BUDGET & BUDGETARY
CONTROL
IN HOUSEKEEPING DEPT.
BY PROF. ABHISHEK M NAIK
BUDGET (DEFINITION)
• 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.
BUDGET (OVERVIEW)
• 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-
• 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. Equipment's, machinery, furniture and fittings etc. are
typical examples of capital expenditure.
• 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.
• 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.
TYPES OF BUDGET
• On the basis of department involved-
• Master budget-These represents the forecasted budget for the whole
organization and incorporate all incomes and expenditures estimated
for the organization.
• 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.
TYPES OF BUDGET
• On the basis of flexibility of Expenditure-
• 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.
• Flexible budget-These are also pre determined budget based
on the revenue expected but differ with different volume of
sale.
TYPES OF BUDGET
• a) Long time budget: Long time budget is a systematic process for directing & controlling
operations for a period extending over a year. Mostly this time frame ranges from 1 to 5 years. This
type of budget tries to evaluate future implications linked with present decisions.
• The more is the timeframe of budget, the more will be difficulty in forecasting the expenditures
and expected revenues. Market trends, competitors, government policies etc. play crucial role in
preparing long term budget.
• This type of budget is useful in forecasting and evaluation of an organization over a period of time.
• b) Short time budget: Short term budget is planned for a periods of three to twelve months
depending upon nature of business.
• This type of budget is mostly planned in such a way that it coincide with the financial period, as it
facilitate the evaluation of the firms performance. If planned for a shorter period, that period
should complete all aspects of business in a season.
• c) Current Budget: Current budget is prepared according to the relevant circumstances. They are
of very short term budgets covering a period of 1 month or so.
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.
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.
LIMITATIONS OF BUDGETING
• It is based on estimates, so it may be not accurate every time.
• Sometimes one can find it misleading due to change in external factors
like market etc.
• Managers suffer from inflexibility of budget since they have to operate
within the set limits, It may make managers complacent, if budgeted
performance is easy to achieve,
• If budget is perceived as pressure device on workers, they can get
demotivated, Many a time departmental conflict arises because of
competition for resource allocation in budget
• Short term perspective of the budget limits the manager’s perspective.
EXPENSES IN HOUSE KEEPING
DEPARTMENT
Operating Expenses
Capital Expenses: • Staff salaries and wages
• Employee Benefits
• Expenses on purchase of Equipment
• Linen
like:
• Guest Supplies & Amenities
• Vacuum Cleaner, Scrubbing machine,
• Laundry & Cleaning Supplies
• Polishing Machine, Trolleys etc.
• Decoration
• Expenses on furniture and fixtures of • Small equipment
guest • Pest control
• rooms and other areas like: Beds, • Horticulture expenses
cupboards, • Printing and stationeries
• tables, chairs, sofa etc. • Repairs and Maintenance
• Contract services
• Miscellaneous expenses
CAPITAL EXPENSES
• Capital expenses involve large amounts on such investments that have a long term impact on the hotel.
These are the expenses which are intended for long period of time. Costs for most inventoried items
appear in the operating budget as expenses against the revenue generated over the same period,
however, costs for machines and equipment are a part of capital expense since they have relatively high
costs which require capital investments by the hotel.
• So it is obvious that decisions on these items are critical and should be made by a team comprising the
general manager, financial controller and executive housekeeper. The types of items that come under
capital expenses are:
• 1. Large equipment and machines,
• 2. Furniture, fixtures and fittings in rooms and public areas,
• 3. Linen and soft furnishings in guest rooms and public area,
• 4. Uniforms of staff
• 5. Any new project planned (like construction of a new block etc.) In housekeeping, decision to invest in
capital expenses is caused by:
• • Restoration of rooms or public areas. • Any addition of rooms or public areas. • Replacement of any
equipment, furnishings, etc.
OPERATING EXPENSES
• Operating Expenses are the allocation of expenses for each item required by the department in order to operate smoothly. In
case of a hotel operation expenses are based on occupancy percentage. The budgeted amount for the month varies since
there is certain period where occupancy forecasts are unreliable or unpredictable. The various heads of expenditure that are
normally reflected in a housekeeping operating budget are:
• a) Staff salaries and wages
• b) Employee Benefits
• c) Linen
• d) Guest Supplies & Amenities
• e) Laundry & Cleaning Supplies
• f) Decoration
• g) Small equipment
• h) Pest control
• i) Horticulture expenses
• j) Printing and stationeries
• k) Repairs and Maintenance
• l) Contract services
• m) Miscellaneous expenses
OPERATING EXPENSES
• Salaries and Wages: This is a major head in operating expenses. It includes staff pay, bonus,
incentives, provident fund, etc. The staffing guide and the occupancy forecasts are used to
determine the total labor hours cost for each job category.
• Employee Benefits: This head includes staff meal, medical insurance, staff parties, pensions etc.
Human resources and accounting staff help to determine what levels of expense to budget for the
employee benefits. In some places this head is merged with employee salary and wages head.
• Linens: Every year new line is purchased for the used up linen or linen that has completed its life
cycle like towels, bed sheets etc. Replacement cost for new linens can be determined with the
help of monthly physical inventories of the housekeeping department.
• Guest Supplies & Amenities: Expenses on operating Supplies that includes non-recycled inventory
items, such as guest supplies and amenities like soap, shampoo, toothbrush etc.
• Laundry & Cleaning Supplies: Expenses on the different type of cleaning agents required in
laundry and cleaning of different surfaces like detergents, fabric conditioners, glass cleaners etc.
The cost of operating the hotel’s on-premises laundry is directly related to the volume of soiled
items to be processed.
OPERATING EXPENSES
• Decoration: Housekeeping department helps and assists in the beautification of the hotel inside and outside
the building. The expense on decoration comes under this category. Small equipment: Expense on purchase of
small equipment like brushes, brooms, microfiber clothes for cleaning, squeeze for glass cleaning etc. comes
under this head of expenses.
• Pest control: This one is an important category as the sophistication in hotel premises has no place for any kind
of pests. Mostly it is done by contracted agencies having competency in this type of job. It can be done by the
housekeeping employee also; accordingly the budget should be apportioned.
• Horticulture expenses: Expenses on Flower arrangement, decoration, garland for VIP guests on arrival, florist
expenses (flowers, oasis and vases) and landscaping expense (seeds, saplings, flower pots and manure) are
included in this category.
• Printing and stationeries: Expenses under this category is shared by Front office and housekeeping department.
• Repairs and Maintenance: This type of operational budget is usually divided between housekeeping and
Engineering
• Contract services: Contract or past invoices can be used to budget the cost of outside contractors for cleaning
projects, dry cleaning, laundry or any other contracted activity.
• Miscellaneous expenses: It includes all other departmental expenses like telephone, lighting, water expenses
etc.
PROCESS OF BUDGET PLANNING
• Budget planning for housekeeping involves the following
functions:
• Getting estimates of room sales or occupancy percentages of
the hotel, Coordinating estimates on expected costs per room,
estimating amount of resources available and their allocation
• Communicating the budget to responsible managers,
• Implementing the budget plan,
PLANNING CAPITAL BUDGET:
• Capital Budget is the allocation of funds for particular items
that will help the functioning of the hotel.
• In Housekeeping, it can be replacement or additional Maid’s
trolley, Laundry washer & dryer, building a new Laundry Shop
for outside customers, replacement of vacuum cleaners,
replacing out of order furniture.
• As the equipment have a certain lifespan, yearly planning of
capital budget is made on the basis of items to be replaced
during that period.
PLANNING OPERATING BUDGET:
• In order to have a smooth operation in the hotel, it is important that allocation of funds for the
operational needs and maintenance of the hotel should be handled and monitored effectively. If
operating budget is not monitored efficiently it will lead to the demise of capital expenditure.
• The first step in planning the operating budget is to forecast room sales, as most of the expenses
that each department can expect are directly related to room occupancy levels. The rooms’
manager gives the executive housekeeper the yearly forecast of occupancy levels broken down
into monthly budget periods. Using historical data along with input from hotel’s marketing
department, the rooms’ manager will provide an occupancy percentage for each budgeted period.
In housekeeping department too, salaries and wages, the usage for recycled and non-recycled
inventories are directly related to the number of rooms occupied. To executive housekeeper the
concept of “cost per occupied room” is an important tool to determine the levels of expense across
different heads. 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.’ The
budgeting process simply involves relating cost per occupied room to the forecasted occupancy
levels.
