Module - 6

PLANNING AND EVALUATING OPERATION

Some of the important tools that front office managers can use
to evaluate the success of front office operation are :-

 Daily Occupational Report

 Occupancy ratio
 Room revenue analysis
 Hotel Income statement
 Room division income statement
 Room division budget report
 Operating ratio
 Ratio standards
Daily Operation Report
 It contains hotel financial activity during a 24 hr period.
 It provides a mean of reconciling cash, bank, revenue and account receivable.
 It also serves as a posting reference for various accounting journals and provide important data
that must be input to link front and back office computer function.
 It is uniquely structured to meet the need of individual hotel.
 Also known as Manager’s report, daily report and daily revenue report.
Occupancy Ratio

It measures the success of the front office in selling the hotel’s primary product :
Guestroom. The following rooms statistics must be gathered to calculate basic
occupancy ratios:
 Number of rooms available for sale.
 Numbers of room sold
 Numbers of guest
 Number of guest per room
 Net rooms revenue
Occupancy Ratio

Various Occupancy ratios can be computed from the above data like :
 ADR
 Occupancy Percentage
 Rev(PAR)
 Rev(PAC)
 Multiple occupancy
 Double occupancy
Occupancy Percentage

 Occupancy percentage indicates the proportion of room either sold or occupied to

number of rooms available during a specific period of time.(Using room sold and
room occupied both are valid depending on the need and history of the hotel)
 Occupancy Percentage -

No. of room Occupied (sold) X 100

No. of room Available
QUESTION

 The ABC Hotel has 550 rooms and on a particular day 385 rooms were occupied
by guest. If 38 rooms were complimentary then find out Occupancy percentage :
 Assuming no. of room occupied as standard.
 Assuming no. of room sold as standard.
SOLUTION

No. of room Occupied X 100

No. of room Available

385 X 100 = 70%

550
SOLUTION

No. of room sold = No. of room occupied – Complimentary Room

= 385 – 38 = 347

No. of room Sold X 100

No. of room Available

347 X 100 = 63.09%

550
State True or False :
No. of room occupied can be either equal to no. of room sold or
more than no. of room sold, but can never be less than no. of room
sold.
Multiple Occupancy Percentage

 The multiple occupancy can be calculated by determining no. of room occupied

by more than one guest to no. of room occupied.

MOP = No. of room occupied by

more then one guest X 100
No. of rooms occupied
QUESTION

 The ABC Hotel has 630 rooms and on a particular day 285 rooms were occupied
by guest. If 110 rooms were occupied by two guest then find out Multiple
Occupancy percentage.
SOLUTION

MOP = No. of room occupied by more then one guest X 100

No. of rooms occupied

= 110 x 100 = 38.59 %

285
State True or False :
Multiple Occupancy percentage can never reach
100%.
State True or False :
Multiple Occupancy percentage is always equal to
double occupancy percentage.
Average Guest Per room sold
(AGR)
 This ratio helps in knowing average guest per room in the hotel.

AGR = Number of Guests

Number of room sold
QUESTION

The ABC Hotel has 620 rooms and on a

particular day 367 rooms were occupied
by guest in which 20 rooms were
complimentary . If 40 rooms were
occupied by two guest then find out
Average guest per room sold.
S O L U T I O N – 03.

 AGR = Number of Guests

Number of room sold

407 = 1.17
347
State True or False :
Maximum AGR a hotel can achieve is 2.
Average daily Rate (ADR)

 ADR is calculated to know the average rate of the room on daily basis. Though
room rates within a property vary significantly from single rooms to suites, from
weekday to weekend but still most org. calculate ADR(Also called Average house
Rate)
ADR = Room Revenue

No. of Room Sold

QUESTION

The ABC Hotel has 435 rooms and on a

particular day 336 rooms were sold to
guest. If the room revenue of Rs.
16,80,000 was generated calculate the
ADR.
S O L U T I O N – 04.

ADR = Room Revenue

No. of Room Sold

16,80,000 = 5000
336
Find:
If in previous example, the number of double room sold was twice
the number of single room sold. Find out total number of single
and double room sold.
Find:
If in previous example if all the rooms were sold at rack rate and the rack
rate of double room sold was twice the rack rate of single room sold.
Find out rack rate of single and double room sold.
Revenue per available room (RevPAR)

 RevPAR divides the total room revenue of the hotel by the number of available
rooms. It measures , the revenue generating capability of hotel.
RevPAR = Room revenue
No. of available room
QUESTION

The ABC Hotel has 650 rooms and on a

particular day 300 rooms were occupied by
guest. If the room revenue of Rs. 19,50,000
was generated by selling room and a revenue
of 4,50,000/- was generated from POS.
calculate the RevPAR.
S O L U T I O N – 05.

RevPAR = Actual Room revenue

No. of available room

1950000 = 6500
300
In a 500 room hotel, 300 rooms were sold at rack rate. After that
Hotel Management decided to give 10% discount on next 100
rooms. Will Rev(PAR) increase or decrease with this decision of
Management ?
In the example cited in previous slide, if the rack
rate was 5,000/- . Find the Rev(PAR) for the 300
rooms sold initially.
Revenue per Available Customer
(RevPAC)
 RevPAC divides the total revenue generation of the hotel by the number of guests
staying overnight. It measures average revenue generated by each guest.
 RevPAC = Actual Room Revenue
(including rooms, F&B, telephone etc.)
Number of Guests
Q U E S T I O N – 06.

 The ABC Hotel has 550 rooms and on a particular day 389 rooms were occupied
by 435 guest. If the total revenue including rooms, food, beverage, telephone is
78,35,663. calculate the RevPAC.
S O L U T I O N – 06.

 RevPAC = Actual Room Revenue

(including rooms, F&B, telephone etc.)
Number of Guests

7835663= 18013/-
435
What impact will decline in revenue from POS will have on :
(a) Rev(PAR)
(b) Rev (PAC)
Average Rate per guest

 Some hotel (mostly resort) are interested in knowing the average room rate per
guest (ARG).

ARG = Room revenue

Number of Guests
Q U E S T I O N – 07.

 The ABC Hotel has 520 rooms and on a particular day 345 rooms were occupied
by guest In which 20 rooms were occupied by 2 guest and 10 room by 3 guest. If
the room revenue of Rs. 50,00,000 was generated calculate the Average Rate per
Guest .
S O L U T I O N – 07.

ARG = Room revenue

Number of Guests

5000000 = 12,987/-
385
True or False :
An increase in the number of guest will increase the
Average Rate per guest (ARG)
True or False :
Since an increase in the number of guest will decrease the Average
Rate per guest (ARG, we should try to sell more single bedded
room.
In a 500 room hotel, 300 rooms were sold at rack rate. After that
Hotel Management decided to give 10% discount on next 100
rooms. Will ARG increase or decrease with this decision of
Management ?
Yield Statistics
 The ratio of actual to potential room revenue is known as yield statistic.

Yield Statistic = Actual Rooms Revenue X 100

Potential Rooms Revenue
Q U E S T I O N – 08.

 The ABC Hotel has 340 rooms with following types :

 Single bedded room = 120 / Rack Rate = 5000/-
 Double Bedded room = 220 / Rack Rate = 9000/-

 On a particular day 320 rooms were sold to guest with all single bedded room
sold out. If 50% of the single bedded room were sold at 20% discount and other
50% at 15 % discount. and Double bedded room were sold at 25% discount.
calculate Yield Statistic.
 S O L U T I O N – 08.
 The ratio of actual to potential room revenue is known as yield statistic.

Yield Statistic = Actual Rooms Revenue X 100

Potential Rooms Revenue
Single bedded room sold = 120 / RR – 5000/-
Double bedded room sold = 200 / RR – 9000/-
Rate for SB Room = 50% room @ 20 % dis.(i.e. 60 rooms) = 60 X 4000 = 240000
Rate for SB Room = 50% room @ 15 % dis.(i.e. 60 rooms) = 60 X 4250 = 255000
Rate for DB Room = All DB room @ 25 % dis.(i.e. 200 rooms) = 200 X 6750 = 13,50,000
Total Room Revenue – 18,45,000/-

Potential Revenue = (120*5000 + 220*9000) = 6,00,000 + 19,80,000 =25,80,000.

Therefore, Yield = 18,45,000 / 25,80,000 * 100 = 71.51%
Hotel Income Statement

 The hotel’s income statement provides important financial information about the
result of hotel operations for a given period. The period may be one month or
longer, but should not exceed one business year. Since a statement of income
reveals the amount of net income for a given period, it is one of the most
important financial statement used by the management to evaluate the overall
success of the operation.
 Praveen Srivastava/HMCT/BIT Mesra
Consolidated income statement
Room Division Income statement

 The hotel’s statement of income shows only summary information. The separate
departmental income statement prepared by each revenue centre provide more
detail. Departmental income statements are called schedules and are referenced on
the hotel’s statement of income.
 By carefully reviewing the rooms divisions income statement, the front office
manager may be able to develop action plans to improve the divisions financial
condition and service.
 Current Period
Revenue 6,124,991
Allowances 54,635
Net Revenue 6,070,356
EXPENSES
Salaries and wages 855,919
Employee Benefit 212,464 Sample Rooms Division Income
Total Payroll and related expenses 1,068,383 Statement

Other Expenses
Cable/ Satellite TV 20,100
Commissions 66,775
Complimentary Guest Service 2,420

Contract Service 30,874

Laundry and Dry cleaning 42,495
Linen 122600
Total Other Expense XXXXXXXX
Total Expense XXXXXXXX
Departmental Income (Loss) XXXXXXXX
Room Division Budget Report

 The hotel’s accounting division also prepares monthly budget reports that
compare actual revenue and expense figure with budgeted amounts. This report
can provide timely information fro evaluating front office operations.
 Budget Report - Room Division
Actual Budget VARIANCE
REVENUE Rs. %
Room Sale 156240 145080 11,160 7.69%

Praveen Srivastava/HMCT/BIT Mesra

Allowances 437 300 (137) (45.67%)
Net Revenue 155,803 1,44780 11,023 7.61
EXPENSES
Salaries and wages 20,826 18,821 (2005) (10.65)
Employee benefit 4015 5791 1,776 30.67
TOTAL 24,841 24,612 229 0.93
OTHER EXPENSES
Commission 437 752 315 41.89
Contract cleaning 921 873 (48) (5.50)
Uniform 374 292 (82) (28.08)
Total Other Expense 1732 1917 185 9.65
Total Expense 26573 26,529 414 1.56
Departmental Income 129230 118251 10609 8.97
Room Division Budget Report

 It is important to note that the slide present both Rs. and percentage variance. The
Rs. Variance indicate the difference between actual result and budgeted amount.
Rs. Variance are general considered either favourable of unfavourable as follows :
-

Favourable Variance Unfavourable Variance

Revenue Actual Exceeds budget Budget Exceeds actual
Expenses Budget exceeds actual Actual exceeds budget
 The budget report show both the variance as single variance may not indicate the
significance of the variance report.
 Finalize the Budget Report
Actual Budget VARIANCE
REVENUE Rs. %
Room Sale 15,00,000 12,00,000

Praveen Srivastava/HMCT/BIT Mesra

Allowances 437 300 (137) (45.67%)
Net Revenue
EXPENSES
Salaries and wages 20,826 18,821
Employee benefit 4015 5791
TOTAL 24,612 0.93
OTHER EXPENSES
Commission 752 315
Contract cleaning 873 (48)
Uniform 374 292
Total Other Expense 1917 185
Total Expense
Departmental Income
Operating Ratio

 It assists managers in evaluating the success of front office operations. Operating

ratios should be compared against proper standards – budgeted percentages, for
example. Any significant difference between actual and budgeted cost must be
carefully investigated.
Operating Ratio

 Payroll and related expenses tends to be the largest single expense item for the
rooms division as well as the largest for the entire hotel. For control purposes,
labor costs are analysed on a departmental basis. Dividing the payroll and related
expenses of the rooms division by the division’s net room revenue yield – Labor
cost
Useful room division operating ratios

Praveen Srivastava/HMCT/BIT Mesra

Net Revenue Payroll and Other Departmenta
Related Expenses Expense l Income
% of total hotel revenue X
% of departmental revenue X X X
% of departmental total expense X X
% of hotel payroll and related expense X
% change from prior period X X X X
% change from budget X X X X
Per available room X X X X
Per occupied room X X X X
Ratio Standards

As explained, Operating ratios are meaningful only when compared against useful
criteria such as :
 Planned Ratio goals
 Corresponding historical ratios
 Industry Average
Planned Ratio goals
 A front Office manager may more effectively control the labor and related expense by projecting a
goal for the current month’s labour cost percentage that is slightly lower than the previous month’s.
 The expectation of a lower labor cost percentage may reflect the front office manager’s effort to
improve scheduling procedure and other factors related to cost of labour.
Industry Average
 Industry average may also provide a useful standard against which to
compare operating ratios. The industry average can be found in
publications prepared by the national accounting firm and trade
associations serving the hospitality industry.