BUDGET

A budget may be defined as a financial or a quantitative

statement prepared prior to a defined period or time which
focuses on policies to be persuade during that period for the
purpose of attaining a given objective.
Budgeting refers to formulation of plans for future activities
which lays down carefully constructed objectives and programs
of activity and provides yardsticks by which deviation can be
measured.
A budget is an estimate of income and expenses for a given
period of time. The departmental heads make the forecast of
their respective departments with these figures as a guide the
financial controller prepares a budget and present it to the top
management for final approval.
The format of a budget is almost like a profit and loss
statement. It is prepared for a financial year and is updated
monthly and submitted for approval at least 2-3 months before
the start of financial year. After all the income projections have
been made by the departmental head the controller reviews
them with general manager before starting to implement the
proposed budget. Once the budget is approved, each member
of the management team is obligated to abide by the budget
and be responsible to his departmental expenses to the
allocated amount.

TYPES OF BUDGET

On the basis of types of expenditure-

1. Capital budget-Make provision for all items of capital

assets, these are assets that are not normally used up in
day to day life. It is important to keep a record of purchase
 and repairs as a form of control. Equipments, machinery,
furniture and fittings etc .are typical examples of capital
expenditure.

2. Operating budget-Makes provision for all those items

which are required for day to day operations e.g.-cleaning
agents, guest supplies, salaries and wages contract
services etc.

3. Pre opening budget-Makes provision for the smooth

opening of new hotel .e.g. resources for opening parties,
advertising, generation of initial goodwill, initial cost of
employee salaries and wages etc.

On the basis of department involved-

1. Master budget-These represents the forecasted budget

for the whole organization and incorporate all incomes and
expenditures estimated for the organization.

2. Departmental budget-Each department of the hotel

forwards a budget for its estimated expenses and
revenues to the financial controller. E.g.-housekeeping
budget, F&B budget etc. Rooms division budget is the
combined budget for both front office and housekeeping.

• On the basis of flexibility of Expenditure-

1. .Fixed budget-These budget remains unchanged over a

period of time and are not related to the volume of sale
e.g. rent, insurance, depreciation etc.
2. Flexible budget-These are also pre determined budget
based on the revenue expected but differ with different
volume of sale.
ADVANTAGES OF BUDGET AND BUDGETARY CONTROL–

• Provides an overall picture of the result expected from the proposed

plan of operations.
• It serves as a guide to various executives who are responsible for the
various departments of the hotel.
• Maximizing efficiency which is achieved by avoiding wastage and loss of
manpower and materials.
• Budgetary control ensures co-ordination and central control.
• Helps to monitor performance since failure to achieve the budgeted
forecast will be a measure of the overall performance for the hotel and
its employees.

BUDGETARY CONTROL

For controlling budget, two variances of budget, revenue and

expenses are assessed. In favorable condition actual revenue
should exceed budgeted revenue and actual expenses should
be lower than the budgeted revenue.
Since housekeeping is not a revenue generating department,
responsibility of this department in achieving the financial goal
is to control the departmental expenses.
Controlling operating expenses in housekeeping-
• Effective documentation-Usage, rates and costs of all inventory items
should be documented.
• Proper scheduling of staff-Hiring of staff according to the actual
occupancy for a specified period.
• Right purchasing-To control expenses housekeeping department co
ordinates with the purchase department and decides the right quality,
 right quantity, right price, right source of supply, and right time for
purchasing.
• Efficient training and supervision-Training for new employee and training
on new methods for older employee is very helpful for controlling
expenses. Efficient training can increase the productivity and
performance standards which results decrease in housekeeping
expenses.

PLANNING OPERATIONAL BUDGET

The first step in planning the operating budget is always to forecast room
sales, which generates the revenue for operating the various departments.
Most of the expenses that each department can expect are most directly
related to room occupancy levels. This is especially true of the housekeeping
department where salaries and wages, and the usage rates for both recycled
and non-recycled inventories are a direct function of the number of occupied
rooms. The concept of “cost per occupied room” is the major tool the
executive housekeeper uses to determine the levels of expense in the
different categories. Once the executive housekeeper knows predicted
occupancy levels, expected expenses for salaries and wages, cleaning
supplies, guest supplies, laundry and other areas can be determined on the
basis of formulas that express costs in terms of ‘cost per occupied room.’ By
specifying expense levels in relation to room sales, the budget actually
expresses the level of service the hotel will be able to provide. In this regard, it
is important for department heads to report how service levels will be affected
by budget adjustments. This is especially important for the executive
housekeeper. If the top management tones down the operating budget
submitted by the executive housekeeper, the executive housekeeper should
clearly indicate what services will be eliminated and downgraded in order to
achieve the specified reductions.
The various heads of expenditure that are normally reflected in a
housekeeping operating budget are:

1. Cleaning and guest supplies

 2. Office stationery and postage
3. Tailor shop expenses
4. Small cleaning equipment like brooms and brushes
5. Salaries and wages-includes retirement, benefits, bonus, allowances,
incentives, etc.
6. Heat, light, and power-air conditioning, heating, electricity consumption
7. Repairs and maintenance
8. Pest control
9. Laundry expense
10. Horticultural expense: includes florist expense (flowers, oasis and
vases) and landscaping expense (seeds, manure, saplings and flower
pots)
11. Contract cleaning

Using the operating budget as a control tool:

An operating budget is a valuable control tool to monitor the course of
operations during a specified period. Controlling expenses in the
housekeeping department means comparing actual costs with budgeted
amounts and assessing the variances. When comparing actual and budgeted
expenses, the executive housekeeper should first determine whether the
forecasted occupancy levels were actually achieved. If the number of
occupied rooms is lower than anticipated, a corresponding decrease in the
department’s actual expenses should be expected. If occupancy levels are
higher, then there will be a corresponding increase in expenses. In either case
the expense variation will be proportioned to the variation in occupancy level.
The executive housekeeper’s ability to control housekeeping expenses will be
evaluated in terms of his/her ability to maintain the cost per occupied room
expected for each category. Small deviations between actual and budgeted
expenses can be expected and are not a cause for alarm but serious
deviations require investigation and explanation. The executive housekeeper
needs to formulate a plan to correct the deviation and get the department
back ‘on budget.’ E.g. a re-examination of staff scheduling procedures or
closer supervision of standard practices and procedures may be necessary.
Other steps might include evaluating the efficiency and costs of products
being used in the housekeeping department and exploring the alternatives.
Even if the executive housekeeper finds that the department is far ahead of
the budget it is not necessarily a cause for celebration. It may indicate a
deterioration of service levels that were built into the original budget plan. Any
serious deviation from the plan is a cause for concern and requires
explanation. Identifying and investigating such deviations on a timely basis is
one of the most valuable functions an executive housekeeper can perform in
terms of the operating budget.
Controlling expenses: It means ensuring that actual expenses are
consistent with the expected expenses forecasted by the operating budget.
There are basically four methods the executive housekeeper can use to
control housekeeping expenses.

1. Accurate record keeping: It enables the executive housekeeper to

monitor usage rates, inventory costs and variances in relation to
standard cleaning procedures.
2. Effective scheduling: It permits the executive housekeeper to control
salaries and wages and the costs related to employee benefits. The
housekeeping employees should be scheduled according to the
guidelines in the property’s staffing guide which is based on the level of
room occupancy. Thus it ensures that personnel costs stay in line with
the occupancy rates.
3. Careful training and supervision: It should not be overlooked as a
cost control measure. Effective training programmes that quickly bring
new recruits up to speed can significantly reduce the time during which
productivity is lower than the standards set for more experienced
personnel. Close and diligent supervision, as well as refresher training
can ensure that performance and productivity standards are met and
may even bring about improvements.
4. Efficient purchasing: Efficient purchasing practices afford the
executive housekeeper the greatest opportunity to control the
department expenses and to ensure that the hotel’s money is well spent
 and the maximum value is received from products purchased for use.
The executive housekeeper must set a proper ‘par’ for the various
inventories (recycled and non-recycled), and must have a proper
purchasing system with the quantities and specifications submitted to
the purchasing department. The executive housekeeper needs to
periodically re-evaluate the suitability of existing products for their
intended purposes. Alternative products should be investigated and
compared to existing products in terms of performance, durability, price
and value. By comparing the cost per occupied room achieved by
alternative products, the executive housekeeper can evaluate which
products yield greater cost savings and base purchasing decisions
accordingly.
Operating budget and income statement: An operating budget is identical
in form to an income statement. The differences are:

OPERATING BUDGET INCOME STATEMENT

It is a forecast or plan for It is a report of what has

what is to come. actually occurred.

It predicts or anticipates It expresses the actual

what the income results of operations
statement will actually during an accounting
show at the end of that period identifying revenue
period often referred to as earned and itemizing
“pro forma income expenses during that
statement”. period.

Since a statement of income reveals the bottom line-the net income for a
given period-it is one of the most important financial statements used by the
top management to evaluate the success of operations. Although the
executive housekeeper may never directly use the hotel’s statement of
income, this statement relies in part on detailed information supplied by the
housekeeping department. The revenue generated by the rooms division is
often the largest single amount produced by revenue centres within a hotel
since housekeeping is a major source of expense incurred by the rooms
division; the executive housekeeper plays an important role in the hotel’s
overall financial performance. The hotel’s statement of income shows only
summary information. More detailed information is presented by the separate
departmental income statements prepared by each revenue centre. These
departmental income statements are called schedules and are referenced on
the hotel’s statement of income. The operating budget under which the
executive housekeeper operates takes the form of monthly income statements
for the rooms division. Projected revenues and expenses for each month of
the budgeted period will represent the rooms division operational plan. The
executive housekeeper will be held accountable for controlling the expense
areas that fall within the housekeeping department’s area of responsibility. As
the budgeted period progresses, monthly income statements will be produced
that show the actual amounts alongside the amounts originally budgeted.
Checklist for preparing a budget

1. Know the present position of the hotel.

2. Review the previous year’s financial statements.
3. Look at the major sports events, festivals and holiday events for the
year ahead.
4. Check for any expansion plans, redecorating, raising standards,
increase/decrease of staff.
5. Check on the supplies needed-consider automation, new technology
and better products.
6. Take each cost heading separately and compile to form the final budget.
7. Plan for practical goals and do not over budget.
8. Take into account the inflation percentage. Prepare by looking at past
experiences, present knowledge and judgement of what is likely to
happen.
9. Identify areas which can or cannot be controlled.
10. Review wages and salaries, operating costs and expenditure that
is variable, semi-variable, and fixed.
 11. Plan with the following year’s tax policies in mind. Take into
consideration any new laws or regulations or policies that may come
into effect.
12. Prepare throughout the year for the next year’s budget noting
changes and scope for improvement.
13. Make decisions of what is more cost-effective:
• Part time or full time staff.
• Cost of staff and how often they may be required.
• The cost of servicing a room i.e. overtime versus extra staff.
• Contract cleaners versus own staff.
• In-house laundry against contract.
• Use of cleaning agents as per dilution rates.

Using the operating budget as a control tool:

An operating budget is a valuable control tool to monitor the course of

operations during a specified period. Controlling expenses in the
housekeeping department means comparing actual costs with budgeted
amounts and assessing the variances. When comparing actual and budgeted
expenses, the executive housekeeper should first determine whether the
forecasted occupancy levels were actually achieved. If the number of
occupied rooms is lower than anticipated, a corresponding decrease in the
department’s actual expenses should be expected. If occupancy levels are
higher, then there will be a corresponding increase in expenses. In either case
the expense variation will be proportioned to the variation in occupancy level.
The executive housekeeper’s ability to control housekeeping expenses will be
evaluated in terms of his/her ability to maintain the cost per occupied room
expected for each category. Small deviations between actual and budgeted
expenses can be expected and are not a cause for alarm but serious
deviations require investigation and explanation. The executive housekeeper
needs to formulate a plan to correct the deviation and get the department
back ‘on budget.’ E.g. a re-examination of staff scheduling procedures or
closer supervision of standard practices and procedures may be necessary.
Other steps might include evaluating the efficiency and costs of products
being used in the housekeeping department and exploring the alternatives.
Even if the executive housekeeper finds that the department is far ahead of
the budget it is not necessarily a cause for celebration. It may indicate a
deterioration of service levels that were built into the original budget plan. Any
serious deviation from the plan is a cause for concern and requires
explanation. Identifying and investigating such deviations on a timely basis is
one of the most valuable functions an executive housekeeper can perform in
terms of the operating budget.
Controlling expenses: It means ensuring that actual expenses are
consistent with the expected expenses forecasted by the operating budget.
There are basically four methods the executive housekeeper can use to
control housekeeping expenses.

1. Accurate record keeping: It enables the executive housekeeper to

monitor usage rates, inventory costs and variances in relation to
standard cleaning procedures.
2. Effective scheduling: It permits the executive housekeeper to control
salaries and wages and the costs related to employee benefits. The
housekeeping employees should be scheduled according to the
guidelines in the property’s staffing guide which is based on the level of
room occupancy. Thus it ensures that personnel costs stay in line with
the occupancy rates.
3. Careful training and supervision: It should not be overlooked as a
cost control measure. Effective training programmes that quickly bring
new recruits up to speed can significantly reduce the time during which
productivity is lower than the standards set for more experienced
personnel. Close and diligent supervision, as well as refresher training
can ensure that performance and productivity standards are met and
may even bring about improvements.
4. Efficient purchasing: Efficient purchasing practices afford the
executive housekeeper the greatest opportunity to control the
department expenses and to ensure that the hotel’s money is well spent
 and the maximum value is received from products purchased for use.
The executive housekeeper must set a proper ‘par’ for the various
inventories (recycled and non-recycled), and must have a proper
purchasing system with the quantities and specifications submitted to
the purchasing department. The executive housekeeper needs to
periodically re-evaluate the suitability of existing products for their
intended purposes. Alternative products should be investigated and
compared to existing products in terms of performance, durability, price
and value. By comparing the cost per occupied room achieved by
alternative products, the executive housekeeper can evaluate which
products yield greater cost savings and base purchasing decisions
accordingly.
Operating budget and income statement: An operating budget is identical
in form to an income statement. The differences are:

OPERATING BUDGET INCOME STATEMENT

It is a forecast or plan for It is a report of what has

what is to come. actually occurred.

It predicts or anticipates It expresses the actual

what the income results of operations
statement will actually during an accounting
show at the end of that period identifying revenue
period often referred to as earned and itemizing
“pro forma income expenses during that
statement”. period.

Since a statement of income reveals the bottom line-the net income for a
given period-it is one of the most important financial statements used by the
top management to evaluate the success of operations. Although the
executive housekeeper may never directly use the hotel’s statement of
income, this statement relies in part on detailed information supplied by the
housekeeping department. The revenue generated by the rooms division is
often the largest single amount produced by revenue centres within a hotel
since housekeeping is a major source of expense incurred by the rooms
division; the executive housekeeper plays an important role in the hotel’s
overall financial performance. The hotel’s statement of income shows only
summary information. More detailed information is presented by the separate
departmental income statements prepared by each revenue centre. These
departmental income statements are called schedules and are referenced on
the hotel’s statement of income. The operating budget under which the
executive housekeeper operates takes the form of monthly income statements
for the rooms division. Projected revenues and expenses for each month of
the budgeted period will represent the rooms division operational plan. The
executive housekeeper will be held accountable for controlling the expense
areas that fall within the housekeeping department’s area of responsibility. As
the budgeted period progresses, monthly income statements will be produced
that show the actual amounts alongside the amounts originally budgeted.
Checklist for preparing a budget

1. Know the present position of the hotel.

2. Review the previous year’s financial statements.
3. Look at the major sports events, festivals and holiday events for the
year ahead.
4. Check for any expansion plans, redecorating, raising standards,
increase/decrease of staff.
5. Check on the supplies needed-consider automation, new technology
and better products.
6. Take each cost heading separately and compile to form the final budget.
7. Plan for practical goals and do not over budget.
8. Take into account the inflation percentage. Prepare by looking at past
experiences, present knowledge and judgement of what is likely to
happen.
9. Identify areas which can or cannot be controlled.
10. Review wages and salaries, operating costs and expenditure that
is variable, semi-variable, and fixed.
11. Plan with the following year’s tax policies in mind. Take into
consideration any new laws or regulations or policies that may come
into effect.
12. Prepare throughout the year for the next year’s budget noting
changes and scope for improvement.
13. Make decisions of what is more cost-effective:
• Part time or full time staff.
• Cost of staff and how often they may be required.
• The cost of servicing a room i.e. overtime versus extra staff.
• Contract cleaners versus own staff.
• In-house laundry against contract.
• Use of cleaning agents as per dilution rates.