Activity Based Management
Service: Activity Based Management – confirming where the profit lies | Sector: Private | Industry: Tourism
Clients Brief
The client objective was to improve profitability which had declined with increasing fixed cost for utilities, supplies and material while at the same time the competition had maintained rates in a declining market. The most significant decline being in the conference market with both private and public sector cut backs.
To define a more competitive and cost effective strategy the client needed the project to quantify the cost base and quantify a profit improvement plan by
- Quantifying Customer and Service profitability
- Quantify non value adding costs
- Quantify process costs
- Identify the relationship between sales and costs
- Create a strategic, tactical and operational planning model
Findings
The performance of the hotel was analysed including space, room and resource utilisation, budgets and route to market.
Significant gaps in information were identified for analysis – including non residential and conference customers who had no identity within the accounting and insight systems.
Quantified non value adding cost totalled £88,118
Recommendations
It was agreed that profitability could be increased by 16% equivalent to £500,000 of extra sales by:-
- Increasing Rack, Function and Leisure sales by 5% an average of 6 guests each night in the low season
- By bringing Tours and the Leisure Centre to break even
- Accommodating the increase in sales with existing staffing levels
- Reducing administration costs by 2% with a point of sale system
- A 5% reduction in utility, consumable and stationary procurement costs.
Quantifiable results
Principality Consulting Limited (PCL) has proven business modeling techniques for the hotel sector that give hotel management a unique view of their business and the options and action plans needed.
Funded by the Welsh Hotel Cost Reduction Programme, Principality identified total savings of £768,681 - an average of £150,000 for each of the following five hotels:
- The Metropole in Llandrindod Wells
- Bryn Meadows Golf and Country Hotel
- The Vale Hotel, Golf & Spa Resort
- The Dragon Hotel in Swansea
- Fourcroft Hotel in Tenby
Click here to view more Case Studies
