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Roko Hotel Orujovapgullu@
Roko Hotel Orujovapgullu@
Problem definition
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Your client is a family-owned hotel in Paris called Roko Hotel. Until last year, they ran a very successful
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business with healthy profit margins. However, as of last year they are facing declining profitability and
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do not understand why.
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The hotel is located in the suburbs with the city center a 20-minute tram ride away. The hotel is still
independent and not owned by a chain.
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The owners have asked you to help them identify reasons for the decline in profitability and
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Additional information
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If asked about the hotel size, please share that the hotel has 30 rooms
Note that questions about room mix, customer types and pricing should be kept for the analysis phase.
Question 1 (Structuring)
Possible answer
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2. What cost factors are driving the profitability decline?
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a. Fixed costs:
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• Salaries
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• Building maintenance
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Insurance
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• Taxes
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b. Variable costs:
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• Cleaning
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Booking fees
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Question 2 (Creativity)
Besides rooms, food, and drinks, what revenue streams could a hotel like this have?
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Spa treatments
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For non-guests
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•
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Meeting rooms
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• Restaurant
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•
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Question 3 (Numeracy)
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Based on this exhibit [share Exhibit 1], what’s the annual revenue for this hotel?
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Possible answer
Weekdays:
25 rooms x 60% x $100 x 5 nights = $7,500
5 rooms x 100% x $140 x 5 nights = $3,500
Weekend:
25 rooms x 60% x $100 x 2 nights = $3,000
5 rooms x 40% x $140 x 2 nights = $560
Room data
# rooms Price
Standard 25 $100
Premium 5 $140
Weekdays Weekends
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Premium 100% 40%
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Question 4 (Numeracy)
Based on the additional data in Exhibit 2 on last year’s performance, what insights can you draw
about recent changes in annual revenue?
Additional information
If asked, please share that prices have not changed year to year
Possible answer
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Weekdays:
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25 rooms x 60% x $100 x 5 nights = $7,500
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5 rooms x 70% x $140 x 5 nights = $2,450
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Weekend:
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Roko Hotel is making roughly $75,500 less revenue this year compared to last year. Looking at the data it
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appears this is being driven by a decrease in utilization at the weekends by nearly half.
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Interestingly, utilization of premium rooms has increased during weekdays over the same time period.
Exhibit 2 – Utilization last year
Weekdays Weekends
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Question 5 (Numeracy)
Now take a look at Exhibit 3. What does this tell you about the hotel’s current performance on
cost, and the hotel’s overall profitability?
Additional information
• Unlike revenue, the cost inputs have not changed over the time period
• The tackle this question, the candidate must calculate profit last year vs. today. Note that to calculate
the # rooms, a candidate must make use of the utilization rates covered earlier
• While quite precise calculations are followed in this example, the numbers may also be rounded for
simplicity without affecting the outcome
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Possible answer
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Variable Cost
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Current:
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Variable costs: (# Std rooms filled per week x Cost/std room + # Prem rooms filled per week x Cost/Prem
room) x 50 weeks = $241,750
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Last year:
Variable costs: (# Std rooms filled per week x Cost/std room + # Prem rooms filled per week x Cost/Prem
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Profit
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Current:
Profit = revenues – fix. Costs – var. costs = $ -13,750
Last year:
Profit = revenues – fix. Costs – var. costs = $33,750
Variable cost has clearly decreased in line with changes in utilization. However, due to quite high fixed costs,
the drop in revenue has taken the client from a c.4% profit last year to a loss this year.
Exhibit 3 – Cost data
Standard Premium
room room
Variable $35 $40
Variable costs reflect cost to serve one room for one night
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Question 6 (Creativity)
Based on the data and your understanding of Roko Hotel’s situation, what do you think could
have caused the decrease in profitability?
Additional information
If not done proactively, steer the candidate towards identification of root causes of shifts in room
utilization.
Possible answer
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Identification of changes in utilization:
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1) Last year - Standard, weekend rooms fully booked
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2) Current - Premium, week rooms fully booked
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Potential reasons:
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• Fewer weekend tourists visiting Paris, e.g. due to competing tourism destinations
• Fewer weekend holidays taken per year within France – extended long haul holidays favoured
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Last year a famous concert venue a 5-minute walking distance from the hotel closed down, which
previously scheduled shows every weekend. Additionally, a huge conference center opened close to the
hotel, offering multi-day business events during workweeks.
How do you think these changes have impacted the hotel and what solutions do you therefore
propose to increase Roko Hotel’s revenue?
Possible answer
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Ultimately, leisure/music tourists (booking standard rooms) decreased and business travelers (requiring
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premium rooms) increased.
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Short-term solutions:
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- Offer business travel services e.g., premium taxi service to conference center, paid printing
services, high-end business lunches in own restaurant
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Long-term solutions:
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What recommendation would you put forward to Roko Hotel to increase profitability?
Possible answer
We were asked to diagnose the reasons behind Roko Hotel’s profit challenge, and suggest options to
turn the situation around.
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• Increase in business travelers due to opening of a conference center, for which the hotel set-up is
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not optimal
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To solve the profit issue, I propose both short-term and long-term actions:
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Short-term: Maximize revenue from business travelers by increasing the premium room price and
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As next steps, I would suggest investigating strategic partnerships with the conference center to increase
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