Hospitality Operations Management of Silver Palm Hotel - Report Example

Hospitality Operations Management Silver Palm Hotel [Pick the Contents Executive Summary 3 Introduction 4 2.Analysis of Finance Department Contribution 6 3.Anlaysis of Overall hotel performance 11 4.Conclusion 13 Bibliography 16 Appendix-1 17 Appendix-2 18 Appendix-3 19 Appendix-4 20 Executive Summary Silver Palm hotel was inherited to new management which decided to bring the hotel to 4start standard at tenure of 4 years. For the said purpose many efforts have been down which helped the hotel in regaining its market goodwill. Hotel had undergone various financial and operation changes which had a positive impact on the revenues of the hotel. Employees turnover had decreased while guest occupancy, room occupancy, market image index have increased thus indicating that net operating income and cash flow have improved. Although, there is still room for improvement but in tenure of only four years, hotel has out-performed and if continued can easily reach the level of 5 Star hotel. The major decisions taken by the new management for the hotel inculcated; Installation of various facilities for guest including leisure club, business center, hotel shop, bars. Room rate on weekends was less in comparison to room rate on week days. Discounts were given on groups and to the corporate sector. Discounts on the room were offered to in accordance to the room occupancy; lower the room occupancy of hotel higher the discount on that day. Marketing strategies have been improved by enhancing the advertisement campaigns. Specific strategy was devised for each product, therefore different medium at different timing were used to market the product. Complementary items and in-room entertainment have been increased to the maximum level. New employees have been hired and continuous efforts have been done for retaining them. All employees have been given equal opportunity for training. Salaries of staff at same level but in different department have been kept on same scale. Better menu plan have been incorporated and cost for the meal have been reduced. Public awareness index of the hotel have been increased by the end of four years. Thus, reflecting that Hotel has created its market image and reputation in the market. 1. Introduction Silver Palm hotel has improved its status in last 4 years and have undergone various structural and operational changes which have in turn affect the financials of the hotel. The goals have been set by the new owners and one of the major goal is to become 4 star hotel in tenure of 4 years. In the efforts of achieving 4 star status, many major decision have been taken place which have proved to be correct in the long run. Thus, we will be analyzing the decisions one by one. At time of inheritance, hotel had 250 averagely decorated room having 24 hours operation front desk. The facilities that were inherited included lobby lounge, Pub bar, service restaurant, limited car park but there were no leisure clubs, business center, conference or meeting rooms for the guests. But as of December year 4, Silver Palm hotel had been well equipped with the new facilities. At hotel level installation of quick check in/ check out system, business center, additional spacious car park, hotel shop, leisure club, second bar and conference room have upgraded the hotel status among its competitors. As a result of improved services and increased facilities available, room occupancy (%) has been increased to 68.8% which was initially 26.5% only although the average room rate at both time period was approximately same. Silver Palm hotel have come up with a good strategy for offering different rates on weekdays, weekends, conference, groups and events. And hotel have also incorporated early bird discounts, which means, the earlier you book a room cheaper it will be. Thus, minimum rate for weekday is $70 while in case of weekends is $75 which at time of inheritance were $120 and $110 respectively. When Silver Palm hotel was inherited to the new management, annual staff turnover was 83.9% and very few employees were left in the hotel. But with the passage of time, considerable efforts have been done in improving the hotel facilities along with improving the marketing strategies of hotel which have resulted in employee satisfaction and retention thus decreasing the employee turnover at end of year 4 to 41.3%. This percentage shows that now the Silver Palm hotel is stable and is having motivated employees working. In addition to this, employee trainings cost per employee differed from department to department, which under new management succeeded to be same throughout the departments apart from Head of departments. Thus, valuing staff of very department equally and giving them equal opportunities for trainings. This helped the hotel in retaining the employees and reducing the turnover rate. Initially, Silver Palm hotel did not had advertising strategy and therefore very little efforts were done in marketing of the hotel. Usually business press medium was used for advertisement of weekday rooms. Moreover, only social media page was used for the general advertisements. But now new management has spent considerable amount on advertising efforts. Now, advertisement efforts using different medium are done for promoting meal, weekday rooms and weekend rooms. For meal promotion, direct sales force is used while for weekend room Sunday newspaper has been used. Like previously, business press medium was used for weekday’s room promotion. Furthermore, PR agency was taken on board which was paid monthly to market the hotel. In addition to this, considerable amount has been spent weekly on Search Engine Optimization and online advertisement on weekly basis. All these advertisement decisions have helped the hotel in regaining its market position and increasing the flow of guests. Silver Palm hotel management knows that guests are the source of their cash flows and underlying reason of their business. If guest are unsatisfied then Hotels’ source of income will be disturbed. Therefore, Silver Palm hotel has put an effort in tenure of 4 years to increase the comfort level for guest. Initially, level of complementary items in room was 2 which have now reached to the maximum level of 4; similarly, in room entertainment level was 2 which have also been increased to level 4. The increase in guest comfort have directly affected the inflow of guest, thus increasing room occupancy to 68.8%. All the aforementioned decisions have helped the Silver Palm hotel in increase their revenues and cash flows. Therefore, as of December year 4, Silver Palm Hotels’ cash balance has been increased to $1,454,110 which was $206,781 on December year 0. Moreover, net operating income of the hotel at time of inheritance showed that business was going in loss as the figure was $-250,738. While, when we check the net operating income at year 4 December we see that not only the hotel is having profit but the amount is significantly good. All these decision have helped Silver Palm hotel in regaining its status in the market in a tenure of 4 years. We can assure this by analyzing market image index, which was initially 10.4 but by the end of December year 4, the market image index value for the hotel has been raised to 61.5. This depicts that the performance of the hotel has gained reputation and created its brand image in the market. Thus, improving the overall status of the hotel. 2. Analysis of Finance Department Contribution In order to achieve the objectives of becoming the four star hotel the section of the essay analyzes the contribution of the finance department towards the achievement of the objective. The market norms for the four star hotel are as follow 1. 150 guest rooms, 2. Ala Carte Restaurants & Coffee shops 3. Two Bars 4. Health Club 5. Conference rooms and business bureau 6. Car Parking to rear 7. Standard of refurbishment-guest room average, rest of hotel good At the time of inheritance 1. 125 air conditioned guest rooms 2. Full service restaurant 3. One Pub bar with snack service 4. No Leisure Club 5. No conference rooms and business bureaus 6. Car parking available 7. 24 hour front desk 8. Standard of refurbishment guest rooms and rest of hotel good. The finance department contribution can be analyzed as follows. The major contributions of the finance department includes the following 1. Financial planning to increase the number of rooms 2. Advisory services for the senior management 3. Formulation of the financial targets 4. Determination of the budget in accordance with the strategy defined by the board 5. Control of all financial transactions The finance director allocates the budget for the achievements of the goals. In order to increase the revenues the pricing strategy was determined. During year 1 the rates were designed in a way that the weekday room rate will be $120. Moreover, 5% discounts will be given to those who will get the bookings for more than 3 nights and 5% discount for no breakfast and 5% discount for non cancellation. On weekends the decided room rate was $110. By year end the rates were revised to $85 for weekdays and $100 for weekend. During that period the room occupancy percentage was very low i.e.10.29%. The revised rates showed the increase in percentages of room occupancy. The occupancy rate became higher during July till august for all the years. This may be because of the summer vacations. The rates were also determined using the occupancy levels. The year end result show that the rates adjustments, helped in managing and increasing the room and guest occupancy. In order to further conduct the data analysis from the finance perspective the following major yearend indicators are selected. Year End Major financial Indicators Year End Indicators Year 0 Year 1 Year 2 Year 3 Year 4 Room Occupancy 26.49% 45.94% 67.17% 78.96% 68.76% Room Revenue 77,475 204,605 218,217 327,255 413,104 Total Revenue 2,360,737 4,233,256 5,759,813 7,379,217 9,315,196 Cash 2,511,147 4,290,874 5,374,163 3,174,915 9,007,937 Net Operating Income (YEAR TO DATE) -245,077 285,550 73,179 797,650 16,888,277 Capital Expenditure 0 463,646 513,274 85,968 1,087,575 Net Operating Profit Margin -10.4% 6.7% 1.3% 10.8% 181.3% The analysis of each of the indicator is as follow a) Room Occupancy: The year end results , which are derived from the graph above, represents that in year the room occupancy is will reach at the maximum point. However, since year 3 and onwards the room occupancy did not fall below 65%. The increase in occupancy rate is in combination of the increase in the revenues. Using the trend the occupancy levels were higher during the months of august and September. Same is the case with the Guest occupancy. b) Room Revenue: The room revenue as represented by the table above shows that the revenues have increase significantly from year 0 to year 5. This shows the new management has contributed significantly towards the achievement of the four year goal of making the silver palm hotel to four star hotels. The revenues have increased significantly for every month in year four, which can also be seen from the graph below, which shows the trend of revenue s on monthly basis. The room revenue is just the part of the total revenue and the major contributor of the total revenue. The results were derived from the pricing strategy for the room rates. In addition to this, the inherited refurbishment and the capital expenditures at regular interval can be considered as the reasons for such increase in the room revenues. Over the four year periods the room revenues have been increased b y 433%. In the first year the revenues increased by 164% and reached at the level of $204,605. This may be because of the significant capital expenditure of $463,625 throughout year 1. The room revenues were maintained in year 3 with a minor increase of 7%. Afterwards the revenues were increased by 50% and then 26%. On average per year increase in revenues is 62%, which shows a significant increase in revenues. c) Total Revenue The figures show the total revenues generated for the whole period mentioned i.e. year 0 revenue is the sum of monthly revenue of the whole year. Same is the case for succeeding years. The total revenues show that total revenues were $ 2,360,737 by the end of year 0 but due to the successful implementation of the business strategies including the financial planning, the revenues increased to $9,315,196 i.e. by 295%. In year 1, the total revenues show the significant increase in revenues by 79% and then the stable increase of 36%, 28% and 26% in the succeeding years respectively. The average per year increase in revenues over the four years time is 42%. The following graph which shows the monthly movements of the revenues also imply that during the months of July, August, September and October, the revenues were higher as compared to the other months. The same pattern can be observed in the room revenues. The reason may be that the summer vacations increase the occupancy level and visit to the hotel. d) Cash The cash balances increased by 259%% during the period of 4 years. I.e. from $ 2,511,147 to $9,007,937. The cash balance and the total revenues are approximately being the same. This represents the strong performance of the Hotel because all the sales have been realized immediately, which makes no or insignificant account receivables. e) Net Operating Income year to date The net operating income can also be considered as the income before taxes. The operating income was significantly lower in year 0 but by year 4 it was increased by $ 16.8Mio from -$0.245Mio. The net operating income which is included for the purpose of analysis incorporates the interest expense as well so it cannot be called as the earnings before interest and taxes but can be called as the earning before taxes. The trend of net operating income can be seen in the appendix attached at the end of the paper. f) Capital Expenditure The capital expenditure has shown increasing trend over the period of four years and reached at the level of $1,087,575 in year 4 from 0 in year 0. The increase in capital expenditure contributed significantly towards the increase in the refurbishments of the rooms, which lead to the increase in the room occupancy rate. 3. Anlaysis of Overall hotel performance In terms of the overall performance of the hotel, the two major indicators have been selected for the purpose of analysis i.e. 1. Liquidity Ratio= Current Assets/ Current Liabilities 2. Debt To Asset Ratio= Long term Debt/ Total Assets Year End Indicators January March June September December Average Year 0 1.2824 1.2107 1.1868 1.4070 1.1891 1.2552 Year 1 1.0792 1.1631 0.9894 1.3388 0.7180 1.0577 Year 2 0.6780 1.0150 1.0575 1.0722 0.1776 0.8001 Year 3 0.1019 0.2788 0.4802 0.9147 1.0046 0.5560 Year 4 1.0052 1.2945 0.6744 1.3784 1.4169 1.1539 As can be seen from the graph and table above the current asset ratio represents that in year 0 the hotel remained in the conservative approach throughout the year in year 0. In year 1, the condition remained conservative throughout the year but less than that of the inherited situation. In year 3, hotel reduced the conservative approach further while increasing the capital expenditure and other major refurbishments. During the initial three year periods, the current asset ratio represents the reduction in the value of current ratio, which implies that during the last quarter of the year hotels tried to increase the liabilities in terms of the increase in accounts payable, which may be because of the refurbishment expenditures. The average ratio in year 2 and year 3 are less than that of the remaining years under study. In the last year, the hotel reached again towards the stabilized and conservative phase with more than one current ratio on average. In terms of the debt burden and the financial management the hotel increased its debt burden significantly during year 1. Recent example of Indian debt hit hotels has shown increase in productivity and employment opportunity because the debt was utilized to improve the productivity (sathyanarayanan, 2014). Similarly silver palm hotel increased its debt burden during the initial years of the project to increase the facilities within the hotels which ultimately leads to the increase in the employment opportunity. The employment opportunity caused the increase in staff level. Therefore, the debt burden resulted in the increase in number of rooms as per the requirements of four star hotels along with other requirement facilities. The hotel reached at its target by the 1st quarter of year 5. ear End Indicators January March June September December Average Year 0 6.6% 6.7% 6.6% 6.4% 6.6% 6.6% Year 1 6.6% 6.4% 6.2% 10.0% 5.6% 7.0% Year 2 5.6% 5.3% 5.2% 4.9% 5.1% 5.2% Year 3 5.1% 4.9% 4.6% 4.1% 4.0% 4.5% Year 4 4.0% 3.7% 4.1% 3.5% 2.5% 3.6% 4. Conclusion Silver Palm hotel seemed to have reborn after 4 years. The underlying reason for the changes were due to some strategic decisions taken by the new management which have regained the hotels’ market image. It is clearly evident from this simulation that it’s not necessary that increasing room rate can increase the cash flows or revenue for the hotel. Considerable amount of efforts need to be done in terms of advertisement, human resource management, material management, procurement, food and nutrition; in short every department of the hotel need to be reevaluated, if the operations of the hotel need to be improved. Because we can see that although the room rate in the year 0 were $120 for weekdays and $110 for weekends but the guest inflow was not there; but by the end of year 4 when the room rate was quite similar, the guest flow and room occupancy have been increased. Thus, portraying the fact that apart from the direct cost there are several underlying decision which can positively or negatively impact the cash flows and revenue. We know that Silver Palm Hotel has increased its facilities, increased comfort level for its guests, decreased the average cost of meal, and increased the marketing efforts for the hotel. All these changes at the operation level have led to positive changes on the hotel at large. In addition to this, financials of the Silver Palm hotel have also shown significant positive changes in the working of Hotel before and after 4 years of inheritance. Income statement, operating statement and cash slows all have depicted that the decisions made by the new management have long term impact on the hotel. Being finance director some major decisions were made which have helped not only the finance department but other department as well. The strategic decision making for the hotel’s operation was the main role played by me. Because, its finance head’s responsibility to properly plan and execute the strategies for the company (Sadler, 2003). Firstly, decision regarding the revenue management of the hotel. And in case of hotel the main source of revenue are the rooms (Walker, 2004, p. 226). Therefore, deciding the rates of rooms for weekdays, weekends, corporate rates and early bird discounts. Each and everything need to be decided very carefully because this will affect overall working of the Hotel. The role of Finance Director is to properly foresee the demand and supply of the guest flow and adjust the room rates accordingly. Because when the demand is increased then prices of room are high while when the demand is weak than the prices are low. Like in case of Silver Palm hotel, I have incorporated and ensured that the guest receives “Best Available rates” which means that lowest possible rates, and for the purpose front desk staff has been properly trained (Tranter, 2012, p. 132). If the hotel has less than 65% occupancy rate than the staff can offer up to 15% discount to the customers but if the occupancy rate is 85% than customers have to pay full price with no discounts. Therefore, earlier the customer get the booking done then the more discount customer can avail (Lisa, 2010, p. 106). Secondly, being Finance Director another important decision was to actively be involved in the strategy planning along with other departments. And while making strategies, major role of Finance Director is accurately forecasting and deciding on a budget for every department. As the hotel needed improvement so I have to make sure that first things goes first (Harvard Business School Press, 2013). Budget was allocated to marketing department so that they can make strategies for advertisement, to material management department so that they can work on providing facilities to the guest, to food and beverages department for deciding on the best possible meal and liquor at a reasonable price. All the improvements made by every department helped the hotel to regain its status but the proper and strategic allocation of budget to every department has led to such brilliant outcomes by the departments (Wildavsky, 1986). I also have to take care of opportunities for profit maximization. Therefore, for the said purpose I have undergone cost- benefit analysis for installation of various facilities in the hotel. Because before investment in capital intensive activities like installing bars, hotel shop, business centers, conference rooms, leisure clubs etc. (Abdulah, 2008)I have to ensure and foresee if the cost incurred at the moment will help us earn the revenue in the future or not. And my decision turned out to be good because guest occupancy and room occupancy have been increased. The outcomes of my performance are reflected from operating statement, cash flow reports and balance sheet of December year 0 and December year 4. Operating statement or Profit and loss statement basically reflects the performance of the company and its financial position. It helps in the calculation of net profit or net loss for the tenure (Mukherjee & Hanif, 2003). Net operating income at time of inheritance was in total loss while operating statement at year 4 end reflected that Hotel is going on profit now. Similarly, cash flow statements indicate the actual or forecasted cash inflow and out flow for the company for the year (Jury, 2012). Though, cash flow statement at the year 0 end was $206,781 which showed that cash inflows was more than cash outflow but the year 4 statements reflected the amount of $1,454,810 which was way more than the one stated for year 0 end. Last but not the least, balance sheet gives the reader idea what the hotel owns it and what it owes (Spurga, 2004). And the comparison of the sheet at time of inheritance and at year 4 end reflects that assets have been increase and so have the liabilities and owners’ equity. But owner’s equity in yeas 4 end is way more than liabilities thus giving a good image about the hotel. In short, hotel has improved and progressed a lot in past 4 years and we as a team will continue to grow the Silver Palm Hotel to 5 star level. Bibliography 1) Abdulah, G. (2008). Cost benefit Analysis of the constructionof New hotel in Tobago. 2) Harvard Business School Press. (2013). Preparing a Budget: Expert Solutions to Everyday Challenges. Harvard Business Press. 3) Jury, T. (2012). Cash Flow Analysis and Forecasting: The Definitive Guide to Understanding and Using Published Cash Flow Data. John Wiley & Sons. 4) Lisa, S. (2010). Contemporary Direct & Interactive Marketing. Pearson Education India. 5) Mukherjee, A., & Hanif, M. (2003). Financial Accounting. Tata McGraw-Hill Education. 6) Sadler, P. (2003). Strategic Management. Kogan Page Publishers. 7) sathyanarayanan, D. (2014). Debt hit hotels make rooms for fresh recruits. economic times. 8) Spurga, R. C. (2004). Balance Sheet Basics: Financial Management for Nonfinancial Managers. Penguin. 9) Tranter, K. A. (2012). An Introduction to Revenue Management for the Hospitality Industry: Principles and Practices for the Real World. Pearson Education India. 10) Walker, J. R. (2004). Introduction to Hospitality Management. Pearson Education India. 11) Wildavsky, A. B. (1986). Budgeting: A Comparative Theory of the Budgeting Process. Transaction Publishers. Appendix-1 Appendix-2 Appendix-3 Appendix-4 Read More