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Budgeting in the Hotel Industry

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This study focuses on the concept of budgeting in hotel industry particularly on the case of Marriott Hotel and Resorts. It primarily identifies the current issues, challenges and opportunities faced by Marriott Hotel. It also aims to find out various aspect of budgeting within hotel industry specifically on how to develop more positive implementation of budget in terms of the company’s financial performance. Using data gathered from interview and personal experience upon placement, the researcher should be able to provide explanation and practical solutions or recommendations related to the general findings or perhaps the aim of the study.

Chapter 1

1.1 Main Aims and Objectives of The Study

To provide a wide-ranging discussion on the concept of budgeting and their implementation within hotel industry is the main objective of this study. Through a case study approach, the following are the main specific objectives:

  • To describe the process of budgeting employed by Marriott Hotel.
  • To identify the current issues, challenges and opportunities faced by Marriott Hotel.
  • To propose practical solutions and recommendations on the identified issues, challenges and opportunities.

1.2 Research Questions

Budgeting is an essential element in any industry. In this case, the concept of budgeting is focused on the following problems:

  • How Marriott Hotel employs the process of budgeting?
  • What are the current issues, challenges and opportunities faced by Marriott Hotel?
  • What are some practical solutions and recommendations on the identified issues, challenges and opportunities?

1.3 Background of The Study

“Hoteliers use budgeting and forecasting for strategic planning and financial control, and as a standard against which to measure actual operating results. Financial forecasts and budgets can strengthen management's control of hotel operating expenses and help determine the profitability of the property”. “Budgeting is planning. In order to make meaningful decision about the future, a manager must look ahead. One way to look ahead is to prepare budgets or forecast” Coltman, Michael M. (1998). In past few years the enormous booming of the tourism industry, budgetary practices in hotel industry has become a significantly studied area of business research and activity. “Previous research into budgeting practice was undertaken by Schmidgall and Ninemeier (1987 and1989) within the USA”, “Collier and Gregory (1995) dealt on practices of management accounting of six (6) organizations including budgeting”. “The early and limited accounts of management accounting particularly budgeting within hotel industry paved way for increased effort of few hospitality educators to the need of undertaking research into budgetary practices within the industry (Schimidgall et al., 1996)”. Now days, research work on management accounting and practice are growing unlike any other research field.

The findings of this piece of individual work to carry out a research work in the area of management accounting specifically on budgeting aspect and also to look on the relevance and applicability on the case of Marriott Hotel. It also emphasize that the literatures to be used on this study increases until the conclusion of the entire research activity. Other management accounting principle will also be considered.

1.4 Significance of The Research

At the end of the research project, the researcher should be able to provide a better way of planning budget as well as their proper use. After determining the important issues, challenges and opportunities on the budgeting approach or strategy of Marriott Hotel, this study will be beneficial to other hotel companies and related business in the hospitality industry especially those who are experiencing similarly related problems. This study will increase the consciousness and will provide a better understanding of the issues and problems concerning budgeting among most hotel companies and organizations.

It will improve knowledge through the use of accounting principle as well as definition of important concept, interpretation and analysis of financial statement is the main priority. Also, this will contribute an effective approach in addressing budgetary problems and difficulties. This paper is clearly important for organization that follows appropriate accounting standard and use it for planning the budget and control the cost and expenditure to deploy effective budgetary management within the hotel industry.

Chapter 2

2.1 Methodology

This is a descriptive research in terms of its purpose, qualitative in terms of its process, case study in terms of methodology, and applicable in terms of its outcome. The researcher used the Descriptive research since “descriptive research is used to obtain information concerning the current status of the phenomena to describe "what exists" with respect to variables or conditions in a situation. The methods involved range from the survey which describes the status quo, the correlation study which investigates the relationship between variables, to developmental studies which seek to determine change over time” “Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied”.

Further, “Qualitative research is all about exploring issues, understanding phenomena, and answering questions” It’s Mainly focuses on meaning of words and the research setting and in terms of designing the research is the main focal point. Similarly, case study is also used on this project “Case study research excels at bringing us to an understanding of a complex issue or object and can extend experience or add strength to what is already known through previous research”. It aims to develop complete understanding of the case as possible and is not linked with any particular research technique.

This method involves the researcher to inquire more in depth analysis and examine thorough a real life experience of a person. It is also noted how these behaviors change as the individual adapts and reacts to that particular situation. The discovery and identification of all the important variables which have contributed to the history or development of the chosen subject is also feasible through this method. In this study, the researcher used applied research since it includes the analysis of a real life situation and explores the problem, issues associated with a real life scenario, which is happening at the moment, and establishes a strong connection with the real environment.

2.2 Data Collection and Analysis

Data collection or requirement for the research covered both primary and secondary sources.  The sources of data are the following: primary data – interview and personal experience and secondary data – published literatures directly linked on the subject. Data gathered from the interviews will be analyzed by comparing the common theme from the respondent. The interview involved managers working on Marriott Hotel who exercise management accounting particularly on the budgeting aspect. Interview is an effective way to accumulate some inside information of one particular company and discover important facts that any individual came across and also share experiential knowledge.

The information gathered from the interviewee were directly quoted or referenced to support the initial observations of the researcher. Analysis and discussion of findings were included to both literatures and the facts that obtained through investigation. Using the theories and principles of management accounting, the researcher came up with discussions, conclusion and recommendations as a par of the project and also to provide a clear understanding of the entire project.

Chapter 3

Literature Review

The literature studies in terms of research work in management accounting as well as various other related topics in budgeting are extensive. This chapter covers the related literatures conducted on the area of study. By undertaking such approach , the research may be lead accordingly by discovering the source of the research, what and how much have been done in the past and what is still yet to be tackle. Besides providing background of the study, this study will also provide the necessary theoretical and various other related aspects in order for the research to stand convincing. References are taken form many different resources specifically, in the area of budgeting in hotel industry and issues on budgeting.

3.1 Budgeting in Hotel Industry

This section provides a fundamental understanding of budgeting concept in hospitality industry and their use in their daily operation. “The use of budgetary control is one of the key detective controls in many hotel businesses” Chin, J., Barney, W and O’Sullivan. The traditional idea on the concept of hotel is a sort of business establishment that offers paid temporary housing or simply lodging. Such services are provided in a short term basis and it concludes in a specified period of time. In the meantime, money is often referred as the income of the business and on the other hand budgets provides a guideline for any expenditure and increase the shareholders wealth and owners interest in terms of providing a standard service for the business to stand creditable. “The budget is like an airline Pilot’s flight plan; it sets out in figures where to steer in order to reach a given objective” Fenton, Lawrence, Fowler, Norman A., Parkinson, Geoff.

Without a clear budget in mind, the business would not achieve the targeted return or perhaps maximised return required by the owner of the business since it cannot identify the risks and costs involved in its future trend. “The process of budgeting is considered to be a valuable control tool in the hospitality industry”. The primary concept and as stated before, hospitality industry is an operation establishment that offers short-term paid lodging to mostly travellers, tourists and other people. This is the traditional and main or common idea of people when they hear the term hotel.

In the earlier days, hotels services were limited, such as a bed and its complete bedding, a locker, a small table – most of the time side table, and a washstand that includes bathroom and other comfort facilities. Additional features include telephone service, television (cable TV), and other necessary yet basic things like coffee or tea making accessories. In addition from the extended line of facilities and services, hotels also include some other special operations. At present time, the services provide by hotel has extended far more then their core business and presently hotels are offering events, banqueting and conference services.

Most commonly hotels are said to be service-oriented. The identity of a hotel is based on the service particularly on the quality and overall operational standards. The presence of a hotel classification based on stars rating system.

3.2 Why Budgeting in Hospitality Industry?

The use of budget and budgetary control is now a vital part of the Hospitality industry accounting and should then be use as a benchmark to measure their performance as well setting up their financial target. “The budgeting process is often used not only to plan ahead, but also for target setting and raising individual performance.” Adams, Debra. Hotel business alone is continuously growing in the 21st century. “The UK hotel market was valued at £14bn in 2006, having an increased by 28.9% since 2002”.

This industry comprises hotels and other accommodations, restaurants, fast food retail, bars, and catering. In order to sustain in this competitive market or to perform as a successful key player, any hotel industry must adopt budgeting; hence this will assist the management to plan ahead for their future target. “Budgeting is planning. In order to make meaningful decisions about the future a manager must look ahead. One way to look ahead is to prepare budget or forecast”. Gareth Owen (1998) has explained budgetary process in hotel business by drawing a budgetary cycle.

    • Environmental Influences audit
    • Internal resources audit
    • Actual result
    • Master Budget
    • Departmental Budget
    • Strategic Plan
    • (3-7) years
    • Annual Business plan
    • Long term Strategic Gap
    • Short term Operational gap

(Accounting for Hospitality Tourism & leisure Auth: Gereth Owen Second edition P: 297)

The author has explained the overall planning cycle a top down process and for a long term objectives should determine any short term activity that has a significant impact in operational process. A strong hand in controlling their daily operation; for instance what is done from minute to minute, hour by hour and day to day will have a direct impact on long term plans. On the other hand controlling in any short term activities will directly influence in any long term objective. Therefore long terms aim or objective needs support from short term objective.

There are several kinds of budgets are employed in hospitality establishment. For instance Capital Budget, Operating Budget, Master Budget, Departmental Budget, Fixed Budget, Flexible Budget. Each of these different kinds of budget comprise of many other type.

3.3 Budgetary process

The process of budgetary practices in a hotel starts with the departmental budget, the consequence behind that is a departmental budget will give overall cost related to the many parts of the hotel for instance a house profit cannot be estimated without knowing the cost associated with department like housekeeping, valet, repairs and maintenance, room service reception etc. Also cash budget cannot be prepared without the knowledge of departmental revenue and expense hence the overall cost of the hotel. Departmental budget is probably the most difficult to prepare after the sales budget and involve a lot of manpower and moreover time consuming. The departmental budgeting process can be summarised in four steps.

      1. Assign a task for the department managers to gather information such as revenue, cost and expenditure.
      2. Analyse the past trend and estimate any revenue generated by the revenue centres like Brassiere, Banqueting, Restaurant, Front Office (reception), business centre, room service.
      3. Subtracts any expenditure from the estimated revenue related to the department.
      4. Finalise the information with the department managers before combining into one report

At this point all the expenses and revenue should be combined with a detail report of explanation for the budgeted cost and revenue for that specific period, the department manager will have to decide whether this budget is feasible over that period or not, once this has been approved by the D.O.F it will then be combined in the Hotel Master Budget.

Once the departmental budget has been established its time to prepare the cash budget, this will help the management to see the detail view of their cash inflows and outflows and will enable to plan a head for any expenditure. In today’s financial world almost every company adopt a cash budget as its help the management making decision about their future abilities for paying any debt as well as expenditure.

Having discussed the budgetary process, many hotel industries uses more advanced, reliable techniques in addition to budgetary process to clarify any last minute adjustment prior to the budgetary period another word forecast is an updated version of the final budget. Forecasting is mainly use in budgeting and it also could be applicable to many other aspects in the industry. “A more accurate forecasting of room occupancy rates would facilitate strategic planning and enhance the decision-making procedures of hotel management companies”

Forecasting is normally done in monthly basis prior to the beginning of the month, many company has more frequent forecasting policy. Two most commonly use forecasting method is the “moving average” and “multiple regressions” and this process is normally carried out by the finance department of any hotel.

In Marriott, the hotel and its management start to prepare the budget in middle of the year for the upcoming next one year. The officers and members of the top level finance management are the ones responsible for the completion of the most appropriate and inclusive yearly budget. The hotel uses a bottom up approach budgeting system another word “participative budgeting method”. Participative budgeting involves employee’s participation in preparation of the budgeting at various level of organisational aspect, even though the final decision is made by the top level management. Participative budgeting gives employee an excellent opportunity to take the owner ship of their own budget document and motivation to meet the target. “A budgeting system in which all budget holders are given the opportunity to participate in setting their own budgets”.

In this method all the managers are responsible for preparing their own departmental budget with the assistant of a finance manager. The departmental managers normally start preparing the budget in the month of July based on past trend, the managers will look ahead for the whole year projected expense like wages and salaries, any fixed and variable cost like labour cost and then calculate the required profit by the owner. The managers will then evaluate the budget inside-out to clarify is it practical? Is it reachable? The finance manager will then put forward their draft budget to upper level finance management for approval. Once this has been approved by the Director of Finance, general manager and the executive team it will then unite in their master budget and finally a copy of the Master budget will be sent to their regional office for approved by the Area director of finance.

Marriott previously used a software package for helping the departmental manager preparing the budget which no longer supported and exchanged with the idea of using Excel spread shit Template. This template helps the manager whose are not very budget educated and has a limited understanding of budgeting concept. After end of each month the hotel publish an internal P&L (Profit and Loss account) report for the departments to evaluate the performance. The department head will be asked to critique on their result to the director of finance (DOF) and DOF finally create a critique report which will be reviewed by the regional office.

The following discussion is an example of Marriott Hotel Master Budget for a year. However, it is noted that specific figures are altered for the purposes of corporate confidentiality.

Please refer to a copy of the Master budget in Appendix I

Figure 1.1 is the detailed presentation of the hotel’s revenue target for the year 2006. As seen on the records, the room sales have a considerable portion in the total revenue because of the fact that this is the core of their entire business operations. This figure has been compared with the budget of the previous year 2005. Basing on the figures obtained from the comparison, the total room revenue significantly increased over12-month’s period. Depending on the upcoming business, the hotel management set this target for example, if any major function taking place in the month of August during the summer particularly this year, they then increase the target for the profit and revenue compared with the previous year.

The total number of room sales revenue holds 25.44% share in the total sales. In this particular hotel, we can also see that they make the most revenue from the banqueting service although the room sales are their core business. The banqueting service has a share of 63.21% of the total sales. Meanwhile, the total Food and Beverage sales revenue has a significant impact in the hotel business. As a primary section of the entire hospitality industry, it plays a significant role in any hotel industry business.

After determining the target for the total revenue of the hotel, the officers and members of the top level finance management who is in control of the overall budgeting process will start to look into the hotel’s expenses and wages. The department head will be asked to gather the needed information and come up with the numbers based on past business trends and experiences. The finance director will then discuss and undergo further clarifications with the department head before approving a unified master budget.

In Figure 1.2, figures show the breakdown of all the expenses. The General & Admin cost mainly consisted of the Directors’ remuneration and other hotel general expense including Directors’ Parks. From the data presented, it shows that this is one of their main expenses accounting to 32.42% of the total expense. Repairs & Maintenance is also a major cost centre. This is due to the fact that it takes off a great amount of the hotel’s profit especially in the case of providing finances in fixing and repairing hotel equipment and facilities. Meanwhile, Sales & marketing expenses are mainly accounted to finance hotel’s advertising campaign to promote their business and how to develop their services. On the case of Advertising, it is fixed over the whole year but could be changed depending on the business.

Lastly, Figure 1.3 gives an itemized breakdown of the payroll expense including rooms, food and beverages, and other departments. The Food and beverage section employs the biggest number of people. As an important part of the hotel and its entire operations, it needs a great number of manpower to provide services to the hotel clients. The changes in the wages are brought about by trends affecting the whole hotel business operations.

After determining all the expenses and the sales target, the officers and members of the top level finance management will then subtract the hotel expenses from the revenue figure to finalize the targeted profit figure.

A monthly forecast takes place at the beginning of each month in addition to their quarterly forecast. For example in their 2008 budget they will have a monthly forecast for the month of January as well an advance forecast for the up coming next three month to see if there is any rapid movements in the current trend and perform any last minute adjustment. A forecast can be described as a latest update for the operating budget where a budget is a permanent financial planning for the year. A forecast is not expected to balance with their budget figures as they are flexible in terms of their use and can be changed to meet the demand of the business.

3.4 Issues on Budgeting

It is argued that budgeting is considered as an “old system of control” (Malmi, 2001) or a “traditional” management accounting (MA) technique (Burns and Yazdifar, 2001). Moreover, it has weaknesses and pitfalls particularly in its entire process (Cruz, 2007).

Budgets are prepared on the base of some known factor as well as unknown factor which really means making a future plan just by predicting the possible future business. Budgets preparation also requires disclosing company’s financial information which could be use by the competitor such as their financial performance result. Moreover any surplus in the budget could lead to unnecessary spending; for instance if an expenditure budgets is overvalued then there might be a possibility to find ways to spend those extra fund.

There are so many limiting factors in budget and this has been criticised by many individual in the past. Following are the few criticism extracted from the “Management accounting-Performance evaluation book.

      • Budgets are a commitment. They therefore act as a constraint on doing anything different.
      • Traditional budget are seen as a mechanism for top down control by senior management.
      • Traditional budget restrict flexibility
      • Budget reinforces barriers between department”

During the interview with a Finance manager from Marriott hotel, the researcher has found out some specific problem that a manager encounter when preparing the budget which conclude a bad performance in their actual outcome. It was explained that why a manager or hotel don’t meet their budget could be subject to preparing a budget that is realistically unsuitable. Following are the highlighted points that came up during the interview.

Unrealistic / too optimistic: If the budget has been prepared by a senior level management based on their own assumption, might not be realistic or acceptable by a lower level manager and could even result a failure to meet the target. A departmental manager will have a better understanding of their target for the specified period rather then being too optimistic about the goal set by the senior managers.

Over estimate/ under estimate: A manager tends to make the common mistake when preparing the budget by either over estimating or underestimating the budget. From a budgeting point of view the both issues are identified as a bad influence.

Not much participation from the bottom level management: Sometime when preparing the budget becomes sort of an empowering issue and the senior level management ignore the fact of participation by a manager whom it will be assigned. On the other hand a lower level manager might not be interested to add any comment on their budget due to lack of understanding in this area.

Poor planning: A poor planning could really effect any budgeting; therefore use of proper time management is very important when preparing the budget.

Use of past trend: comparing the past trend result will give them more accurate information whether the set target will be achievable or not or anything particular they need to look at, compare to previous year result.

Communication gap: lack of communication between top level management and bottom level management.

Despite the first interview with a finance manager, the researcher has also interviewed a top level finance manager, who discussed the issues by putting them into two groups. This could be as follows.

Two Groups: 1. External Issue 2. Internal Issue

3.4.1 External issues

Unfortunate event (for instance natural disaster): A sudden natural disaster or any unfortunate tragic event could significantly affect the budget for any fiscal year.

Changes in government rules and regulation: Any changes in government law for instance health and safety issue or maybe increase in taxation might cause a review of the budget and to carry out a review process will cost more time and money.

3.4.2 Internal issues

Hotel renovation: This is a practical example even the researcher has came across during working for the Marriott hotel, the researcher has found out delays occurring through out the life time of the renovation could result to many changes in their budget and loss of revenue and as the hotel funds are limited it is very difficult for the management to tackle this kind of situation.

In relation to the bottom level management following are the major concern

      • Lack of understanding
      • Not knowing the operation properly
      • Communication across department ( Example C&B)

It was identified by the management that the most difficult part of a budget in any hotel establishment is the sales budget. Prior to conclude any figure in the sales budget a forecast should be done. Consequently the forecast number of room sales will give an idea of the cost related to the budget and the management will have a clear picture of different type of cost such as variable and semi fixed cost. One of the major facts that will influence in the forecast for the sales is called as limiting factor also known as “principal budget factor. This means an additional increase in the sales volume will almost be impossible; for instance the number of rooms available is fixed and therefore the management cannot sell any more then what is available.

This has left them with no choice for any additional sale except an increase in the room price; as a consequence they must make sure that they are in line with a hundred percent occupancy rate during the festive season or if possible most of the time during the year. Same issues also influence their restaurant budget such as fixed number of seats available in their restaurant and not able to accommodate any extra guest and this may well result in loss of any potential sales as they cannot increase the seating capacity of the restaurant. There are several kinds of limiting factor can be found in the hospitality industry. According to “Richard Kotas and Michael Conlan” such limiting factors are like insufficient capital, shortage of efficient labour, management policy, consumer demand.

3.5 Budgetary behaviour and employee motivation

It is found that different aspects of budget/ budgeting can affect motivation of employees. “Kenis (1979) believed that a “tight but attainable” budget approach is the most effective way to motivate managers to perform better”. “The budget may be set as a target that management are motivated to meet, a realistic forecast of the likely outcome, or some combination of these goals. Hofstede and other have suggested that the target must be accepted by the budget holder, and this would usually be achieved with a bottom up or interactive approach” Collier, p., Gregory. Chris Argyris (1952-1953) has indentified that “budgets and budgeting can be related to at least four human relation problems:

      • First, budgets pressure tends to unite the employees against management, and tends to place factory supervisor under tension.
      • Second, the finance staff can obtain feelings of success only by finding fault with factory people.
      • Third, the use of budget as ‘needlers’ by top management tends to make the factory supervisor to see only the problems of their own department.
      • Finally, supervisor use budget as a way of expressing their own patterns of leader ship”

Further, to be able to understand the level of such effect, it is essential to include specific organizational or employee factors in the analysis. For example, not enough time to educate department manager’s on the subject of budget and without a clear understanding they are allowed to operate their own department by themselves even though there is substantial training for budget is necessary, Therefore, what is needed is a planned training schedule for managers and employee (where required) for budget rather then holding inspirational presentation or seminars. “Swieringa and Moncur (1975) found that greater participation in the budget-setting process increases the quality of budgets – in other words, that there is a direct benefit of budgetary participation on subordinates' behavior”.

The absence of the “right” environment is the root causes of many budgeting issue specially those one relate to employee motivation. In many companies unit managers are acting like Gods because what they say is what would employees are intended to do and Even though at the end of budget preparing process “Is there any reactions?”, “is there any question or suggestion?” in most cases its seems like a bit of an empowering issue like a teacher is giving out the homework to the student. Budget matters are worst.

Managers are always allowed to contribute even though employees are affected by its consequences. As explained, the communication system of the organization directly affects the procedure of making the budget. The problem of the overall process becomes financially-one hand control although employees are allowed to participate but ignoring the fact of valuing or respecting employees say or opinion.

The level of employee involvement is important in budgeting and planning the budget in general. Communication gap can create a boundary between managers and budget committee. Budget isn’t always necessarily prepared by finance and accounting departments. A department manager could also come up with their own budget proposal and this could be verified and approved by finance manager or the budget committee. This gives the department manager a freedom of their think and share valuable information which together can create a positive impact on the over all process. Management meeting when preparing budget should involve direct employee participation especially on those area that affects employee motivation in terms budgeting point of view. Based on researcher own experience, many management meetings are held without staff involvement.

A specific time frame during the preparation of budget also affects the level of motivation, if any; managers receive a budget where there was no involvement of that individual can severely affect that employees motivation. On the other hand operational budgets are the least kind of budget that can affect employee behaviour since it only create a baseline environment and resolve any issues.

3.6 Review of Relevant Research Work

Budgetary practices are a part of the extensive area of management accounting and the researchers are continuously looking for new scope, finding and better solution. Not until the booming of the tourism industry in the recent years, budgetary practices in hotel industry shifted into a significantly studied area of business research and activity. “Budgeting is a key focus of accounting research during the 1970s, tended to be examined without consideration of its social and organizational aspects, according to Hopwood (1978)”.

Today, research efforts on management accounting theory and practice are growing.

In relation to this study, the subsequent research works are essential relevant on the subject pursued for the research. “Numerous accounting studies have investigated the effects of participatory budgetary processes. The job satisfaction of participating employees is one of the most frequently researched issues. Increased employee participation in budgeting widens the responsibilities and experience of employees”.

Jones (1998) treated the issue on the use of budgetary procedure among UK hotel operators through postal questionnaires to company finance directors. Yuen (2006) studied the effects of participatory budgetary processes and its relationship on employee job satisfaction as evident on the case of the hotel industry in Macau. “Budgeting in the information age is the focused” of Brown and Atkinson (2001)

Where they recognised various trends that affect hospitality organisations. They noted that in order for businesses operating in the hospitality industry to stay competitive in the market, they must be able to implement more flexible, responsive and empowered management structures like a strong hand in their budgetary control including budgetary systems.

The findings of the mentioned research studies conducted in the area of management accounting specifically on budgeting aspect were associated on the expected results of the study. With these sufficient collections of information, the hotel industry and its related businesses might be able to develop effective plans for the next year’s operations especially in relation to budgetary considerations. However, it is still imperative to continuously create innovations that will contribute to the growth of the hotel organization. In the same manner, management expertise plus strategic planning and decision making is important

Chapter 4

Qualitative Data Analysis

4.1 Introduction

The process of budgetary practices in a hotel starts with the departmental budget, the consequence behind that is a departmental budget will give overall cost related to the many parts of the hotel for instance a house profit cannot be estimated without knowing the cost associated with department like housekeeping, valet, repairs and maintenance, room service reception etc. Also cash budget cannot be prepared without the knowledge of departmental revenue and expense hence the overall cost of the hotel.

Departmental budget is probably the most difficult to prepare after the sales budget and involve a lot of manpower and moreover time consuming. This section will examine the perspective of the respondents regarding budget processing in the hotel. There were two sets of respondents, one is the top level management and the latter is the lower level management. Therefore, there were two types of questionnaires used.

4.2 Data Analysis

4.2.1 Part 1. Top Level Management

The Performance of the Hotel in the Current Market

According to key informant number 1, who is a senior finance officer in the hotel, currently the hotel is performing well in the hotel industry. But, presently the stock market is on its downside and there is a financial crisis in the United States, it is important to consider that Marriott is an American company, the hotel’s financial status is affected considerably. In the previous fiscal years, the company have started doing some conference and banquets bookings, although, the whole hotel industry is having some difficulties. One thing to consider is that when this hotel is not performing very well, that only show that the rest of the United Kingdom region is not performing at its best. Currently, in this hotel we are 14% above the average rate.

On the other hand, key informant number 2 who is an Assistant Financial Controller, presented a different evaluation of the hotel’s performance in the industry. The informant stated that, currently, they do not have their entire room inventory, based on the room inventory on hand; they are performing at the average rate and can be considered at one of the top Marriott hotel. They have 480 rooms and 240 rooms are filled (which is not normal). Initially, these 480 rooms are divided into 4 fazes and each faze has 120 rooms, so they have the first 240 rooms under construction. Once all these 240 rooms are finished, they will come back to a normal state of operation.

Key informant number 3, who is a Director of Restaurant, shares the same evaluation on the hotel performance with key informant number 2. This informant said, the economic crisis in state is causing a big concern in the current hotel industry and has been affected significantly.

Finally, key informant number 4, The Director of Finance, shares the same opinion with key informant 1 and 3, stated that the hotel performance is doing great even though some parts of the hotel is still under construction, though they still do not have other amenities like restaurants, health clubs, meeting space, given this fact and compared to other hotels with this amenities, with a normal performance they are doing poorly. Another issue that had affected their performance is the financial crisis in the U.S. market there has been some drop off in their transient business and the management still monitoring that closely.

The Issues, Challenges and Other Relevant Problems of the Hotel that Affect the Entire Budgeting Process

According to key informant 1, the hotel is facing a big challenge because of their long term renovation and this has affected their finances. The other half of their renovation was due to finish in 2007, and should now be completed by 2009, so the overall renovation process is delayed by less than 2 years and the hotel’s budget is affected dramatically.

Key informant 2 agrees with the sentiments of key informant 1, in the last three years he considers the construction of some parts of the hotel as the main issues especially the delays. The delays have affected the budget badly because they cannot competitively compete with other hotels. They have to create a lot of assumptions, and all the assumptions they have created because of the delays made them struggle for their sales and achieve their targeted figure.

Key informant 3 has different issues from key informant 1 and 2, it is important to take into consideration that the position of key informant number 3 and his department is different from key informant 1 and 2. The hotel has a big obligation to the royal bank of Scotland and to Marriott International, that is why they are more cautious in using their funds and they are doing this proactively.

Key Informant 4 shares the same opinion with key informant 1 and 2. The biggest issue is in terms of our budgeting process is because they never had a normal year due to the renovation process, usually they prepare the budget for the next year based on this year performance but because they never had a normal year things were closed off last year are not closed this year and it is difficult to come up to some sort of a measuring point what we normally used to prepare our budget on. Due to renovation a restaurant, lounge and media space had to close down.

The Process of Budgeting

The respondents were asked to explain the process of budgeting in the hotel; it is shown in the table below:

Table 1


The Process of Budgeting

Key Informant 1

Exec team will have a draft copy of the budget, they then pass it to the lower level management but prior to that lower level management will be asked to prepare a draft budget and then individual department head and manager will seat together to come up with an agreement for the final or master budget.

Key Informant 2

Experienced Department heads prepare the budgets

Key Informant 3

Reviewing the last year budget and how it was used, plan for the hotel activities, compute how much money they needed, spread the budget (this happens in January and February, preparation of the first six months data to help the preparation of budget for the following year.

Key Informant 4

Creation of the Long Range Planning (this can be a five years budget based on sales and profits), budgeting began in August while July is spend for forecasting the current year, inflation should be considered in the computation of the budget.

Table 2

The respondents were asked on what they think are the most important factors to prioritize in the entire budgeting process. All of them gave their respective answers however; none of them have similar ideas.


The Most Important Considerations or Factors that are Prioritize in the Entire Budgeting Process

Key Informant 1

Time factor, use of past trend and historical data, strict deadline for the department head

Key Informant 2

Skeleton budget, Performa Budget and the LRP (Long Range Planning.

Key Informant 3

Profit and Loss statement, first three months assessment of the needed budget in order to be sure that the top level management can achieve their target.

Key Informant 4

Is there any new competitor coming up or are there some hotels closing or going under renovation, rooms and facilities needed?

Table 3

The respondents were asked the reasons why they think that the factors given above are important. All of their answers have supported their supplied factors.


The reason why the given factors are important

Key Informant 1

In order to have an effective budgeting process this factors are important and should be followed strictly in the overall process.

Key Informant 2

The key thing is to looking ahead and preparing the list of assumptions like what the business environment is going to look like and what are the key event that taking place, how does the economy look like, how does the tourist season look like, the hotel industry sort of depends on business environment

Key Informant 3

The more money the hotel makes the more money we can spend

Key Informant 4

It is important to examine the economy and the competitors of the hotel in the market.

Table 4

This section will show the respondents answer when asked about the main people responsible in the process of budget planning. All of them agree in some ways that the department heads are the ones responsible for this.


The main people involved in the process of budgeting and their roles and responsibilities

Key Informant 1

Exec team, finance department. Individual department head. The exec team are responsible to monitor the performance of individual department .they are the people who liaise with regional office and they will be asked to critique on P&L at the end of every month

Key Informant 2

The regional office who arrange and approved the budget but then

again initial draft is done by individual department head.

Key Informant 3

Individual department head and its managers.

Key Informant 4

Hotel level individual departments, general manager, department of finance and the director of finance.

Table 5

In this section the respondents were asked how important is the opinions of the lower management in process of budgeting. Most of them think that involving the lower management people will be beneficial in the process of budgeting.


The Voice of Lower Management in the Process of Budgeting

Key Informant 1

It’s very useful, indeed

Key Informant 2

We definitely involve them in budgeting process and that gives us an opportunity to evaluate their performance.

Key Informant 3

Absolutely yes, we look at everything for instance we will look at guest satisfaction service, associate opinion survey.

Table 6

The respondents were asked in this section about their own definition of participative budgeting. They all share the same definition.


In their opinion, definition of participative budgeting

Key Informant 1

The voice from lower management and that gives the hotel an opportunity to sit together and have a good understanding of day to day operation of the hotel

Key Informant 2

It gives everybody an opportunity in planning the budget.

Key Informant 3

Participative budgeting gets everybody involved, understand the business and the associate level.

Key Informant 4

It’s great. It takes longer but it gets more accurate budget.

Table 7

This section measured the belief of the respondents about the use or harm of participative budgeting in the process of budget planning.


Participative budgeting: Useful of Harmful?

Key Informant 1

It is definitely useful

Key Informant 2

Its definitely helpful because, at the end of the day a department manager and the people who run the business on a daily basis needs to agree with the people who develop the strategy at which level they can deliver a good service.

Key Informant 3

It is helpful to the management needs.

Key Informant 4

It is definitely useful

Table 8

This section shows the perspective of the informants regarding the opportunities about the use of participative budgeting; however, key informant 4 did not give any answer.


Opportunities that the Hotel Use because of Participative Budgeting

Key Informant 1

The management set out a time frame for the individual responsible for the budget, look into the numbers to see if they have been too optimistic or not, what is their assumption if something seems to high or low, have they meet the deadline?

Key Informant 2

Other opportunities like more accurate way of doing budgeting because the assumptions that a manger will make will be more realistic so they know what staffing level they need, so its definitely helpful.

Key Informant 3

They have two opportunities, one is setting goal that they have achieved their revenues and profit target for own interest and secondly, I will see the job they have done is correct on a regular basis.

Key Informant 4

Did not give any answers

Other People that can be involved in Budget Processing

In this question, Key informant 4 gave his answer, he stated that: everybody is almost involved; I don’t think we can add anymore and would do any good. Now if the manager lets say has a good supervisor and want to involve them at that point they can bring them in too. The management probably wouldn’t worry about that. We usually look at the first draft anyway after the directors take a look at it. So they can bring as many people as they want but it cost time and money in terms of labour. So they have to look at this kind of things too.

According to Key Informant 2, the individual department head involved in the process and they can train their supervisors and help the managers gathering information, setting up assumption. It’s a two way communication between manager and supervisor. While key informant 3 stated that, the department managers will have the opportunity to bring as many people as they want.

The Given Roles or Responsibilities to other People for Budget Processing

All the informants agreed to one premise in this question: Rules and responsibility would be able to make list of assumption and be able to demonstrate their cost revenues as per their assumptions.

The Reasonably Structured and Effectively Planned Budget

Reasonably planned and structured budget according to the key informants is budgets that always meet deadlines, seeing an improvement on profits every year, setting more realistic goals and spending the budget reasonably.

Means of Evaluation of the Budget Planning Process

According to Key Informant 4, goal setting is done to examine their revenues and profits; they also do monthly profit and loss critique and monthly profit and loss evaluation. In this question, only key informant 4 gave the clearest answer.

Any chances in restructuring the Budget Planning Process

All the key informants believe that there is no need in restructuring their existing budget planning process. They also consider that five weeks should be given to them as a deadline instead of 2 weeks. Though, they do not consider this as restructuring.

Recognizing the issues, challenges, and other relevant problems of this hotel that affect the entire budgeting process, what are some practical solutions and recommendations on the identified issues, challenges and opportunities

The most precise answer came from key informant 4, he stated that: “Unfortunately it goes through quite a review process after we look at it, our area team looks at it and discuss with us and then the regional team discuss it and then it goes to the head quarter and probably couple of more groups up there. So it has been seen by many different groups.

Everybody has their own input, ideas thought on what needs to be done. So we get two weeks to prepare it and they get two months to review it, so that’s the problem. In terms of renovation we can move forward this is not an issue but in the past we had to make a lot of assumptions like how many rooms we will have available, when we were wrong in this assumptions as we are always wrong as consequence then we are going to loose our revenue.”

Recommendations Needed for the Budget Processing

All the key informants believe that a comprehensive training for the bottom level management is needed.

4.2.2 Part 2. Lower Level Management

The lower level management respondents are four lower level management employees of the hotel: Key informant 1 is the-Park Room Manager, Key Informant 2 is the-Front office manager, Key informant 3 is another-Front office manager and lastly, key informant 4, is the-In room dining manager. All respondents were interviewed using the interview guide questions for the Lower management employees made by the researcher.

Table 9

In this section, the respondents share their opinion about the performance of the hotel in the current market.


The Performance of the Hotel in the Current Market

Key Informant 1

The performance of this hotel over all is good. Although the market condition as of now are poor and the occupancy has dropped, the hotel don’t have many guest staying in the hotel also the banqueting service and the park room has been slightly affected due to the current situation.

Key Informant 2

Although he does not have any access to other hotel revenues, he believes that this hotel is doing well even though there is a financial crisis in the U.S.

Key Informant 3

The hotel is doing well in the business.

Key Informant 4

The hotel is doing very well which comes with a lot of pride and we see a lot repeat business and if you see a lot of repeat business means we are doing well. I think it’s quite important in the market and our hotel has been perceived as one of the main competitor in the market.

Table 10

In this section the respondents expressed their opinions about the issues, challenges, and other relevant problems of this hotel that affect the budgetary process


The Issues, Challenges and other Relevant Problems in the Budgetary Process

Key Informant 1

It is the change, this hotel is one of the base of Marriott hotel in U.K region and if this hotel doesn’t perform very well then it means the entire region is not doing very good and we are always under tremendous pressure from the regional or the main head office. This results to tight budgets.

Key Informant 2

Although he does not have any access to other hotel revenues, he believes that this hotel is doing well even though there is a financial crisis in the U.S market

Key Informant 3

Marriott has taken over this hotel in 2004 and since then the refurbishment started so we don’t have full service and the total occupancy rate, you think what possible can happen and make a lot of assumptions. So these are the main concern.

Key Informant 4

We tend to build the budget for the following year in the month of August; sometime we don’t have all the information available to us until December. So I think

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