Front office management 1 budget

1. FRONT OFFICE MANAGEMENT-I
UNIT-2 BUDGETING
5TH SEMESTER OF B.SC. HHA
INSTITUTE OF HOTEL MANAGEMENT, SHIMLA

2. SCOPE
• INTRODUCTION
• TYPES OF BUDGET AND BUDGET CYCLE
• ORAGANISATION FOR BUDGET
• MAKING FRONT OFFICE BUDGET
• FACTORS AFFECTING BUDGET PLANNING
• CAPITAL AND OPERATIONS BUDGET FOR FRONT OFFICE
• REFINING BUDGETS, BUDGETRY CONTROL
• FORCASTING ROOM REVENUE
• ADVANTAGES AND DISSADVANTAGES OF BUDGET

3. INTRODUCTION- BUDGET
• A BUDGET IS THE MONETARY OR AND QUANTITATIVE EXPANSION OF BUSINESS PLANS
AND POLICIES TO BE PURSUED IN THE FUTURE PERIOD OF TIME.
• ACCORDING TO I.C.W.A LONDON “A BUDGET IS A FINANCIAL AND OR QUANTITATIVE
STATEMENT PREPARED PRIOR TO A DEFINED PERIOD OF TIME , FOR ATTAINING A GIVEN
OBJECTIVE.
• BUDGET PORTRAYS THE INTENTIONS OF MANAGEMENT ABOUT FUTURE PLAYS … IT
INDICATES SALES TO BE MADE, THE EXPENSES TO BE INCURRED, AND THE PROFIT OR
INCOME TO BE RECEIVED.
BASIC ELEMENTS OF BUDGET
 IT IS A COMPREHENSIVE AND INTER RELATED PLAN.
 IT CAN BE EXPRESSED IN FINANCIAL AS WELL AS QUANTITATIVE TERMS.
 IT IS A FUTURE PLAN FOR FUTURE RESOURCES AND OPERATIONS
 FUTURE PLAN FOR A SPECIFIC TIME PERIOD AND OBJECTIVES OF THE ORGANISATION

4. TYPES OF BUDGET
1. FIXED BUDGET
2. FLEXIBLE BUDGET
3. LONG TERM BUDGET
4. SHORT TERM BUDGET
5. CAPITAL BUDGET
6. SALES BUDGET
7. EXPENSE BUDGET
8. CASH BUDGET
9. OPERATING BUDGET
10. ZERO BASED BUDGET

5. FIXED BUDGET
• IT IS INDEPENDENT ON LEVEL OF TURNOVER
• FIXED BUDGETS ARE USED IN SITUATIONS WHERE THE FUTURE INCOME AND EXPENDITURE CAN BE KNOWN, WITH A HIGHER
DEGREE OF CERTAINTY, AND HAVE BEEN QUITE PREDICTABLE OVER TIME.
• E.G. ADVERTISING BUDGET, MAINTENANCE BUDGET
FLEXIBLE BUDGET
• A BUDGET WHICH MAY BE CHANGED WITH THE CHANGE IN CIRCUMSTANCES AND CONDITIONS
• DIFFERENT ESTIMATES IN DIFFERENT ASSUMED SITUATIONS
• E.G. LABOR BUDGET
LONG TERM BUDGET
• PREPARED FOR A LONG PERIOD OF TIME WHICH COULD BE 1 TO 5 YEARS
• CAPITAL BUDGET
SHORT TERM BUDGET
• PREPARED FOR A SHORT PERIOD OF TIME LESS THAN 1 YEAR
• WEEKLY OR MONTHLY BUDGET

6. CAPITAL BUDGET
• PREPARED FOR THE ACQUISITION OF ASSETS OF THE ORGANISATION
• INVESTMENT IN PROPERTY, BUILDING AND MAJOR EQUIPMENT
• SUBSTANTIAL EXPENDITURE IN TERMS OF MAGNITUDE AND TIME
SALES BUDGET
• FORECAST OF THE SALES TO BE ACHIEVED IN THE BUDGETED PERIOD
• ROOM SALES BUDGET, FOOD AND BEVERAGE SALE BUDGET ETC
EXPENSE BUDGET
• LIST ALL THE PRIMARY ACTIVITIES UNDERTAKEN BY THE UNIT TO ACHIEVE GOALS AND
ALLOCATE A AMOUNT TO EACH
CASH BUDGET
• AN ESTIMATE OF COMPANY’S CASH POSITION
• FORECAST OF HOW MUCH CASH WILL ORGANISTAION WILL HAVE ON HAND AND HOW MUCH
WILL IT REQUIRE

7. OPERATING BUDGET
• THE FINANCIAL STATEMENT THAT IS ASSOCIATED WITH THE ROUTINE OPERATIONS OF A HOTEL
• IT IS THE COST THE HOTEL INCURS IN THE PROCESS OF GENERATING REVENUE DURING ITS
NORMAL OPERATIONS
• SALARIES, WAGES
ZERO BASED BUDGET
• AS THE NAME SUGGESTS, ZERO-BASED BUDGET REFERS TO PLANNING AND PREPARING THE
BUDGET FROM SCRATCH OR ‘ZERO BASE’.
• NO BALANCES ARE CARRIED FORWARD, OR THERE ARE NO PRE-COMMITTED EXPENSES
• IT IS BUILT AROUND WHAT IS NEEDED FOR THE UPCOMING PERIOD, REGARDLESS OF WHETHER
EACH BUDGET IS HIGHER OR LOWER THAN THE PREVIOUS ONE.

8. BUDGET CYCLE
• IT DESCRIBES A PROCESS OF BUDGET
PLANNING AND CONTROL
• INCLUDES ACTION OF DEVELOPING A
FINANCIAL PLAN, COMPARING THE
FINANCIAL PLAN WITH THE ACTUAL
PERFROMANCE AND TAKING
CORRECTIVE ACTIONS
PLANNING
DEVELOP GOALS
AND OBJECTIVES
DEVELOPMEN
T
ESTIMATE COST OF
ATTAINING EACH GOOD
PROJECT REVENUES
IMPLEMENTATIO
N
RECORD BUDGET IN FINANCE
SYSTEM GENERAL LEDGER
MONITORING
COMPARE BUDGET TO
ACTUAL
INVESTIGATE VARIANCES
CONTROL
TAKE CORRECTIVE
ACTION

9. PLANNING AND DEVELOPMENT
• MUST BE WELL CONCIEVED AND BASED UPON A COMPOINATION OF HISTORICAL DATA AND FUTURE
FINANCIAL PROJECTIONS
• THE MANAGEMENT SHOULD TAKE THE SUGGESTIONS AND RECOMMENDATIONS OF THE GROUND-
LEVEL EMPLOYEES
• A BUDGET MUST INCLUDE TARGETED REVENUE AND THE ESTIMATES OF EXPENSES THAT A BUSINESS
NEEDS TO INCUR TO MEET THE REVENUE TARGETS
• ALSO, THE BUDGET SHOULD CONSIST OF ANY IMPROVEMENTS THAT A COMPANY EXPECTS TO GO
FOR IN THE NEAR TERM.
IMPLEMENTATION
• ONCE THE BUDGET IS APPROVED, THE NEXT STEP IS TO START EXECUTING IT
• THE EXECUTION OF THE BUDGET USUALLY STARTS WITH THE BEGINNING OF THE ACCOUNTING
PERIOD

10. MONITORING
• A COMPANY OR AN INDIVIDUAL SHOULD REGULARLY EVALUATE THE BUDGET
• REGULAR EVALUATION HELPS MAKE TIMELY REVISIONS TO THE BUDGET BASED ON INTERNAL AND
EXTERNAL FACTORS
• REGULAR EVALUATION IS ALSO NECESSARY TO IDENTIFY VARIANCE, IF ANY. VARIATION IS THE
DEVIATION OF THE ACTUAL SPENDING FROM BUDGET SPENDING
• A FINAL EVALUATION OF THE BUDGET IS DONE AFTER THE END OF THE ACCOUNTING PERIOD. THIS
EVALUATION PROVIDES THE OVERALL FEEDBACK ON THE BUDGET, INCLUDING HOW ACCURATE IT
WAS
CONTROL
• MANAGEMENT MUST BE INFORMED WHEN THE ‘BUDGET TO ACTUAL’ COMPARISON INDICATES A
SIGNIFICANT DEVIATION SO THAT APPROPRIATYE CORRECTIVE ACTION CAN BE INITIATED
• IF A PROBLEM OR A POTENTIAL PROBLEM IS NOTICED IN THE BUDGET, IT SHOULD ME INFORMED TO
THE MANGEMENT. THIS MAKES A GOOD INTERACTIVE TEAMWORK WITHIN THE DEPARTMENT

11. ORGANISATION FOR BUDGETING
• IT IS ESSENTIAL THAT THERE SHOULD BE AN EFFICIENT ORGANISATION IF BUDGETARY CONTROL IS TO
BE OPERATED EFFECTIVELY
• BUDGETARY CONTROL IS NOT ONLY AN ACCOUNTING EXERCISE, BUT ALSO A TOOL OF MANAGEMENT
AT ALL LEVELS
• IN ORGANIZING A SYSTEM, IT IS ESSENTIAL TO OBTAIN THE FULL COOPERATION OF EACH MEMBER OF
THE MANAGEMENT TEAM
A NUMBER OF PRELIMINARIES WILL BE NECESSARY IF THE STAFFS ARE TO HAVE CONFIDENCE IN THIS
SYSTEM; THESE INCLUDE-
1. CREATION OF BUDGET CENTERS OR DEPARTMENTS
2. PREPARATION OF AN ORGANISATION CHART
3. ESTABLISHMENT OF A BUDGET COMMITTEE
4. PREPARATION OF BUDGET MANUAL
5. BUDGET PERIOD
6. THE KEY FACTOR

12. 1. CREATION OF BUDGET CENTERS OR DEPARTMENTS
• CREATION OF BUDGET CENTERS OR DEPARTMENTS SHOULD BE ESTABLISHED FOR EACH OF WHICH BUDGETS CAN
BE SET WITH THE HELP OF THE HEAD OF DEPARTMENT CONCERNED
• A BUDGET CENTER IS A CENTER OR DEPARTMENT OR A SEGMENT OF AN ORGANISATION FOR WHICH BUDGETS
ARE PREPARED.
2. PREPARATION OF AN ORGANISATION CHART
• THIS DEFINES THE FUNCTIONAL RESPONSIBILITIES OF EACH MEMBER OF THE MANAGEMENT, AND ENSURES THAT
HE KNOWS HIS POSITION IN THE COMPANY AND HIS RELATIONSHIP WITH OTHER MEMBERS.
3. ESTABLISHMENT OF A BUDGET COMMITTEE
• IN LARGE COMPANIES, A BUDGET COMMITTEE IS OFTEN ESTABLISHED TO FORMULATE A GENERAL PROGRAM FOR
PREPARING BUDGETS AND EXERCISING OVERALL CONTROL
• THE CHIEF EXECUTIVE OF THE COMPANY MAY ESTABLISH GUIDING PRINCIPLES BUT USUALLY HE DELEGATES THE
RESPONSIBILITY FOR OPERATING THE SYSTEM TO THE BUDGET OFFICER AS SECRETARY OF THE COMMITTEE.
4. PREPARATION OF BUDGET MANUAL
• THIS IS DEFINED AS A DOCUMENT WHICH SETS OUT THE RESPONSIBILITIES OF THE PERSONS ENGAGED IN THE
ROUTINE OF, AND THE FORMS AND RECORDS REQUIRED FOR BUDGETARY CONTROL

13. 5. BUDGET PERIOD
• IT MEANS THE PERIOD FOR WHICH THE BUDGET IS PREPARED AND EMPLOYED
• IT DEPENDS UPON THE NATURE OF BUSINESS AND THE CONTROL TECHNIQUES
6. THE KEY FACTOR
• THIS IS THE FACTOR WHOSE INFLUENCE MUST FIRST BE ASSESSED IN ORDER TO ENSURE THAT
FUNCTIONAL BUDGETS ARE REASONABLE CAPABLE OF FULFILLMENT
• THE KEY FACTOR -KNOWN VARIOUSLY AS THE “LIMITING” OR “GOVERNING” OR “PRINCIPLE BUDGET”
FACTOR IS OF VITAL IMPORTANCE
• SOME KEY FACTORS- MATERIAL, LABOUR, PLANT, SALES, MANAGEMENT

14. MAKING FRONT OFFICE BUDGET
• FRONT OFFICE DEPARTMENT OF THE HOTEL IS RESPONSIBLE FOR THE SALE OF
THE ROOM AND AROUND 70% OF THE TOTAL EARNING OF THE HOTEL.
• FRONT OFFICE HAS SEVERAL SUB SECTIONS SUCH AS RESERVATIONS,
RECEPTION, CONCIERGE, INFROMATION DEPENDING UPON THE NEEDS OF THE
ORGANISATION
• FRONT OFFICE HAS TO PREPARE BUDGET FOR ALL ITS SECTION MATERIAL AND
LABOUR COST CAPITAL ETC.
• THESE BUDGETS ARE BASED ON THE PREVIOS FIGURES IN CONSULTATION WITH
THE SECTION HEAD AND CONTROLLER TO ACHIEVE ORGANISATION GOALS
• ONCE APPROVED IT IS IMPLEMENTED AND OBSERVATIONS ARE RECOVERED AND
MATCHED WITH THE STANDARDS TO IDENTIFY ANY DEVIATION AND TO BE
CORRECTED

15. • REVENUE FORECASTING AND ESTIMATING EXPENSES ARE ANOTHER TWO
FUNCTIONS OF FRONT OFFICE BUDGETING. FOR THE PURPOSE A FRONT OFFICE
MANAGER REQUIRES-
1. EXPECTED ROOM ARRIVAL
2. EXPECTED ROOM WALKINS
3. EXPECTED ROOM STAYOVER
4. EXPECTED UNDERDTAYS
5. NO SHOWS
6. CANCELLATION
7. UNDERSTAYS
8. OVERSTAYS

16. FACTORS AFFECTING BUDGET PLANNING
ACCOMMODATION AVAILABLE
• ONE OF THE MOST IMPORTANT KEY FACTORS OPERATING IN HOTEL
• WHEN THE SALES BUDGET IS BEING PREPARED IT IS ESSENTIAL TO EXAMINE PATTERNS OF OCCUPANCY TO
ESTABLISH WHAT LEVEL OF ROOM SALES MAY REALISTICALLY BE EXPECTED DURING THE FORTHCOMING BUDGET
YEAR
• WHERE THERE IS A HIGH DEGREE OF ROOM SALES INSTABILITY, EVIDENCED BY PRONOUNCED SWINGS IN
OCCUPANCY RATES, IT IS DESIRABLE TO EXAMINE THE POSSIBILITY OF SHIFTING DEMAND FROM PEAK TO OFF-PEAK
PERIODS
SHORTAGE OF LABOUR
• THIS PARTICULAR KEY FACTOR IS POTENTIALLY POWERFUL, BUT THERE IS NO EVIDENCE THAT IT EXERTS MUCH
INFLUENCE ON THE VOLUME OF HOTEL AND RESTAURANT SALES
• IN SOME LOCATIONS, LABOUR SHORTAGES MAY, IN FACT, BE A SEVERE LIMITING FACTOR.
CONSUMER DEMAND
• CONSUMER DEMAND IS OFTEN FOUND TO BE A POTENT KEY FACTOR. ITS OPERATION MAY BE DUE TO SEVERAL

17. QUALITY OF MANAGEMENT
• AN IMPORTANT KEY FACTOR
• THE MANAGEMENT AND ITS OPERATION HOWEVER DO NOT HAVE A BEARING OVER SHORT PERIOD
• OVER LONGER PERIODS, THE QUALITY OF MANAGEMENT WILL HAVE A DIRECT AND POWERFUL INFLUENCE ON THE
VOLUME OF SALES GENERATED.
ECONOMIC FORECAST
• THIS WILL ILLUSTRATE THE GENERAL BUSINESS CONDITION BOTH LOCALLY AND NATIONALLY INCLUDING THE
GENRAL ECONOMIC CLIMATE, POLITICAL CLIMATE, AND ALTERATIONS TO PRESENT LAWS WHICH MAY TOGETHER
OR IN PART HAVE AND EFFECT ON HOTELS BUSINESS, EITHER DIRECTLY OR INDIRECTLY.
OTHER FACTORS
• POLITICAL STATE OF AFFAIRS
• NATURAL CALAMITIES
• TERRORIST ACTIVITIES
• CLIMATE CONDITIONS
• EVENTS (SPORTS, FESTIVAL CELEBRATION, ETC)
• IMPORTANCE OF THE CITY

18. HOW A BUDGET IS PREPARED
• THE ROOM DIVISION MANAGER ESTIMATES THE NEXT PERIOD ROOM REVENUE AND DIRECT
EXPENSES.
• HE/SHE SHALL FIRST FORECAST DEMAND FOR ROOMS FOR THE NEXT PERIOD IN QUESTION AND
THEN MIGHT USE HISTORICAL OR INDUSTRY AVERAGES TO ESTIMATE ROOM REVENUE AND
DIRECT EXPENSES
ESTIMATING ROOM REVENUE
• BY USING AN APPROPRIATE FORECAST METHOD, THE RDM CAN FORECAST DEMAND IN ROOM
NIGHTS. LATER THIS SHALL BE MULTIPLIES BY THE AVERAGE ROOM RATE (ARR)
• ACCORDING TO THE HOTELS HISTORICAL FIGURE, THE RDM SHALL ESTIMATE THE ROOM
ALLOWANCES FIGURE AND SUBSTRACT IT FROM TOTAL ROOM REVNUE TO COME UP WITH NET
ROOM REVENUE.
• FINANCIAL INFORMATION OF PREVIOS YEARS OFTEN SERVES AS THE FOUNDATION ON WHICH

19. ROOM REVENUE SUMMARY FOR HOTEL A
• THE AMOUNT OF ROOM REVENUE INCREASED FROM RS 10,00,000 TO 13,31,000
REFLECTING A 10% YEARLY INCREASE
• IF THE CONDITUON APPEAR TO BE SIMILAR THE ROOM REVENUE FOR 2003 WOULD BE
BUDGETED AT RS 14,64,000
YEAR ROOM REVENUE INCREASE IN HOTEL ROOM
REVNEUE
% INCREASE
1999 RS 10,00,000 -- --
2000 RS 11,00,000 RS 1,00,000 10%
2001 RS 12,10,000 RS 1,10,000 10%
2002 RS 13,31,000 RS 1,21,000 10%

20. ROOM REVENUE FOR SUMMARY FOR HOTEL B (120 ROOMS)
• ANOTHER APPROACH TO FORECASTING ROOMS REVENUE BASED ON THE REVENUE
PROJECTION ON PAST ROOM SALES AND AVERAGE DAILY ROOM SALES
• FOLLOWING FORMULA CAN BE USED TO FORECAST ROOM REVENUE FOR 2012:
FORECASTED ROOM REVENUE= ROOMS AVAILABLE X OCCUPANCY X AVERAGE DAILY RATE
= (120 X 365) X 76 X RS 1200
= RS 3,99,45,600
• A MORE DETAILED APPROACH WOULD CONSIDER THE VAIERTY OF DIFFERENT RATES
CORRESPONDING TO ROOM TYPES, GUEST PROFILES, DAYS OF THE WEEK, AND
SEASONALITY OF BUSINESS.
YEAR ROOM SOLD OCCUPANCY % AVERAGE DAILY RATE REVENUE
2008 30,660 70% RS 1000 RS 3,06,60,000
2009 31,974 73% RS 1040 RS 3,32,52,960
2010 32,412 74% RS 1080 RS 3,50,04,960
2011 32,850 75% RS 1140 RS 3,74,49,000
2012

21. ESTIMATING DIRECT EXPENSES
DIRECT EXPENSES OR VARIABLE COST CAN BE DIVIDED INTO 4 CATEGORIES-
1. WAGE EXPENSES
2. FRILLS( FREE OF CHARGE REPLENISHED ROOM ITEMS)
3. MATERIALS
4. LAUNDRY AND LINEN EXPENSES
• THE RDM MIGHT CONSIDER COUNTRY AVG OR THE HISTORICAL AVG ALONG WITH
LABOUR UNION COLLECTIVE BARGAIN CONTRACTS SUPPLIERS PRICE INCREASE
INTENTIONS ETC
• MOST EXPENSES OF FO ARE DIRECT EXPENSES THEY VARY IN PROPORTION TO ROOM
REVENUE

22. EXPENSE CATEGORIES AS PERCENTAGE OF ROOM REVENUE FOR HOTEL B
• THE ABOVE DATA SHOWS THE MOST COMMON FO EXPENSES
• WHEN THE ABOVE COST ARE SUMMED UP AND DIVIDED BY THE NUMBER OF
OCCUPIED ROOMS, THE COST PER OCCUPIED ROOM IS DETERMINED
• BASED ON THESE PAST DATA FOR THE YEAR 2012-
SALARY AND WAGES- 17.6%
LAUNDRY LINEN AND GUEST SUPPLIES- 3.2%
COMMISION AND RESRVATION EXP- 2.8%
OTHER EXPENSES- 4.7%
YEAR SALARY AND
WAGES
LAUNDRY, LINEN AND
GUEST SUPPLIES
COMMISION AND
RSV EXPENSES
OTHER EXPENSES
2008 16.5% 2.6% 2.3% 4.2%
2009 16.9% 2.8% 2.5% 4.5%
2010 17.2% 3.0% 2.6% 4.5%
2011 17.4% 3.1% 2.7% 4.6%

23. • USING THESE, EXPENSES CAN BE CALCULATED AS FOLOWS-
SALARY AND WAGES- RS 3,99,45,600 X 17.6/100
= RS 70,30,425.60
LAUNDRY LINEN AND GUEST SUPPLIES- RS 3,99,45,600 X 3.2/100
= RS 12,78,259.20
COMMISSION AND RESERVATION EXP- RS 3,99,45,600 X 2.8/100
= RS 11.18.476.80
OTHER EXPENSES- RS 3,99,45,600 X 4.7/100
=RS 18,77,443.20

24. HOTEL C ( 100 ROOMS)
FIND OUT THE TOTAL ESTIMATED ROOM REVENUE FOR THE YEAR 2005.
FORECASTED ROOM REVENUE= ROOMS AVAILABLE X OCCUPANCY X AVERAGE DAILY
RATE
=( 100 X 365) X 91% X 7571
= 25,14,70,765
YEAR NO. OF ROOM SOLD OCCUPANCY % TOTAL REVENUE AVERAGE ROOM
RATE
2001 29200 80% RS 11,68,00,000 RS 4000
2002 30295 83% RS 15,40,00,000 RS 5008
2003 31390 86% RS 17,80,00,000 RS 5676
2004 32585 89% RS 22,00,00,000 RS 6571
2005

25. REFINING BUDGETS
• THE TERM ‘REFINING BUDGET’ CAN ALSO BE CALLED AS AMENDING BUDGET OR ADJUSTING THE
BUDGET OR MODIFYING THE BUDGET
• IF THE ACTUAL OPERATING FIGURES AND BUDGETED FIGURES ARE DISTANT FROM EACH OTHER, THEN
THIS SUGGESTS A REFINING OR REVISION OF OUR BUDGET.
REVISION OF ROOM DEMAND
ESTIMATED ROOM REVENUE
ROOMS DIRECT EXPENSES
• DEPARTMENTAL BUDGET PLANS ARE COMMONLY SUPPORTED BY DETAILED INFORMATION GATHERED
IN THE BUDGET PREPARATION PROCESS AND RECORDED
• THESE DOCUMENTS SHOULD BE SAVED TO PROVIDE AN EXPLANATION OF THE REASONING BEHIND
THE DECISIONS MADE WHILE MAKING DEPARTMENTAL BUDGET PLANS
• MANY HOTELS REFINE EXPECTED RESULTS OF OPERATIONS AND REVISE OPERATIONAL BUDGET AS
THEY PROGRESS THROUH THE BUDGETED YEAR

26. • REFORECAST IS DONE WHEN THERE IS A SIGNIFICANT VARIANCE BETWEEN THE BUDGETED AND THE ACTUAL
FIGURES
• SUCH VARIANCE MAY INDICATE THAT THE CONDITIONS HAS CHANGED AND THE BUDGET SHOULD BE
BROUGHT INTO LINE
BUDGET TRICKS OF THE TRADE
REVIEW YOUR BUDGET
 TAKE A CLOSE LOOK AT YOUR BUDGET AND MAKE SURE THAT THE ASSUMPTIONS ON WHICH IT IS BASED ARE
ACCURATE AND MAKE SENSE
 IF THE MARKET IS GROWING QUICKLYY, YOU NEED TO ADJUST UP YOUR ESTIMATE
FREEZE SPENDING
 ONE THE MOST QUICKEST AND MOST EFFECTIVE WAY
 FREEZE EXPENSES SUCH AS PAY RAISES, NEW STAFF, AND BONUSES
POSTPONE NEW PROJECTS
 NEW PROJETCS INCLUDING PRODUCT DEVELOPMENT ACQUISITION OF NEW FACILITIES AND RESEARCH AND
DEVELOPMENT CAN EAT UP A LOT OF MONEY
LAY OF EMPLOYEES AND CLOSE FACILITIES
 LAST RESORT WHEN TRYING TO CUT EXPENSES
 IMMEDIATE AND LASTING DECREASE IN THE TALENT AVAILABLE

27. BUDGETARY CONTROL
• BUDGETARY CONTROL AS THE TERM SUGGEST IS THE FINANCIAL CONTROL
THROUGH BUDGETS WHICH MEANS FIXING RESPONSIBILITY FOR BUDGETED RESULT
TO THE MANAGERS CONCERNED
• IT IS PROCESS OF FINDING OUT WHAT IS BEING DONE AND COMPARING ACTUAL
RESULTS WITH THE CORRESPONDING BUDGET DATA
• VERY IMPORTANT ASPECT OF BUDGETARY CONTROL IS PERPETUAL COMPARISON OF
BUDGETED FIGURES TO ACTUALLY ACHIEVED FIGURES
• BUDGETARY CONTROL INVOLVES THE USE OF BUDGET AND AND BUDGETARY
REPORTS THROUGHOUT THE PERIOD TO COORDINATE, EVALUATE AND CONTROL
DAY TO DAY OPERATIONS
• THE MOST IMPORTANT ASPECT OF BUDGTERAY CONTROL IS THE PLANNING WHICH
GOES INTO THE MAKING OF BUDGET AND ITS EFFECTIVENESS IN THE CONTROL OF

28. OBJECTIVES OF BUDGETARY CONTROL
• TO GIVE A PRACTICAL EXPRESSION TO THE AIMS AND OBJECTIVES OF THE
BUSINESS
• TO PROVIDE A DETAILED PLAN OF THE FO OPERATIONS WITH RESPECT TO A
PARTICULAR TRADING PERIOD
• TO ENSURE BETTER COOPERATION OF VARIOUS DEPARTMENTS/
SUBDEPARTMENTS
• TO SET BENCHMARKS AGAINST WHICH THE MANAGERIAL PERFORMANCE IS TO
BE MEASURED
• TO ENSURE AN ECONOMICAL USE OF THE RESOURCES OF THE BUSINESS

29. ADVANTAGES OF BUDGETARY CONTROL
• ELIMINATES UNCERTAINTY- PROVIDES A PLANNED APPROACH TO EVERY ACTIVITY OF HOTEL
WITHIN WHICH EXPENSES HAVE TO INCURRED AND RESULTS ACHIEVED
• RESULTS OF VARIOUS BRAINS- SINCE TOP MANAGEMENT BRAINS ARE INVOLVED IN MAKING
BUDGET, THIS ENSURES BUDGET BEING FRAMED ACCORDING TO SUBJECTIVE STANDARD AND A
SINGLE INDIVIDUAL
• GOOD INCENTIVES TO WORKERS AT TIMES- HIGH STANDARD BUDGET FULFILLMENT AT TIMES
GIVES GOOD INCENTIVES
• OPTIMUM USE OF CAPITAL RESOURCES- GUIDES THE HOTEL TO USE ITS CAPITAL RESOURCES IN
MOST PROFITABLE MANNER
• EFFECTIVE COORDINATION- BUDGETING MAKES COORDINATION BETWEEN VARIOUS
DEPARTMENTS MORE EFFECTIVE AS THE GOAL OF EACH DEPARTMENT IS INTERLINKED
• SPOTLIGHT ON DEVIATION- DEVIATION CAN BE PIN POINTED AND AREAS AND WEAKNESS CAN
BE DISCOVERED AND CORRECTIVE ACTIONS CAN BE TAKEN
• OPTIMUM UTILIZATION OF MAN, MATERIAL AND MACHINE
• SERVES AS BEACON OF LIGHT- IT PROVIDES A BENCHMARK FOR ACTUAL PERFORMANCE AND
SHOWS THE PATH TO ACHIEVE THE STANDARDS

30. LIMITATIONS OF BUDGETING
• BUDGETS ARE ESTIMATES AND CAN NEVER BE HUNDRED PERCENT ACCURATE. THEY
ARE AS GOOD AS THE DATA AND FORECASTS ON WHICH THEY ARE BASED.
INFLATION AND RAPID CHANGES IN BUSINESS ENVIRONMENT TEND TO DISTORT
BUDGET DATA BEFORE THEY ARE PUT TO OPERATION.
• THE BUDGET IS SIMPLY A TOOL TO EFFICIENT MANAGEMENT AND NOT A
SUBSTITUTE FOR IT. AN EFFICIENT SYSTEM OF BUDGETING CAN ACHIEVE NOTHING
WITHOUT EFFECTIVE PLANNING AND CONTROL.
• BUDGETS CANNOT GUIDE AS TO WHAT ACTION SHOULD BE TAKEN. SIMILARLY, IT IS
NOT AN OUTLIVED PROGRAMMED THAT MUST BE ADHERED TO UNDER ALL
CONDITIONS.
• SOUND SYSTEM OF EFFECTIVE SUPERVISION IS NECESSARY AND THE LACK OF IT
WOULD MAKE THE BUDGET INEFFECTIVE.
• BUDGETING ENTAILS THE DANGER OF INFLEXIBILITY AS EVERYBODY BECOMES

31. • BUDGETS MAY BE MISUSED BY THE BOSSES TO FIND FAULTS IN EMPLOYEES AND
RESTRICT PERFORMANCE RATHER THAN IMPROVE IT.
• THE INITIATIVE AND CREATIVITY IN AN EMPLOYEE MAY BE HAMPERED IF THE SUPERVISOR
AND BOSSES STICK TO BUDGETS STRICTLY.
• BUDGETING IS A TIME-CONSUMING PROCESS AND INVOLVES EXPENSES.
• BUDGETING GOALS MAY LEAD PEOPLE TO SUPERSEDE THE ENTERPRISE GOALS.
BUDGETING MAY BE USED TO HIDE INEFFICIENCIES AS PAST PRACTICES BECOME
EVIDENCE FOR THE PRESENT. THE FACT THAT A CERTAIN EXPENDITURE WAS MADE IN
THE PAST BECOMES EVIDENCE OF ITS RESPONSIBILENESS IN THE PRESENT.
• SUCCESS OF BUDGETING DEPENDS ON THE MOTIVATION OF PEOPLE WHO ARE TO
INSTALL ANDUSE BUDGETS. PEOPLE CANNOT CHANGE THEIR HABITS AND ATTITUDE
OVERNIGHT. TO BE EFFECTIVE, BUDGETING SHOULD BE A GRADUAL AND COOPERATIVE
EXERCISE.

32. THANK YOU!!