Budget and budgetary controls

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.