OBJECTIVES
After determining your strategy, the first thing you will do in the Hotel Business Management Training Simulation is to determine your objectives for the month and for the year. Throughout the simulation, you will be able revise your objectives.
Remember, one of the criteria that will be used to evaluate your performance is you’re the objectives you determine. Having an actual performance that is lower than your objective for nay of the performance measures will indicate a performance problem. That’s why it is important to determine the right objectives for each performance measure. Your objectives should be realistic and attainable. As presented in the Objective Reports” of the simulation, your actual performance will also be compared to market averages. Having an actual performance that is lower than the market average will also indicate a problem for that performance measure.
In the Hotel Business Management Training Simulation, you will set your objectives for ten different performance measures. They are:
- 1. Occupancy
- 2. Rooms Revenue
- 3. Total Revenue
- 4. Market Share based on Number of Rooms Sold
- 5. Market Share based on Revenues
- 6. Revenue Per Available Room (REVPAR)
- 7. Average Daily Rate (ADR)
- 8. Yield Management
- 9. Operating Efficiency Ratio
- 10. Profit Margin
1. OCCUPANCY RATE
Occupancy rate is an important o is an important operational ratio that indicates the percentage of rooms sold (rented) at a particular property in a given time period. A property's occupancy rate along with the property's average daily rate (ADR) are the foundations for the property's financial performance.
2. ROOMS REVENUE
Rooms revenue refers to revenue generated from room sales at a particular property in a given time period.
3. TOTAL REVENUE
Total revenue generated from all business activities at a particular property in a given time period.
4. MARKET SHARE BASED ON NUMBER OF ROOMS SOLD
Market share based on number of rooms sold refers to the percentage of a market's total room sales that is sold by a particular company over a specified time period. Market share is calculated by taking the company's total room sales over the period and dividing it by the total number of rooms sold in the market over the same period.
5. MARKET SHARE BASED ON REVENUES
Market share based on revenues refers to the percentage of a market's total room’s revenue that is generated by a particular company over a specified time period. Market share based on revenues is calculated by taking the company's rooms revenue over the period and dividing it by the total rooms’ revenue in the market over the same period.
6. REVENUE PER AVAILABLE ROOM (RevPAR)
Revenue per available room (RevPAR) is an important metric used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important measures of health among hotel operators. The RevPAR provides rooms revenue information for each available room, which enables managers and operators to compare their performance to their competitors with varying sizes.
7. AVERAGE DAILY RATE (ADR)
Average Daily Rate (ADR) is another important financial performance metric that represents the average room rate (rental income) per occupied room in a given time period. ADR along with the property's occupancy are the foundations for the property's financial performance.
8. YIELD MANAGEMENT
Yield management is the process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profits from a fixed, perishable resource (such as airline seats or hotel room reservations).
As a specific, inventory-focusAs a specific, inventory-focused branch of Revenue Management, Yield Management involves strategic control of inventory to sell it to the right customer at the right time for the right price. This process can result in price discrimination, where a firm charges customers consuming otherwise identical goods or services a different price for doing so.
Industry Norm (Rule of Thumb)
- a. Higher than 90: Think about raising room rates
- b. Between 70 and 90: good.
- c. Between 30-70: Acceptable, but a lot of work needs to be done to bring it up
- d. Lower than 30: BAD.
9. OPERATING EFFICIENCY RATIO
Operating efficiency ratio is also known as GOP ratio and managerial efficiency ratio, measures management’s overall ability to produce profits by generating sales and controlling the operating expenses they have the most direct control.
It is a measurement of what proportion of a company's revenuIt is a measurement of what proportion of a company's revenue is left over, before taxes, after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, as interest on debt, insurance, etc.
Industry Norm (Rule of Thumb)
- a. Industry norm is between 30 to 40%
- b. Higher than 40: Very tight cost control. This may work as a good short-term strategy but it may not be a long-term strategy. Because if you have a very tight cost control, you are likely to budget too little on your operating expenditures. As a result, the quality of your product and the customer satisfaction scores are likely to decrease in the long term, which is likely to have negative impact on the demand for your product.
- c. Between 30 and 40: good.
- d. Lower than 30: Either you do not do a good job controlling your cost or your sales are low or both. Increase sales while lowering cost.
10. PROFIT MARGIN
Profit margin is a ratio of profitability calculated as net income is a ratio of profitability calculated as net income divided by revenues. It measures how much out of every dollar of sales a company actually keeps in earnings.