Accounting and financial management

Accounting and Financial Management To Samantha and Lillian Accounting and Financial Management Developments in the international hospitality industry Edited by Peter Harris and Marco Mongiello AMSTERDAM • BOSTON • HEIDELBERG • LONDON • NEW YORK • OXFORD PARIS • SAN DIEGO • SAN FRANCISCO • SINGAPORE • SYDNEY • TOKYO Butterworth-Heinemann is an imprint of Elsevier Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 30 Corporate Drive, Suite 400, Burlington, MA 01803 First edition 2006 Copyright © 2006, Elsevier Ltd All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone (ϩ44) (0) 1865 843830; fax (ϩ44) (0) 1865 853333; email: permissions@elsevier.com Alternatively you can submit your request online by visiting the Elsevier web site at http://elsevier.com/locate/permissions, and selecting Obtaining permission to use Elsevier material British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Control Number: 2005937837 ISBN–13: 978-0-7506-6729-6 ISBN–10: 0-7506-6729-X For information on all Butterworth-Heinemann publications visit our web site at http://books.elsevier.com Typeset by Macmillan India, Bangalore Printed and bound in Great Britain by MPG Books Ltd, Cornwall 06 07 08 09 10 11 10 Contents Foreword vii Preface ix Editors xi Contributors xii Part 1: Performance Management Performance measurement in independent hotels Mine Haktanir Productivity in the restaurant industry: how to measure productivity and improve process management Pekka Heikkilä and Timo Saranpää Performance measurement in the international hospitality industry Helen Atkinson Budgetary practice within hospitality Tracy Jones Benchmarking: measuring financial success in the hotel industry Agnes Lee DeFranco Developing a benchmarking methodology for the hotel industry Peter Harris and Marco Mongiello Part 2: Information Management The profit planning framework: applying marginal accounting techniques to hospitality services Peter Harris Cross-border reporting for performance evaluation Ian Graham 22 46 71 87 105 135 137 151 v ● ● ● ● Contents Cost analysis in the hotel industry: an ABC customer focused approach and the case of joint revenues Paolo Collini 10 Customer profitability accounting in the context of hotels Vira Krakhmal 11 Room rate pricing: a resource-advantage perspective Jean-Pierre I van der Rest 12 The relevance of restaurant accounting systems Tommy D Andersson 13 Accounting for the environment: reflecting environmental information in accounting systems Rebecca Hawkins 14 Hotel unit financial management: does it have a future? Cathy Burgess Part 3: Asset Management 15 Hotel asset management: will a North American phenomenon expand internationally? Paul Beals 16 Hotel asset management: European principles and practice Geoff Parkinson 17 A management accounting perspective on hotel outsourcing Dawne Lamminmaki 18 Sale and leaseback transactions in the hospitality industry Charles Whittaker 19 Hospitality firm risk determinants and value enhancement Zheng Gu 20 Investment appraisal issues arising in hotels governed by a management contract Chris Guilding 21 Autonomy and control in managing network organizations: the case of multinational hotel companies Marco Mongiello and Peter Harris 22 Career directions in financial management in the hospitality industry Howard Field Index ● ● ● ● vi 165 188 211 240 262 282 299 301 326 341 362 383 400 423 446 463 Foreword As a senior executive of a fast growing hotel company in Europe, Middle East and Africa, with hotel operations in some fifty countries, I know how difficult it is to find the time to keep track of new research and development in the areas of accounting and financial management within our industry Accounting and Financial Management: Developments in the International Hospitality Industry edited by Peter Harris and Marco Mongiello is an effective and indispensable reference that helps me and others like me keep abreast of research and development in our industry In addition, I believe this book is of invaluable importance to those studying at different levels of education, accountants in the hospitality business and advisors to the hospitality industry This book is not only made attractive by the range of international authors and the combination of well-written chapters, but also by the demonstration of how accounting and financial management interrelates and contributes to the broad spectrum of business activities Written by industry mavens who have drawn on their practical experience from different areas of the hospitality industry and academic researchers, these chapters are recommended reading for anyone interested in the hospitality industry Part One of the book deals with performance measurement and includes six interesting chapters about various aspects of performance measurement in the hospitality industry This section is loaded with useful information including benchmarking and measuring productivity in the restaurant industry In my view, the hospitality business is well structured for benchmarking and vii ● ● ● ● Foreword for measuring financial success at all levels of operation Part One of the book is a true goldmine of knowledge for those seeking advice on performance management and plenty of references for those wanting more information The focus of Part Two of the book is information management, a highly relevant subject for all of us Most of us struggle with the Uniform System of Accounts and have been doing so for a very long time This section of the book offers several solutions to overcome some of the fundamental weaknesses in the Uniform System and complements the accounting standard/chart of accounts in a meaningful and manageable way Implementing some of these solutions in our operations is a must if we want to manage our organizations efficiently and effectively For instance, drawing on the expertise of Peter Harris, we ourselves at Rezidor SAS Hospitality have engaged with marginal analysis and implemented The Profit Planning Framework in our organization, an indispensable tool that helps us understand the behaviour of fixed and variable costs in operations Asset Management is the theme of Part Three of the book which emphasizes a number of longer-term issues and techniques The chapters in this section vary from sale and leaseback transactions, to investment appraisals and to career development for finance professionals in the industry This information is highly pertinent and important to our business and for our professional growth The insight of the editors, Professor Peter Harris and Dr Marco Mongiello, together with the other contributors, makes this book a significant contribution that will influence the way we develop accounting and financial management in the hospitality industry in the future Knut Kleiven Deputy President & Chief Financial Officer Rezidor SAS Hospitality ● ● ● ● viii Preface The main purpose of this book is to present new and interesting research and developments in the field of accounting and financial management as they relate to the work of managing enterprises and organizations in the international hospitality industry Although the focus is on hotels, the content can readily be interpreted in a broader context Many hospitality organizations contain hotel services components such as the provision of rooms, food and beverage facilities and, therefore, the examples and illustrations can be related to restaurants, licensed house management, hospital and university services, clubs and so on The content comprises state-of-the-art contributions from a wide range of academics and practitioners engaged in hospitality activities around the globe including researchers, university lecturers, practising accountants, professional consultants and senior managers and executives associated with the international hospitality industry in the UK and abroad The material is drawn from their work and experience and relates directly to the management of hospitality undertakings Most books written for the hospitality industry tend to concentrate on accounting and financial management techniques in a theoretical context In contrast, this work presents new findings and developments drawn from a combination of live fieldwork, practical experience and academic research In this context it is anticipated the readership will include: practising managers and financial controllers in hospitality organizations, professional accountants and consultants, postgraduate candidates researching for PhDs and studying for master’s degrees in hospitality and ix ● ● ● ● Accounting and Financial Management Chartered Association of Certified Accountants www.accaglobal.com As with the other associations, there is a range of available certificates and intermediate qualifications but, for the Chartered Certified Accountant level, there are initial age and educational level requirements The latter are similar to those of CIMA The full qualification involves a range of exams split into three parts and with up to 14 papers to be completed At least three years of supervised, relevant work experience is also a requirement The timescale for completion is flexible within 10 years of registering as a student and three to four years would be a norm The ACCA qualification is sometimes used for those who wish to follow a public practice career route, which requires a period in a professional firm to achieve certification Chartered Accountant www.icaew.co.uk (The Institute of Chartered Accountants in England & Wales (ICAEW) covers only England & Wales Scotland and Ireland have their own institutes, with similar standards) Training for the Associate Chartered Accountant (ACA) qualification can start with A levels, but generally requires any degree Other professional accounting qualifications (e.g AAT) can give exemptions and reduce the time needed to qualify A training contract is an essential part of ACA work experience requirements This will be for a minimum of three years and not more than five years A contract is commonly provided by professional firms, although there are provisions for other types of employer to provide recognized contracts Exams are in two stages, professional and advanced They are designed to test ability to perform as a professional rather than to show how well facts have been learned They are considered to be the toughest professional exams Employers are responsible for establishing with the students a programme which balances the work experience with the need for studying and exams While ACA is often considered to be the senior of the professional accounting qualifications, it is also one where students may have little or no commercial experience while studying This can result in some positions in the hospitality industry being difficult or impossible to secure for those who have no prior exposure to the sector On the other hand, some employers give preference to ACA qualified accountants who then have to deal with the steep learning curve of both entering a commercial environment and the peculiarities of the twenty-four hour, seven-day week service sector ● ● ● ● 460 Career directions in financial management in the hospitality industry Hospitality Accountant www.baha-uk.org The British Association of Hospitality Accountants (BAHA) has an educational programme which is aimed at providing career development for trainees and further development for more experienced managers within the sector The BAHA Education & Training Programme is a unique course specifically aimed at developing assistant/financial controllers who wish to further their careers within the hospitality industry Delivered by the University of Bournemouth, it is designed to enable students to work full time while they study, using a range of resources both on-line and textbook based Course assessments focus significantly on solving work-based problems This means the learner has the opportunity to make a real difference in the workplace, dealing with issues relevant to the business This approach has been well received by employers, many of whom use the course as part of the ongoing development of their finance specialists Benefits of the BAHA Education and Training Programme include: • extensive course materials written by experienced educators specifically to match the needs of hospitality industry finance specialists • students in the UK and abroad have access to tutor support via e-mail or telephone • access is available to students to a range of full text manage- ment and accounting journals through the university’s on-line library services • successful completion of the course awards Associate member- ship status of BAHA and eligibility to use the designated letters ABHA (cert) • outstanding students at each stage are honoured by BAHA • successful students are awarded exemptions from certain CIMA Foundation level exams BAHA’s Professional Education Programme (Sharing Excellence in Hospitality Finance) is a course designed for financial controllers and assistants, auditors, consultants, research analysts and senior hospitality managers It is open to all Associates of BAHA or those eligible for the Associate membership status Successful completion of the course provides CPD points leading to Fellowship status of BAHA membership and the course can also be used to build CPD points for other professional accounting bodies 461 ● ● ● ● Accounting and Financial Management The programme comprises short group workshop sessions held in different UK locations, supported by secure access to a dedicated on-line community with interactive resources, tutors and case studies hosted by arena4finance ltd Each workshop is focused on a specific theme brought to life by a variety of relevant experienced speakers, facilitators and educationalists They comprise sessions of presentations, case study activities and project work Participants are expected to complete a project, with tutor support, based on the needs of the businesses, which will provide direct benefit to employers ● ● ● ● 462 Index Accor Hotels: environmental programme, 268–73 benchmarking, 270 monitoring, 270 partnerships, 270–73 policy, 269–70 staff awareness and training, 273 targeted investments, 273 Social and Environmental Report, 264 Accounting: changes in, 283–5 custodial systems, 189 customer profitability, 188–211 decision-oriented, 190 environmental, 262–81 corporate routes, 264–5 government initiatives, 279–80 implementation of programmes, 268–78 reasons for, 265–8 hotels, 286–7 information systems, 189–91 management, 71–86 performance, 189–90 professional qualifications, 287–8, 293–4, 459–62 restaurants, 240–61 see also financial management Acquaintances, 205 Activities’ value, 182–6 Activity-based costing, 110, 166–7, 195–201, 248 fixed overheads, 199 improved service delivery, 199–200 market segment revenue, 200–201 output, 198 transient guests, 198–9 unpredictability of service requests, 198 Added value, 194 Aesthetics, 250, 256 Appraised value, 316 Arousal, optimal level, 242 Asset management: acquiring and absorbing assets, 307–8 conclusion of investment, 309–10 cost of, 318–19 definition, 302–3 fiduciary, 302–3 holdings, 303 hotels, 301–25 European principles, 326–40 international assets, 319–23 monitoring performance and objectives, 308–9 463 ● ● ● ● Index Asset management: (contd) North American origins, 310–15 changes in lodging industry, 313–14 changing ownership, 312–13 increasing complexity of lodging industry, 314–15 owner-operator misalignment, 314 optimization of, 303 ownership, 303 objectives of, 305–7 taxonomy, 304–10 value of, 318–19 Asset managers, 310 performance measurement, 315–17 appraised value, 316 changes in cash flow, 316 changes in RevPAR, 317 payback measures, 317 return on assets, 316 return on investment, 316–17 understanding ownership’s investment criteria, 315 responsibilities of, 311 role of, 311 operations, 336–40 pre-opening activities, 333–6 Assets: acquiring and absorbing, 307–8 control of, 377–8 international, 319–23 loss of, 352–3 return on, 316 single use, 378 Association of Accounting Technicians, 459 Autonomy and control, 423–43 Average daily rate, 117 Bad planning, 42 Balanced scorecard, 4, 38–41, 52–5 Benchaction, 102–3 Benchgrafting, 108 Benchlearning, 101–2 ● ● ● ● 464 Benchmarking, 87–104, 105–33, 270 absolute and relative statistics, 97–9 comparative analysis, 107–9 definitions, 112–15 food and beverages, 131, 133 per available room, 128–9 percentage of total revenue, 127 performance measurement suitability, 109–12 performance measurement viability, 124 rooms, 130, 132 technique, 115–18 customised reports, 97 data collection methods, 95–6 definition of, 88 environmental programmes, 270, 275 example, 118–24 limitations of, 95 making reports, 94–101 in management literature, 88–9 metrics, 99–101 process, 89–90 sampling technique and sample size, 96–7 statistical reports, 90–94 variances, 79–80 Benchmarking: An International Journal, 10 Best Western Hotels, 430 Beta-determinants, 389–96 casino industry, 390–1 hotel REITs, 391–4 restaurants, 394–6 Beyond Budgeting Round Table, 83 Bottom-up budgeting, 77–8 Break even occupancy, 147–8 British Association of Hospitality Accountants, 283 51 Buckingham Gate, 275–8 Index Budgeting, 71–86 benchmarks for variances, 79–80 bottom-up, 77–8 context analysis of textbooks, 74–5 for experience, 250–52 flexible budgets, 80 hospitality context, 74 human face of, 81–3 industry practice, 75 information used in setting, 76 living without, 83–4 as performance measurement, 80 reasons for, 75–6 reforecast, 79 research, 73–4 review of procedures, 80–81 short-term, 78–9 top-down, 77–8 traditional, 250–52 zero-based, 78 Bundle purchasing, 167–8, 174 Bundling strategy, 173 Business orientation, 144–7 Capability: outside-in, 224 spanning, 224, 225, 227–8 Capital asset pricing model, 384–5 Career directions, 446–62 Cash flow changes, 316 Casino industry, 390–1 Centralization, 284, 289–91 Champions, 205 Chartered Accountant, 460 Chartered Accountants in England and Wales, 84 Chartered Association of Certified Accountants, 460 Chartered Institute of Management Accountants, 84, 459 Choice Hotels, sale and leaseback transactions, 363–4 Climate Change Levy, 266 Collective Agreement, 36–8 Comfort level, 242 Common-size financial statement analysis, 113 Company performance indicators’ profile, 432–3, 439 Comparative advantage, 226 Comparative analysis, 107–9 definitions, 112–15 food and beverages, 131, 133 per available room, 128–9 percentage of total revenue, 127 performance measurement: suitability for, 109–12 viability for, 124 rooms, 130, 132 technique, 115–18 data analysis and presentation, 116–18 methodology, 116 sample, 116 Compass, 51 Competences, 227–8 Competition, 24, 49, 220 market induced, 347 position matrix, 221 resource-advantage, 220, 222–5 Competitive advantage, 344–6 Complementary services, 172 Components strategy, 173 Content analysis, 74–5 Contract catering, 49–50 Control, 423–43 of assets, 377–8 loss of, 352–3 management, 252–5 productivity, 31–8 Coordination costs, 353 Core activities, 284, 344–5 Core business, 368–9 Corporate directives, 429–30 Corporate environmental accounting: corporate social responsibility programmes, 265 environmental programmes, 264–5 ethical programmes, 265 465 ● ● ● ● Index Corporate social responsibility programmes, 265 Cost analysis, 165–87 customer profitability analysis, 174–86 activities’ value, 182–6 joint revenues, 175–7 profit analysis scheme, 177 short-term and long-term analysis, 177–8 division based approach, 166–74 Cost behaviour analysis, 142–3 Cost centre management, 27 Cost savings, 348–9 Cost structure, 144–7 Cost-based pricing, 241, 255–7 Cost-volume analysis, 33–6 Cost-volume-profit, 141, 144–9 break even, profits and losses, 147–8 cost structure and business orientation, 144–7 profit multiplier profile, 148–9 Costs: activity-based, 110, 166–7, 195–201, 248 fixed overheads, 199 improved service delivery, 199–200 market segment revenue, 200–201 output, 109 transient guests, 198–9 unpredictability of service requests, 198 asset management, 318–19 coordination, 353 customer-related, 193–5 added value, 194 marketing, 194 service costs, 194–5 energy, 266 labour, 36–8, 249 marketing, 194 outsourcing, 344, 349–55 raw materials, 26 ● ● ● ● 466 service, 194–5 social, 351 transaction, 349–51 water/waste water treatment, 266 Cross-border reporting, 151–64 enabling technologies, 152–4 functional currency, 154–7 investment appraisal, 163–4 key performance indicators, 154 simplification of complexity, 158–61 acting globally and thinking locally, 160–1 reduction in effective rate of tax, 159–60 Culinary finesse, 250, 256 Currency, 154–7 Custodial accounting system, 189 Customer base analysis, 203–8 Customer profitability accounting, 188–211 accounting information systems, 189–91 activity-based costing, 195–201 customer base analysis, 203–8 customer profitability information, 201–3 importance of customer-related costs, 193–5 yield management approach, 191–2 Customer profitability analysis, 174–86 activities’ value, 182–6 joint revenues, 175–7 profit analysis scheme, 177 short-term and long-term analysis, 177–8 Customer relation management, 177 Customer value, 246 Customer-related costs, 193–5 added value, 194 marketing, 194 service costs, 194–5 Customised reports, 97 Index De Vere Hotels, sale and leaseback transactions, 364 Debt leverage, 387–8 Decentralization, 425 Decision-oriented accounting, 190 Deficient marketing/development, 43 Delegation, lack of, 43 Demanders, 205 Dividend payout, 388–9 Duality, 370–71 DuPont, 51 Earnings before interest and taxes, 327, 332, 386 Economic Development Committee for Hotels and Catering, 247 Economic models, 211–12 Ego-trip ownership, 414–15 Energy costs, 266 Environmental accounting, 262–81 corporate routes: corporate social responsibility programmes, 265 environmental programmes, 264–5 ethical programmes, 265 government initiatives, 279–80 implementing programmes: 51 Buckingham Gate, 275–8 Accor Hotels, 268–73 Inter-Continental Hotels and Resorts, 274–5 reasons for, 265–8 Environmental programmes, 264–5 Equi-finality, 109 Ernst & Young, 90, 95, 112 Ethical programmes, 265 Europe, hotel asset management, 326–40 Expenses, 115 Family ownership, 13–14 Fiduciary asset management, 302–3 Financial management, 283, 448–50 hotel management structures, 450 hotel ownership and operating structures, 449–50 scope of, 451 see also accounting Financial managers: job description, 454–8 skills and qualifications, 451–3, 459–62 Financial measures of performance, 5–7 Firm size, 389 Firm value, 384 Fixed costs, 370 Fixed overheads, 199 Flexibility, 347–8 Flexible budgets, 80, 143–4 Food and beverages, 131, 133 Food quality, 250 Franchise licences, 451 Full value sales, 378 Functional currency, 154–7 Goal incongruence, 426 GOPPAR, 100 Gross operating income, 148 Gross operating profit, 114, 147 Growth, 389 too rapid, 42 Hilton Hotels: Environmental Policy, 264 sale and leaseback transactions, 363–4, 366–7 Holdings, 303 Hospitable Climates programme, 277, 280 Hospitality Accountant, 461–2 Hospitality Asset Managers Association, 314 Hospitality industry: budgeting, 71–86 characteristics and developments, 48–51 international, 46–70 467 ● ● ● ● Index Hospitality industry: (contd) nature and characteristics, 48–50 performance measurement, 8–10, 59–64 profit planning, 138–9 recent trends, 50–51 risk determinants and value enhancement, 383–99 beta-affecting variables, 389–96 debt leverage, 387–8 dividend payout, 388–9 firm size, 389 growth, 389 liquidity, 387 operating efficiency, 388 profitability, 388 relevant risk for firm valuation, 384–6 risk-return trade-off and firm value, 384 variables affecting systematic risk, 386–7 Hotel & Catering International Management Association, 270, 279 Hotel Asset Management: Principles and Practices, 304 Hotel companies, 371–4 Hotel unit financial management, 282–97 accounting and management, 285–93 changes in accounting, 283–5 need for professional qualifications, 293–4 Hotels: accounting, 286–7 asset management, 301–25 European principles, 326–40 benchmarking, 87–104, 105–30 break even occupancy, 147–8 core business, 368–9 cost analysis, 165–87 customer profitability analysis, 174–86 division based approach, 166–74 ● ● ● ● 468 customer profitability accounting, 188–211 accounting information systems, 189–91 activity-based costing, 195–201 customer base analysis, 203–8 customer profitability information, 201–3 importance of customer-related costs, 193–5 yield management approach, 191–2 duality, 370–71 fixed costs, 370 independent: family involvement, 13–14 performance measurement, 10–18 investment appraisal, 400–22 location, 367–8 management contract, 402–5 management structures, 450 market valuation, 371 multinational companies, 423–43 operations, 336–40 outsourcing, 284, 289–91, 341–61, 372 commentary, 342–4 costs and benefits, 344–55 long-term oriented financial analyses, 355–6 ownership and operating structures, 450–51 pre-opening activities, 333–6 profit planning, 139–40 reasons for investment in, 328–32 remotely-owned, 14–16 sale and leaseback transactions, 362–82 differences from other users, 367–71 drivers, 371–9 sales price index, 329 volatility of earnings, 370 HVS International, 90 Index Improved service delivery, 199–200 In-house skills, loss of, 354 In-sourcing see centralization Increased unit output, 31 Independent hotels: family involvement, 13–14 performance measurement, 10–18 Intellectual needs, 243 Inter-Continental Hotels and Resorts, 274–5 Intercontinental Hotel Group, 368 balance sheet, 369 Internal Revenue Code, 305 International assets, 319–23 International hospitality, 46–70 International Hotels Environment Initiative, 264 International Tourism Partnership, 263, 264 Internet, 152 Inventory, 34 Investment appraisal, 163–4, 400–22 field study findings, 409–18 ego-trip ownership, 414–15 investment project initiation, 413–14 political factors, 416–18 ranking of significant factors, 409–13 management contract, 402–5 research design, 405–9 Investors, 374–9 control of assets, 377–8 forms of transactions, 375 full value sales, 378 management contracts, 377 required rate of return, 383–4 shared ownership, 377 single use assets, 378 spread of risk, 378–9 stability of income, 375–6 upgrade investments, 376–7 variable rents, 376 Jarvis Hotels, sale and leaseback transactions, 363–4 Joint revenues, 175–7 Joint ventures, 451 Key performance indicators, 154 KPMG Peat Marwick, 52 Labour costs in restaurants, 36–8, 249 Liquidity, 387 Location, 367–8 Long-term analysis, 177–8 Long-term oriented financial analyses, 355–6 Loss of control, 352–3 Management accounting, 71–86 historical context, 72–3 Management by objectives, 429 Management by values, 428 Management contract: investment appraisal, 402–5 investors, 377 Management control, 252–5 Market induced competition, 347 Market segment revenue, 200–201 Market valuation, 371 Marketing: costs, 194 deficient, 43 strategic, 219–22 Marriott Hotels, sale and leaseback transactions, 367 Meal experiences, 241–6 customer value of, 243–6 management control, 252–5 psychological model of well-being, 241–3 Meridien Hotels, 330 Minimal network, 426 Modern portfolio theory, 303 Monetary sacrifice, 213 Motivation, lack of, 42 Multinational hotel companies, 423–43 469 ● ● ● ● Index Net operating income, 316 Net profit percentage, 24–5 Network organizations, 423–43 Networked enterprises, 152–3 Open systems, 152 Open Travel Alliance standards, 152 Operating efficiency, 388 Operating and financial reviews, 65 Operational factors, 7–8 Operational key figures, 31–3 Operational profitability, 30 Optimal level of arousal, 242, 253 Optimum gross profit, 33 Outside-in capability, 224 Outsourcing, 284, 289–91, 341–61, 372 benefits, 344–9 competitive advantage and focus on core activities, 344–5 cost savings, 348–9 flexibility, 347–8 market induced competition, 347 specialization, 345–7 commentary, 342–4 costs of, 344, 349–55 coordination costs, 353 evaluation and performance monitoring, 353–4 increased risks, 354–5 loss of control, 352–3 loss of in-house skills, 354 social costs, 351 transaction costs, 349–51 long-term oriented financial analyses, 355–6 Over-diversification, 42 Owner operated units, 450 Owner-operator misalignment, 314 Ownership, 303 changes in, 312–13 ego-trip, 414–15 family, 13–14 investment criteria, 315 objectives of, 305–7 shared, 377 ● ● ● ● 470 Partnerships, 250, 270–3 Payback, 317 Per available room, 114, 128–9 Perceived quality, 214–15 Perceived room price, 214–15 Percentage of total revenue, 127 Performance accounting, 189–90 Performance ambiguity, 426 Performance Clusters, 52 Performance guarantees, 451 Performance indicators, 426–7 Performance measurement: asset managers, 315–17 appraised value, 316 changes in cash flow, 316 changes in RevPAR, 317 payback measures, 317 return on assets, 316 return on investment, 316–17 understanding ownership’s investment criteria, 315 budgeting as, 80 comparative analysis, 107–9 cross-border reporting, 151–64 definition, 4–5 financial, 5–7 hospitality industry, 8–10, 59–64 independent hotels, 10–18 international hospitality, 46–70 operational factors, 7–8 rationale for change, 46–8 Performance measurement frameworks, 51–2 balanced scorecard, 4, 38–41, 52–5 comparison and critique, 57–8 implementation experience and problems, 58–9 performance prism, 52, 56–7 results and determinants model, 52, 55–6 Performance monitoring, 308–9 costs, 353–4 Performance prism, 52, 56–7 Performance pyramid, 52 PKF Hospitality Research, 91, 94 Price discretion, 216–17, 223 Index Pricing, 213–15 cost-based, 241, 255–7 experience, 255–7 fine-tuning, 231–2 learning, 231–2 negotiating and explaining, 232 room rate see room rate pricing Pricing policy, 229–32 Pricing strategy, 229–32 Principal/agent problem, 426–7 Private Funding Initiative, 363 Productivity, 28–9 and economy, 29 hindrances to, 41–4 bad planning and indistinct business ideal, 42 deficient marketing/ development, 43 lack of delegation and focus, 43 lack of motivation, 42 too much diversity, 42 too rapid growth, 43 weak management, 43 restaurant industry, 22–45 Productivity control, 31–8 balanced scorecard, 38–41 cost-volume analysis, 33–6 operational key figures, 31–3 Professional qualifications, 287–8, 293–4 Profit, 115, 147–8 benchmarking, 101–3 gross operating, 114, 147 net percentage, 24–5 optimum gross, 33 Profit analysis, 177 Profit multiplier profile, 148–9 Profit planning, 137–50, 138–9 application of, 141–2 cost behaviour analysis, 142–3 cost-volume-profit, 141, 144–9 break even, profits and losses, 147–8 cost structure and business orientation, 144–7 profit multiplier profile, 148–9 flexible budgets, 143–4 framework development, 140–4 hospitality services, 138–9 hotel accounting systems, 139–40 Profit sensitivity analysis, 149 Profitability, 6, 30, 388 customer, 188–211 elements of, 27–8 operational, 30 restaurant industry, 23 Profitability analysis, 174–86 Psychological needs, 243 Punch list, 336 Quick dip approach, 110 R-A see resource-advantage Radisson Hotels, Responsible Business Programme, 264 Rank Xerox, 88 Raw materials: cost, 26 use by product group, 35 Real estate investment trusts, 305–6 Reducing costs, 31 Reforecasting, 79 Regulatory compliance, 267 REITs see real estate investment trusts Relational resources, 227–8 Relevant risk for firm valuation, 384–6 Remotely-owned hotels, 14–16 Reports: cross-border, 151–64 enabling technologies, 152–4 functional currency, 154–7 investment appraisal, 163–4 key performance indicators, 154 simplification of complexity, 158–61 customised, 97 making, 94–101 statistical, 90–4 Reputation management, 267–8 Required rate of return, 383–4 471 ● ● ● ● Index Resource-advantage competition, 220, 222–5 Resources: relational, 227–8 tangible, 226, 227–8 Restaurant accounting systems, 240–61 customer experiences, 249–57 traditional budgeting versus budgeting for experiences, 250–52 traditional cost-based pricing versus experience pricing, 255–7 traditional management control versus management control of meal experience, 252–5 meal experiences, 241–6 customer value of, 243–6 psychological model of wellbeing, 241–3 research, 246–9 Restaurants: beta-determinants, 394–6 hindrances to productivity, 41–4 bad planning and indistinct business ideal, 42 deficient marketing/ development, 43 lack of delegation and focus, 43 lack of motivation, 42 too much diversity, 42 too rapid growth, 43 weak management, 43 productivity, 22–45, 28–9 productivity control, 31–8 profitability, 23 special characteristics: constant need for renewal, 27 continuous need for investment, 26 cost centre management, 27 cost of raw materials, 26 customers’ on-going interest, 26 intensive competition, 24 long opening hours, 25–6 ● ● ● ● 472 low net profit percentage, 24–5 seasonality, 25–6 staff management, 36–8 wrong investment decisions, 44 high fixed costs, 44 weak economic control, 44 Results and determinants model, 52, 55–6 Retail price index, 328 Return: on assets, 316 on capital employed, 30 on investment, 60, 316–17 Revenue, 115 RevPAR, 100, 114, 162 changes in, 316 Rewarding, Risk: for firm valuation, 384–6 increased, 354–5 spread of, 378–9 systematic, variables affecting, 386–7 Risk determinants and value enhancement, 383–99 beta-affecting variables, 389–96 debt leverage, 387–8 dividend payout, 388–9 firm size, 389 growth, 389 liquidity, 387 operating efficiency, 388 profitability, 388 relevant risk for firm valuation, 384–6 risk-return trade-off and firm value, 384 variables affecting systematic risk, 386–7 Risk-return trade-off, 384 Room division, 130, 132 Room rate pricing, 211–39 capability, 225–9 conceptual framework, 215–17 nature of price, 213–15 policy, strategy and support, 229–32 Index in R-A theory, 222–5 strategic marketing, 219–22 yield management, 217–19 Sale and leaseback transactions, 362–82 differences between hotel industry and others, 367–71 core business, 368–9 duality, 370–71 high level of fixed costs, 370 location, 367–8 market valuation, 371 specificity, 369–70 volatility of earnings, 370 drivers: hotel companies, 371–4 investors, 374–9 scope of, 366–7 Scattergraph method, 143 Seasonal variations, 25–6 Service costs, 194–5 Service requests, unpredictability of, 198 Shared ownership, 377 Short terminism, Short-term analysis, 177–8 Short-term budgeting, 78–9 Single use assets, 378 Small business units, 52 Small and medium enterprises, 48 Smith Travel Research, 91 Social atmosphere, 245 Social costs, 351 Social needs, 243 Spanning capability, 224, 225, 227–8 Specialization, 345–7 Spread of risk, 378–9 Stability of income, 375–6 Staff: awareness, 273 Collective Agreement, 36–8 costs, 36–8, 249 hotels: career directions, 446–62 professional qualifications, 287–8, 293–4 restaurants, 36–8 training, 273, 275 Statistical cost analysis method, 143 Strategic performance management systems, 431 Strategic Quadrants, 52 Structured network, 425 Tableau de Bord, 51 Tangible resources, 226, 227–8 Target costing, 110 Targeted investments, 273, 275 Taxation, 266–7 Technical estimate method, 142 Thin client web browsing, 153 Top-down budgeting, 77–8 Traditional budgeting, 250–2 Transaction costs, 349–51 Transaction-value, 215 Transient guests, 198–9 Turnover of capital, 30 Uniform System of Accounts for the Lodging Industry, 116, 167, 189, 190, 447 Uniform System of Accounts for Restaurants, 246 Uniform System of Hotel Accounts, 59 Upgrade investments, 376–7 US, asset management, 310–15 changes in lodging industry, 313–14 changing ownership, 312–13 increasing complexity of lodging industry, 314–15 owner-operator misalignment, 314 Variable rents, 376 Virtual Hotel, benchmarking, 118–24 analysis and recommendations, 122–3 comparison, 123–4 findings, 121 technique, 120–1 Volatility of earnings, 370 473 ● ● ● ● Index Waste disposal, 267 Water/waste water treatment costs, 266 Weak management, 43 Weighted average cost of capital, 164 Weighted contribution margin percentage, 147 Well-being, psychological model, 241–3 Whitbread Hotels: Corporate Responsibility Programme, 264 ● ● ● ● 474 sale and leaseback transactions, 364, 367 Willingness-to-pay, 243–4, 254 Work-related values, 428 Yield management, 191–2 room rate pricing, 217–19 Zero-based budgeting, 78 .. .Accounting and Financial Management To Samantha and Lillian Accounting and Financial Management Developments in the international hospitality industry Edited by Peter Harris and Marco... research and consulting have been concentrated in hotel industry development and financing, asset management, and management contracts He has taught hospitality financial management and real... Chartered Institute of Management Accountants and has taught accounting and finance in universities in Australia, Canada, England and New Zealand Chris has more than 30 publications and papers in refereed