UNDERSTANDING HOTEL
ORGANIZATIONS
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Organizational Chart
Line and Staff Functions
Business Forms
Revenue Sources
Profit and Costs
Contents
General
manager
Human
Resources
Food Beverage
HOUSEKEEPING
Convention
Sales
Restaurant/Bar
Floor Attendants
RoomSales
Banquets
Laundry
Administration
Maintenance
Front Office
Night Audit
Front Desk
Bell service
Catering
Valet
Room Service
Concierge
 Like
most service related
organizations, hotels are
divided between LINE
functions and STAFF
functions
Line Functions
Line functions are the tasks assigned to
employees that bring them in regular contact
with guests.
 Line operations in a hotel are the Rooms
Division & Food and Beverage Division.
 Line employees are hands-on participants in
the assembly and delivery of the hotel’s
services.
 Line = Revenue
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ROOMS DEPARTMENT
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Performs the lodging function of a hotel.
Includes Front Office, Reservations
Uniformed Services and Housekeeping
Tasks performed:
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Receive reservation
Receive guests
Assign rooms to guests
Maintain status of room (available or vacant?)
Receive mail / phone messages for guests
Maintain security & cleanliness in rooms and public areas
Answer guests’ questions
Close coordination needed by all subunits
FOOD AND BEVERAGE
DEPARTMENT
Provide food and beverage for guests
 May include coffee shop, restaurant, poolside snack bar,
room service, banquet, function rooms, lobby bar, nightclub
/ disco, room service
 Provides banquet and catering services for events in the
hotel
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Food and Beverage Department cont.
 Consists of kitchen (food preparation) and F&B service
 Contains individual F&B outlets – restaurants and coffee
shop etc (each managed by a manager)
 Full service hotels have convention and catering subunit
 Stewarding subunit does the purchasing,cleaning and
washing, expediting and arranging facilities for food and
beverage
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OTHER LINE FUNCTIONS
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Telecommunications
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Concessions, rentals, and commissions
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Fitness and recreation facilities
Staff Functions
Staff functions are those behind the scenes
activities that support the line functions and
have little contact with guests.
 Example: Engineering, security, human
resources, marketing, accounting
 Staff = Cost
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Sales and Marketing Department
 Individual sales manager in charge of corporate accounts, conventions,
tour and travel markets.
 Low intradepartmental interdependence.
Human Resources Department
 Consists of employee recruitment, benefits administration, training subunits
Accounting Department
 Prepares payroll, manages accounts receivables, accounts payables,
handles purchases and cost controls, store room operations, night audits
Engineering and Security
 Repairs, maintenance, guest and property security
Hotel Functional Organizational
Design
Reservations
Engineering
Room status
Front Office
repair
Housekeeping
Clean room
Concierge / Bellhop
Laundry
LODGING BUSINESS FORMS
The five basic lodging business forms:
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Owner operated
Owner managed
Independent
Franchised
Management Contract
Lodging Business Forms
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Understood to have been the first type of
lodging management association
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Hotel is run by an owner and the owner’s
family
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Currently popular Bed and Breakfast hotel
is considered owner operated
Owner Operated
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The owner has hired additional (nonfamily) personnel to help with the running
of the property

The overall management is in the hands
of the owner, but day to day operations
can be in the hands of others
Owner Managed
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The owner has no role or management in
day to day operations

An independent group of managers are
responsible to the owner for the hotel’s
performance
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The hotel is not chain affiliated
Independent
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Independently owned hotels that affiliate
themselves with a chain
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The chain provides standard operating
procedures and guidelines to maintain a
consistent level of quality and service
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The chain has limited control
Franchised
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You can expect to pay in the range of $90,000 to
$150,000 in initial fees for a first-class hotel
franchise like Hilton‘s Homewood Suites.
Additional costs typically include royalty fees,
reservation fees, marketing fees, frequent
traveler fees, and miscellaneous charges for
items like training or commissions. These
numbers are calculated assuming a 300-room
hotel with 60% occupancy for the first year, so
actual costs can vary. Total costs over ten years
can run as high as $10 million or more.
Franchise Costs/Benefits
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Those with the best relationships with
their franchisors reported gross operating
profits per room (GOPAR) of $12,400,
which translates to over $3.2 million per
year in a 300 room hotel.
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Top Franchises: Marriott (Ritz Carlton),
Hilton, Four Seasons, Park Plaza, Holiday
Inn
Franchise Costs/Benefits

Independently owned hotels that affiliate
themselves with a chain
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The chain maintains a high level of control as
the chain operates the hotel on the owner’s
behalf
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Many hotel companies offer both franchises
and management contracts.
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Management fees are paid as a % of
revenues
Management Contract
Revenues, Profits and Costs
A revenue source is the result of a
product or service a hotel makes
available to guests for a price.
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Sleeping Rooms
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Meeting / Function Space
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Outlets / Ancillary Revenue Sources
Revenue Sources
The sleeping room is the most profitable of all of
the hotel’s products
 A sleeping room is an accommodation unit
 The price of each of these units is called the
room rate
 Occupancy is the measurement of how many
rooms are sold each night verses how many
rooms the hotel has to sell.
e.g. 75 rooms sold of 100 rooms available
= 75% occupancy rate
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Sleeping Rooms
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Many hotels incorporate the revenue source of
non-sleeping rooms sales
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Meeting rooms, or function rooms are used for
any type of group meeting
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The revenue sources from meeting/function
space comes from:
1. Selling space for a specified period
2. Providing food and beverage service in these
rooms
Meeting/Function Space
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An outlet is a food and beverage point of
sale
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Ancillary revenue sources are revenue
sources outside of sleeping rooms or food
and beverage such as gift shops or spa
services.
Outlets/Ancillary Revenue Sources
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The hotel sleeping room is the most
profitable portion of all hotel products
because of profit margin.
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Profit margin is determined by comparing
sales revenue verses the costs incurred in
providing a product or service.
Profit Margin
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Room cost analysis looks at what it costs the hotel to keep
a room running in relation to what it is sold for to the
guest.
H/L/P
Heat
Light
Power
Room Cost
Labour
Overhead
Housekeeping
Engineering (Internal
structure
maintenance)
Grounds Maintenance
(Grounds surrounding
building)
Debt service of owners
marketing (Local
effort)
Management Costs
(Inc. franchise or
management contract
fees)
Taxes
Corporate Obligations

ABC Hotel sells a room for an
average of $150 per night. The cost
incurred in preparing each room for
sale are:
Heat
Light
Power
$2.00
Housekeeping
Engineering/Grounds
Debt service of owners
Marketing
Management costs
Corporate obligations
Taxes, etc
Total:
$31.00
$3.00
$2.00
$9.00
$5.00
$0.50
$2.25
$2.75
$2.00
$2.50
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Compare this to the actual cost to
the price sold (room rate) and the
room cost can be determined:
Room cost =
Actual Cost
Room
Rate
=
$ 31.00
$150.00
=
21.0%
Room Rate – Room Cost = Profit
Room Cost Example
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A common misconception in the hospitality
industry is to consider food sales as profitable as
room sales. This is not the case
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Food cost is the cost of a particular food item in
relation to the price for which it is sold
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Put simply, the food cost percentage is the
percentage of the profit taken up but the actual
cost of the item
Food Cost
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The equation for determining the cost is:
Food cost = Purchase Price / Menu Price
For example:
Item
Steak
Chicken
Caesar Salad
Purchase Price
$5.95/ea.
$3.95/ea.
$1.99/ea.
Menu Price
$22.00
$17.95
$ 9.95
Food Cost Example
Food Cost
27.0%
22.0%
20.0%
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Each night when a room goes unsold the hotel
loses that opportunity to ever sell it again
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This is called opportunity cost
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The “Empty Room Theory” states that once a
room goes unoccupied, it is gone forever
Opportunity Cost
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ABC Hotel has 400 sleeping rooms
Consider the following example:
Room Cost
Room Rate
Profit Margin
Sleeping Room
$30.00
$150.00
$120.00
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The daily maximum room profit potential is:
Weekly:
Monthly:
Yearly:
$48,000 ($120x400)
$336,000
$1,400,000
$17,520,000
$17,520,000 is the maximum potential room profit that ABC Hotel could make in a
year. Each unoccupied room subtracts from that number. It is easy to understand
why hotel operators focus so much attention on occupancy.
Opportunity Cost Example
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A captive audience are guests who are staying
at the hotel who will utilise the outlet in the
hotel.
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Captive audience quotients apply to both
outlet/ancillary sales and catering sales
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Group catering contribution is the catering
business acquired by a hotel that has all, or a
large percentage of, the attendees staying at the
hotel itself
Captive Audience Quotient
Managing Quality Control

Set standards
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Select employees
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Train employees
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Involve
employees
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Evaluate
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Reward
achievement
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