Operating review
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Operating review
An operational review is an in-depth look at the big picture, addressing in this case especially the financial elements so to
make the choices, costs, revenues and results clearly visible.
Divided into revenues and costs, in the administration of Emerald Forest Hotel, as we use it, no VAT Value added tax is visible. There is no record on the liquidity, balance sheets (opening nor end of the year) nor an investment plan.
We consider the revenues and the costs to be without any VAT and costs and revenues to be paid at the date they occurred.
. The total of the operating review is available as a operating review spreadsheet.
All Revenues
Revenues comprise the average (sales) prices the hotel had decided to chose, times the number of booked rooms (occupancy rate). All food and beverages are considered to be caused by these guests: so the higher the occupancy rate, the more revenues you get from food and beverages.
Banqueting and other revenues are a separated revenue unit in the hotel. The sales prices in the past varied from a minimum of € 25 to a maximum of € 30 per person. On the Banqueting page, you can find some more info, pictures, and videos on banqueting. The 'other' elements in this group are things like additional sales, renting out bikes, upgrades, cancellation fees etc. Altogether a bit more than 8% of the total revenues.
Underneath you'll find an overview which gives some more insights into the revenue structure, as far as information is available in the Bergman's administration. This all reflects the year before you take over, the history will be your starting position, the other years just give you an indication of what might happen.
| Revenues History | ||||
|---|---|---|---|---|
| Rooms | Rooms revenues weekend | € 704,340 | 24.61% | |
| Rooms revenues weekdays | € 1,244,880 | 43.49% | 68.10% | |
| Food and beverage | F&B revenues weekend | € 266,080 | 9.29% | |
| F&B revenues weekdays | € 414,960 | 14.49% | 23.78% | |
| Banqueting and other revenues | Banqueting and other revenues | € 231,636 | 8.09% | 8.09% |
| Total revenues | € 2,861,896 | 100% | 100% |
All costs
The situation below is just an example of the costs after four years. Again, the situations as you take over is the history (colored gray) the rest is example calculations.
Underneath you'll find an overview which gives further insights into the cost structure as far as information is available in the Bergman's administration. This all reflects the situation as you take over, this will be your starting position. Especially the Cost on management team decision are missing in the relevant year History. The four test year are just a basic testing in what this could bring. For now, this all is just zero.
| Costs | ||||
|---|---|---|---|---|
| Costs: fixed | Depreciation costs of existing assets | € 525,187 | 34.64% | |
| Fixed staff costs | € 550,271 | 36.29% | ||
| Costs of premises | € 390,473 | 25.75% | ||
| Insurance & interest costs | € 50,012 | 03.29% | ||
| Total fixed costs | € 1,515,943 | 100% | 62.36% | |
| Costs: variable | Variable staff costs | € 355,170 | 38.95% | |
| Laundry costs | € 118,390 | 12.94% | ||
| Cleaning costs | € 236,780 | 25.88% | ||
| F&B purchase costs | € 204,312 | 22.33% | ||
| Total variable costs | € 914,652 | 100% | 37.63% | |
| Costs: management team decisions | Marketing costs | € 0 | 00.00% | |
| Staff development costs | € 0 | 00.00% | ||
| Extra depreciations costs | € 0 | 00.00% | ||
| Market research costs | € 0 | 00.00% | ||
| Other costs | € 0 | 00.00% | ||
| Total team decisions costs | € 0 | 100% | 00.00% | |
| Total all costs | € 2,430,595 | 100% |
The different costs groups are all mentioned in the operating review table above.
Keep in mind that calculations are never 'perfect'. Calculation on the revenues on rooms weekend, for instance:
is 52 weeks x 100 rooms x 43% weekdays (3 nights out of 7) x 7 days a week = 15.652 nights x occupancy rate (starts at 50%) x average price (rack rate and last-minute). There is always a difference to the outcome of this calculation an d the 'reality': caused by cancellations (yes or no refunds, double bookings, short stays, rounding-up numbers, missing one day in a year etc. This all together might bring a difference up to a view percent in the expected revenues linked to the occupancy rate.
You cannot influence these costs at all. These are costs which will be created no matter what the occupancy rate is. Over the years there can be small fluctuations, but the amounts will stay almost the same.
- Depreciation costs of existing assets: depreciations of all the assets especially the building, fixtures and fittings.
- Fixed staff costs: staff needed to run the hotel and which have to be paid even if there are no guests at all.
- Costs of premises: costs of maintenance, repairs on small adaptions to the building and the parking lots.
- Insurance & interest costs: costs for insurance for staff, building a liability and costs for mortgage and other loans.
The variable costs will depend on the actual number of guests in the hotel so will only be filled out (automatically) after each year is finished. So there is a ratio between occupancy rate and all of these costs. You cannot influence this, but it will be influenced by the occupancy rate you have created with your way of managing.
- Variable staff costs: the more guest you have the more work here will be to be done and the more staff is needed. So additional costs.
- Laundry costs: the more guest the more towels, bed linen etc. needed.
- Cleaning costs: rooms need to be cleaned more often because of more guests and to be cleaned better.
- F&B purchase costs: more guest means more breakfasts etc. for guest and more f&b for additional staff so the purchase costs go up.
All of your decisions numbers 6 -10 lead directly to costs which can be seen directly on the costs side. They are directly connected to the choices you make in your decisions each year. The effect of all costs will only last one year. As you can see in the past there were no costs made regarding these decisions. Of course, this was good for the profit but it will come back like a boomerang! So Christina urges you to use this costs group team decisions in an efficient way, though she knows this will probably lower the profit!
Spending the maximum on all possible costs looks like a bad idea! You have to earn back all these costs, so you will have to make clear choices and keep the profit in mind! So the numbers mentioned are not a gift, nor a budget: it just gives you an indication of the (maximum) possibilities without getting in serious financial trouble. So, if you would decide to spend to the maximum on all options you could have in extra costs (per year):
- Decisions 6 marketing costs maximum € 200,000
- Decisions 7 staff development maximum € 100,000
- Decisions 8 depreciation costs maximum € 225,000 year 1 up to € 900,000 in year 4 as depreciation. Depending on your new investments.
- Decisions 9 market research package maximum € 50,000
- Decisions 10 other costs maximum € 100,000
The maximum grand total on additional (!) costs in the first year is a maximum of € 675,000. Keep in mind that the profit as you take over (history) was € 486,307! The total costs was € 2,430,595. Creating all these additional costs of your team decisions, will raise the total costs by more than 29%! You probably will make a loss, as the additional costs exceed the profit you made in the past. So think of how these additional costs will generate new revenues. Or compensate the costs by higher prices or a higher occupancy rate.
- Net profit
Of course, the net profit per year is very interesting. The total costs will be deducted from the total revenues. If there is a bonus or a fine this is added or deducted from the profit leading to the net profit.
In this example on taking over:
- Total revenues were € 2,866,902
- Total costs € 2,430,595
- Net profit € 436,301
There is no VAT or other taxes in the city. There is no reserve and as there is no liquidity in the game, there is no need for spending them. The balance sheets just show the individual profit of each year in the operating review and the total of the net profit over the years. No worries about liquidity: you can invest and pay, though you cannot see the proper balance sheets.
A fine and/or a bonus, if applicable, will directly influence your net profit. In this case, in the History (linked to the Preparations) there is a bonus, in this case of € 5,000 so this is added to the profit.
Key metrics
Some key metrics and ratios on the operations of your hotel in this section.
Net profit once again showed here, but now linked to the total net profit. So adding up the profit of all years passed.
The number of guests gives you an indication which numbers pass through your hotel in a year.
Your hotel is ranked on net profit as well as on creativity. Both rankings are within your city.
There is ranking on creativity, this is linked to what you have done in all of the years related to creativity and evaluated by your coach. You can have any position depending on the number of hotels in your city.
Top Research
If your hotel has decided to pay for market information provided by Top Research, it will show here.
Analysing
So the net profit on taking over seems to be 15.21% of the revenues, a good and interesting result.
But, the management did not make enough investments over the recent years, so the depreciation costs have been kind of low. There is no problem with liquidity at all.
Furthermore, the Bergmans did not really consider themselves to be staff, so there are hardly any wages for them in the staff costs. Their income mainly originated from the net profit which they, partly, took out of the company, being the entrepreneurs.
Calculate yourself?
If you want to make calculations yourself, you can, in the top menu download the Team File as Excel file. Store this one on your pc and you can do some calculations in this version (which now, of course, has no longer links to the real one and new changes in the online one).
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