 bed 100 $110 $11,000
2 beds 200 $120 $24,000

Total 300 $35,000

Multiple occupancy percentage( mix of room occupants more than 1

person.2 persons above)
This information is important because it indicates sales mix and helps
balance room rates with future occupancy demand.
MOP = No. of rooms which is usually occupied by more than 1 person
No. of rooms of average occupancy

Ex. Total no. of rooms: 300 and average occupancy percentage is 70% = 210
rooms. If 105 rooms are normally occupied by more than one person,
= 105/210
= 0.5
= 50%
Rate spread
It is the mathematical difference between the hotel’s potential average
single rate and potential average double rate.
Rate spread = potential average double rate – potential average single rate

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 Potential average rate
It is a collective statistics that effectively combines the potential average
single and double rates, multiple occupancy percentage, and rate spread to
produce the average rate that would be achieved if all rooms were sold at
their full rack rates.
A hotel’s potential average rate is a collective statistic that effectively
combines the potential average rates, multiple occupancy percentage, and
rate spread.
PVR = (Multiple occupancy% x Rate spread) + Potential average single rate
Room rate achievement factor
It is the percentage of the rack rate that a hotel actually receives; in hotel
not using revenue management software, this factor is generally
approximated by dividing the actual average room rate by the potential
average rate.
The percentage of the rack rate that the hotel actually receives is
contained in the hotel’s Achievement Factor (AF), also called the rate
potential percentage.
Room rate Achievement Factor = Average Room Rate (ADR)
Potential Average Rate
Also, it is calculated by 100% discount percentage
Yield Statistic
It is the ratio of actual rooms’ revenue to potential rooms’ revenue.
Yield = Actual Rooms Revenue
Potential Rooms Revenue
7.3. Elements of revenue Management(reading assignment)

7.4. Using revenue management

Potential high and low demand tactics
Hotels need to determine revenue management strategies for both high and
low demand periods.

High demand tactics

1. Close or restrict discounts
Analyze discounts and restrict them as necessary to maximize the average
rate. You may offer discounts for those who book longer stays, or restrict
bookings to shorter stays.
2. Apply minimum length of stay

35
A minimum length of stay restriction can help a property increase room
nights. For groups, study the group’s pattern and decide how many days they
are likely to add to their stay.
3. Reduce group room allocations
Communicate with group leaders on regular basis. Make sure the group
actually needs the number of rooms identified in their contract. If not,
make adjustments.
4. Reduce or eliminate 6pm holds
Reduce or eliminate the number of unpaid rooms that are being held until
6pm. When demand is high, you will need rooms available to fill.
5. Tighten guarantee and cancellation policies
Tightening guarantee and cancellation policies helps to ensure payment for
room nights. Charge credit cards for the first night’s stay on the day the
reservation is made.
6. Raise rates to be consistent
Charge rates consistent with the competition, but limit rate increases to
those rates published in the CRS and listen in broachers for the period.
7. Consider rate raised for packages
If you are already offering a package discount, consider raising the rate for
that package.
8. Apply fill price to suites and executive rooms
In high demand situation, charge full price for suites and executive rooms.
9. Select dates that are to be closed-to-arrivals
By allowing reservations to be taken for certain date as long as the guest
arrivals before that date, a property is able to control the volume of check-
ins. It is important to track and monitor denials that occur due to this
restriction.
10. Evaluate the benefits of sell-through
With a sell-through, the required stay can begin before the date the
strategy is applied. This is often used when one day has a peak in occupancy
and management does not want the peak to adversely affect reservations on
either side of the peak day.
11. Apply deposits and guarantees to last night stay
For longer lengths of stay, make sure the deposits and guaranteed apply to
the last night of the stay, minimizing early departures.

Low demand tactics

1. Sell value and benefits

36
Rather than just quoting rates, make sure the guest knows you have the
right product for them and the best value. Sell the various values and
benefits of staying at your property versus others the guest may be
considering.
2. Offer packages
To increase room nights, one tactic is to combine accommodations with a
number of desirable products and services in to a single package with one
price. Mention any additions, renovations, or new amenities. Non-room
revenue can be included, for example, free movies, discounted attraction
tickets, and shopping coupons.
3. Keep discount categories open
Discounts are typically directed towards particular markets or are
instituted during a particular tome or season. During low demand time it is
important to accept discounts to encourage room nights.
4. Encourage upgrades
Move guests to a better accommodation or class of service to enhance their
experience and hopefully bring them back to the property again and again.
5. Offer stay-sensitive price incentives
A stay sensitive price incentive provides a discount for guests who stay
longer. For example, a guest staying 3 nights might get an additional $5 per
night discount, while a guest staying one night might not.
6. Remove stay restrictions
Remove any stay restrictions so guest are not limited as to when they can
arrive or depart. Guests who can only stay one night will be encouraged to
stay as well as the guest who is staying for a week. This help to maximize
occupancy. It is extremely important to communicate this to staff as well as
the CRO.
7. Involve your staff
Create an incentive contest to increase occupancy and room nights. Make
sure to involve all members of your staff as well as CRO staff.
8. Establish relationships with competitors
Having a cordial relationships with competitors can help with referrals and
can help to carry out cross-marketing efforts.
9. Lower rates
There is great value in keeping guest at the property as long as you are at
least covering the cost of occupancy. You may want to lower your rate
acceptable at that given moment.

37
7.5. Revenue Management Software
Although the individual tasks of revenue management can be performed
manually, the most efficient means of handing data and generating yield
statistics is through revenue management software. Revenue management
software can integrate room demand and room price statistics to stimulate
high revenue-producing product scenarios.
Revenue management software does not make decisions for managers. It
merely provides information and support for managerial decisions. Since
revenue management is often quite complex, front office staff will not have
the time to process the voluminous data manually. Fortunately, a computer
can store, retrieve, and manipulate large amount of data on a broad range of
factors influencing room revenue. Over time, revenue management software
can help management create models that produce probable results of
decisions. decisions models are based on historical data, forecasts, and
booked business.
In those industries where computer-based revenue management has been
applied, the following results have been observed:
 Continuous monitoring: a computerized revenue management system
can track and analyze business conditions 24 hours a day, seven days a
week.
 Consistency: software can be programmed to respond to specific
changes in the marketplace with specific corporate or local
management rules resident in the software.
 Information availability: revenue management software can provide
improved management information which, in turn, my help managers
make better decisions more quickly.
 Performance tracking: a computer-based system is capable of
analyzing sales and revenue transactions occurring within a business
period to determine how well revenue management goals are being
achieved.
Revenue management software is also able to generate an assortment of
special reports. The following are representative of revenue management
software output:
 Market segment report: provides information regarding customer
mix. this information is important for effective forecasting by market
segment.
 Calendar/booking graph: presents room-night demands and volume of
reservations on a daily basis.

38
  Future arrival dates status report: furnishes demand data for each
day of the week. this report contains a variety of forecasting
information that enables the discovery of occupancy trends by
comparative analysis of weekdays. it can be designed to cover several
future periods.
 Single arrival date history report: indicates the hotel's booking
patterns (trends in reservations). this report relates to the booking
graph by documenting how a specific day was constructed on the
graph.
 Weekly recap report: contains the sell rates for rooms and the
number of rooms authorized and sold in marketing programs with
special and/or discounted rates.
 Room statistics tracking sheet: tracks no-shows, guaranteed no-
shows, walk-ins, and turn-away. this information can be instrumental in
accurate forecasting.
Since management is interested in revenue enhancement, computer-based
revenue management has become a popular hospitality industry software
application.

39