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1. Planning Operations

1.1. Management Function

1.1.1. Planning, Organizing.
1.1.2. Co-ordination.
1.1.3. Staffing, Leading.
1.1.4. Controlling, Evaluating

1.2. Establishing Room Rate

1.2.1. Different Approaches for pricing rooms
1.2.2. Market condition Approach
1.2.3. Rule of Thumb
1.2.4. Hubbart’s formula- Determining single and double rate

1.3. Special Room Rates

1.3.1. Corporate / Commercial Rate
1.3.2. Group Rate
1.3.3. Promotional Rate
1.3.4. Incentive Rate
1.3.5. Family Rate
1.3.6. Packagte
1.3.7. Complimentary Rate

1.4. Forecasting Room Availability

1.4.1. Forecasting Data
1.4.1.1. Percentage of No-show
1.4.1.1. Percentage of Cancellations
1.4.1.1. Percentage of Walk-ins
1.4.1.1. Percentage of Overstay
1.4.1.1. Percentage of Under stay
1.4.2. Forecast Formula
1.4.3. Sample 3 and 10 days forecast
1.4.4. Refining Forecast

1.5. Budgeting for Operations

1.5.1. Three Day Forecast
1.5.2. Forecasting Room Revenue
1.5.3. Estimating Expenses
1.5.4. Refining Budget Plans
1.6. Key Terms
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Planning Operations

Exibits1: overview of the management process

Initial Pre-Operating Operating Appraisal

Activities Activities Activities Activities

Planning Organizing Leading Evaluating

Coordinating Controlling

Change in Procedures
Revision in Plans

Hubbart Formula Approach

The Hubbart Formula approach involves the following eight steps:

1. Calculate hotel’s desired profit by multiplying the desired rate of return (ROI) by owners’
investment.
2. Calculate pretax profits by dividing desired profit (step 1) by 1 minus the hotel’s tax rate.
3. Calculate fix charges and management fees. this calculation includes estimations depreciation
, interest expenses, property tax, insurance, amortization, building mortgage ,land, rate and
management fees.
4. Calculate undistributed operating expenses. This calculation includes estimation of
administrative and general, data processing, human resources, transportation, marketing,
property operation and maintenance and energy costs.
5. Estimate non-room operated department income or loss that is food and beverage department
income or loss, telephone department income or loss and so forth.
6. Calculate the required rooms department income. The sum of pretax profits (step2) fixed
charges and management fees(step 3) , undistributed profits and operating expenses(step 4)
and other operated department losses less other operated departments income. The Hobart
formula, in essence, places the overall financial burden of the hotel on the rooms
departments.
7. Determining the rooms department revenue. The required rooms department income(step 6) ,
plus rooms department direct expenses of payroll and related expenses, plus other direct
operating expenses , equals the required rooms departments revenue.
8. Calculate the average room rate by dividing rooms department revenue (step 7) by the
expected number of rooms to be sold.
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Illustration of Hubbart Formula
The Shavai, a 200 room property is projected to cost Rs.99,00,00,000 inclusive of land, equipment,
building, and furniture. An additional Rs.100,00,000 is needed for working capital bringing the total
cost of construction and operating to Rs.100,00,00,000. The hotel financed with a loan of
Rs.75,00,00,000 at 12 % annual interest and cash of Rs.25,00,00,000 provided by the owners. The
owners desired a 15% annual return on their investment. 75% occupancy is estimated; thus 54,750
rooms will be sold during the year (200 * .75 * 365) the income tax rate is 40 %. Additional
expenses are estimated as follows:

Property tax expenses Rs. 2,50,00,000

Insurance expenses 50,00,000
Depreciation expenses 3,00,00,000
Administrative and general expenses 3,00,00,000
Data processing expenses 1,20,00,000
Human resources expenses 80,00,000
Transportation expenses 40,00,000
Marketing expenses 2,00,00,000
Property operations and maintenance expenses 2,00,00,000
Energy and related expenses 3,00,00,000

The other operated departments incomes (losses) are estimated as a follows:

Food and beverage department Rs.1,50,00,000
Telephone department (50,00,000)
Rentals and other departments 1,00,00,000

The rooms departments estimates direct operating expenses to be Rs. 1,000 per occupied room.
Exhibits 2 contain the calculations used in the Hobart Formula and reveals an average room
rate of Rs.6780.80.
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Exhibits 2 calculating average room rate: Hubbart Formula

Item calculation amount
Desired net income owners investment ROI
Rs.2,50,000000 x .15=Rs.3,75,00000
Pretax income=

Pretax income=
Pretax income= Rs.6,25,00000

Plus: Interest expense Principal x interest rate= Interest expense

Rs.75,0000000 x .12 +9,0000000
Income needed before interest
expenses and taxes
Plus: estimated depreciation, 15,25,00000
Property tax, insurance + 60000000
Income before fixed charges 21,25,00000
Plus: undistributed operating expenses 12,40,00000
Required operated departments income Rs.33,65,00000

Departmental results excluding rooms

Less: food and beverage department expenses (1,50,00000)
Rental and other department expenses (100,00000)
Plus: telephone department loss 50,00000

Rooms department income 31,65,00000

Plus: rooms department direst expenses 54750*Rs.1000 5,47,50,000

Rooms revenues Divided by 37,12,50,000

Number of rooms sold ÷ 54,750
Required average room rate Rs. 6780.80

Exhibits 3 contains the formula for calculating room rates for single room(x) and double
room (x + y) , where the price differential between singles and doubles rate is represented by the
variably y .Assume that the Casa Vane Inn has a double occupancy rate of 40% (that is, two out of
every 5 rooms sold at the double rate) and the room rate differential of Rs.1000. Applying the
formula from exhibits6, single and double rates would be calculated as follows:
Doubles sold daily = doubles occupancy rate  number of rooms  occupancy percentage
= .4(200) (.75)
= 60

Singles sold daily = Rooms sold daily – doubles sold daily

= (200 * .75) – 60
= 90

Using the required average rate of Rs.6780.80 calculated in Exhibit 2, the required single and double
rates can be determined as follows:
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Singles sold (x) + Double sold (x + Rate difference) = average room rate x daily number of
rooms sold

90x + 60(x+Rs.1000) = (Rs.6780.80) (150)

90x+60x+Rs.60000 = Rs.10,17120

150x = Rs.9,57120

X =
X = Rs.6380.8
Single rate = Rs.6380.8

Double rate = Rs.6380.8+Rs.1000

= Rs.7380.8

Exhibits 3 : Determining single and double room rate from an average room rate

Singles sold (x) + doubles sold(x + y) = (Average rate) (rooms sold)

Where: x = price of singles

Y= price differential between singles and doubles

x + y= price of doubles

Alternatively, the double rate could be set as a percentage of the single rate. When this is the case,
the formula is slightly altered:

Singles sold (x) + = average room rate  daily number of rooms sold

The percentage differential is simply the percentage difference of the doubles rate over the single
rate. To illustrate this approach, we will call again on the Casa Vane Inn example. Assume a 40%
double occupancy and a price differential of 15%

Singles sold (x) + = Average room rate X daily number of rooms

sold

90x+60(X)(1.15) = (Rs.6780.8) (150)

90x+69x = Rs.10,17120
159x = Rs.10,17120
X =
X = Rs.6396.98
Single Rate = Rs.6396.98
Double Rate = Rs.6396.98 (1.15)
= Rs.7356.52
To evaluate its potential, management assumes the competitor’s average price will increase at
5% per year to Rs.5250 (that is, Rs.5000 X 1.05). Since the proposed hotel would be new,
management reasons that a price premium may be acceptable. A difference of nearly Rs.2000,
 -6-
however, appears to be too great. A more reasonable average room rate might be Rs.6500 ; after
three years of successive 5% price increases, the hotel’s daily average room rate would be increased
to just over Rs.7500 as follows :
Annual increase 5% selling price

Initial room rate (new hotel) Rs.6500

At the end of 1 year Rs.325 Rs.6825
At the end of 2 year Rs.341 Rs.7166
At the end of 3 year Rs.358 Rs.7524
Considering the situation, hotel developers will have to finance the additional deficit in the first year
(Rs.7524 for the targeted average rate versus Rs.6500 expected average rate when the hotel opens).
In order to operate, the hotel will need to devise some method of financing the shortfall. As stated
before, most hotels do not generate profits during the first few years of operation. In this respect,
operating deficits should always be included in the hotel’s financing plan.

MEAL PLANS
The room tariff of a hotel may be based on the choice meal plans offered to guests.
Depending on the needs of their target audience, hotels offer a variety of meal plans.
European Plan European plan (EP)
consists of room rate only and the meals are charged separately as per actuals. It is generally
preferred in a commercial hotel where business executives have to socialize with their clients
and do not take meals at the hotel.
Continental Plan Continental plan (CP)
consists of room rate and continental breakfast. Continental breakfast generally includes most
or all of the following: sliced bread with butter/jam/honey, cheese, meat, croissants and
Danish pastries, rolls, fruit juice and coffee/tea/hot chocolate/milk. This plan is generally
found in hotels in Europe.
American Plan American plan (AP)
Is also known as en-pension (full board). The tariff includes room rent and all meals (i.e.,
breakfast, lunch, and dinner). This tariff plan is popular in resort hotels located at remote
places where guests do not have a choice of food outside the hotel premises, e.g., in a jungle
or desert.
Modified American Plan (MAP)
Modified American plan is also known demi-pension (half board). The tariff consists of room
rent, breakfast, and one major meal (either lunch or dinner). This tariff plan is popular in
hotels located at tourist destinations, where the guest may want to go for sightseeing after
breakfast, have lunch outside the hotel, and return to the hotel in the evening and have dinner.
Alternately, they could have breakfast and pack lunch from the hotel, and then have dinner
outside and come to the hotel late at night.
Bed & Breakfast (B&B) or Bermuda Plan
Bed and breakfast plan (B&B) or Bermuda plan consists of room rent and American breakfast.
American breakfast generally includes most or all of the following: two eggs (fried or
poached), sliced bacon or sausages, sliced bread or toast with jam/jelly/butter, pan cakes with
syrup, cornflakes or other cereal, coffee/tea, orange/grapefruit juice.
 -7-

Meal Plans

European Continental American Modified American Bed & Breakfast or

Plan (EP) Plan (CP) Plan (AP) Plan (MAP) Bermuda Plan (B&B)

Plan Plan includes

Room Rent Morning Breakfast Lunch Dinner
Tea
European Plan (EP)  x x x x
Continental Plan (CP)   Continental x x
Breakfast
American Plan (AP)     
Modified American    Either Lunch or Dinner
Plan (MAP) (One Major Meal)
Bed & Breakfast (B&B)   American x x
or Bermuda Plan Breakfast
Note:  Means included in plan x means not included in plan

1.1 Forecasting Room Availability

The most important short term planning performer by front office managers is Forecasting the
number of rooms available for sale on any future date. Room available forecast used to manage the
reservation process and to guide front office staff in effective room management, Forecasting may
especially important on nights when full house (100% occupancy) is possible.

Forecasting is a difficult skill to develop. The skill is acquired through experience, effective
recordkeeping, 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 it’s 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 made)
 A listing of special events scheduling in surrounding geographical area.
 Business profiles of specific groups booked for the forecast dates.
 The number of non-guaranteed and guaranteed reservations and an estimations of the
number of expected no-shows
 The percentage of room already reserved and the cut-off date for group room blocks head for
the forecast date.
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 The room availability of the most important competition for the forecast dates(as found in a
blind call)
 The impact of city wide or muti-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 renovating plans for competitive hotels in area.

1.2 Useful Forecasting data

The process or forecasting rooms availability generally relies on historical occupancy data as well as
what is already on books. Historical data can take the guesswork out of forecasting. To facilitate
forecasting, the following daily occupancy data should be collected.
 Number of expected room arrivals: based on existing reservations and historical trends for
new reservations and on cancellation prior to the arrival date.
 Number of expected room walk-ins: based on historical records.
 Number of expected room stayovers: based on existing reservations.
 Number of expected room no-shows: based on historical records.
 Number of expected room understays (checks-out occurring before expected departure date):
based on historical data.
 Number of expected room checks-out: based on existing reservations.
 Number of expected room overstays(checks-out occurring after the originally reserved
departure date) : based on historical records

Exihibits 4: occupancy History of the Holly Hotels

Occupancy History
First Week of March
Day Date Guests Room Room Room Room No-
Arrivals Walk-Ins Reservations Shows
Mon 3/1 118 70 13 63 6
Tues 3/2 145 55 15 48 8
Wed 3/3 176 68 16 56 4
Thurs 3/4 117 53 22 48 17
Fri 3/5 75 35 8 35 8
Sat 3/6 86 28 6 26 4
Sun 3/7 49 17 10 12 5
Totals 766 326 90 288 52
Occupied Overstay Understay Rooms Room Check-Outs
Rooms Rooms
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
558 47 33 346
 -9-

Percentage of no-shows
Percentage of No-shows =

=
= .1806 or 18.06% of reserved rooms
Percentage of Cancellation
It is the percentage of total number of cancellations as against total number of reservations

The Formula =

1.3 Percentage of walk-in’s

Percentage of walk-in’s =

=
= .2716 or 27.16% of room arrival
1.4 Percentage of Overstays.
Percentage of overstays =

No of check-outs – Under stay rooms + Overstay rooms = Actual expected check-outs

=
= 1306 or 13.06% of Expected check-outs
1.5 Percentage of understays.

Percentage of understays =

No of check-outs – Under stay rooms + Overstay rooms = Actual expected check-outs

=
= 0.917or 9.17% of expected checks-outs.

1.6 Forecast formula

As an example, consider the Holy Hotel a 120 rooms property, where on April 1 st there are
three out of order rooms and 55 stayovers. On that day, there are 42 guests with reservations
scheduled to arrive. Since the percentage of no-shows has been recently calculated at 18.06%, the
front office manager calculated that as many as 8 guests with reservations may not arrived (42 
1806 = 7.59, rounded to 8). Based on historical data, 6 understays and 15 overstays are also
expected. The number of rooms projected to be available for sale on April 1st can be determined as
follows.

Total number of guests rooms 120

- Number of out-of order rooms -3
- Number of room stay-overs -55
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- Number of room reservations -42
+ Number of room reservations x percentage of no-shows +8
+ Number of rooms understyas +6
- Number of room overstays -15
Number of rooms available for sales 19

Therefore, the holly hotel is considered to have 19 rooms available for sale on april1st.

1.7 Sample forecast forms

Ten-day forecast
Exhibit 5 Sample ten days forecast form
Ten-Day Occupancy Forecast
Location______________ # _________________ Week Ending_________
Date Prepared: _____________ Prepared By: _________________
To be submitted to all department heads at least one week before the first day listed on forecast.
1 Date and Day (Start week and end week the Fri. Sat. Sun. Mon.
same as the payroll schedule)
2 Estimated Departure
3 Reservations Arrivals- Group (taken from log
book)
4 Reservations Arrivals- Individual (taken from
log book)
5 Future Reservations (estimated reservations
received after forecast is completed)
6 Expected Walk-ins (%of walk-ins based on
reservations received and actual occupancy for
past two weeks)
7 Total Arrivals
8 Stayovers
9 TOTAL FORECASTED ROOMS
10 Occupancy Multiplier (based on number of
guests per occupied from average of the same
day for last three weeks)
11 FORECASTED NUMBER OF GUESTS
12 Actual Rooms occupied (taken from daily
report for actual date to be completed by front
office supervisor)
13Forecasted Variance (difference between
forecast and rooms occupied on daily report)
14 Explanation )to be completed by front office
supervisor and submitted to general manager ;
attach additional memo if necessary)
Tue. Wed. Thu. Fri. Sat. Sun.

APPROVED: _______________________ Date : __________ General

Manager’s Signature
 - 11 -

Three day forecast

A three days forecast is an updated report that reflects a more current estimate of room availability. it
details any significant changes from the

Exhibits 6 sample Three Days Forecast Form

Three Day Forecast

Date Of Forecast : ___________ Forecast Completed By : ____________
Total Rooms in Hotel: ___________

Tonight Tomorrow 3rd Night

Day
Date

Previous Night
Occupied Room
- Expected
Departure
- Early Departure
+ Unexpected
Stayovers
+ Unoccupied Rooms
= Rooms available
For Sale
+ Expected Arrivals
+ Walk-ins and Same
Day Reservations
- No-Show
- Occupied Rooms
= Occupancy %
= Expected House
Count

Exhibits 7: refining A forecast

A yearly forecast provides an excellent starting point for developing shorter turn, more accurate
forecast. Managers can better assess the business by reliving current reservations and booking pace.
The closer forecast is, the most accurate it will be

Here is a check list for revising forecaste ;

 List or group bookings and transient reservations on the books.
 Examining arrivals, departures, and group in formation for the given period.
 Determine if demand for this particular period of time is high or low.
 Chart the picks and valleys on a graph to better identify high / low demand.
 Have sales agents call competing properties for rates and consider adjusting your rates.
 Make decisions to maximize revenue during each time period.
 - 12 -

Exhibits 8: sample Daily checklist for accurate room counts

 Make counts of the rack and reservations. On side days, a count should be made at seven
a.m., noon 3 p.m., and 6.00 p.m. on normal days 7.00 a.m. and 6.00 p.m. count will suffix.
 Check room rack against the folio bucket to catch sleepers and skippers.
 Check housekeeping reports against room rack to catch sleepers and skippers.
 Check the rooms that are due out, but still have balances on their folios, especially where
credit cards are the indicated source of payments.
 Check reservations for any other duplication.
 Call the reservation system to make sure all cancellation where transmitted.
 Check the switch board, telephone rack, and /or alphabetical room rack to make sure that the
guest is not already registered.
 Call the local airport for a report on cancel flights.
 Check the weather reports for cities from which a number of guests are expected.
 Check reservations against convention blocks to catch duplication.
 Check with other hotels for duplicate reservation if a housing or convention bureau indicated
the reservation was a second choice.
 Check the arrival dates on all reservation forms to be sure none where miss filled.
 Check the room cancellation list
 If a reservation was made through the reservation manager, sales manager, or someone in the
executive office and the property is close to full, call that staff person. Often, such guests are
personal friends and willing to help out by staying some where else.
 Close to the properties cut off time, consider placing a person – to – person phone call to may
guest which a non guaranteed reservation who hasn’t arrived. If the person accept the call ,
confirm whether or he or not she will arrived yet that night
 After the properties cut off time if it becomes necessary, pool any reservations that where not
guaranteed or prepaid.
 If any rooms are out of order or not presently in used check to see if they can be made up. Let
housekeeping know when a tight day is expected, so that all possible rooms are made up.
 Before leaving work, convey in writing all parturient information to the on coming staff.
Good communication is essential.

Exhibits 9 : Rooms Revenue summary for the Emily Hotel.

Year Rooms Revenue Increased over dollar Prior year
percentage
2001 Rs.1,000,000
2002 1,100,000 Rs.100,000 10%
2003 1,210,000 110,000 10%
2004 1,331,000 121,000 10%

Exhibits 10 : Rooms Revenue Statistics for the Bradly Hotel

Year Rooms sold Average daily Net rooms Occupancy
rate revenue percentage
2001 30,660 Rs.50 Rs.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%
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1.10 Forecasting Rooms Revenue

Historical financial information often serves as the foundation on which front office mangers build
room’s revenue forecasts. One method of rooms revenue forecasting involves an analysis of room’s
revenue from past periods. Rupees and percentage differences are noted and the amount of room’s
revenue for the budget year is predicted.
For example, exhibits 9 shows yearly increases in net room’s revenue for the Emily Hotel.
For the years 2001 to 2004, the amount of of rooms revenue increased from Rs.100,000,000 to to Rs.
1,331,000, reflecting a 10% yearly increased. if future conditions appear to be to those of the past ,
the rooms revenue for 2005 would be budgeted at Rs.1,464,100 – a 10% increase over the 2004
amount.
Another approach to forecasting rooms revenue bases the revenue projection on past room sales and
average daily room rates. Exhibits 10 present room’s revenue statistics for the 120- room Bradley
hotel from 2001 to 2004. And analysis of this statistics shows that occupancy percentage increased
3%. From 2001 to 2002, 1%from 2002-2003, and 1% from 2003-2004. Average daily room rates
increased by Rs.2, Rs.2, and Rs.3 respectively over the same periods. If future conditions are
assumed to be similar to those of the past, a rooms revenue forecast for 2005 may be based on a 1Rs.
increased in occupancy percentage (to 76%) and a Rs.3 increased in the average daily room rate (to
Rs.60). Given this projections, the following formula can be used to forecast room’s revenue for the
year 2005 for the Bradly hotel
Forecasted rooms revenue= Rooms available x occupancy percentage x average daily rates
= 43,800x0.76 xRs.60
=Rs.1,997,280

The number of rooms available is calculated by multiplying the 120 rooms of the Bradly hotel by the
365 days of the year. This calculation assumes that all the rooms will be available for sale each day
of the year. This will probably not be the case, but it is a reasonable starting point for projection.
This simplified approach to forecasting room’s revenue is intended to isslustrate the use of a
trend data and forecasting. A more detail approach would consider to variety of different rates
corresponding to room types, guests profiles, days of the week, and seasonality of business. These
are just a few of the factors that may affect rooms revenue forecasting.

1.11 Estimating expenses

Most expenses for front office operations are direct expenses in that day vary in direct proportion to
room’s revenue. Historical data can be used to calculate and approximately percentage of rooms
revenue that each expense item may represent. This percentage figures can then be applied to the
total amount of forecasted room revenue, resulting in Rupees estimates for each expense category for
the budget year.
Exhibits 11 presents expense category statistics of the Bradly Hotel from 2001 to 2004, expressed as
percentage of each year’s room’s revenue. Based on this historical information and management
current objectives for the budget. Year 2005, the percentage of rooms revenue for each expense
category may be projected as follows: payroll and related expenses – 17.6%, laundry, terry, and
guests applies – 3.2%, commissions and reservations expenses-2.8%, and other expenses- 4.7%

Using the percentage figures and the expected room’s revenue calculated previously, the Bradly
hotels room division’s expenses for the budgeted year are estimated as follows:
 Pay roll and related expenses
Rs.1997, 280 X .176 = Rs.351,521.28

 Laundry, linen, terry, and guests supplies

Rs.1,997,280 X .032 = Rs.63,912.96
 - 14 -
 Commissions and reservations expenses
Rs.1,997,280 X .028 = Rs.55,923.84

 Other expenses
Rs.1,997,280 X .047 = Rs.93,872.16

Exhibits 11 Expense Categories as Percentage of Rooms Revenue

Year Pay roll and Laundry, linen, Commissions Other expenses

related expenses terry, and guests and reservations
supplies 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

1.12 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 plans. 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 budget as they
progress through the budget year. Reforecasting is normally suggested when actual operating results
start to very significantly from the 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
 - 15 -
2. Evaluating Operations

2.1. Evaluating Front Office Operations

2.1.1. Daily Operations Report
2.1.2. Monthly Income Statement
2.1.3. Occupancy Ratios;
2.1.3.1. Occupancy Percentage
2.1.3.2. Room Count
2.1.3.3. House Count
2.1.3.4. Double Occupancy Percentage
2.1.3.5. Bed Occupancy Percentage
2.1.3.6. Foreign Occupancy Percentage
2.1.3.7. Average Daily Rate (ADR)
2.1.3.8. Revenue Per Available Room (RevPAR)
2.1.3.9. Average Rate Per Guest (ARG)
2.1.4. Yield Statistic
2.1.5. Market Share Index / Fare Market Share
2.1.6. Evaluation of Hotels By Guest
 - 16 -
Rooms Division Income Statement

The hotel’s statement of income shows only summary information. The separate departmental
income statements prepared by each revenue center provide more detail. Departmental income
statements are called schedules and are referenced on the hotel’s statement of income.
Exhibit 16 references the rooms division schedule as 1. The room division income statement
appears in Exhibit 17. The figures shown in Exhibit 16 for the rooms division net revenue, payroll
and related expenses, other expenses, and departmental income are the same amounts, that appear
for the rooms division under the category of operated departments in Exhibit 17.
The rooms division schedule is generally prepared by the hotel accounting division, not by
the front office accounting staff. The figures are derived from several sources, as follows;
Rooms Division Entry Source Documents
Salaries and wages……………………… Times cards, payroll records
Employee benefits…………………………………….Payroll records
Commission……………………………………Travel agency billings
Exhibite 12 Sample Consolidated Statement of Income

Eatonwood Hotel
Summary Statement of Income
For the year ended 12/31/20xx
SC NET COST PAYROLL OTHER INCOME
HE REVENUE OF SALES & EXPENSE (LOSS)
D RELATED S
UL EXPENCES
E
OPERATED
DEPARTMENT
ROOMS 1 Rs.6,070,35 Rs.1,068,38 Rs.473,487 Rs.4,528,4
6 3 86
FOOD 2 2,017,926 Rs.733,057 617,705 168,794 498,372
BEVERAGE 3 778,971 162,258 205,897 78,783 332,033
TELECOMMUNICATI 4 213,744 167,298 31,421 17,309 2,284
ONS
RENTALS AND 5 188,092 288.092
OTHER INCOME
TOTAL OPERATING 9,269,091 1,026,613 1,923,406 738,373 5,544.699
DEPARTMENTS
UNDISTRUABLED
OPERATING
EXPENSES
ADMINISTRATIVE 6 227,635 331,546 559,181
AND GENERAL
MARKETING 7 116,001 422,295 538,296
PROPERTY 8 204,569 163,880 368,449
OPERATIONS AND
MAINTAINANCE
UTILITY COSTE 9 548,205 1,464,052 2,012,257
TOTAL Rs.9,269,09 Rs.1,062,6 Rs.2,471,61 Rs.2,202,4
1 13 1 25
INCOME AFTER
UNDISTRIBUTED
OPERATING 3,532,442
 - 17 -
EXPENSES
RENT,PROPERTY,TA 641,029
XES AND
INSURANCE
INCOME BEFORE
INTRETS,DEPRECIA
TION
AND 2,891,413
AMORITIZATION,AN
D INCOME TAXES
INTREST EXPENSES 416,347
INCOME BEFORE
DEPRECIATION
AND 2,430,066
AMORITIZATION,AN
D INCOME TAXES
DEPRECIATIONS 552,401
AND
AMORITAZTION
GAIN ON SALES OF 1574
PROPERTY
INCOME BEFORE 1,879,239
INCOME TAXES
INCOME TAX 469,810
NET TAX Rs.1,409,4
29

Contract cleaning…………………………………….Supplier invoices

Guest transportation…………………………………. ….. …. invoices
Laundry and dry cleaning……………… Housekeeping and outside
Laundry/Valet charges for
Employee uniforms.
Linen…………………………………………………….Supplier invoices
Operating supplies……………………………………. Supplier invoices
Reservation expenses (if any)……………Reservation system invoices
Other operating expenses…………………………….. Supplier invoices
(such as from equipment rentals, etc.)
 - 18 -
Exhibit 13 Sample Rooms Division Income Statement

Rooms—Schedule #1
Eatonwood Hotel
For the year ended 12/31/20XX

Current Period

Revenue Rs.6,124,991

Allowances 54,635
----------------
Net Revenue 6,070,356

Expenses
Salaries and wages 855,919
Employee Benefits 212,464
----------------
Total Payroll and Related Expenses 1,068,383
Other Expenses
Cable/Satellite Television 20,100
Commissions 66,775
Complimentary Guest Services 2,420
Contract Services 30,874
Guest relocation 1,241
Guest Transportation 48,565
Laundry and Dry Cleaning 42,495
Linen 12,140
Operating Supplies 122,600
Reservations 40,908
Telecommunications 12,442
Training 7,122
Uniforms 60,705
Other 5,100
Total Other Expenses 473,487

TOTAL EXPENSES 1,541,870

DEPAREMENTAL INCOME (LOSS) Rs.4,528,486

========

It is important to note that Exhibit 14 presents both Rupees and percentage variances.
The Rupeesvariances indicate the difference between actual results and budgeted amounts.
Rupeesvariances are generally considered either favorable or unfavorable as follows:

Favorable Variance Unfavorable Variance

Revenue Actual exceeds budget Budget exceeds actual
Expenses Budget exceeds actualActual exceeds budget
 - 19 -
For the example, the actual amount of salaries and wages for rooms division personnel in the month
of January was Rs.20,826, while the budgeted amount for salaries and wages was Rs.18,821,
resulting in an unfavorable variance ofRs.2,005.

Exhibit 14 Sample Monthly Rooms Division Budget Report

Gregory Hotel
Budget Report—Rooms Division
For January 20XX
Variances
Actual Budget Rs. %
Revenue

Room Sales Rs.156,240 Rs.145,080 Rs.11,160 7.69%

Allowances 437 300 (137) (45.67)
Net Revenue 155,803 144,780 11,023 7.61

Expenses
Salaries and 20,826 18,821 (2,005) (10.65)
wages
Employee 4015 5,791 1,776 30.67
Benefits
Total Payroll and
Related Expenses 24,841 24,612 (229) (0.93)
Other Expenses
Commissions 437 752 315 41.89
Contract Cleaning 921 873 (48) (5.50)
Guest 1,750 1,200 (550) (45.83)
Transportation
Laundry and Dry 1,218 975 (243) (24.92)
Cleaning
Linen 1,906 1,875 (31) (1.65)

Operating 1,937 1,348 (589) (43.69)

Supplies
Reservation 1,734 2,012 278 13.82
Expenses
Uniforms 374 292 (82) (28.08)

Other Operating 515 672 157 23.36

Expenses
Total Other 10,792 9,999 (793) (7.93)
Expenses
Total Expenses 35,633 34,611 (1,022) (2.95)
Departmental Rs.120,170 Rs.110,169 Rs.10,001 9.08%
Income
 - 20 -
Occupancy Ratios

Occupancy ratios measure the success of the front office in selling the hotel’s primary product:
guestrooms. The following rooms statistics must be gathered to calculate basic occupancy ratios;

 Occupancy Percentage
 Room Count
 House Count
 Double Occupancy Percentage
 Bed Occupancy Percentage
 Foreign Guest Percentage
 Average Daily rate ( ADR)
 Revenue per Available Room (RevPAR)
 Average Rate Per Guest (ARG)

Occupancy Percentage-
Relationship of the number of rooms sold to the number of rooms available for sale. (This ratio is the
barometer for measuring the market success of the sales department of the hotel.)

Occupancy Percentage =

Room Count-
The number of rooms occupied on a particular night.

i) Total Number of Available Rooms- Number of Vacant Rooms

ii) Total Number of Rooms on Previous Night + Number of Rooms Sold to New Arrival
Guest- Number of Rooms Vacated by Departure Guests.

House Count-
The number of guests staying on a particular night.

House Count = Previous House count + Arrivals- Departures.

Total number of guests in the hotel can be also calculated as follows:

Total Guests = 2 x (Double Rooms) + Single rooms + Extra Beds

Double Occupancy Percentage or Multiple Occupancy Ratios-

Number of rooms sold with 2 persons occupying each room is called double occupancy

Multiple Occupancy Percentage =

Or
Double Occupancy Percentage =

Or
 - 21 -

Double Occupancy Percentage =

Bed Occupancy Percentage-

Guest occupancy or Sleeper Occupancy

Bed Occupancy Percentage =

Foreign Guest Percentage-

Total Guest (H.C) – No. of Locals (Indians) = Number of Foreign guests

Foreign Guest Occupancy Percentage =

Average Daily rate (ADR)-

Ratio of room’s income to the number of occupied rooms.

Average Daily Rate =

Revenue per Available Room (RevPAR)-

RevPAR =

Average Revenue per Guest (ARG)-

It is the ratio of room income to the total number of guests staying in the hotel.

Average Revenue per Guest =

Yield Statistics –

Yield Statistic. Potential rooms revenue is the amount of rooms revenue that can be generated if all
the rooms in the hotel are sold at rack rate on a given day, week, month or year. The ratio of actual to
potential rooms revenue is known as the yield statistic. .

Yield Statistic =

Market Share Index :- Rev-par is a useful tool to measure the performance of a hotel. It uses
occupancy percentage and ADR for comparing the performance of hotels. However, in a competitive
environment, hotels may not provide information about ADR. In such situations, the evaluation of
 - 22 -
the hotel's performance is done by using market share. Market share is defined as a hotel's occupancy
performance in relation to other hotels within a predetermined competitive set.
A major task in calculating the market share is the determination of the competitive set. The answer
to the question—if a guest is not staying at our hotel, where can he possibly stay?—constitutes
the competitive set. The total market potential is the sum total of the number of rooms that are
available in the total number ofI participating hotels.
Let's suppose there are five hotels in a competitive set, namely Hotel A, Hotel B, Hotel C, Hotel D,
and Hotel E, with a total of 200, 300, 400, 500, 600 rooms respectively. The total market potential
will be 2,000 rooms, and the individual market potential of each hotel in the set will be equal to the
number of rooms available for sale in the hotel. The rightful market share of a hotel is the maximum
share that can be occupied by the hotel, i.e. the number of rooms divided by the total market
potential. The rightful market share in this example can be summarized as under:
Hotel Number of Total Market Potential Rightful Share (Number of
Rooms rooms/Total market potential)
A 200 2,000 0.10 or 10%
B 300 2,000 0.15 or 15%
C 400 2,000 0.20 or 20%
D 500 2,000 0.25 or 25%
E 600 2,000 0.30 or 30%
If we feed the actual occupancy data of all the participating hotels of the competitive set, we will
be able to know the actual market and share taken by each hotel, and can compare the performance
of each participating hotel.

Let's suppose in the above example, Hotels A, B, C, D, and E have sold 1,300, 1,500, 2,100,
2,600, and 3,000 rooms respectively in one week. We can calculate the actual and potential market
share as under:

Hotel Number of Total number of rooms in a Actual number of

rooms (No. of rooms X No. of days) sold in the week
A 200 1,400 1,300
B 300 2,100 1,500
C 400 2,800 2,100
D 500 3,500 2,600
E 600 4,200 3,000
14,000 (potential) 10,500 (actual)
One can find out the performance of the entire set by dividing the actual number of rooms sold by
the potential number of rooms available during that week.
10,500/14,000 = 0.75 or 75% occupancy
From the available information, one can calculate the actual market share captured by each hotel in
the set. The market captured by each hotel is as under:
Hotel Market Share Percentage
A 1,300/10,500 12.38%
B 1,500/10,500 14.28%
C 2,100/10,500 20.00%
D 2,600/10,500 24.77%
E 3,000/10,500 28.57%
Tota 100.00%
l
 - 23 -
On comparing of the actual market share with the rightful market share, one can find the
performance of each hotel in the competitive set. The comparative analysis of the present example is
as under:
Hotel Actual market Rightful share Differenc
A share
12.38% 10% e
+ 2.38
B 14.28% 15% -0.72
C 20.00% 20% Nil
D 24.77% 25% -0.23
E 28.57% 30% -1.43
From the above analysis, one can gauge that Hotel A's performance in better than Hotels B, D, and
E, whereas Hotel C has been able to capture its rightful market share.
Market share index enables the managers to assess their hotel's performance with respect to the
competitors. It assists the managers to develop plans to combat the loss of fair market share and also
to gain market share from the competitors.
 - 24 -

Foreign Exchange

3.1 Handling Foreign Currency

3.2 Foreign Currency Exchange
3.3 Procedures to be followed while exchanging Foreign Currency
3.4 Currencies Accepted by RBI
3.5 Foreign Exchange Certificate – Format
3.6 Foreign Exchange Settlements using Credit Cards.
3.7 Export Promotion Capital Goods Scheme (EPCG)
 - 25 -
Foreign Currency Exchange

The Tourism industry is a prime source for the generation of foreign exchange. The government thus
likes to keep a close tab on all foreign currency released. This is done through a strict system of
checks & records which extend to each hotel as well.

1. Hotels need to get a license from the Reserve bank of India to exchange the foreign currency
of the guest and settle their bills against the foreign currency
2. This license is renewed every year
3. Front Office Cashier is authorized by the management to act on their behalf
4. Of Course daily exchange rates are to be taken into consideration while exchanging the
foreign currency

Procedure to be followed while exchange of foreign currency

The front office Cash is the only place in the hotel where foreigners can exchange foreign
currency into rupees. The daily exchange rate is to be prominently displayed for the guests to see.
The exchange rate may differ from time to time. The following steps may be taken while
exchanging currency.

1. The currency to be exchanged should be exchangeable as per government banking

regulations.
2. Look for the passport of the guest to verify the identity of a guest. Request the guest to
produce the passport to determine the credentials and take the room number
3. Determine whether the currency can be exchanged or not
4. Fill the foreign currency exchange certificate
5. Take the signature of the guest on the certificate and the travelers cheque
6. Tallying the signatures of the guest on the certificate and the travelers cheques
7. Write the exchange rate in the certificate and find out the value in the Indian currency
8. Pay the value of the Indian currency to the guest along with the certificate
9. Receive the amount of foreign currency in cash or travelers cheques and calculate the
amount to be paid in local currency
10. Give the original copy of the certificate & total amount in local currency to the guest
11. Attach the foreign currency notes / travelers cheques with the duplicate copy of the
certificate
12. Let the third copy remain in the book for the hotel
13. Enter the transaction in the cashier sale service
14. Enter the transaction in the foreign exchange control sheet
 - 26 -

FOREIGN EXCHANGE ENCASHMENT CERTIFICATE

(NAME & LOGO OF HOTEL) RBI LICENSE NO________

We hereby certify that we have purchased today foreign currency from ____________________
holder of passport no ___________________Nationality________________ and paid Rupee
equivalent as per details given below (rupee equivalent in words)________________

(A)
Currency purchased (indicating Amount Rupee equivalent Exchange rate
clearly notes/ coins & travelers
cheques separately
(1) (2) (3) (4)
Notes / coins

(enter currency note number)

Travelers Cheques

(enter travelers cheque number)

(B)Details of adjustments made towards settlement of goods supplied & services rendered

Bill nos Date Amount

(C)NET AMOUNT PAID IN RUPEES_______________

AMOUNT IN WORDS____________________________________________________
(total under (A) minus Total under (B)

Authorized Signatory____________
Name____________________Designation_______

Note : this certificate should be preserved by the holder to facilitate re conversion of the rupees
balance from the amount dispensed in ( C ) at the time of departure from India, or to make payment
in Indian currency for the services rendered.
 - 27 -
Traveler's Cheque

A traveler's cheque is a medium of exchange that can be used in place of hard

currency. They can be denominated in one of a number of major world currencies
and are preprinted, fixed-amount cheques.

EPCG(Export Promotion Capital Goods Scheme)

is a scheme in which one can import the capital goods which may be for pre-
production, production or post production as well as computer software systems,
spares parts, fixtures, dies, moulds at very concessional rate of custom at 0% in
some sectors and 3.09% for all sectors whereas the normal custom duty is 23.895%.
Thus this scheme saved at least 20% of the duty value on the import. This scheme is
subject to the export obligation equivalent to 6 times or 8 times (sector wise) of duty
saved in the time frame of 6/8 years. This scheme is for manufactures as well as
vendors, service providers as well.