Evaluating Front Office Operations

Evaluating the results of front office operations is an important management function.

Without thoroughly evaluating the results of operations, managers will not know whether the
front office is attaining planned goals. Successful front office managers evaluate the results
of department activities on a daily, monthly, quarterly and yearly basis. Some important
tools which front office managers can use for evaluating front office operations and to
evaluate the success of front office operations are:

1. The Daily Operations Report for Evaluating Front Office Operations– The daily
operations report also known as the manager’s report, the daily report or the daily
revenue report, summarizes the hotel’s financial activities during a 24-hour period.
The daily operation report has a summary of cash, bank accounts, revenue and
accounts receivable. Copies of the report are generally distributed to all department
and division managers.
2. Occupancy Ratios – Occupancy ratios measure the success of the front office in
selling the hotel’s primary product – guestrooms. The following room statistics must
be gathered to calculate basic occupancy ratios:
 Number of rooms available for sale
 Number of rooms sold
 Number of guests
 Number of guests per room
 Net rooms revenue
Occupancy ratios that can be calculated from these data include occupancy percentage,
multiple or double occupancy ratio, average daily rate, revenue per available room
(REVPAR), revenue per available customer (REVPAC), and average rate per guest. These
ratios are calculated on a daily, weekly, monthly and yearly basis.

 Occupancy percentage = Number of Rooms Occupied / Number of Rooms Available

 Multiple Occupancy Ratio = Number of Rooms Occupied by More Than One Guest
/ Number of Rooms Occupied
 Average Guests per Rooms Sold = Number of Guests /Number of Rooms Sold
 Average Daily Rate = Total Room Revenue /Number of Rooms Sold
 REVPAR = Total Room Revenue / Number of Available Rooms
 REVPAC = Total Revenue /Number of Guests
 Average Rate per Guest = Total Room Revenue / Number of Guests
3. Rooms Revenue Analysis – Front office staff members are expected to sell rooms
at the rack rate unless a guest qualifies for an authorized discounted room rate. A
room rate variance report lists those rooms that have been sold at other than their rack
rates. One way for front office managers to Evaluating Front Office Operations and
the sales effectiveness of the front office staff is to generate yield statistic, which is
actual rooms revenue as a percentage of potential rooms revenue.
Yield Statistic = Actual Rooms Revenue / Potential Rooms Revenue
4. The Hotel Income Statement – The hotel’s income statement provides important
financial information about the results of hotel operations and Evaluating Front Office
Operations for a given period of time. The period may be one month or longer but
 should not exceed more than one business year. The hotel’s statement of income is
also called a consolidated income statement because it presents a complete picture
of all the hotel’s financial operations.

SAMPLE
CONSOLIDATED
STATEMENT OF
INCOME
WESTVIEW HOTEL

Summary Statement of Income

For the Year ended 12/31/2012

PAYROLL
COST &
OPERATED NET OF RELATED OTHER INCOME
DEPARTMENTS SCHEDULE REVENUE SALES EXPENSES EXPENSES (LOSS)

Rooms 1 6070356 1068383 473487 4528486

Food 2 2017928 733057 617705 168794 498372

Beverage 3 778971 162258 205897 78783 332033

Telecommunications 4 213744 167298 31421 17309 -2284

Rentals & Other
Income 5 188092 188092

Total Operated
Departments 9269091 1062613 1923406 738373 5544699

Undistributed
Operating
Expenses

Administrative And
General 6 227635 331546 559181

Marketing 7 116001 422295 538296

Property Operation
And Maintenance 8 204569 163880 368449

Utility Costs 9 546331 546331

Total Undistributed
Operating Expenses 548205 1464052 2012257

Totals 9269091 1062613 2471611 2202425 3532442

Income After
Undistributed
Operating
Expenses 3532442

Rent, Property
Taxes And
Insurance 641029

Income Before
Interest,
2891413
Depreciation,
Amortization And
Income Taxes

Interest Expense 461347

Depreciation And
Amortization 552401

Income Taxes 469810

Gain On Sale Of
Property (+) 1574

Net Income 1409429

5. The Rooms Schedule – the hotel’s income statement shows only summary
information. The separate departmental income statements prepared by each revenue
center provide more detail and to help Evaluating Front Office Operations.
Departmental income statements are called “schedules” and are referenced on the
hotel’s statement of income.

SAMPLE ROOMS
DIVISION INCOME
STATEMENT
ROOMS – SCHEDULE # 1

WESTVIEW HOTEL

For the year ended 12/31/2012 Current Period

Revenue 6124991

Allowances 54635

Net Revenue 6070356

Expenses

Salaries and Wages 855919

Employee Benefits 212464

Total Payroll and Related Expenses 1068383

Other Expenses

Internet/Satellite Television 20100

Commissions 66775

Complimentary Guest Services 2420

Contract Services 30874

Guest Relocation 1241

Guest Transportation 48565

Laundry and Dry Cleaning 42495

Linen 12140

Operating Supplies 122600

Reservations 40908

Telecommunications 12442

Training 7122

Uniforms 60705

Other 5100

Total Other Expenses 473487

Total Expenses 1541870

Departmental Income 4528486

6. Rooms Division Budget Reports – The hotel’s accounting division also prepares
monthly budget reports that compare actual revenue and expense figures with
budgeted amounts. These reports can provide timely information for evaluating front
office operations. Front office performances are often judged according to how
favorably the rooms division’s monthly income and expense figures compare with
budgeted amounts which is very important to Evaluating Front Office Operations.

SAMPLE MONTHLY
ROOMS DIVISION
BUDGET REPORT
LANDMARK HOTEL

BUDGET REPORT – ROOMS DIVISION

FOR JANUARY 2013

Variances

Actual Budget Amount %

Revenue

Room Sales 156240 145080 11160 7.69

Allowances 437 300 137 (45.67)

Net Revenue 155803 144780 11023 7.61

Expenses

Salaries and Wages 20826 18821 (2005) (10.65)

 Employee Benefits 4015 5791 1776 30.67

Total Payroll and Related

Expenses 24841 24612 (229) (0.93)

Other Expenses

Commissions 437 752 315 41.89

Contract Cleaning 921 873 (48) (5.50)

Guest Transportation 1750 1200 (550) (45.83)

Laundry and Dry Cleaning 1218 975 (243) (24.92)

Linen 1906 1875 (31) (1.65)

Operating Supplies 1937 1348 (589) (43.69)

Reservation Expenses 1734 2012 278 13.82

Uniforms 374 292 (82) (28.08)

Other Operating Expenses 515 672 157 23.36

Total Other Expenses 10792 9999 (793) (7.93)

Total Expenses 35633 34611 (1022) (2.95)

Departmental Income 120170 110169 10001 9.08%

EVALUATING FRONT OFFICE

OPERATIONS
It is the responsibility of the Front Office Manager to evaluate continuously and
review the results of the various departmental activities on a daily, monthly,
quarterly, and yearly basis.
Evaluation and reviews help the manager to make constant improvements to
produce effective results.
Various tools and items can assist in evaluating the progress of the departments.
These tools include:
Daily Operations Report
This report is also known as the Manager’s Report, the Daily Report or the
Daily Revenue Report. The report is a summarised version of all the hotel’s
financial activities during a 24-hour period. It also provides details of cash and
bank reconciliations, revenues, and accounts receivables. Moreover, the report
acts as an important data that assists in linking front and back-office computer
functions.
Occupancy Ratios
Occupancy refers to the number of rooms occupied by stay-in guests during
a period. The occupancy ratios measure the success of the Front Office staff
in selling guest rooms, i.e. the hotel’s primary product. Besides, this ratio,
the Front Office also uses other ratios such as check-out percentages, stay-in
percentages. Various other ratios include:
•
Occupancy
percentage
= Rooms occupied
/ Total rooms available
for sale
•
Multiple Occupancy percentage = Rooms occupied by more than one
guest/ Total rooms occupied
•
Average
Guests per Sold Rooms = Total guests/ Number
of rooms sold
•
Average
Daily Rate = Total revenue
from rooms/ Total rooms sold
•
Average
Rate per Guest = Total revenue
from rooms/ Total guests
Rooms Revenue Analysis
The Room Rate Variance Report helps to monitor the room revenue. This report
lists those rooms that have been sold at rates other than their rack rates, i.e.
corporate rates, family rates, package rates, promotional rates. Another form of
revenue analysis is the Yield Statistic. This is the ratio of the actual revenues
earned to the total possible potential revenue that would have been earned if
all the rooms were sold at rack rates.
Yield Statistic
= Actual Revenues
from Rooms / Potential
Room Revenues
Hotel Income Statement
This statement provides details of all the vital financial information about the
results of the hotel’s operations for a given period. The period can be the
calendar year or financial year or any other such period.
Rooms Division Income Statement
This statement, also known as Schedule forms part of the hotel’s Income
Statement and be referenced from the same. This schedule is prepared by the
hotel’s accounting division and not the Front Office accounting staff.
Rooms Division Budgets Report
These reports are made on a monthly budget basis that helps in comparing
the actual revenues and expenses against the budgeted amounts. The report is
depicted both in currency value terms and percentage variances.
Operating Ratios and Ratio Standards
Operating ratios such as the occupancy ratios, yield statistics, assists managers
in reviewing and evaluating the success of the Front Office operations.
For ratios to be more meaningful, they should be compared against proper
industry and hotel standards. Other standards may include prior period’s
values, competitor’s standard and/or budgeted ratios