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Hotel cost control - master class
- 1. COST CONTROL OPERATIONS Manish Gupta, HotelManagement School
- 2. Check Fundamental Terms Sales Concepts SalesBy Type By Category Sales per Person Cost Concepts Cost % Fixed & Variable cost Standard Cost Controllable / Non- Controllable Recipe Portions Perishable Non-Perishable Perpetual Inventory Par Re-order Level Break-Even Point
- 3. QUALITIES OF AGOOD COST CONTROLLER Analytical to understand trends and make sense of data Good understanding of Food & beverage items Understanding of latest trends in market for recipe / promotions Strong Leadership for enforcing standards Auditing skills
- 4. Process of costcontrol Establish Standards Implement and Train the Staff Monitor Results Corrective Actions
- 5. Establish Standards & Controls for EachPart of Business Operation Cycle 1. Purchasing 2. Receiving 3. Storing 4. Issuing 5. Producing 6. Selling and serving
- 6. Standards relating toPurchasing Function Quality of food purchased To ensure consistency. Plan ahead for requirements. Eliminate Mis-understanding between kitchen and purchaser & steward Easy to check by receiver to ensure correct delivery of items Quantity of food purchased Par stock of items to be purchased based on consumption Daily inventory taken by steward / kitchen to ensure adequacy (no over nor shortages) Prices at which food is purchased Approved Suppliers 3 Quotations Fixed Prices (Usually for Non- prishable) Daily Market price for preshiable Peiodic Market Suvery
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- 8. Should be basedon past three to six month consumption • Future trend / Guest Behavior need to be considered • Change in standards Lead Period should be confirmed with purchasing. • Vary by price level, considered options • Lead period in general not specific to vendor Re-order quantity is based on packaging Maximum Order should be based on storage capacity
- 9. Basic Receiving Controls Theprices on the invoice should be the same as those circled on the Steward ’ s Market Quotation List The quality of the item delivered should conform to the establishment ’ s standard purchase specification for that item. Quantity should be identical on Steward ’ s Market Quotation List, invoice, and PO. Can we check all items Who is responsible to check What is it does not meet standards
- 10. Verify that the quantity, quality,and price for each item delivered as per PO Acknowled ge by stamping the invoice. List all invoices on the Receiving Clerk ’ s Daily Report. Forward completed paperwork to proper personnel. •Daily Receiving Record •Stamp the invoice and pass one copy to finance Move food to appropriate storage areas •Direct to Kitchen (Directly recorded in daily food cost report) •Store Department (Based on issue from store) Basic Steps in receiving Cycle
- 11. Store & Issue Control 1. Conditionof facilities and equipment 2. Arrangement of foods 3. Location of facilities 4. Security of storage areas 5. Dating and pricing of stored foods
- 12. Condition of StorageFacility Temperature control Set Standards as per Hygiene & Food Safety Standards Monitor and check regularly Storage Containers To protect from moisture, insects Cross contaminati on Shelving & Cleaningness for airflow Atleast 1 ft from wall and roof Standards Fresh Food and dairy: 34 – 36 ° F (1-2 c) Fresh fish: 30 – 34 ° F - (1 c) Frozen foods: 10 – 0 ° F (-12 to -18 c)
- 13. ISSUE CONTROLS Should beDocumented based on requisition 01 Direct Issues from receiving are also recorded and received and issue for easy identification and inclusion in cost boards 02 Update bin cards if manual and plan re- order 03
- 14. Transfers Transfer from Food toBeverage or vice versa Transfer from one kitchen to other
- 15. RECAP of What We have discussed soFAR 1. Purchasing 2. Receiving 3. Storing 4. Issuing 5. Producing 6. Selling and serving
- 16. Production Controls 1. Standard portionsize 2. Standard recipe 3. Standard portion cost
- 17. Recipe card Recipe Testare to be conducted by Cost Control While Setting prices – factor contingency of price increase Wastage during production Account for Yield of product Update at least every six months
- 18. Buffet costing should bebased on expected Pax Account for Wastage & Left Overs Account for Yield similar to Ala- Cart Buffet Costing
- 19. SETTING UP PRICES Notall items will have same cost % Prices are set as per guest expectations, competitor prices •Compare Portion size and ingredients while comparing competitors If Standard prices as per budgeted cost is high, consider changing recipe / reduce portions or sell at high cost %
- 20. Butcher Test /Yield Test
- 21. Done together withChef, Cost Control, Purchasing Compared against agreed yield (if any) Trimmings used in alternative ways are not considered Cost per KG is derived by total cost / net usable items and used in recipe costing Should be done periodically to ensure consistency Butcher / Yield Test
- 22. RECEIPT / PORTIONCONTROL TEST
- 23. BAR SPOT TEST SpotCheck Quantity on hand (Assume 100 beer bottles) Objective 1 – Compare with Sales Compare with last counted stock report (Assume 120 Bottles) Add the store issues / direct purchase from previous stock report (Assume 50 bottles) Derived quantity (120+50-100) = 70 would be consumption during the month Compare with Sales report Objective 2 – Compare with Established Par to make sure no over / under stock Objective 3 – Storage facilities (Check open bottles / labelling / Guest bottles etc)
- 24. Production control through- menu engineering report Get Popularity Index. Forecast the menu Sales by day / meal period based on popularity index Align orders / mis-em place with estimated menu item sale based on trends & yield Factors Portion Control tests / Consumption Analysis
- 25. Monitor The Results MonthlyInventory Taking Valuation of Inventory (depend on company Policy) Monthly Food Cost Board & Reconciliations Transfers Complimentary Breakages & Spoilage Steward Sales Gratis Promotions
- 26. SLOW / NONMOVING INVENTORY REPORT Slow moving items = not issues in last 3 months Non-Moving not issues over 6 months Exclude Spares Identify the reasons of slow movement •Not in Standard •Low Business Identify near expiry Plan how to use
- 27. Monitoring – DailyVs Monthly Food Cost Daily • Summarized • Only Direct issues & Stores or big transfers • Gives an idea of how food cost is behaving and offer opportunity to control Monthly • Detailed • All transfer / breakages are included • Historic • Include all factors into Calculation
- 28. Format of Monthly Cost Board/ Reconciliation
- 29. Stock Taking –All or Some? Proper Kitchen Transfer Documents (In & Out should be same) Recording of Non-Chargeable Items & their costing BAR to Food / Food to BAR Challenge Compare with Potential Cost of each outlet to ensure reasonability Compare with Budget & Previous year same month
- 30. Monitoring – Actualvs Potential Cost Higher Actual cost then potential cost represent • Higher portions • Higher wastage • Low yield • Unreported loss of sales • Non-adherence to standard recipe Lower Actual Represent • Smaller portions • Not adhering to quality standards
- 31. MENU ENGINEERING Helps toIdentify Best Selling menus items Most profitable items Popular items but less profitable Profitable items but not popular Not popular and not profitable Periodicity – Monthly, Quarterly Affected by Seasonality, Geographical breakdown of guests
- 32. COPYRIGHT - EXCELFINANCE ACADEMY FOLLOW OUR YOUTUBE CHANNEL AND FACEBOOK PAGE LINKED IN DESCRIPTION TO SUPPORT
- 33. Suggested Strategies for Revenue and Cost Maximisation Whatshould you do with Most profitable and Most Popular items? Keep the quality and use them as signature dish for promotions. Include them in combos to sell other non popular items Not Popular but most profitable Upsell Incentives Promotions to boost sales Popular but low margin items Portion control Recipe engineering to control cost Combine other low cost item as package Adjust Price upwards COPYRIGHT - EXCEL FINANCE ACADEMY FOLLOW OUR YOUTUBE CHANNEL AND FACEBOOK PAGE LINKED IN DESCRIPTION TO SUPPORT Less Popular & Less Profitable Items
- 34. BREAKEVEN POINT Minimum numberof customers to recover Fixed Costs Contribution per guest = Price – direct / indirect variable cost Breakeven point = Fixed Cost / Contribution Note •Fixed Costs need to have same period •All indirect cost are not able to be identified hence use a reliable measure •Some cost are semi-fixed / semi variable (need to split for major costs) •Use standard costs
- 35. Cost Controller CheckList 1 . Market Surveys have been regularly conducted and documented. Information gathered during these surveys has been shared with the Purchasing Manager, Executive Chef and Financial Controller. 2 . Receiving reports, packing slips or invoices show evidence that merchandise received has been inspected, counted and weighed. 3. Food and beverage invoices are properly listed and routed to Accounts Payable. 4. Storeroom issues are controlled by means of storeroom requisitions signed by authorized personnel. 5 . Food and beverage storerooms are locked when not attended and store-room keys and locked 6 . A physical inventory of all food and beverage items is taken monthly by designated individuals and monitored by Accounting personnel. 7. After Office hours deliveries are checked by Security, logged and followed-up the next day by the F&B Cost controller. The list is circulated to the Executive Chef, Director of F&B and Financial Controller monthly.
- 36. Cost Controller CheckList 8 . Buffet Costing, Yield Test and Portion Control test have been conducted in the last 3 months. 9. Open-Key Sales are analyses and submitted to the Executive Chef and Director of F&B for their review. 10 . The F&B Cost Board has been updated on the basis of daily store issue and inter- kitchen transfers records. 11. Receiving Records and Stores Requisitions have been posted on a daily basis into the Inventory Management System (IMS). 12. Receiving Records without Purchase Orders are highlighted to the F&B Cost Controller and functionally report to FC. 13. The Order Deviations Report and the correction record have been reviewed on a daily basis. 14. All type of fuel deliveries are witnessed by the receiving department and Receiving Records acknowledged.
- 37. Cost Controller CheckList 15. Inter Kitchen and Inter Bar Transfers are prepared and posted on a daily basis. 16. The Open key Sales Analysis is reviewed on a monthly basis and corrective action taken in consultation with the F&B Operation. 17. Bar Spot Checks are conducted on a regular basis per F&B Cost Control procedure and variances analyzed. 18. High Value Consumption Analysis is prepared and reviewed each month. 19. Slow and non – moving inventory list have been analyzed and actions to deplete such stock have been suggested to various user department, as fast as possible. 20. Variances between book balances and physical inventory, if any, in respect of all categories of stores have been duly analyzed and specific approvals obtained from the FC for write-off/adjustment.
Editor's Notes
- #3 Sales by Type – Food Sales, Beverage Sales Sales by Category – Seafood items, Meat Items, Dessert Items, Soups etc Sales by person -Total Sales / no of people in service Cost % - Total food cost / Net Food Revenue or Total Bev cost / Beverage Revenue or total FnB cost / Total FnB Reenue Fixed Cost – Expenses which does not change materially with change in sales volume Variable Cost – Expenses which increase or decrease in same or nearly same proportion as sales volume. (Question – Does only Revenue change affect variable cost %) what if quantity remain same but price drops Standard cost – Cost intended or planned by operations or management while planning the operations Controllable cost are those which can be influenced by operation decisions. Un Controllable cost are those which does not get affected or are beyond entities cost such as licensing cost, utility prices, rentals, taxes. Nature of individual expenses will depend who is makes decision. Some cost may be controllable for managers but controllable for owners. Recipe – List of ingredients with their cost designed as a standard for producing a food or beverage item Portions – It can be standard size of cooking or Serving Size to guests. Perishable Inventory is which can not be stored for long time 1-2 days. Nonperishable foods have longer shelf lives. Frequently referred to as groceries or staples, they may be stored in the packages or containers in which they are received, often on shelves and at room temperature, for weeks or even months. Question – What about frozen food ? Perishable or non? Answer depends on storage condition PAR – Items to be kept in production / store to ensure smooth operations. Setup based on delivery time, consumption pattern and maximum storage area, re-order cost Par stock is taken to mean the maximum quantity of a given item that should be on hand after the most recent order has been received Re-order level – level at which order need to placed so that PAR stock balance is maintained. Break even point – Minimum no of customers or sale value which will be sufficient to recover all fixed costs.
- #5 control was defined as a process used by managers to direct, regulate, and restrain the actions of people so that the established goals of an enterprise may be achieved
- #7 Steps in Quality of Food Purchase - Management and Chef need to decide based on menu design / quality standard and taste - It must be documented clearly in recipe cards Example of Quality standard ?? Black Angus Strip Loin IMPS number 180, Boneless 10 ” trim, USDA Prime, upper half, Range #2, minimum 12 lbs., maximum 14 lbs. One - half to three - quarters of an inch fat, except for seam fat, Chilled upon delivery. Free from objectionable odors, no evidence of freezing Salmon Whole, dressed, fresh day of delivery, Minimum 8 lbs., maximum 12 lbs., Fish firm and elastic, meat pink and slightly translucent Gills free from slime and reddish - pink in color, Scales adhering tightly to the skin, No stale odors of ammonia Crimini (Italian Brown) Mushrooms U.S. No. 1, Medium, 1¼ ” to 1¾ ” in diameter, Light tan to brown in color, Thin - skinned, tender, delicate flesh No visible spotting or bruising on skins, Packed in 10 - pound containers Canned Cherries Dark sweet, pitted, canned, U.S. Grade A, packed in water, Count per #303 can: 30 to 35 Federal inspector ’ s certificate of grade required, Shrimp (headless, frozen) Shell – on, 16/20 count, Packed in 5 lb. blocks, Delivered at 10 ° F or below Packed 6 blocks to a case For QUANITTY CONTOL Establish Par Standard in kitchen & store. Order calculation form must state existing quantity, PAR Stock (taking care of estimate consumption) Price Control Usually supplier is identified after monthly / quarterly / yearly tendering Based on past performance Ability of supply at quoted prices Quality adherence Food safety inspections Market Survey should be done every month on sample items to ensure total coverage within qtr or six months Must include wholesale market & retail prices Items being surveyed should be similar quality and specifications.
- #9 Make it easy to understand the calculation
- #10 Is it possible to check all items received? Who can conform adherence to the standard specifications. What if items does not conform to standards and there is no alternative available in short term
- #11 Best Practices & Challenges Receiving on standard times Split Receiving time for perishable & non-perishable Split time & area for Vegetables, Seasfood, Meat items to avoid cross-contamination Kitchen Staff should be present at the time of receiving Receiving Staff should be highly knowledgeable in food specially for recognize whether particular items meet the established standard purchase specifications. examine meats, for example to determine grade, degree of freshness, and extent of trimming, among other considerations. With produce, determine variety, degree of ripeness, and grade, at the very least.
- #13 Fresh meats: 34 – 36 ° F (1-2 c) Fresh produce: 34 – 36 ° F - (1-2 c) Fresh dairy products: 34 – 36 ° F - (1-2 c) Fresh fish: 30 – 34 ° F - (1 c) Frozen foods: 10 – 0 ° F (-12 to -18 c)
- #17 Importance of portion control - reduce customer discontent, which should be viewed as a major cause of customer loss and lost sales - eliminate animosity between kitchen staff and dining room personnel. - eliminate excessive costs. Standard Recipes Standard recipes help to ensure that the quality of any item will be the same each time the item is produced. They also help to establish consistency of taste, appearance, and customer acceptance. Standard recipes are also very important to food control. Without standard recipes, costs cannot be controlled effectively. Standard Portion Cost – Calculation Steps & Concepts 1. Formula 2. Recipe detail and cost card 3. Butcher test 4. Cooking loss test 5. Consider Contingency (price increase / loss of yield)
- #21 The butcher test is designed to establish a rational value for the primary part of the wholesale piece. Example – Fish (Bones, Meat, Head, Fin, water, others), Chicken (Bone, Blood, Head, Meat, Skin etc) Usually Cost Control should Establish Yield Factor 1. Butcher tests on pieces purchased according to specifications from two or more dealers give results that are useful in determining from which dealer to buy. 2. Butcher tests conducted periodically allow the manager to appraise the extent to which any one dealer is adhering to specifications. 3. Menu prices can be more intelligently planned, because exact costs are known.
- #25 Whenever a portion is returned, an authorized individual, such as a kitchen supervisor or chef, records it on the void sheet , indicating the name of the item, the number of the check on which it appeared, and the reason for its return. Portion control tests
- #26 Inventory taking Floor to List List to Floor Valuation FIFO Weighted average Challenges Recording of Spoilages correctly (usually not reported) Valuation of spoilages (if not checked and not reported proper specification it may lead to wrong valuations) Promotions – marketing Cost should be credited only for agreed plans. Not all promotions are credited from food cost. Specific promotions which gets credited are - Buy one get one or heavy discounted given to use other services in hotel such as spa, loyalty programs etc - Promotions which does not benefit F&B division directly
- #28 Check Sample formats provided separately
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