Evaluating Front Office Operations
It is an important management function
Without thoroughly doing so, managers will
not know whether the planned goals is
attained or not
Successful FOMs evaluate the results of
department activities on a daily, monthly,
quarterly and yearly basis
The tools that FOMs can use to evaluate the
success of front operations include:
Evaluating Front Office Operations
The Daily Operations Report
Occupancy Ratios
Rooms Revenue Analysis
The Hotel Income Statement
The Rooms Schedule
Rooms Division Budget Reports
Operating Ratios
Ratio Standard
The Daily Operations Report
Also known as Manager’s Report / Daily
Revenue Report
It summarizes the hotel’s financial activities
during a 24 hour period
It provides a means to reconcile cash, bank
accounts, revenue and accounts receivable
Occupancy Ratio
It measures the success of the front office in
selling the hotel's primary product, i.e.
GUESTROOMS
The following rooms statistics must be
gathered to calculate basic occupancy ratios:
•No. of rooms available for sale
•No. of rooms sold
•No. of guests
•No. of guest per room
•Net rooms revenue
Occupancy Ratio
•Occupancy Percentage =
No. of Rooms Occupied
No. of Rooms Available
• Multiple Occupancy Ratio =
No. of Rooms Occupied by
More Than One Guest
No. of Rooms Occupied
Occupancy Ratio
•Average Guests per Room Sold =
No. of Guests______
No. of Rooms Sold
• Average Daily Rate =
Total Room Revenue_____
No. of Rooms sold
•RevPAR (Revenue per Available Room) =
Total Room Revenue_______
No. of Available RoomsSold
Occupancy Ratio
•RevPac (Revenue per Available Customer =
Total Revenue______
No. of Guests
•Average Rate per Guest =
Total Room Revenue_____
No. of Rooms Guests
Room Revenue Analysis
FO staff members are expected to sell rooms
at rack rate unless a guest qualifies for an
authorized discounted room rate
A room rate variance report lists those rooms
that have been sold at other than their rack
rates
This report helps FO mgmt. to review the
performance of the FO staff
The other way to evaluate the sales
effectiveness of the FO staff by FOM is to
generate a YIELD STATISTIC
Room Revenue Analysis
Yield Statistic is the ratio of actual rooms
revenue to potential rooms revenue
In other words, it is the amount of room
revenue that can be generated if all the rooms
in the hotel are sold at rack rate on a given day,
month or year
•Yield Statistic =
Actual Room Revenue____
Potential Rooms Revenue
The Hotel Income Statement
It provides important financial information
about the results of hotel operations for a given
period of time that is used by the management
to evaluate the overall success of operations
It is an important financial indicator of
operational success and profitability
The hotel income statement relies in part on
detailed FO information that is supplied through
the room schedule
The Hotel Income Statement
The amount of income generated by the
rooms division is determined by subtracting
payroll and related expenses
Revenue generated by the rooms division is
usually the largest single amount produced by
revenue center with in a hotel
The Rooms Schedule
The hotels statement of income shows only
summary information
The separate department income statement
prepared by each revenue center provide more
detail
Departmental income statements are called
‘Schedules’ and are referenced on the hotel’s
statement of income
Rooms Division Budget Report
Hotel’s accounting division prepares monthly
budget reports that compare actual revenue
and expense figures with budgeted amounts
It helps in evaluating front office operations
whether it is favorable or unfavorable
A typical budget report format should include
both monthly variances and year to date
variances for all budget items
Rooms Division Budget Report
Favorable Variance:
•Revenue: Actual exceeds budget
•Expenses: Budget exceeds actual
Unfavorable Variance:
•Revenue: Budget exceeds actual
•Expenses: Actual exceeds budget
For e.g. the actual amount of salaries and
wages for Room Division personnel for a given
month was $20, 826, while the budgeted
amount was $18, 821
Rooms Division Budget Report
It resulted in an unfavorable balance of
$2,005
Percentage variances alone can also be
deceiving
Any budgeting process is unlikely to be
perfect
So FOM should analyze only significant
variances and take action
GM and Controller normally provides criteria
and determines which variances are significant
Operating Ratios
It assists managers in evaluating the success of
front office operations
Payroll and related expenses tends to be the
largest single expenses for the entire hotel
For control, labor costs must be analyzed on a
departmental basis
Room sales fluctuates but payroll and related
expenses relatively remains constant
Hence any differences between actual and
budgeted labor cost percentages must be
carefully investigated
Ratio Standards
Operating ratios are meaningful when compared
against useful criteria such as:
Planed ratio goals
Corresponding historical ratios
Industry averages
Ratio standards are only indicators and not solution
When ratios vary significantly form planned goals,
previous results, or industrial averages, they indicate
that problem may exist
More analysis and investigations are necessary to
determine appropriate corrective actions