What is a Budgeting?
· Budgeting is the process of:
- Preparing a plan that defines the goal managers want
their organization, division, or department to achieve and to specify how
this goal is to be achieved. This step is referred to as the planning procedure
- Exercising a leadership role in translating the plan
into action. This step is called leadership
procedure
- Establish procedures for verifying whether or not, and
to what extent, the planned goal was achieved. This step is referred to as
the control procedure
· Budgeting sometimes might be called a profit plan that
addresses all revenue sources and expenditure items. Moreover, a budget
represents standards against which management can evaluate the actual results
of the operations (i.e. Control Procedure). Lastly, budgets are prepared to
cope with the uncertainty factor, and to utilize effectively the limited
resources or factors of production a company has.
· Budgets are usually prepared on an annual basis then
divided into semi-annual, quarterly, and/or monthly plans. The main reason for
that is to give management more check-points to stop at, compare the actual
with the planned figures and take necessary actions when needed which might
mean even revising the budget
How
a budget is prepared?
· Rooms Division Department budget shall be prepared, the
Rooms Division manager shall only estimate next period’s room revenue, and
direct expenses. Putting it in other words, the Rooms Division Manager shall
not care about estimating capital expenses (i.e. Indirect Expenses) since in
responsibility accounting; a manager is responsible and liable only for his
department!
· The Rooms Division Manager shall first forecast demand for
rooms for the next period in question, and then might use historical averages,
industry average… to estimate Room Revenue and Room Direct Expenses
1. Estimating Room Revenue:
· By using an appropriate forecasting method, the Rooms
Division Manager can forecast demand measured in room nights. Later, the Rooms
Division Manager shall multiply the total room nights by the Average Room Rate
(ARR), either using hotel historical
or industry averages, to come up with the estimated Room Revenue.
·
Later, according to hotel historical
figures, the Rooms Division Manager shall estimate the room allowances figure
and subtract it from the estimated total room revenue to come up with the net
room revenue.
2. Estimating direct expenses:
·
Direct Expenses (i.e. Variable
Costs) in the Rooms Division Department can be divided into 4 categories:
- Wage Expenses (Hourly Wage * Estimated Total Labor
Hours needed)
- Frills (i.e. Free of Charge Replenished Room Items)
- Material (i.e. Cleaning Supplies, Utensils…)
- Laundry & Linen Expenses (Cost of pressing,
cleaning, pressing, storing…)
· The Rooms Division Manager might consider country averages,
and or historical averages, along with current hotel / labor union collective
bargaining contracts for the coming period, suppliers’ price increase
intentions, the relative change of local currency against some major foreign
currencies, to estimate department direct expenses
Refining
Budget Plans:
·
If the actual operating figures and
budgeted figures are distant from each other, then this suggests a refining or
revision of our budget (i.e. revision of room demand, estimated room revenue,
and rooms direct expenses).
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