Posts Tagged ‘benchmarking’

A Roadmap to Successful Club Benchmarking

Tuesday, June 28th, 2016

In late June of 2012 I participated in a panel discussion on benchmarking at the Hospitality Finance and Technology conference in Baltimore.  My fellow panelist was Russ Conde of Club Benchmarking.  Some weeks after the conference I received a sheet summarizing attendees’ reviews of the session.  While mostly positive, one of the attendees said that the discussion covered a lot of benchmarking concepts, but was short on the specifics of how to benchmark.

As I have written in Twelve Reasons I Benchmark, there are a number of reasons to benchmark your club’s operations.  One important reason is to compare your club’s performance to that of the wider industry – and Mr. Conde’s Club Benchmarking service does just that in a simple, automated way via the Internet while providing standardized benchmarks industry-wide.  The CB analysis tools and reports support strategic versus tactical thinking in the boardroom.  A study of data from more than 1,200 clubs currently in the CB system has revealed a number of Key Performance Indicators with direct impact to the bottom line and confirmed the existence of a common private club business model now known as the “Available Cash Model.”  I cannot commend Mr. Conde and his partner Ray Cronin enough for this invaluable service to the industry.

But just as there is value in benchmarking your operation externally, there are valid reasons to benchmark your performance internally – that is within each department and the club as a whole.  Having provided this context, let me now provide some of the key specifics on how to benchmark.

First, for those wishing to compare their performance to other clubs and graphically visualize how their operation relates to the industry’s common business model, it couldn’t be any easier – simply visit the Club Benchmarking website and sign up for their service.

Second, for those who want to set up an internal program of benchmarking, here’s a discussion of some of the challenges and pitfalls, as well as information on where to get the necessary benchmarking instructions and spreadsheets to do it:

  • Let me start by saying that every day there are literally hundreds of data points generated in club operations.  The real benefit of benchmarking, though, is in tracking data over time.  The number of meals served in the club dining room on a particular Friday night doesn’t signify very much; it is simply an occurrence.  But if that number is part of a declining trend in Friday night dining, it is certainly a cause for concern.  Without the effort to track trends and compare them to historical performance, there is no way to manage for either quality or performance.
  • It is essential that the club’s General Manager buys into the value of benchmarking and fully supports the effort.  Without his or her backing, it will be far more challenging to implement club-wide benchmarking.  That doesn’t mean that individual department heads cannot benchmark within their departments and be successful, but it does limit the overall value of benchmarking to the club.
  • It is helpful to have a point person for the project – and I suggest the club controller.  This does not mean that the burden of benchmarking falls on the controller’s shoulders – as each department’s benchmarks must be the responsibility of the department head.  But it is helpful to have a person knowledgeable about accounting and the use of MS-Excel to help guide and assist less knowledgeable department heads through the process.

Having said this I also want to stress that the controller’s office is the logical place for the preparations of several key reports (some sort of Weekly Revenue Report, see HRI Form 203 for an example, and a Pay Period Summary Report, HRI Form 229) that will facilitate data availability club-wide, as well as the consolidation of key benchmarks from all departments into the Executive Metrics Report which I have advocated as a useful enhancement to the monthly financial reporting package.

But even in the absence of such reports from the accounting office, a conscientious department head, recognizing that she is the person fully responsible for her department’s performance, can with a little effort get the necessary data to benchmark.  For example, revenue information can usually be accessed from point of sale reports and payroll data is available from the accounting office or payroll service – both merely take a little initiative to get the desired information.

  • Depending on the club’s pace of operations and individual department heads’ workloads, it may make more sense to start small with one or two departments whose managers are “numbers” people and who relish the idea of a deeper empirical understanding of their business operations.  The enthusiasm and resultant success from these early adopters or “pathfinders” will serve as an invaluable inspiration and guide for others.  An alternative would be to implement one significant form of benchmarking club-wide – say benchmarking payroll costs across all departments.  In time, the value of this will lead to a desire for more robust benchmarking of other areas of club operations.
  • While every club can set their priorities for data to benchmark, here are some suggested priorities and the reasoning behind them:

Profit and Loss Statement (as part of the Executive Metrics Report) – low hanging fruit, easy to access data from P&Ls, requires only monthly data entry.

Payroll Cost – largest cost in operations, potentially yielding greatest opportunity for improvement and savings; makes future budgeting far easier; most effective when employees are paid on a bi-weekly basis (read Why Our Workweek and Pay Cycle? to understand why).

Departmental Revenues – by day of week, week by week, monthly, and annually; easy to access data, historical record can improve staff scheduling, makes future budgeting far easier.

Food and Beverage – probably the most effort and time-intensive if done thoroughly (tracking sales of beer, wine, alcohol, appetizers, desserts, specialty drinks, etc.), but provides critical feedback on any efforts to improve the average check; data can also help with managing inventory levels of alcoholic beverages.

Inventory and Accounts Receivable – low hanging fruit, easy to access data in accounting office, helps monitor and correct inventory volatility, requires only monthly data entry.

Retail – can dramatically improve performance when coupled with other retail disciplines.

Utilities – low hanging fruit, data comes from monthly utility bills, once-monthly data entry for electricity, water & sewer, and gas; helpful in spotting and investigating usage and billing anomalies.

Individual Departments – prepared by department heads, makes them more knowledgeable about operations (enhancing their authority and influence), analysis of benchmarks leads to improved performance.

  • All the resources to begin internal benchmarking at your club can be found on the Club Resources International website.  Simply purchase the 153-page Club Benchmarking Resources for $99 at the Marketplace store.  It contains the background information, the basics of benchmarking, departmental benchmarking instructions, and samples of benchmarking spreadsheets.  Each departmental instruction gives a list of benchmarks to track and sources of data, as well as specific instructions on how to use the spreadsheets and a sample spreadsheet for both year-to-date and year-to-year tracking.

A number of benchmarking spreadsheets are available on the Club Resources International website and can be downloaded at no charge.  After downloading and reviewing the benchmarking material, managers can customize the spreadsheets* for their operations, and begin collecting and recording the necessary data.  If key data has never been tracked before, patterns will emerge pretty quickly as benchmarking progresses, though the longer the data is tracked, the more valuable the benchmarks will be as operating standards.

  • My experience with benchmarking over the years is that it usually takes several months of close focus and review to successfully set up; thereafter ongoing benchmarking becomes part of the club’s routine.
  • Some department heads may need training and handholding during implementation, particularly if they are not familiar with computers or spreadsheet software, but once up to speed, they fully appreciate the value of monitoring the underlying details of their operations.
  • An important discipline that fully exploits the benefits of benchmarking is to make a formal review of departmental benchmarks part of the ongoing monthly review of financial statements with each department head.  When combined with the Tools to Beat Budget program and an examination of progress toward the goals of the department head’s annual work plan, benchmarking becomes a particularly effective means of driving progress and performance club-wide.
  • All departmental benchmarks are then summarized on a monthly basis using the spreadsheets and a copy forwarded to the controller for the next and final step in the benchmarking program.
  • The club controller completes the Executive Metrics Report using selected benchmarks from the departmental spreadsheets and submits it to all stakeholders as part of the club’s financial reporting package.  One controller who presented the EMR to the club’s finance committee reported that a particularly influential member said he was “thrilled” to see such underlying performance data and looked forward to reviewing it on an ongoing basis.

Benchmarking is an essential business discipline that yields significant benefits to club operators.  As H. James Harrington author, engineer, entrepreneur, and consultant in performance improvement, said “If you can’t measure something, you can’t understand it.  If you can’t understand it, you can’t control it.  If you can’t control it, you can’t improve it.”

*Individual clubs will undoubtedly want to customize the Excel spreadsheets for their range of departments and scope of operations.  While spreadsheets are “protected” to prevent inadvertent write-over of cell formulas, the protection is not password-protected, allowing individual clubs to modify the spreadsheets as necessary.

If you have any questions or want more information about any aspect of benchmarking, contact us at info@clubresourcesinternational.com.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking hospitality managers throughout the country and around the world.

Hospitality Resources International – Management Resources for Hospitality Operators!

 

A Roadmap to Successful Club Benchmarking

Monday, September 21st, 2015

In late June of of 2012 I participated in a panel discussion on benchmarking at the Hospitality Finance and Technology conference in Baltimore.  My fellow panelist was Russ Conde of Club Benchmarking.  Some weeks after the conference I received a sheet summarizing attendees’ reviews of the session.  While mostly positive, one of the attendees said that the discussion covered a lot of benchmarking concepts, but was short on the specifics of how to benchmark.

As I have written in Twelve Reasons I Benchmark, there are a number of reasons to benchmark your club’s operations.  One important reason is to compare your club’s performance to that of the wider industry – and Mr. Conde’s Club Benchmarking service does just that in a simple, automated way via the Internet while providing standardized benchmarks industry-wide.  The CB analysis tools and reports support strategic versus tactical thinking in the boardroom.  A study of data from more than 1,200 clubs currently in the CB system has revealed a number of Key Performance Indicators with direct impact to the bottom line and confirmed the existence of a common private club business model now known as the “Available Cash Model.”  I cannot commend Mr. Conde and his partner Ray Cronin enough for this invaluable service to the industry.

But just as there is value in benchmarking your operation externally, there are valid reasons to benchmark your performance internally – that is within each department and the club as a whole.  Having provided this context, let me now provide some of the key specifics on how to benchmark.

First, for those wishing to compare their performance to other clubs and graphically visualize how their operation relates to the industry’s common business model, it couldn’t be any easier – simply visit the Club Benchmarking website and sign up for their service.

Second, for those who want to set up an internal program of benchmarking, here’s a discussion of some of the challenges and pitfalls, as well as information on where to get the necessary benchmarking instructions and spreadsheets to do it:

  • Let me start by saying that every day there are literally hundreds of data points generated in club operations.  The real benefit of benchmarking, though, is in tracking data over time.  The number of meals served in the club dining room on a particular Friday night doesn’t signify very much; it is simply an occurrence.  But if that number is part of a declining trend in Friday night dining, it is certainly a cause for concern.  Without the effort to track trends and compare them to historical performance, there is no way to manage for either quality or performance.
  • It is essential that the club’s General Manager buys into the value of benchmarking and fully supports the effort.  Without his or her backing, it will be far more challenging to implement club-wide benchmarking.  That doesn’t mean that individual department heads cannot benchmark within their departments and be successful, but it does limit the overall value of benchmarking to the club.
  • It is helpful to have a point person for the project – and I suggest the club controller.  This does not mean that the burden of benchmarking falls on the controller’s shoulders – as each department’s benchmarks must be the responsibility of the department head.  But it is helpful to have a person knowledgeable about accounting and the use of MS-Excel to help guide and assist less knowledgeable department heads through the process.

Having said this I also want to stress that the controller’s office is the logical place for the preparations of several key reports (some sort of Weekly Revenue Report, see HRI Form 203 for an example, and a Pay Period Summary Report, HRI Form 229) that will facilitate data availability club-wide, as well as the consolidation of key benchmarks from all departments into the Executive Metrics Report which I have advocated as a useful enhancement to the monthly financial reporting package.

But even in the absence of such reports from the accounting office, a conscientious department head, recognizing that she is the person fully responsible for her department’s performance, can with a little effort get the necessary data to benchmark.  For example, revenue information can usually be accessed from point of sale reports and payroll data is available from the accounting office or payroll service – both merely take a little initiative to get the desired information.

  • Depending on the club’s pace of operations and individual department heads’ workloads, it may make more sense to start small with one or two departments whose managers are “numbers” people and who relish the idea of a deeper empirical understanding of their business operations.  The enthusiasm and resultant success from these early adopters or “pathfinders” will serve as an invaluable inspiration and guide for others.  An alternative would be to implement one significant form of benchmarking club-wide – say benchmarking payroll costs across all departments.  In time, the value of this will lead to a desire for more robust benchmarking of other areas of club operations.
  • While every club can set their priorities for data to benchmark, here are some suggested priorities and the reasoning behind them:
  • Profit and Loss Statement (as part of the Executive Metrics Report) – low hanging fruit, easy to access data from P&Ls, requires only monthly data entry.
  • Payroll Cost – largest cost in operations, potentially yielding greatest opportunity for improvement and savings; makes future budgeting far easier; most effective when employees are paid on a bi-weekly basis (read Why Our Workweek and Pay Cycle? to understand why).
  • Departmental Revenues – by day of week, week by week, monthly, and annually; easy to access data, historical record can improve staff scheduling, makes future budgeting far easier.
  • Food and Beverage – probably the most effort and time-intensive if done thoroughly (tracking sales of beer, wine, alcohol, appetizers, desserts, specialty drinks, etc.), but provides critical feedback on any efforts to improve the average check; data can also help with managing inventory levels of alcoholic beverages.
  • Inventory and Accounts Receivable – low hanging fruit, easy to access data in accounting office, helps monitor and correct inventory volatility, requires only monthly data entry.
  • Retail – can dramatically improve performance when coupled with other retail disciplines.
  • Utilities – low hanging fruit, data comes from monthly utility bills, once-monthly data entry for electricity, water & sewer, and gas; helpful in spotting and investigating usage and billing anomalies.
  • Individual Departments – prepared by department heads, makes them more knowledgeable about operations (enhancing their authority and influence), analysis of benchmarks leads to improved performance.
  • All the resources to begin internal benchmarking at your club can be found on the Club Resources International website.  Simply purchase the 153-page Club Benchmarking Resources for $99 at the Marketplace store.  It contains the background information, the basics of benchmarking, departmental benchmarking instructions, and samples of benchmarking spreadsheets.  Each departmental instruction gives a list of benchmarks to track and sources of data, as well as specific instructions on how to use the spreadsheets and a sample spreadsheet for both year-to-date and year-to-year tracking.

A number of benchmarking spreadsheets are available on the Club Resources International website and can be downloaded at no charge.  After downloading and reviewing the benchmarking material, managers can customize the spreadsheets* for their operations, and begin collecting and recording the necessary data.  If key data has never been tracked before, patterns will emerge pretty quickly as benchmarking progresses, though the longer the data is tracked, the more valuable the benchmarks will be as operating standards.

  • My experience with benchmarking over the years is that it usually takes several months of close focus and review to successfully set up; thereafter ongoing benchmarking becomes part of the club’s routine.
  • Some department heads may need training and handholding during implementation, particularly if they are not familiar with computers or spreadsheet software, but once up to speed, they fully appreciate the value of monitoring the underlying details of their operations.
  • An important discipline that fully exploits the benefits of benchmarking is to make a formal review of departmental benchmarks part of the ongoing monthly review of financial statements with each department head.  When combined with the Tools to Beat Budget program and an examination of progress toward the goals of the department head’s annual work plan, benchmarking becomes a particularly effective means of driving progress and performance club-wide.
  • All departmental benchmarks are then summarized on a monthly basis using the spreadsheets and a copy forwarded to the controller for the next and final step in the benchmarking program.
  • The club controller completes the Executive Metrics Report using selected benchmarks from the departmental spreadsheets and submits it to all stakeholders as part of the club’s financial reporting package.  One controller who presented the EMR to the club’s finance committee reported that a particularly influential member said he was “thrilled” to see such underlying performance data and looked forward to reviewing it on an ongoing basis.

Benchmarking is an essential business discipline that yields significant benefits to club operators.  As H. James Harrington author, engineer, entrepreneur, and consultant in performance improvement, said “If you can’t measure something, you can’t understand it.  If you can’t understand it, you can’t control it.  If you can’t control it, you can’t improve it.”

*Individual clubs will undoubtedly want to customize the Excel spreadsheets for their range of departments and scope of operations.  While spreadsheets are “protected” to prevent inadvertent write-over of cell formulas, the protection is not password-protected, allowing individual clubs to modify the spreadsheets as necessary.

If you have any questions or want more information about any aspect of benchmarking, contact us at info@clubresourcesinternational.com.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking hospitality managers throughout the country and around the world.

Hospitality Resources International – Management Resources for Hospitality Operators!

Benchmarking Your Way to Improved Performance

Monday, July 14th, 2014

William Thomson, Lord Kelvin, one of the leading lights of 19th century science said, “If you cannot measure it, you cannot improve it.”  While he was speaking of scientific inquiry and measurement, the same statement could be made regarding any desire to improve your company’s operating efficiency.

If you cannot accurately measure your current operating performance, how would you know where to best apply your corrective efforts?  Or even if those efforts were working or not?  This, in a nutshell, expresses the necessity of detailed benchmarking of all aspects of hospitality operations.

Every business operation monitors its performance by accounting for its revenues and expenses, thereby determining its level of profitability.  In the broadest sense the monthly financial statements are the measure of how the business is doing, but you must understand that the financial statements are summary numbers derived from the interplay of a large number of operational variables.

So if you want to increase your profitability, the numbers from your financial statements only allow you to say, “We need to increase revenues” or “We need to reduce our expenses.”  Without further detail as to where the problems are, you’ll never know where best to apply your efforts to increase revenues or cut expenses.

The key underlying variable for revenues in any operation is the number of customers patronizing the establishment, or volume of business.  This measure will be different for different areas of the operation – diners for the food and beverage operations, rooms occupied for lodging establishments, golf rounds for golf operations, retail transactions for the pro shops or other retail outlets.  The second and no less important variable is how much each customer spends on average while utilizing these facilities – the average check per diner in the dining room, the average room rate in a hotel, the green or cart fees per round on the golf course, and the average sale in the retail outlets.

The basic benchmarks of volume and average spend are computed by every POS system, but the real benefit of monitoring these benchmarks is in tracking them by day of week, week to week, month to month, and year to year.  This tracking over time allows the operator to monitor daily, weekly, and seasonal trends which is important because every area of an operation has its own variations based on time of day, day of week, and season.

Here’s an example of how benchmarks can help:

When dining revenues are down it’s important to know what combination of volume and average spend is causing the shortfall because the solution to one or the other is very different.  If volume is down, you need to figure out a way to bring in more customers more often.  If average spend is down, you need to figure out why – are they spending less because of the general economy, is your menu pricing appropriate to their expectations, or do your employees need more training in suggesting and upselling?

Other benchmarks can shed more light on the problem.  Are lesser priced menu items selling better?  If so it might indicate price sensitivity.  Are the cover counts down on Wednesday night when you offer your seafood special?  If so, this might indicate that customers are growing tired of this longstanding menu, or maybe another restaurant is luring them away with their own special pricing and fare.

Another example:  What if revenues are steady, but net income is down?  By benchmarking what menu items are selling, you might notice that you are selling large quantities of a low margin item from your menu.  By carefully tracking your food costs, you might discover that a key ingredient in your best-selling menu item has risen dramatically in recent weeks.  By benchmarking your labor hours and comparing it to revenues or cover counts you might find that your net is shrinking due to low productivity or over-scheduling.

What these examples demonstrate is that the more information you have about the details of your operation, the better able you are to analyze operational weakness and implement corrective action.  This premise of benchmarking key operating statistics is basic to any business, but in order to be most effective benchmarking must be a routine process with data being compiled, monitored, formally reported, and acted upon.  Only then can you use this wealth of information to proactively address emerging issues.  Without a formal system of benchmarking you will forever be reacting to the bad news from last month.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking hospitality managers throughout the country and around the world.

Hospitality Resources International – Management Resources for Hospitality Operators!

 

Utility Benchmarking: The First Step in Energy Conservation

Monday, May 12th, 2014

Almost daily we hear more disturbing news about environmental degradation and the impact on our planet of our ever-increasing levels of fossil fuel consumption.  Just a few years ago there was a significant debate on whether the current period of global warming was man-made or if it was just part of the natural cycle of the planet.  While some scientist continue to question the exact causes of warming oceans, melting icecaps, degradation of the ozone, and other symptoms of our impact on Mother Earth, the consensus today seems to be we are facing a looming crisis and that much needs to be done to decrease our carbon footprint in all areas of our lives.

While most of us wait for some stroke of technology or government intervention to lead us out of the crisis, there are currently and soon-to-be other significant reasons for the business sector to address the problem within the scope of their operations – that of cost.  While government regulation of utility prices has kept the upward climb of utility costs manageable, we cannot always expect this to be so as the cost of extracting oil or converting to new greener technologies is expected to rise dramatically in coming years.

Environmentalists have long pointed out that the cheapest alternative to ever rising energy costs is that of avoidance – of conserving energy by the end user.  This applies to our homes, but increasingly is being looked at by businesses as a way of reducing or stabilizing these costs.  It seems at every turn we are being encouraged to change our light bulbs, better insulate, shift demand to non-peak hours, purchase more energy efficient machines, or just turn off unneeded lights and equipment.

Whether you are currently considering new investment in energy-saving technologies or will wait until it becomes a financial imperative for your operation, you will not be able to adequately determine the cost/benefit of any initiative without an understanding of the energy use at your facility.  Without this understanding any decision you make will be based upon wishful thinking or the promises of vendors.

So now is the time to start benchmarking your utilities which is easily enough done by tracking your consumption and cost for electricity, gas, and water.  For each one of these commodities you receive a monthly bill from your utility companies that provides all the pertinent information.  It’s a simple matter of extracting this data from the invoice and putting them in Excel spreadsheets month-by-month and year-by-year for each area of your operation for which you receive a bill.

Whether you plan to act soon to control energy costs or wait to some future time, these utility benchmarks will serve you well as you determine options and costs.  Someone once said that, “You can’t manage what you can’t measure.”  I would say that it’s also true that, “You can’t improve what you can’t measure.”  Start measuring your energy use patterns and costs now so that you can make those improvements when it becomes necessary.

Check out the utility benchmarking instructions and spreadsheets on the Hospitality Resources International website.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

Three Critical Things Every Operation Should Benchmark

Monday, January 20th, 2014

I have written again and again of the importance of benchmarking key operating statistics which will tell you far more about your operation than just how much of a profit or loss you had in any given period.  While I strongly recommend that every department benchmark in detail, here are three key things that every enterprise should begin benchmarking immediately:

  1. Payroll hours by category (regular, overtime, holiday, vacation, and sick time) by department and payroll cost by department – both by pay period.  Just the fact that this data is being reported and looked at regularly will bring down overtime costs, while pinpointing further cost saving opportunities as the ongoing norms of the operations become clearer.
  2. Utility costs by category (electricity, gas, and water).  In most hospitality operations utility expenses are second only to payroll as the most significant operating expense.  Once routinely measured and reported, a variety of energy-saving initiatives can reduce these expenses.  Utility usage rates can be compared to various measures of usage such as rooms sold, meals served and rounds of golf to establish key benchmarks.  The vagaries of weather and its impact on heating and air conditioning can be removed by comparing electricity and/or gas usage to degree days for each heating and cooling period.
  3. Major revenues, number of transactions (rooms sold, meal counts, retail transactions), and average customer/guest/member spend by revenue category and profit center.  Taken together these measures will pinpoint whether shortfalls in revenues are caused by declines in volume (# of transactions) or by the average customer spend.  Since the steps to overcome these deficiencies are different, knowing whether the problem is volume decline or lower average spend is critical to turning the situation around.

There are many other key numbers to benchmark in club operations, but these three should be the starting point for implementing a larger discipline of benchmarking.  Remember the words of William Thomson, Lord Kelvin “If you cannot measure it, you cannot improve it.”

Note:  Hospitality Resources International has developed benchmarking spreadsheets for all areas of club operations.  The Excel files can be downloaded and customized for your operations. 

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking  hospitality managers throughout the country and around the world.

Hospitality Resources International – Management Resources for the Hospitality Industry!

 

Who’s Sandbagging their Budgets?

Monday, November 4th, 2013

Most of us in the golf business are familiar with the term “sandbagging.”  Wikipedia gives the following definition:

“Sandbagging (golfing), a player deliberately plays poorly until establishing a handicap and then raises his money bets, using the established handicap to unfairly win.”

But the term also has a budgeting connotation, no doubt lifted from the golfing world, as can be seen from an alternative definition:

 “Sandbagging (budgeting), a manager deliberately overstates financial requirements with the intent of coming in under-budget, thus being praised (or rewarded).”

It is certainly natural for any manager to “pad” his budget to give himself some wiggle room in a process that is fraught with uncertainty.  I’ve done it and I’m sure everyone else has as well.

But in these tough economic times, it’s important that we try to create as “honest” budgets as we can.  One way to promote this honesty is to benchmark actual to budget performance by department on an annual basis.  The controller simply needs to track annual variances line by line and compare them year-to-year.  When this is done it’s pretty easy to spot the “sandbaggers.”

Benchmarking budgets and using Tools to Beat Budget are two ways to improve the honesty and accuracy of budgeting.  Instead of paying out incentives to managers who beat budget, it may be better to reward a combination of beating budget and budget accuracy.  This will go a long way toward taking sandbagging out of the game.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers – those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking  hospitality managers throughout the country and around the world.

Hospitality Resources International – Management Resources for the Hospitality Industry!

Benchmarking Your Way to Improved Performance

Monday, March 18th, 2013

William Thomson, Lord Kelvin, one of the leading lights of 19th century science said, “If you cannot measure it, you cannot improve it.”  While he was speaking of scientific inquiry and measurement, the same statement could be made regarding any desire to improve your company’s operating efficiency.

If you cannot accurately measure your current operating performance, how would you know where to best apply your corrective efforts?  Or even if those efforts were working or not?  This, in a nutshell, expresses the necessity of detailed benchmarking of all aspects of hospitality operations.

Every business operation monitors its performance by accounting for its revenues and expenses, thereby determining its level of profitability.  In the broadest sense the monthly financial statements are the measure of how the business is doing, but you must understand that the financial statements are summary numbers derived from the interplay of a large number of operational variables.

So if you want to increase your profitability, the numbers from your financial statements only allow you to say, “We need to increase revenues” or “We need to reduce our expenses.”  Without further detail as to where the problems are, you’ll never know where best to apply your efforts to increase revenues or cut expenses.

The key underlying variable for revenues in any operation is the number of customers patronizing the establishment, or volume of business.  This measure will be different for different areas of the operation – diners for the food and beverage operations, rooms occupied for lodging establishments, golf rounds for golf operations, retail transactions for the pro shops or other retail outlets.  The second and no less important variable is how much each customer spends on average while utilizing these facilities – the average check per diner in the dining room, the average room rate in a hotel, the green or cart fees per round on the golf course, and the average sale in the retail outlets.

The basic benchmarks of volume and average spend are computed by every POS system, but the real benefit of monitoring these benchmarks is in tracking them by day of week, week to week, month to month, and year to year.  This tracking over time allows the operator to monitor daily, weekly, and seasonal trends which is important because every area of an operation has its own variations based on time of day, day of week, and season.

Here’s an example of how benchmarks can help:

When dining revenues are down it’s important to know what combination of volume and average spend is causing the shortfall because the solution to one or the other is very different.  If volume is down, you need to figure out a way to bring in more customers more often.  If average spend is down, you need to figure out why – are they spending less because of the general economy, is your menu pricing appropriate to their expectations, or do your employees need more training in suggesting and upselling?

Other benchmarks can shed more light on the problem.  Are lesser priced menu items selling better?  If so it might indicate price sensitivity.  Are the cover counts down on Wednesday night when you offer your seafood special?  If so, this might indicate that customers are growing tired of this longstanding menu, or maybe another restaurant is luring them away with their own special pricing and fare.

Another example:  What if revenues are steady, but net income is down?  By benchmarking what menu items are selling, you might notice that you are selling large quantities of a low margin item from your menu.  By carefully tracking your food costs, you might discover that a key ingredient in your best-selling menu item has risen dramatically in recent weeks.  By benchmarking your labor hours and comparing it to revenues or cover counts you might find that your net is shrinking due to low productivity or over-scheduling.

What these examples demonstrate is that the more information you have about the details of your operation, the better able you are to analyze operational weakness and implement corrective action.  This premise of benchmarking key operating statistics is basic to any business, but in order to be most effective benchmarking must be a routine process with data being compiled, monitored, formally reported, and acted upon.  Only then can you use this wealth of information to proactively address emerging issues.  Without a formal system of benchmarking you will forever be reacting to the bad news from last month.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the hospitality industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hospitality hardworking  managers throughout the country and around the world.

Hospitality Resources International – Management Resources for the Hospitality Industry!

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Utility Benchmarking: The First Step in Energy Conservation

Monday, August 20th, 2012

Almost daily we hear more disturbing news about environmental degradation and the impact on our planet of our ever-increasing levels of fossil fuel consumption.  Just a few years ago there was a significant debate on whether the current period of global warming was man-made or if it was just part of the natural cycle of the planet.  While some scientist continue to question the exact causes of warming oceans, melting icecaps, degradation of the ozone, and other symptoms of our impact on Mother Earth, the consensus today seems to be we are facing a looming crisis and that much needs to be done to decrease our carbon footprint in all areas of our lives.

While most of us wait for some stroke of technology or government intervention to lead us out of the crisis, there are currently and soon-to-be other significant reasons for the business sector to address the problem within the scope of their operations – that of cost.  While government regulation of utility prices has kept the upward climb of utility costs manageable, we cannot always expect this to be so as the cost of extracting oil or converting to new greener technologies is expected to rise dramatically in coming years.

Environmentalists have long pointed out that the cheapest alternative to ever rising energy costs is that of avoidance – of conserving energy by the end user.  This applies to our homes, but increasingly is being looked at by businesses as a way of reducing or stabilizing these costs.  It seems at every turn we are being encouraged to change our light bulbs, better insulate, shift demand to non-peak hours, purchase more energy efficient machines, or just turn off unneeded lights and equipment.

Whether you are currently considering new investment in energy-saving technologies or will wait until it becomes a financial imperative for your club, you will not be able to adequately determine the cost/benefit of any initiative without an understanding of the energy use at your club.  Without this understanding any decision you make will be based upon wishful thinking or the promises of vendors.

So now is the time to start benchmarking your utilities which is easily enough done by tracking your consumption and cost for electricity, gas, and water.  For each one of these commodities you receive a monthly bill from your utility companies that provides all the pertinent information.  It’s a simple matter of extracting this data from the invoice and putting them in Excel spreadsheets month-by-month and year-by-year for each area of your operation for which you receive a bill.

Whether you plan to act soon to control energy costs or wait to some future time, these utility benchmarks will serve you well as you determine options and costs.  Someone once said that, “You can’t manage what you can’t measure.”  I would say that it’s also true that, “You can’t improve what you can’t measure.”  Start measuring your energy use patterns and costs now so that you can make those improvements when it becomes necessary.

Click here for utility benchmarking instructions and here to find spreadsheets.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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Twelve Reasons I Benchmark

Monday, March 14th, 2011

Benchmarking is one of the most significant things a general manager can do to improve the performance of a club.  By understanding the underlying “drivers” of the operation, he or she can take action to enhance results.  As Lord Kelvin said, “If you cannot measure it, you cannot improve it.”

Here are the reasons I benchmark in detail:

1. To establish the baseline or “benchmark” of existing operational performance.

Businesses generate many variable measurements of performance.  Existing data determines the baseline performance against which all future operations will be compared.  If data has not been tracked in the past, begin by measuring existing performance and make that the benchmark.  Often past data is available, it’s just that no one has made the effort to collect, organize, and summarize it.  With a little effort baseline measures can be reconstructed from past periods.  If this is too much trouble, begin by collecting today’s data.  In a short time valid benchmarks will emerge, though usually a full year’s worth of data must be collected to account for seasonal variations in business.  In the absence of significant changes, the longer the data is tracked, the more valid it becomes as the standard for the operation and as a predictor of future activity.  But, a corollary to this is that the older the data, the less relevant it is to current operations.

2.   The benchmark performance can be considered the operating standard and all future performance can be compared to it.

Once the operating standard has been established, all future performance is compared to it.  “Out of line” benchmarks become warning indicators that something demands closer scrutiny.  Often there are valid reasons for out of line numbers, perhaps the benchmark is a true anomaly that will correct itself in future periods, or it may be the start of a trend that bears management consideration and decision.  In any case, by monitoring the benchmarks, managers are aware of changes in their business and will be prepared to take action as warranted.

3. After tracking operating statistics for a sufficient period of time to ensure a statistically sound sample, benchmarks can be used to establish performance goals for future operating periods.

When establishing budgets, management can use historical benchmarks to establish realistic and accurate goals for coming operating periods.  Once goals are established they can be used to compare to actual performance day by day, week by week, and month by month to measure progress toward overall objectives.  Should actual performance fall short of expectations, management can make timely interventions to get the operation back on track.

4. It is useful to compare an operation’s performance measures for a given period to other past periods, to other similar operations, or to the industry as a whole.

For example, comparing September of this year to September of last year or this year’s Mother’s Day brunch to all previous years’.  In large, multi-unit, restaurant companies, one restaurant is compared to all others of a similar kind by use of benchmarks.  There are also national trade associations and certain accounting firms that publish annual performance comparisons of various types of restaurants on a nationwide or regional basis.  It’s a good exercise to compare an operation’s performance with the national average for similar types of facilities.

5. Identifying under-performance or best practices.

Hopefully, comparisons with previous periods or other similar operations will be for the better, but if not, it will alert management to problems and possible solutions.  By monitoring the operation’s continuing performance measures and closely analyzing the circumstances that lead to extraordinary performance, a department head can identify best practices – those actions, conditions and practices that optimize efficiency and profitability.  In the case of downward trends, it can alert management to necessary interventions.

6. Benchmarks from past periods can make budgeting for future periods easier and far more accurate.

Absent major change, the best predictor of the future is the record of the past.

7. Revenue benchmarks from previous periods aid in forecasting business levels in future periods.

Accurate forecasting of future business allows managers to properly staff their operations and schedule appropriately for expected levels of business.  This, in turn, helps control payroll cost while ensuring service to members.

8. Tracking revenues and comparing them to historical benchmarks allows management to measure member response to products/services and new initiatives.

The most accurate indicator of member response to new initiatives such as new menus, new hours of operation, improved service training, hiring a new chef, etc., is the response seen in member patronage and buying habits.  If members traditionally spend an average of $132 per month on food, but since the new chef came on board that average has climbed to over $200 per month, management could feel comfortable that their decision to hire a new highly-paid chef was the right one.  Without the benchmark of previous operations, how would they know, except by anecdote and gut-feel?

9. While most managers have a general sense of the many variables influencing their operation, having the hard numbers and statistics supports the validity of decisions, proposed changes in the operation, and requests for additional resources.

Careful tracking and analysis of performance measures is the basis for sound decision-making and is extremely useful in proposing changes in the operation.  Proposals for capital purchases have a better chance for success when supported by details and analysis.  Further, there is no better way to manage the boss than with timely reports about the challenges and progress of the operation.

10. Benchmarks can be used to establish performance parameters for bonus and other incentive programs.

When goals are established based upon historical benchmarks, the ongoing performance measures can be used to determine eligibility and extent of bonus payments and other forms of incentive programs.

11.   The few minutes spent each day in recording and reviewing key operating statistics make a manager intimately familiar with the rhythms and flow of his operation.

Over time this develops into what can readily be called an intuitive understanding of the essential aspects of the business.  As a result a department head is able to foresee and prepare for expected variations in the business, such as traditionally slow and busy periods; doing this will ensure keeping costs in check while maintaining high levels of service.

12.   A significant reason for benchmarking is that it establishes the condition of the operation upon a new manager’s arrival and gives him a graphic demonstration of the many operational improvements under his leadership.

This is most helpful in gaining the trust and confidence of bosses, peers, and employees alike.  Coincidentally, it also makes it easier to justify increased compensation for job performance.

Note:  Club Resources International has developed benchmarking spreadsheets for all areas of club operations.  The Excel files can be downloaded and customized for your operations.  You can find them here.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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The Hospitality Challenge

Monday, September 6th, 2010

I’ve learned a lot about the hospitality business since my first position as General Manager of an historic hotel in the late 70s.  In a variety of positions in hotels, resorts, and private clubs – in startups, turnarounds, and repositionings, I’ve learned a number of key lessons from my efforts to deliver high levels of service.  Here they are:

The customer is King.  The only perception of quality, service, and value is the customer’s.  Hospitality managers must learn as much as possible about their customers in order to meet their needs and wants – where they come from, why they come to your establishment, what are their expectations, what do they like or dislike about your property, what are their complaints, what would they like improved?

The hospitality business is detail and people-intensive.  It takes a lot of people doing all the right things everyday to deliver consistent, quality service.  Therefore:

  • Written standards, policies, and procedures ensure every employee knows what to do and how to do it; help develop specific training materials; and ensure consistency and continuity in the operation.
  • Formal training is a necessity.  Operational processes cannot be left to oral history or chance.
  • Continuous process improvement is a must.  We can never rest on yesterday’s accomplishments.
  • Thorough benchmarking of all areas of the operation ensures that we know what is going on and what our customers are telling us by their spending habits.

“The soft stuff is always harder than the hard stuff.”

  • Consistent, property-wide leadership is a must.  Disparate and competing leadership styles confound the staff and sow divisions in the team.
  • Values and behaviors must be spelled out in detail and reinforced continually.
  • Excessive employee turnover is damaging to an organization in continuity, lost time, and cost.  Except in extreme cases our first impulse (especially in difficult labor markets) is not to fire, but to examine causes; improve processes, organization, disciplines, and training; and instruct, counsel, and coach employees.
  • Employees must be empowered to think and act in alignment with organization values, the property’s mission and vision, and carefully defined management guidelines.  “Without empowerment an organization will never be a service leader.”  Why?  Because there is far more to do and monitor on a daily basis than any management team can possible handle.  Authority for service and service delivery must be pushed down to the lowest levels of the organization – where it takes place.

Work planning and ongoing performance review are essential to holding managers accountable for their performance and the performance of their departments or work teams.  Without accountability only the General Manager is accountable and he or she will fail or burnout trying to succeed.

Leadership is key at all levels of the organization:

  • To set an unimpeachable example for employees.
  • To uncover, analyze, and solve problems.
  • To thoroughly communicate standards, policies, procedures, information, and training.
  • To engage customers and staff continuously.

All of the foregoing requirements must be institutionalized so that the operation continues undisturbed in the face of any turnover and 80% of the operation functions routinely – allowing management to focus on strategic issues, planning, execution, problem-solving, and customer interface.

These lessons learned have led me to formulate a plan to create and deliver high levels of service.  This plan can be found in a white paper I’ve written entitled The Quest for Remarkable Service.

Thanks and have a great day!

Ed Rehkopf

This weekly blog comments on and discusses the club industry and its challenges. From time to time, we will feature guest bloggers — those managers and industry experts who have something of interest to say to all of us. We also welcome feedback and comment upon the blog, hoping that it will become a useful sounding board for what’s on the minds of hardworking club managers throughout the country and around the world.

Club Resources International – Management Resources for Clubs!

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