Budgeting for Housekeeping Expenses. Budgeting is one of the main planning activities of an executive housekeeper . It is the process by which, based on the actual performance of establishments in the past, estimates of expenditure and receipts are made and adjusted for forecasting future outcomes. Budget can be defined in many ways: “A budget is a plan by which resources required to generate revenues are allocated.” ‘A budget is a plan which projects both the revenues the hotel anticipates during the period covered by the budget and the expenses required to generate the anticipated revenues.’ The advantage in preparing a budget is that it provides an opportunity for taking a critical look at the cost of the department, reviewing past planning and present accomplishments, and then taking appropriate steps to accomplish more in the coming financial years. The executive housekeeper’s responsibilities in the budgetry process are two-fold. First, the executive housekeeper is involved in the planning process that leads to the formulation of the budget. This entails informing the room’s division manager and general manager what expenses the housekeeping department will incur in light of forecasted room sales. Second, since the budget represents an operational plan for the year, the executive housekeeper ensures that the department’s actual expenses are in line with the budgeted costs and with the actual occupancy levels. The budget thus acts as a guide that provides the managers with the standards by which they can measure the success of operations. By comparing actual expenses with allocated amounts, the executive housekeeper can track the efficiency of housekeeping operations and monitor the department’s ability to keep its expenses within the prescribed limits. Budgets provide a financial framework within which the housekeeping department
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Budgeting for Housekeeping Expenses.Budgeting is one of the main planning activities of an executive
housekeeper. It is the process by which, based on the actual performance of
establishments in the past, estimates of expenditure and receipts are made
and adjusted for forecasting future outcomes. Budget can be defined in
many ways:
“A budget is a plan by which resources required to generate revenues are
allocated.”
‘A budget is a plan which projects both the revenues the hotel anticipates during the period covered by the budget and the expenses required to generate the anticipated revenues.’
The advantage in preparing a budget is that it provides an opportunity for taking a critical look at the cost of the department, reviewing past planning and present accomplishments, and then taking appropriate steps to accomplish more in the coming financial years. The executive housekeeper’s responsibilities in the budgetry process are two-fold.
First, the executive housekeeper is involved in the planning process that leads to the formulation of the budget. This entails informing the room’s division manager and general manager what expenses the housekeeping department will incur in light of forecasted room sales.
Second, since the budget represents an operational plan for the year, the executive housekeeper ensures that the department’s actual expenses are in line with the budgeted costs and with the actual occupancy levels.
The budget thus acts as a guide that provides the managers with the standards by which they can measure the success of operations. By comparing actual expenses with allocated amounts, the executive housekeeper can track the efficiency of housekeeping operations and monitor the department’s ability to keep its expenses within the prescribed limits. Budgets provide a financial framework within which the housekeeping department operates. Thus, budgets should be carefully prepared and used to govern the department’s spending.
The budget also acts as a guide as to which things need repair or replacement. It helps to determine what valuable pieces of equipment may be purchased and to pinpoint the areas where emphasis will be placed for the coming year.
Remaining items are calculated in the same manner till all the items
required are included in the next year's budget.
Capital Expenditure Budget is for specific items or project that needs to be
replaced, made and built in the improvement of guest service or the hotel
itself. For example:
The hotel management with the approval of the owner of the hotel would
like to extend the Laundry service to non-hotel guest or outside customer.
The project will be a "Laundry Shop", therefore a quotation will be required
from the contractor for the cost of building the Laundry Shop, the additional
guest/customer laundry bag, laundry and dry cleaning list, and additional
manpower for customer service etc. To sum up the amount of Construction
of laundry shop = $35,000.00; additional laundry bags and lists = $5,000.00
and additional manpower = $9,000.00 annually.
The $35,000.00 will be included in the Capital Expenditure while the
additional laundry bags/lists and manpower will be added in the operational
and staffing budget.
Therefore, the operational budget is for the consumable items and Capital
Expenditure is for special project or items that are costly. There are also
certain items being shared by the Front Office and Housekeeping. The
charges on these items are being split between the two departments. When
it comes to Maintenance, Engineering Department charges the
Housekeeping for any services rendered like maintenance of the machine
wherein they have to supply machine parts and labor, so these are being
coordinated with Engineering. It is important that housekeeping machines
are handled with care to avoid such charges.
Monitoring the Operational budget is the most crucial part in the operation
of business. With the modern technology and the computer software, daily
updated total expenses against budgeted amount are made possible and
easy to trace in order not to exceed the budgeted amount. Every end of the
month, the Accounting Department distributes copies of last month's budget
outcome to the General Manager and the Department Heads in order for
them to review and analyze where their budget is in line and where it is not.
General Manager will require the department head that have exceeded
their budget a reasonable report since he is accountable to the corporation
as well as the owner of the hotel.
Cost per occupied room (CPOR)
The CPOR order type is for processing hotel/motel cost per occupied room business. In this case, the customer is invoiced an amount based on how many occupied rooms they had for the month, not how much product they 'purchased' for the month.
Notice above that the invoice is based on room count and month. It's important that a new order is started at the beginning of each month and used throughout the month. When a CPOR order is created, an automatic billing block is applied. The billing block is necessary because we do not want to bill the delivery(s) until we receive the room count from the customer.
When a CPOR customer calls in an order, customer service must search for an existing CPOR order for the current period. If one is found, the existing order is added to by either the addition of lines to the order or by increasing the order quantity of existing materials.
The order is then delivered in the normal fashion. During the month, it's possible to make several deliveries to the customer. For a standard order, we would invoice each one of these deliveries as soon as possible. For a
CPOR order, we must invoice all deliveries at the same time after we obtain the room count and apply a header condition.
Salaries and wages to calculate these expenses, the salaries and wages paid to all job positions- such as the executive housekeeper, assistant housekeeper, supervisors, GRAs, linen room attendants, housemen and so on.- have to taken into an account. The executive housekeeper first works out the number of employees required at various positions. If the occupancy levels are fluctuating considerably, the executive housekeeper should employ only the minimum staff required on the payroll and the rest of the staff should be hired on daily wages basis if labor is easy available. Duty rotas need to be planned efficiently so that annual leaves and weekly off days can be given on days of low occupancy.
Employee benefit these calculation depends on the number of labour hours expected to be scheduled, the job positions involved, and hotel’s policies regarding employee benefit. In most properties, Employee benefit include the cost of on-duty meals, payroll taxe, provident funds, medical expenses for the employees and their immediate family or insurances.
Contract service the cost of all contract service is averaged throughout the budget period of one year. Considering the historical data of contract services already used will lend an insight into the expense level to budget for.
OPERATING SUPPLIES. The major types of operating supplies include guest supplies and cleaning supplies.
Guest supplies. These are non-recycled inventory items and variable in cost. This expense category will depend on the cost per occupied room. The executive housekeeper finds out the consumption factor arrived on for soap is 0.8 the budgeted room sales is 4000 for a month; and the cost of a bar of soap with the hotel’s monogram is 2.00, the budgeted expense for soap will be.
Consumption factor * budgeted room sales * cost of one unit.
= 0.8*4000*2
= 6400
In case of two soap bars are to be placed in one guest room, the amount obtained is multiplied by2. In all case, the amount needs to be further multiplied with thw par number to be maintained for each guest supply.
Cleaning supplies these are non- recycled inventory items that are semi variable in cost. The higher the occupancy, the higher the volume of cleaning supplies used. It also needs to be remembered that the executive housekeeper schedules deep cleaning tasks during slack period.
LINEN
For budgeting linen expenses, the executive housekeeper need to calculate the cost of linen per occupied room based on historical data. The higher the occupancy, the more the frequency of washing the linen. Historical data gives some guidelines in calculating linen expenses.
LAUNDRY
The laundry expenses are primarly variable, except for uniforms. The executive housekeeper can refer to the historical data for calculation of laundry expenses. Laundry expenses include.
Chemical cost
Water cost
Energy cost
Labour cost.
The cost of laundering is expressed as follow
Cost per piece or weight unit -= total number of pieces or total weight of linen/ total cost incurred in a month.
A 1000 room hotel uses 2000 bath towels per day at 100% occupancy. During the past year the hotel purchased and inserted 1200 dozen new bath towels to maintain an adequate supply of towels in working inventory.
• What are the number of launderings the hotel experienced and the linen replacement ratios for this item?
Number of Launderings = Pieces Laundered 2000 X 365 730,000
New Pieces Inserted = 1200 X 12 = 14,400 = 50.7
Linen Replacement Ratio = New Pieces Inserted 14,400
Pieces Laundered X 100 = 730,000 X 100 = 2.0
We can now use our historical experience to plan future linen replacement expenses.
FORECASTING PIECES LAUNDERED:
To forecast Pieces Laundered we need to use a historical benchmark.
• This benchmark is achieved by using the following formula:
Pieces Laundered per Occupied Room = Pieces Laundered
Total Occupied Rooms
• Using the preceding formula, our Pieces Laundered per Occupied Room would be computed as follows:
Pieces Laundered Per Occupied Room = Pieces Laundered or 2000
Total Occupied Rooms 1000 = 2.0
• Now we can easily compute a forecast for any level of occupancy and a time period by using the following formula:
‰ If our 1000 room hotel has 2.0 pieces laundered per occupied room, how many total pieces will be laundered per year if the forecasted occupancy is 87%?
Annual Occupancy: = 1000 Rooms X 365 x .87 = 317,550
Total Pieces Laundered: = Total Occupied Rooms X Pieces Laundered per Room
= 317,550 x 2.0
= 635,100 4
CONTROLLING EXPENSES
Controlling expenses in the housekeeping department means comparing actual costs with budgeted amounts and measuring the variances. While
doing this, be careful to check whether the forecasted occupancy levels were achieved or not. e.g. if the occupancy is lower than forecasted, decrease in expenses must be expected proportionally. Serious deviations from the budgeted plan needs investigation in e.g. staff scheduling, supervision, efficiency and cost of products used etc.
Controlling housekeeping expenses means ensuring that actual expenses are consistent with the expected expenses on the operating budget. There are four methods;
accurate recordkeeping effective scheduling
careful training and supervision
efficient purchasing
Accurate recordkeeping; helps to monitor the usage rates, inventory costs, and variances with standards
Effective scheduling; with the help of the staffing guide, personnel costs stay in line with occupancy reports
Careful training and supervision; important for controlling the cost of inventoried items. E.g. training in the proper use of cleaning supplies can improve usage rates, and lower the cost of cleaning supplies per occupied room
Efficient purchasing; ensures that the hotel’s money is well spent and the maximum value is received from products.
CONTROLLING OPERATING EXPENSES
As far as controlling operating expenses is concerned, the executive housekeeper must ensure the following.
Effective documentation all inventories should be documented to monitor their usage rates and costs.
Zero-based scheduling this refers to hiring employees by taking into account the actual occupancy for a specified period of time.
Right purchasing the executive housekeeper coordinates with the purchase department to purchase for the housekeeping department. The onus of controlling expenses on purchasing is entirely on housekeeper.
Efficient training and supervisors training for new employee as well as training on new methods for older employees is a tool for controlling expenses. Efficient training ensures that the productivity and performance standards are met by all employees consistently.
COST CONTROL IN SPECIFIC AREA
Some specific methods of controlling expenses in various areas in housekeeping department’s purview are outlined below.
Guestrooms and public areas the following measures can be taken in these areas.
Staff must be trained to use cleaning supplies and equipment efficiently and economically. Supervisors must control and monitor their use.
Appointing multi-skilled staff and giving them proper training to retain them control expenses.
The use of key- tag or electronic lock system helps conserve power by ensuring that are light are switched off automatically when the guest is out of his room.
A lacquer finish helps brass items longer and show less wear, which reduces the use of proprietary polishes such as brasso and indirectly saves labour, time and money.
In VIP rooms, replace only those flowers that are shedding petals instead of changing the entire arrangement.
Restrooms and toilets in public areas can have motion sensors to control power.
Linen room the following practices can be adopted for cost control in these areas.
Old, condemned white sheets may be cut up and used in banquet halls as tablecloths for exhibitions and such.
Old shower curtains can be cutup and stitched into aprons for the butchery department instead of traditional aprons.
Condemned towels can be turned into dusters and mop cloths for cleaning surface
Stores for controlling expenses in stores, effective stock-taking and control must be ensured as it significantly reduces the expenses involved in the provision of cleaning and other service.
PURCHASING
The expenses for housekeeping purchases are planned mainly in the form of a capital budget or an operating expense budget. The purchase can be of local or imported items. Intends for the purchase of stock items are usually generated from the main stores on the basis of re ordering levels. The housekeeping department generates the indents of non stock items.
Stock items are regular operating supplies such as soaps, shampoos, letterhead and cleaning supplies.
Non-stock items are non consumable items such as crystal vases for flower arrangement, wooden hangers and so on.
Efficient purchasing practices can make a significant contribution to the
executive housekeeper’s role in controlling expenses. The housekeeping
department coordinates with the purchase department for all his purchase.
Though the main aspect of purchasing function is to produce a certain
material or item, the material has to be the best buy at the right price. This
calls for regular market surveys on the part of the housekeeping and
purchase department. Salespeople and vendors are regularly met for
updates on the latest developments in other hotels and the industry as
whole. Purchasing managers/directors, and procurement
managers/directors guide the organization’s acquisition procedures and
standards. Most organizations use a three-way check as the foundation of
their purchasing programs. This involves three departments in the
organization completing separate parts of the acquisition process. The three
departments do not all report to the same senior manager to prevent
unethical practices and lend credibility to the process. These departments
can be purchasing, receiving; and accounts payable or engineering,
purchasing and accounts payable; or a plant manager, purchasing and
accounts payable. Combinations can vary significantly, but a purchasing
department and accounts payable are usually two of the three departments
involved.
When the receiving department is not involved, it's typically called a two-
way check or two-way purchase order. In this situation, the purchasing
department issues the purchase order receipt not required. When an invoice
arrives against the order, the accounts payable department will then go
directly to the requestor of the purchase order to verify that the goods or
services were received. This is typically what is done for goods and services
that will bypass the receiving department. A few examples are software
delivered electronically, NRE work (non reoccuring engineering services),
consulting hours, etc.
Historically, the purchasing department issued Purchase Orders for
supplies, services, equipment, and raw materials. Then, in an effort to
decrease the administrative costs associated with the repetitive ordering of
basic consumable items, "Blanket" or "Master" Agreements were put into
place. These types of agreements typically have a longer duration and
increased scope to maximize the Quantities of Scale concept. When
additional supplies are required, a simple release would be issued to the
supplier to provide the goods or services.
Another method of decreasing administrative costs associated with
repetitive contracts for common material, is the use of company credit
cards, also known as "Purchasing Cards" or simply "P-Cards". P-card
programs vary, but all of them have internal checks and audits to ensure
appropriate use. Purchasing managers realized once contracts for the low
dollar value consumables are in place, procurement can take a smaller role
in the operation and use of the contracts. There is still oversight in the
forms of audits and monthly statement reviews, but most of their time is
now available to negotiate major purchases and setting up of other long
term contracts. These contracts are typically renewable annually.
This trend away from the daily procurement function (tactical purchasing)
resulted in several changes in the industry. The first was the reduction of
personnel. Purchasing departments were now smaller. There was no need
for the army of clerks processing orders for individual parts as in the past.
Another change was the focus on negotiating contracts and procurement of
large capital equipment. Both of these functions permitted purchasing
departments to make the biggest financial contribution to the organization.
A new terms and job title emerged – Strategic sourcing and Sourcing
Managers. These professionals not only focused on the bidding process and
negotiating with suppliers, but the entire supply function. In these roles
they were able to add value and maximize savings for organizations. This
value was manifested in lower inventories, less personnel, and getting the
end product to the organization’s consumer quicker. Purchasing manager’s
success in these roles resulted in new assignments outside to the traditional
purchasing function – logistics, materials management, distribution, and
warehousing. More and more purchasing managers were becoming Supply
Chain Managers handling additional functions of their organizations
operation. Purchasing managers were not the only ones to become Supply
Chain Managers. Logistic managers, material managers, distribution
managers, etc all rose the broader function and some had responsibility for
the purchasing functions now.
In accounting, purchases is the amount of goods a company bought
throughout this year. it is also refers to information as to the kind ,quality,
The success of any manufacturing activity is largely dependent on the
procurement of materials of right quality, in the right quantities, from the
right source, at right time and at right price – popularly known as five ‘R’s
of the art of efficient purchasing .
They are also described as the basic principles of purchasing as under:
1) To purchase the right quality of materials;
2) To purchase the materials in right quantities;
3) To make the materials available at right time;
4) To purchase the material at right price;
5) To purchase the materials from the right source.
They briefly explained as under:
Right quality: The materials are the basic input and the quality of the
output. It should be noted that best quality is not always the right quality.
The right quality is determined by the cost of the material and the technical
characteristics as suited to the specific requirements. The right quality
should be defined clearly and should be described in terms of specifications.
Generally the quality decisions are made by the technical staff. The quality
specifications are controlled before the materials are issued for the
manufacturing processes. The quality testing is done through the inspection
either at supplier’s plant or at buyer’s plant.
Right quantity: The right quantity of the materials is determined on the
basis of economic ordering quantity (E.O.Q). It is advantageous to purchase
the materials on the basis of EOQ lots. The EOQ describes the size of the
order at which the ordering costs and the inventory carrying cost will be the
minimum. The ordering cost consists of the cost of paper processing such as
paper, typing, postage, filing, cost of personnel; the costs incidental to order
placing such as follow up, receiving, inspection etc. If the size of the order
is large, the annual requirements will be met with little of the ordering cost
as the number of orders placed would tend to be less. Conversely, storing
cost consists of interest on funds locked up in storing, cost of storing, cost
of insurance and taxes etc. If few orders involving large quantities are
placed, the carrying cost will increase; however, the ordering cost will
decrease due to less number of orders. Thus ordering cost and carrying
costs are mutually exclusive. At EOQ level both these cots equate each
other and at this point, the total inventory cost would be at the minimum.
The EOQ is calculated on the basis of the following formula:
EOQ = √2RD /CS
Where R = annual requirements of the materials in units
D = Ordering cost per order
C = Cost per unit
S = Storing cost as the value of materials stored.
Right time: The materials should be purchased at right time so that it may
not result in either excess investment in the stocks or may result into stock
outs. Efforts must be made to replenish the materials at a point where they
are reaching at the reordering level. The purchase action is initiated at a
tome when the material reaches to its pre-decided reordering level. The
reordering level is decided on the basis of the rate of consumption and the
lead time. It should be decided on the basis of the probability of maximum
periodic consumption and maximum lead time. As stock holding is directly
related with the lead time, efforts should be directed towards the reduction
of the lead time so that carrying costs can be reduced to the minimum.
Right price: The investments in inventories are determined by the prices
charged for them. All attempts should be made to procure the materials at
right price because a slightest reduction in the price results in substantial
absolute monetary gain. It should be noted that the low bidder is not always
the best bidder. The right price can be availed through searching for the
proper sources of supply and comparing all such sources on some scientific
basis. The quotations of various suppliers are compared after bringing them
all on some common footing. Due considerations are also given to the
factors such as regularity of supply, character of the supplier his financial
standing etc. The price is an agreement between the buyer and the
suppliers the former considers his utility while the latter takes into account
his cost of production. The market conditions greatly effect the price
determination.
Right source: The right source is a key consideration in purchasing as all
other ‘R’s. The suppliers are not only supplying the required materials but
they also supply the information such as probable market conditions and the
resultant price trends, general industrial climate and the business
environment. The selection of right source involves the considerations such
as search for the more and more sources, selection of the appropriate
source through some scientific analysis, negotiating with the selected
supplier and post purchase rating of the supplier.
TYPES OF PURCHASING
The effectiveness of purchasing activities can be enhanced by proper organization and coordination of the activities. There are four types of purchasing system:-
1. Purchase made as per requirement: No purchase is made in advance.
Purchase is done as need arises. Method usually applied for emergency
requirement or infrequent goods.
2. Contract Purchasing: Contract of material is given to an agency. It has
an advantage that low price of those materials whose cost fluctuates highly.
3. Market Purchase: Purchase is made from the market to take
advantage of price fluctuations.
4. Schedule Purchasing: It is a cyclic purchase model. A schedule of
purchase is made and it is used for those commodities whose price does not
fluctuate.
Centralized purchasing means buying and managing purchases from one location for all locations within an organization. This can also be run by a central location buying in to a distribution warehouse that feeds smaller warehouses. This is called a hub and spoke system. The responsibility and authority to purchase, lease, or rent materials, supplies, goods, equipment, or services are placed with the Division of Finance and Operations, Purchasing and Stores Department.Purchasing is centralized to:
realize economy, efficiency, and effectiveness in the procurement
function;
pursue quality assurance and standardization;
maintain the highest standards of ethics;The control by a central department of all the purchasing undertaken within an organization. In a large organization centralized purchasing is often located in the headquarters. Centralization has the advantages of reducing duplication of effort, pooling volume purchases for discounts, enabling more effective inventory control, consolidating transport loads to achieve lower costs, increasing skills development in purchasing personnel, and enhancing relationships with suppliers.Advantages of Centralized Purchasing
Volume purchasing – When the district is able to purchase a single
item in mass, vendors are often willing to provide a discount. Purchasing
in mass to take advantage of discounts is called volume purchasing.
Warehouse – In order to take advantage of volume pricing, the district
purchases items in bulk. Vendors typically require that the district take
delivery of the items in mass. These bulk purchases are stored in the
warehouse until the items are requested by the sites.
Save time in researching products – Individuals spend hours to
research the products and to find best price. The purchasing department
has resources to help reduce the time to research products.Disadvantages of Centralized Purchasing
Good processes are not without their shortcomings. Listed below are
some of the challenges of buying in a school district and suggestions on
how to help the Purchasing department minimize their effects.
Extended procurement time – One problem that is commonly
associated with centralized purchasing is the perception “it takes too
long”. In reality, the purchasing department processes vendor requisitions
typically within one (1) day. Typically the delay in the request is either:
time spent to research the product, funding sources (account code check
and budget approval), vendor stock status, and shipping.Decentralized purchasing is the opposite where each plant or office buys what it needs. This operation allows any employee to buy what he needs. You can also run this operation with a designated buyer assigned to the site to do the buying. The more decentralized an operation is, the less control the home office has. You have a duplication of effort in buying and
less buyer specialization. You lose discounts on quantity buys. You lose freight options based on dollars or weight. Also some support is lost from the supplier as there is no single contact for the supplier to deal with. Volume buying may not be calculated for all your sites.Advantages of decentralized purchasingAdvocates of decentralization claim that local management has the incentive to control cost when the local operation is set up as a profit center. Many companies operate with a mixed system. The central operation may buy major commodities but allow local operations to buy all MRO supplies.It is difficult to change from decentralized purchasing to centralize purchasing. Employees feel their privileges are being taken away. They feel they are losing control of their site. Some will refuse to really cooperate in the changes in hopes to making the program look unsuccessful.