REPORT

ON
HOSPITALITY OPERATIONS FOR SUSTAINABLE INDUSTRY

In Partial Fulfillment of the Requirements

for the Operations Management in the Hospitality Management
for the Degree of Master in International Hospitality Management

Claro M. Recto Academy of Advanced Studies

Lyceum of the Philippines University
Intramuros, Manila

Submitted to
Dr. Gloria Baken Wong-Siy
Professor

Submitted by
Sitti Apsalya B. Bakun
 HOSPITALITY OPERATIONS FOR SUSTAINABLE INDUSTRY

I. HOSPITALITY OPERATIONS
HOSPITALITY

 The friendly and generous reception and entertainment of guest, visitors or

strangers.

OPERATIONS MANAGEMENT

 The management of the processes that produce or deliver goods and services.
 Operations Management decisions directly affects the size, shape, quantity,
quality, price, profitability and speed of delivery of the output of hospitality
organization whether at the luxury ends of the market or a budget product or
services.

5 Hotel Product Characteristics

1. Location
2. Mix of facilities (includes rooms, restaurants, other public rooms, function
rooms and lodging facilities)
3. Image (Public relations and reception)
4. Services it provides (Level of formality, personal attention, speed and
efficiency of the staff)
5. Prices charged

SERVICE AREAS IN HOSPITALITY

Food Service Operations

 Food service (US English) or catering industry (British English) defines those
businesses, institutions, and companies responsible for any meal prepared
outside the home.

Some of the food service areas are:

 Restaurants
 Bars
 Meetings/Conferences
 Room Service
 Ball rooms and others
Restaurant/Banquet Managers are generally responsible for the following:

1. Exceeding guest service expectations

2. Hiring, Training and Developing employees
3. Assessing and maintaining quality standard
4. Marketing
5. Banquets, Coffee service, In room dining, mini bars or the cockatil lounge.
6. Presenting annual, monthly and weekly forecasting budget to the F&B directors.

Room Division
 The rooms division comprises departments and personnel essential to providing
the services guests expect during a hotel stay.

Departments under Room Division are the following:

 Front Office
 Reservations
 Housekeeping
 Concierge
 Guest Service (Room Service, Bell Boy, Laundry, Security and Communications)

1. Front Office – is considered as the heart of the hotel and associates of this
department are responsible for guest's first and last impression of the hotel.

(Based on studies, the last impression is a lasting impression which will be instrumental
for the guest's decision to return to the hotel for the next visit).

Main functions of the front office are:

 Sell rooms
 To maintain balance accounts
 To offer services such as handling mail, faxes, messages and local and hotel
information.

2. Reservation- This department is often the first one that a prospective guest has a
contact with and therefore impressions made are lasting.
(Quality service and attention to detail are critical)

3. Housekeeping- This department is responsible for the cleanliness, appearance and

condition of the entire hotel including the public areas. It is also considered as the
largest department since it employs the largest number of employees in the hotel.

OTHER TYPES OF HOSPITALITY OUTLETS

 Pubs, Bars and Nightclubs
 Gambling (Casinos)
 Contract catering
  Membership clubs
 Hostels
 Holiday Parks
 Self-Catering
 Visitor Attractions
 Tourist services
 Travel services
 Events
 Hospitality services (Restaurant, Hotels, Motels, Spa and etc)

Influences affecting pattern of demand within hospitality operations:

1. Opening hours/time of day/week – The hospitality industry is a 24/4, 365/366 days

industry and the pattern of demand is therefore influence by this.

2. Seasonality- is a characteristics of a time series in which the data experiences

regular and predictable changes which recur every calendar year. Hospitality products
and services are seasonal which means they do not have a common nature throughout
hence, they change from season to season to provide required services as demanded
by customers.

3. Sociological Influences- There have been lot of changes in the family unit
influencing people’s spending and some of them are the following:
 Many families will have two incomes increasing disposable income but reducing
time available to cook. This therefore, increases the demand for fast food and
eating out.
 A grab and go culture of food on the run just like Coffee Bars/ Sandwich shops/
Takeaways contribute to lack of cooking skills or for those consumers who prefer
on the go food items.

4. Healthy eating and drinking- The lifestyle of people are changing and this is evident
in the choices displayed by hospitality customers.
 Increase in demand for healthy food
 Increase in demand for organic food
That is why the life expectancy is expected to increase due to healthy options in diet
and way of life this will affect the demand of product and services offered in the
hospitality sector.

5. Accommodation Trends- Latest trends from different hospitality sectors can affect
the demand expectation of every consumers or tourist and some of the accommodation
trends are the following:

 The latest spectacular hotel in Beijing the “Kempenski Sunrise” that has the
appearance of the rising sun.
 The Lanesborough is now accepting guest after their renovation works that last
eighteen months.
  Reopening of Ritz Hotel in Paris last 2015.
 Continuous revolution of technology such as: Online booking transaction abd
performance surveys, instant messaging apps that are used in booking hotels.
Also, lack of wireless connection can be a biggest reason not to be picked by
consumers.

6. Elasticity of demand- The price elasticity of demand in microeconomics.

Law of Demand- states that more of a good will be demanded the lower its
price, all else constant and less of a good will be demanded the higher its price, all else
constant.
‘ Price Elasticity of Demand- The measure of the percent change into quantity of
a good demanded divided by the percent change in the price of that good. It is the term
used by economist to describe on how responsive consumers are to the change of
price. It is a very important concept in economics and a foundation for many advanced
lessons on how individuals and business owners make purchasing decisions.

II. CUSTOMER PROFILE

 It is a way of describing a consumer categorically so that they can be grouped
for Marketing and Advertising purposes.
 It can be defined as customer description that includes demographic,
geographic, and psychographic characteristics, buying pattern and purchase
history.

Factors to consider when developing customer profile:

 Who are the customers?

 How do they buy?
 Why do they buy?
 What do they expect from buying?
 What do they value when buying?

Customer profiling can be done in the following categories:

1. Spending power
2. Types of hospitality business
3. Menu/Accommodation range
4. Pricing considerations
5. Expectations and requirements
6. The meal experience

Spending Power- is the degree to which people have money to buy products and
services and can be affected by the following:
 Size of income
 Status
 Socio-cultural influences
 Economic situation
Accommodation range- Customers are profiled according to their desire for
accommodation ranges which include:
 Hotel
 Guest accommodation
 Self-catering
 Serviced apartment
 Hostel
 Individual caravans
 Hire craft & hotel boat
 Chalets

Menu range- Eating establishments can be defined as:

 Low cost or High cost
 Small choice on menu or Wide choice on menu
 Quick service of food or Slow service of food (cooked to order)
 Self-service or High level of service
 Basic ambiance or High level of ambiance

Pricing considerations- Pricing is a very powerful weapon and is customer driven in

the hospitality industry. Customers consider prices before making purchase decisions
regarding hospitality products and services. The pricing considerations usually depend
on the firm’s average costs and on the customer’s perceived value of the product in
comparison to his/her perceived value of competing products.
The meal experience- may be defined as series of events both tangible and intangible
that a customer experiences when eating out.
 Tangible- which can be experienced by touching or seeing like
restaurant tables, chairs and etc.
 Intagible- which can be only sensed/felt like restaurant atmosphere
and etc.
The five meal experience factors are the following:
1. Food and beverages on offer
2. Level of service
3. Level of cleanliness and hygiene
4. Perceived value for money and price
5. Atmosphere of the establishment

AVERAGE SPENDING POWER

 Is the sum of revenue divided by the number of customers

Total Sales Revenue

Total number of guest

The average spending power in hospitality businesses can be affected by the

following factors.
o Size of income
o Status
o Socio-cultural influences
o Economic situation
o Pricing
o Menu design

Size of income- Individual income is an economic indicator that helps gauge the
strength of the consumer sector it also indicates the strength of the economy. Personal
income determines consumer consumption and consumer spending that affects the
revenue of the hospitality organization. Also, a rise in personal income will lead to an
increase in disposable income.

Status- is the relative position of an individual within a group or of a group within a

society and this term can refer to either high or low standing in the society. The status
quo effect indicates a difference between mandatory and discretionary spending and
people with high status find that spending in the hospitality industry is mandatory.

Socio-cultural influences- are influences relating to or signifying the combination or

interaction of social and cultural elements. The attitudes and feelings about spending in
the hospitality industry tend to be closely tied to the cultural, moral and religious beliefs.
On the basis of culture, some people view going to places such as hotels culturally
unacceptable while on moral grounds, some people believe money spent to hospitality
is money wasted.
Economic Situation- The most important economic factors that affect average
spending power in hospitality are wages and employment. The employment levels and
average salaries can have a tremendous effect on economy-wide purchasing power
and the more people who are employed and the more money they earn the more
discretionary funds they will have to spend in the hospitality industry.

Pricing- The single most important decision in evaluating a hospitality industry business
is pricing power and understanding the power of pricing is critical. Hospitality
businesses don’t have the power to raise prices without losing business to a competitor
there are also a different approaches to pricing in hospitality industry and each
approach is dynamic and the pricing in the hospitality is consumer oriented.

There are many pricing strategies used in hospitality industry and some of them are
listed below:
 Premium pricing
 Penetration pricing
 Economy pricing

Menu design- A well designed menu can educate and entertain the customer as well
as be a communication, cost control and marketing tool for a restaurant. The menu
design must be congruent with the concept and image of the restaurant and effectively
communicate the overall dining experience to the guest. The menu is the most
important internal marketing and sales tool a restaurant has to market its food and
beverage to customers it is the only piece of printed advertising that the company is
virtually 100 percent sure will be read by the guest and it can directly influence not only
what they will order but ultimately how much they will spend.

III. MENU AND RECIPE PLANNING

MENU PLANNING

 Considered to be one of the most critical activities of food service operations.

 It defines the decor, service style, costume and required cooking skills.
 The process of planning a menu must be thoroughly understood.

Three types of menu:

1. Table d’ Hote
2. Set Menu
3. A la carte

Table d’ Hote

 Restricted Menu
 Offering a small number of courses usually three or four.
  A limited choice within each course.
 A fixed selling price.
 All the dishes being ready at a set time.

Set Menu

 Is a menu at a set price offering usually no choice or whatever to the customers,

unless the client informs the caterer in advance that certain guest require special
meals.
 This is often used in large functions or banquets.

A la carte

A la carte meals are being identified by the following:

 A larger menu and offering a greater choice.
 All orders being prepared to order.
 Each dish being separately priced.
 Usually expensive than table d’ hote.
 Often containing exotic and seasonal food.

Factors affecting menu planning

1. Number of kitchen employees

2. Price
3. Idea/Business Performance/Consumer spending power/Type of establishment
4. Type of customer
5. Type of food menu (Table d Hote, A la Carte or Set Menu
6. Concept of the food (Seasonal, Signature Dish)
7. Innovation/Add product

The menu should be:

Attractive- menu should look interesting and inviting so the customers really want to
read it.

Clean- this appears to be obvious but it’s frequently ignored.

Easy to read- clear headings, titles and items not crammed, different sections are
separated, careful use of typeface and appropriate to the style of the outlet and
occasion.
 RECIPE PLANNING

 This is a complex business with a great deal of factors to be considered which

means that it is not something that can be rushed or neglected if you want to
succeed.

Factors affecting recipe planning

 Nutrition
 Special diets
 Cultural and religious diet

Nutrition- plays a huge role in recipe planning especially in establishment such as

hospitals, residential, schools and homes for the elderly. Well balanced nutritional meals
are essential as it is unlikely that the residents will have any other source of intake of
necessary vitamins, proteins, etc. Research shows that when people eat out they want
to eat healthier but they also wanted to treat their selves the opportunity is to find the
sweet spot between great taste and good health that is called “Seductive Nutrition”. In
order to provide delicious descriptions on menu the following is the possible ways to
create a reliable description to the dish:

 Focus on and call out ingredients

 Tell a story about your ingredients or local suppliers
 Describe the dish’s preparation

Some of the “Hot” words for menu are:

 Open flame
 Fire-roasted
 Pan-roasted
 Grilled to perfection
 Herb-infused
 Fermented
 Zip-code honey
 Farm branded ingredients
 Place of origin
 Local vs seasonal

Many more customers are becoming cautious of their dietary requirements and there is
likely to be a small segment of the market which is particularly interested for example in
the calorie content of specific menu items or in vegetarian items.

Specialty Diets- customers may be required to undertake special diets for medical
reasons including the prevention of allergic reactions with these needs will usually know
what they can and can’t eat but it is important that when asked a server is able to
accurately describes the dishes so that the customer can make the correct choice and
never, ever guess.

Special diets may include:

 Allergies- Food items where allergies are known include the gluten in wheat, rye
and barley (known as coeliac), peanuts and their derivatives, sesame seeds and
other nuts such as cashew, pecan, brazil and walnuts as well milk, fish, shellfish
and egg.

 Diabetic- This is the inability of the body to control the level of glucose within the
blood. Diets may include foods in the low cholesterol list and avoidance of high
sugar dishes.

 Low cholesterol- Diets will include polyunsaturated fats and may include limited
quantities of animal fats. Other items eaten may include lean meats, either
poached or grilled. Fish, fruits, vegetables and low fat milk, cheese and yoghurt
are also included on this diet.

 Low sodium/salt- This requires a reduction of sodium or salt consumed. Diets will
include low sodium/salt foods and cooking with very limited or no use of salt.

Cultural and Religious Diets- various diets have differing requirements with regard to
the dishes/ingredients which may be consumed and these often cover preparation
methods, cooking procedures and the equipment used. A summary of these needs is
given below:

 Hindus do not eat beef and rarely eat pork. In addition, some will not eat any
other meats, fish or eggs. Diets may include cheese, milk and vegetarian dishes.

 Jews allows for the consumption of ‘clean’ (kosher) animals and therefore, do
not eat pork or pork products, shellfish or animal fats and gelatin from beasts
considered to be unclean or not slaughtered according to the prescribed manner.

 Muslims will not eat meat, offal or animal fat unless it is ‘halal’ (lawful, as required
under Islamic dietary law) meat.

 Sikhs do not eat beef or pork. Some will keep to a vegetarian diet. Others may
eat fish, mutton, cheese and eggs. Sikhs will not eat halal meat.

 Roman Catholics restrictions on diet are very limited. Usually will not eat meats
on Ash Wednesday or Good Friday. Some keep with the past requirement for no
meat to be eaten on Fridays.

 Vegetarianism
 o Vegans will not eat any foods of animal origin. Diets will mainly consist of
vegetables, vegetable oils, cereals, nuts, fruits and seeds.
o Lacto-ovo vegetarians will not eat all meat, fish, and poultry but may eat
milk, milk products and eggs.
o Lacto-vegetarians will not eat all meat, fish, poultry and eggs but may eat
milk and milk products.
o Pescetarians will eat fish, chicken and dairy.

IV. FOOD COST

FOOD COST

 It determines your business profitability.

 Lower FC = Higher Profit
 Properly price your menu
 Optimize your menu
 Food cost is not how much you spend on the food.

Two types of food cost

1. Plate Cost
2. Period Cost

Plate Cost

 This is the amount or costs to prepare the product divided by on how much the
restaurant sell it.

Cost
Sales Price/Selling Price = Plate Cost

Plate Cost x 100 = Plate Cost Percentage

Period Cost
 The CoGS means Cost of Goods Sold the amount of goods sold in the restaurant
in a month, weeks or a year.

Beginning Inventory + Purchases – Ending Inventory = Usage

Beginning Inventory- is the recorded cost of inventory in a company’s accounting

records at the start of a period it is also the cost of inventory at the end of immediately
preceding period which then carries forward into the start of the next period.
Purchases- Any additional purchases or productions made by the company.

Ending Inventory- is the cost of those goods on hand at the end of the period and it is
comprised of three types of inventory, which are:

 Raw materials- This is the materials used to construct completed goods, which
have not yet been transformed.
 Work-in process- This is raw materials that are in process of being transformed
into finished goods.
 Finished goods- This is the fully complete goods, ready for sale.

Usage- how much materials or ingredients used in a certain period.

Usage
Total Sales = CoGS

CoGS x 100 = CoGS Percentage

When using food cost make sure that the data used for comparing are correct such as
purchases, inventory and sales.

V. FORECASTING

FORECASTING

 It is a technique that uses historical data as inputs to make informed estimates

that are predictive in determining the direction of the future trends.

 A tool which can help managers to anticipate future business performance, better
equipping them to deal with future uncertainty in the process.

There are two basic forecasting approach types that are commonly used by
businesses:

1. Quantitative Approach
2. Qualitative Approach

Quantitative Approach- is a type of approach wherein historical data from time-series

or correlation are used. There are four approaches types in this category.

 Naïve approach- this approach are based on the previous data period that is
corrected by the company.
 Moving approach- usually used data from at least two to three periods and
will be divided to get the average.
  Exponential smoothing- data are based on past observations and weighted
average equally.
 Trend projection- an approach that involves with the movement of variables
through time.

Qualitative Approach- a type of forecasting approach that is from the opinions of the
experts, decision makers or the buying customers or consumers. Same with the
quantitative approach there are four types under qualitative approach.

 Executive opinion- this is typically a decision based on the perspective of the

executives in the company.
 Delphi method- an opinion will be gathered from the company’s trusted
adviser that will be compiled by the company and will be discuss among the
major decision maker.
 Sales force estimates- this kind of qualitative approach involves the
salesperson with a daily sales record as their basis for the forecasting of the
sales.
 Consumer surveys- a type of approach wherein feedbacks from consumer
are used as their data to forecast.

In order for the managers to check the profitability of the establishment and to create
reliable data basis there are types of financial reports that must be presented to the
stakeholders, board of directors and business owners. The first report summarizes and
presents the operating results of the previous day or week while the second report
forecasts or schedules operations and functions for the next day or next week. The
internal management reports are prepared by the accounting office and distributed to
the managers for their basis.

The Financial Management Cycle

1. Operations produce the numbers.

2. Accounting prepares the numbers.
3. Operations and Accounting analyze the numbers.
4. Operations apply the number to change or improve operations.

Internal Management Report

 An internal management report contains detailed operating information covering

a specific time for a specific product, customer, department, or for the entire hotel
or restaurant.

 It can contain the operational results for activities of the previous day or week, or
it can contain the information required to plan the next day or week.

 Daily and weekly reports are used internally as management tools.

  Monthly reports are used both as a management tool and to report the monthly
financial results for the three formal financial statements: the P&L, the Balance
Sheet, and the Statement of Cash Flow

Types and Uses

The internal management reports contain the daily, weekly, monthly and quarterly
information. It includes reports that provide actual operating information and financial
information for previous time periods and reports that plan in detail for future time
periods. The daily and weekly reports provide the results of actual operations and use
as the basis to forecast and schedule operations for the next day, week, month or
quarter.

DAILY REPORTS

The two most important daily reports provide information on the revenues and labor
costs. The names and formats may differ based from the company but the content is
still the same. They focus on providing the actual operating results for the previous day
and comparing those results with forecasts, budget, the previous month and last year’s
information.

Daily Revenue Reports

This report is prepared during the night or day audit shift and collects and presents all of
the operating information for the previous day. The daily report provide the financial
number that results from the operations. These are compared to other operating time
periods to show if operations are improving, if revenues and profits are increasing or if
established budgets and forecasts are being met. These reports help the department
head to make necessary changes on the forecasted data based on the actual figures
stated in the daily report.

Labor Productivity Reports

It contains detailed information and states the labor expenses the result of this report is
compared to the budget or forecast numbers to determine if established labor guidelines
have been met. There are two parts that can be used to analyze labor and wage costs:
Labor hours and Wage cost percentages and these are both important.

Labor Hours and Labor Productivity

A labor hour is defined as the number of hour’s one employee works in performing his
or her job responsibilities. Typically, full-time employees are scheduled for an eight-hour
workday and a 40-hour workweek any exceeding hours beyond this is considered as
overtime. The basic unit of labor hour measurement is an eight-hour day and 40-hour
week. Some formulas and ratios used in the hotel and restaurant business are as
follows:

1. Labor hours per room sold. The formula is total labor hours divided by total
rooms sold. This measure is used by the front office and housekeeping
departments. They established guidelines that are used to prepare budgets and
forecasts and if the actual results are different from these guidelines managers
are expected to identify what caused the difference or variations and how to
make any necessary corrections.

Total Labor Hours

Total Rooms Sold = Labor hours per room sold

2. Rooms cleaned or credits cleaned per shift. The formula is the sum of rooms-
cleaned divided by one eight-hour shift. This formula is used by the
housekeeping. The number of rooms cleaned by one housekeeper on an eight-
hour shift can range from as few as 12 at a resort as many as 18 at full service or
limited-service hotel.

Total Rooms Cleaned

Eight hours = Credits cleaned per shift

3. Labor hours per customer. The formula is labor hours divided by total
customers served in the restaurant. This relationship describes the number of
labor hours required to service or take care of a corresponding customer volume
level.

Labor hours
Total customer served = Labor hours per customer

These formulas are used to calculate the number of labor hours required to work based
on forecasted rooms sold or customers. It only measures the labor productivity because
it relate labor input in labor hours to products and services produced in terms of rooms
sold or customer served and it do not involve any cost or revenue.

Wage Cost Percentage

This productivity measure compares the wage cost in sales revenue. It converts the
labor productivity to monetary value. The relationship now measures the cost in wages
incurred to the corresponding revenue levels resulting from rooms sold or meals served.
Examples of wage cost percentages are as follows:
 1. Front office wage cost. The formula is total front office wage in monetary
value (sectors included are front desk, reservations, bellmen, concierge) divided by total
room revenue. The resulting wage cost percentage measures this relationship. The
budget and forecast guidelines will be use to compare to the actual wage cost
percentage to determine if the expected productivities are achieved.

Total front office wage

Total room revenue = Front office wage cost

Front office wage cost x 100 = wage cost %

2. Wage cost per occupied room. This formula has two steps. First, the labor
hours used times average hourly wage rate equals cost in monetary value. Second,
wage cost in monetary value divided by rooms sold (same as rooms occupied) equals
wage cost per occupied room. It will show how department managers are good in
controlling labor cost related to the rooms sold.

First step:

Labor hours used x Average hourly wage rate = Labor cost in monetary value

To get the average hourly wage rate the formula is per day salary wage is divided by
the basic total number of working hours.

Example:

Php537.00
8 hours = Php67.125 (Ave. hourly wage rate)

Second step:
Labor cost
Rooms sold or occupied = Wage cost per occupied room

3. Housekeeping wage cost. The formula is total housekeeping wage cost in

monetary value (sectors included are housekeeper, housemen, public space,
supervisors) divided by total rooms revenue.

Total housekeeping wage

Total room revenue = Housekeeping wage cost

Housekeeping wage cost x 100 = wage cost %

 4. Restaurant wage cost. The formula is total restaurant wage cost in monetary
value (sectors included are servers, bussers, hostess, manager) divided by the total
restaurant revenue.

Total restaurant wage

Total sales revenue = Restaurant wage cost

Restaurant wage cost x 100 = wage cost %

Labor productivities like labor hours per occupied room are the truest measure of
productivities because they just measure labor input with labor output. It is the main
measurement to managing wages. The next productivity identifies the monetary cost
incurred to produce products and services and the revenue resulting from the sale of
products and services. This is the best measure of financial relationship between
expenses and revenue that are both useful in managing operating departments.

WEEKLY INTERNAL MANAGEMENT REPORTS

These reports are also used to review and critique the previous day and the previous
week and to forecast and prepare for the next week. The weekly reports are the primary
reports used by the managers because operations are planned for in weekly time
periods, revenues are forecasted for the entire week, wages are scheduled for a week,
employees schedule are posted and all operations are planned in weekly planning
meetings. It is also consider as the key planning and measurement time period. Though
managers are concerned with the daily operations but the planning generally involves a
weekly time period. Same with the daily internal management reports the two most
important areas as part of the report are the revenues and wages and it is mainly used
to forecast for the upcoming operations, evaluating and criticizing the past week’s
performance. Listed below are the steps managers take in forecasting for the next week
operation:

Step 1: Managers look at the budget that was prepared for the upcoming week and this
will be the starting point for their weekly plan.

Step 2: Managers review recent reports and business volume levels to see if the budget
should be adjusted upward or downward.

Step 3: Managers prepare the revenue forecast and wage schedules for next week
based on data gathered.

Steps 4: Managers analyze actual performance and compare it to the budget and the
forecast and any differences or variations will be analyzed and critiqued it to identify
both good and bad results.
 If a problem exists and forecasted revenues or productivities are not achieved, it
is important to identify if the entire week had problems or if there were big problems for
only one day. The possible question might be “What caused the problem?” “Was the
problem a result of lower revenues or high costs?”

Step 5: Managers evaluate how accurate their forecast for the week to compared to
actual operations. Results from the previous week are available to help prepare as
accurate a forecast as possible.

Step 6: Managers apply what they learned from the weekly results to operations and
use this information to forecast the next week’s operation.

With the steps taken a weekly forecast will be produced and it will be the main planning
document for the department.

The second use of the weekly reports is evaluating and analyzing the previous week’s
performance to see how actual operational results compared with the budget or
forecasted operations. It is important to evaluate accuracy of the forecast as well as the
actual performance to avoid poor forecast that might result in poor performance in
controlling cost as well as maximizing revenues and profits.

Weekly Revenue Forecast

It is the first step in planning operations for the week. The weekly forecast is then
distributed to all managers for their use in planning the week they will also look at the
next month in more general terms to see if any significant changes are expected that
will affect their weekly forecast or schedule.

Weekly Wage and Cost Scheduling

The next step is to take the weekly revenue forecast and schedule the wages required
for each day’s operations. The total labor hours and wages expenses for the week are
then totaled and ratios calculated to ensure that the weekly productivities are
maintained also adjustments can be made to make productivities on the line. If higher
wage levels are required, the manager needs to document why and what work will be
completed to justify the increase on the weekly wage cost.

Profitability Forecasting

The last area to forecast is profitability. This is done by adding operating expenses to
the forecast it is generally based on historical averages and are often relatively fixed
expenses. Forecasted profits are calculated by subtracting all forecasted expenses from
forecasted revenues by completing profit forecasts for the week managers can compare
the data to the budgeted weekly profits to ensure both revenue and expense forecasts
are in line and will meet expected or budgeted productivities and profitability.

MONTHLY INTERNAL MANAGEMENT REPORT

The monthly report that is usually submitted by the operations department to the board
of directors is P&L (profit and loss statement) wherein it is analyzed in great detail to
measure financial performance and describe the operations for the month.

Monthly P&L Statement

This is the financial statement that gets the closer scrutiny and is used the most in
analyzing financial performance. This close analysis enables the monthly P&L to
become a useful management tool it also describes not only the operational
performance of the department but also what financial results that operational
performance produces. It is also the financial statement that is commonly used by most
internal and external parties.

The consolidated P&L statement provides the summary of each department’s revenues
and profits it also include the department summary of expenses and it is used to review
the overall performance of the business by presenting the big picture. Department
managers are assisted by their Executive Committee member, Director of Finance or
another member of the accounting office in analyzing the monthly P&L for better
understating on the financial statement it can also help the managers to create for an
accurate and detailed strategic plan to improve the next month performance of the
business.
Profitability, Retention and Flow Through

This aspect of financial analysis is important because it goes beyond comparing the
monthly financial results of a department with the budget and forecast, as well as
comparing them to last month or last year it involves identifying revenue, expense, and
profitability changes from the budget or the forecast. There is an expected relationship
between the increase and decrease in revenue and the increase and decrease of
expense and profitability. Department managers are expected to be able to forecast
increase and decrease in revenues compare to the current budget and recent forecasts
and managers are also expected to manage expenses to maintain the productivities
and produce the maximum profit given the forecast change in revenues.

There are several important terms that managers need to understand:

 Incremental – refers to an increase, something gained or added. Analyzing the

incremental revenues, expenses and profits will identify where the department
did well and where it did not do well.

 Fixed expenses- refer to expenses that remain constant regardless of the volume
and level of business. Fixed expenses do not change from month to month.

 Variable expenses- refer to expense that increase or decrease directly with the
volume and level of business. Variable expenses change each month based on
business volume.

 The cost management index (CMI)- is the formula used to identify what level of
expenses and profits is expected given incremental changes in revenue. The
formula expects higher levels of profits that should result from incremental
revenues. Hospitality companies used the term retention and flow thru to
describe this process. These terms measures how much profits go up and down
as a percentage of how much revenues go up and down.

 Variation- refers to something that is slightly different from another of the same
type. In financial analysis, variation is the difference between numbers.
As shown on the illustrations above it is identified what are the fixed expenses and
variable expenses. The forecasted room revenue is $600,000 but the actual sale is
$625,000 the difference or variations is $25,000.

To get the retention or flow thru first compute for the total profit then divided by the total
room revenue difference/variations.

Differences/Variations
Total Room Revenue: $25,000
(Less) Total Expenses: $1,900
Total Profit: $23,100

The formula to get the retention/follow thru is: Total Profit divided by the variance of the
actual and forecasted room revenue.

$23,100
$25,000 = 0.924
To get the percentage:
0.924 x 100 = 92.4%

The retention/follow thru is 92.4% of the actual difference/variations of the company.

VI. REFERENCES

ONLINE MODULE

1. Nelson College London Module

 Hospitality Operations 1
 Hospitality Operations 2
 Food & Beverage Operations Management 1.2//Menu & Recipe Planning

2. Avercast, LLC

 Forecasting Methods Overview

ONLINE SITES AND PDF

 https://en.wikipedia.org/wiki/Foodservice
 https://www.slideshare.net/akhilalpnapandey/introduction-
ofroomsdivisionfrontofficeandhousekeepingdepartment-ppt
 https://www.slideshare.net/angielynlaquian/menu-planning-36141558
 https://www.investopedia.com/terms/f/forecasting.asp
 https://www.revfine.com/forecasting-tips-revenue-management/
 https://www.itl.nist.gov/div898/handbook/pmc/section4/pmc43.htm
 https://businessjargons.com/trend-projection-method.html
 https://nscpolteksby.ac.id/ebook/files/Ebook/Hospitality/Accounting%20and%20Fi
nancial%20Analysis%20in%20the%20Hospitality%20Industry%20(2005)/6%20-
%20Hotel%20Management%20Reports.pdf
 https://www.accountingtools.com/articles/what-is-beginning-inventory.html
 https://www.investopedia.com/terms/c/cogs.asp
 https://www.accountingtools.com/articles/2017/5/6/ending-inventory