The Link Between What You Earn and What You Keep
By Joshua Miller Principal, Niche Advisors | May 19, 2010
Hospitality management is very challenging. You have to find a way to simultaneously offer fantastic service to your guests, grow and develop your team, and keep your facility looking great and functioning well. More importantly, you have to achieve all of these goals while generating profit for your ownership. Sometimes these efforts collide and difficult decisions need to be made. All seasoned managers understand this balance and get skilled at strategically utilizing their resources to get the job done. With a talented team and a lot of hard work, successful properties are able to generate profits while simultaneously meeting the needs of their guests, associates and facilities.
Imagine the shock when the hotel seems to have accomplished its goals, yet the financial performance is not where it should be. Most hoteliers' first instinct is to look at expenses and tighten the belt. Detailed reports of budget versus actual payroll are reviewed with each department accountable for any variances. Overtime is micro-managed. Large operating expenses are monitored closely if not deferred. While this effort may bring financial performance in line, it is often counterproductive to providing the service, employee development and facility upkeep mentioned above.
One area that is often overlooked is revenue control. "Controlling" revenue refers to implementing procedures designed to minimize loss which occurs from error and theft. Many management teams are surprised to find that the revenue earned by the hotel does not necessarily match what it keeps. In order to maintain complete revenue "capture," accountability procedures need to be incorporated into each daily operating process. When most hoteliers think of revenue control procedures, or worse yet, "internal audit" procedures, they conjure pictures of extra work, someone looking over their shoulder, paranoia, etc. Many line managers look at these processes as "annoying or too much work and hope that the accounting team will stay in their offices out of the way of what really needs to get done around here." Overcoming this attitude can be a challenge, yet we find over and over again that the more detail is put into monitoring the flow of revenue, the more makes it to the bottom line. Think back to budget season when you were struggling to find that extra half point your ownership was looking for and imagine if a little extra effort bumped your EBIDTA by 5% or more. Revenue control efforts always have a quick return on investment and with the right attitude from the operating team, can be implemented with no sacrifice to service.
Most discussions surrounding control procedures focus on theft prevention. In a hotel, there are many opportunities for fraudulent guests and employees. Preventing these activities is crucial, yet only part of the control process. We find that more money is lost in typical properties through error rather than theft. Mistakes in the posting process which go unchecked and having multiple people involved in income-generating transactions are the two biggest offenders. Let's consider some examples of error and theft control issues and how they can be resolved:
Error Scenarios: Most hotels have a nightly process by which rates are verified for accuracy. Depending on your PMS system, you may refer to this as the "bucket check," rate variance," "potential room revenue check," etc. This process is designed to prevent data entry mistakes (or fraudulent rate adjustments) which result in improper room rates. The inspection is usually completed by the evening front desk team and is often delegated to a front desk agent. Coincidentally, most front desk agent scheduling is done so that the newest associates work at night. We have seen numerous scenarios where the agent was not aware or did not understand wholesale or group rates that resulted in major losses. Therefore, we always recommend that this task be completed by your evening manager or supervisor.