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 Linking Staffing, Labor and Budgets
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By Ken Heymann, October 2005

Hotel budgets are done every year and all of them address revenues, expenses and labor costs. For many companies, the budget is a one-time a year exercise that focuses on analyzing past costs and projecting future costs.  Many organizations use comprehensive spreadsheet models that incorporate basic principles of flex budgeting.  In the most successful processes, senior and middle management participate so that all involved understand how the budget was constructed and what the underlying assumptions are. Once the budget is complete, actual performance is analyzed relative to budget each month.  Assumptions are reviewed and questioned, and may even be revised if the results are satisfactory.  Unfortunately, too many organizations settle for the annual and periodic reviews.  Cost management needs to be a daily and weekly endeavor, especially where labor is concerned.

Reviewing labor costs at the end of the month does not go far enough in helping managers control costs.  The process is too dependent on senior management reviewing results and asking middle management to explain what happened.  For labor management to be effective, department heads need to receive regular (daily and weekly) information that helps them plan and critique information.  The information system must be designed to operate at both the senior and middle level, giving all involved individuals essential information.

To accomplish this, the budget and labor management processes need to be integrated.  The labor standards that drive the budget must be available for weekly planning and analysis.  While this approach is common for hotel housekeepers, it’s not sufficiently widespread to meet the needs of all departments.  Too many labor categories are budgeted as a percent of revenue rather than in either hours per day or hours per unit (or units per hour).  Labor budgets need to be developed using standards that the manager can understand and manage to.  Food staffing (kitchens, stewards, servers) should be budgeted based on covers per hour.  The department manager needs to be able to manage labor based on covers per hour for the day, week and month.  If staffing standards are available in covers per hour but the budget does not use the same approach, there will be discrepancies in performance.  And the same is true if the budget includes covers per hour but there’s no system in place to help the manager plan and analyze performance using the same measurements.

Certainly, average check (and average unit price) is of concern to all.  However, shortfalls in average unit price need a different solution from problems with productivity.  A budget (or a labor standard) that does not reflect the different challenges posed by managing revenue and managing costs does not help an organization manage costs effectively.

To effectively manage labor, the tools and system must make staffing standards available for short term planning and analysis.  There should be an information system that allows managers to develop a Labor plan based on the forecasts and that tells them how well performance compared to standard daily and weekly.  This helps them constantly critique and refine labor use.  It also positions them to tell senior management how they’re doing rather than, as is so often the case, waiting for senior management to review a report and ask questions.

The same standards should be incorporated into the periodic and annual budgeting.  Integrating the processes ensures that middle management is properly positioned to manage performance.  This creates an environment in which information is shared and used by all involved to improve performance throughout the year.


Ken Heymann oversees the Business Advancement Services consulting division at UniFocus, as well as the development and installation of Watson, R.M.© resource management applications suite.  He has over twenty years of hospitality industry experience in organization development, organizational change and quality management.  He was also a member of the Peace Corps in Asia. 

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Contact:

  Kenneth Heymann
 UNIFOCUS
1330 Capital Parkway
Carrollton, TX 75006
972.512.5000
kheymann@unifocus.com

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