Hotel Budget-Revenue Management #7 by Dino Leonandri

1. HOTEL
BUDGET
By : Dino Leonandri

2. A budget is a business plan, usually expressed
in monetary terms. To make meaningful
decisions about the future,
a manager must look ahead.
One way to look ahead is to prepare
budgets or forecasts.
A forecast may be very
simple.

3. TYPES OF BUDGETS
LONG-TERM VERSUS SHORT-TERM BUDGETS
• A long-term budget would be anywhere from one year to five years
ahead are often called strategic budgets.
• Short-term budgets could be for a day, a week, a quarter, or a year.
Such budgets involve middle management in using its resources to
meet the objectives of the long-term plans.

4. CAPITAL BUDGETS
A capital budget is a plan for the acquisition of new or replacement of existing fixed assets.
A five-year replacement schedule for hotel room furnishings is
a capital budget.
OPERATING BUDGETS
An operating budget concerns the ongoing projections of revenue and expense
items that affect the income statement. For example, a forecast of sales revenue
for a restaurant for a month is in an operating budget. Similarly, in a multidepartment hotel the
forecast of total payroll expense for the year is an operating
budget.
DEPARTMENT BUDGETS
A department budget would only be of concern to a restaurant complex (with,
for example, dining room, bar, and banquet areas) where departmental income
statements are prepared, or to a hotel that has a number of departments. A department budget
would therefore be for a specific department and would show
the forecast revenue less operating expenses for that department

5. BUDGET PREPARATION
• WHO PREPARES BUDGETS?
• WHEN ARE BUDGETS PREPARED?
• WHAT ARE THE ADVANTAGES OF BUDGETING?

6. DEPARTMENTAL BUDGETS
The procedure is as follows:
1. Estimate sales revenue levels by department.
2. Deduct estimated direct operating expenses for each department.
3. Combine estimated departmental operating incomes and deduct
estimated undistributed expenses to arrive at net income.
ESTIMATING SALES REVENUE LEVELS BY DEPARTMENT
The following should be considered when making monthly revenue projections:
a. Past actual sales revenue figures and trends
b. Current anticipated trends
c. Economic factors
d. Competitive factors
e. Limiting factors

7. ESTIMATING SALES REVENUE LEVELS BY
DEPARTMENT
For example, the dining room revenue for the past three years for the month
of January was
• Year 1 $60,000
• Year 2 $65,000
• Year 3 $67,000
It is now December in year 3, and we are finalizing our budget for year 4,
commencing with January. The increase in volume for year 2 over year 1 was
about 8 percent ($5,000 divided by $60,000). Year 3 increase over year 2 was
approximately 3 percent.
Because of economic trends,
we are going to be forced to meet rising costs by increasing our menu prices by10 percent
commencing in January year 4. Our budgeted sales revenue for January year 4 would be:

8. VARIANCE ANALYSIS
When we compare budget figures and actual results, it is useful to
analyze any
difference for sales revenue and each expense item. This is called
variance analysis. Let us consider the following situation:

9. VARIANCE ANALYSIS
Room Revenue Budget for 2019 = $ 185
Room Revenue 2019 Actual = $ 200
VARIANCES = $ 15

10. Thank you