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Budgeting Labor Costs in '08
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Our Guests are Paying the Prices We Ask on Virtually Every Item We Offer
- a Room, a Cocktail, a Food Item or a Gaming Experience -
Overbudget So You Don’t Have To Fudge It!
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By William “Billy-O” Orilio, MHS, CEO, Orilio & Associates, Inc.
September 2007

Guests increasingly see our operations in terms of “real” and “fake”. They want to buy something genuine, not contrived or artificial. They don’t want you to fudge it, and if you’re not going to fudge it you need to overbudget, especially when it comes to labor. Goods and services are no longer enough. The modern guest wants a lot more than that. They want something intangible. They want a memorable experience. They want to be engaged in an inherently personal way.

I have the highest regard and respect for CFOs, CPAs and Accounting Departments, but it’s time to take the experience generation into account. That means allocating resources to a goal that doesn’t fit neatly into a bean-counter’s metric. We’ve got to spend more money on labor. If we spend more money on labor we will reap the benefits. We’re fat! It’s a fat time, especially in the casino market. People want to give us money. Overbudget, and you won’t have to fudge it.

We know that people will drive a long way to get gasoline at 10 cents, even 18 cents a gallon cheaper, sometimes spending almost as much as they save in driving there. Therefore you’ve got to be genuine, you’ve got to be visionary, you’ve got to be sincere, and you’ve got to be offering something more than everybody else. Great service is what will separate your operation from the pack, and service requires labor. 

Nobody likes the time of year when you have to sit down and do budgets for the upcoming year. Budgets are based on past performance and what was allocated, or what was left over, in any given department. CFOs base new budgets on what they think the operation will need. Department heads don’t like to ask for what they’re really going to need, especially in labor dollars. They endure a constant drumbeat: cut labor…cut labor…cut labor. Department and Division leaders can’t show overtime because it’s bad—though it’s really not. We live in a world of educated guests; educated to the point where they know exactly what they want, and what they want costs us time and money on the front end. Now we have to give it to them.

Regardless of what competitive marketplace your property falls into–luxury, high end, middle, low, economy–it doesn’t matter. Your operation more than likely offers the highest-quality product and goods for the price you can get it for. Product value is maximized. The only thing you have left to offer of genuine, intrinsic value is service. Service equates to labor, and labor equates to dollars that you need to budget. Think about it…if you overbudget, instead of your department heads coming into quarterly and monthly budget revamp meetings for being over budget, they’ll be under budget. Or on-budget. What a surprise! Realistic goals, when realized, are a lot better than unrealistic goals never achieved. 

This is a concept that can be difficult for the suits in the boardrooms to get their brains around. We spent 10 years improving quality. The gurus of Total Quality Management, Six Sigma and Zero Defects drove quality to its highest degree. Guests enjoy spending money on a quality product because they are getting something tangible. The accounting minds of any organization can rationalize allocating resources to something tangible, but when you start talking about labor, it’s intangible. Ephemeral. It would be nice if we could do more with fewer people, but imagine if we could do four times as much, with two times as many people. Let’s try that this time around. People are out there spending money, and we need enough warm bodies to take it from them. Competitive properties have beaten each other up to the point where they are topped-out. We can’t go any higher unless we fundamentally change our competitive marketplace, and that’s much more difficult. So where do we go? Where do we turn? Service! It’s time to spend the next 10 years on service.

Richard Florida, author of The Rise of the Creative Class, describes the emergence of a new social class. The defining basis is economic. Florida states that those he places in this class, “Do not see themselves as a class.” He says that what these “purveyors of creativity” do for a living influences their everyday choices of what and how to buy, where to go, what to do, and where to live. His belief is that the “creative class” is “more active, authentic, and participatory in experiences.”

If “60 is the new 40”, people clearly are more active. Every casino now has interactive touch-screen slot machines which require guests to be participatory in the experience, validating Mr. Florida’s thesis. 

Authenticity has overtaken quality as the number-one reason people spend their money, and where they spend that money, just as quality overtook costs years ago, and as costs overtook availability before that. Now it’s time for service to become as authentic as it can be.

Our guests are paying the prices we ask on virtually every item we offer, be it a room, a cocktail, a food item or a gaming experience. They’re paying the tariff and we’re giving them the quality of product they want. Now they demand that the services come up to that level of quality. They have every right to demand that, and we have a duty and an obligation to provide it. If we’re going to do that, now is the time of year to keep that in mind. When we walk into budget meetings, we need to overbudget. Don’t even look at last year’s budget. Recession, shmecession! Our industry is booming. Pull up the budget from four years ago, multiply it by five, and run with those numbers.

Sound crazy? Here’s why that’s the best way to budget ‘08: go back five years and you’re in 2002. In ‘02, budgeting was based on post-9/11 consumer spending. For that time of year and that era, labor was at acceptable levels considering business travel and traffic levels. But shortly thereafter, consumer spending and traffic picked up at a much faster rate than budgets were able to catch up with. It may not have been intentional on the part of the managers and department heads that crunched those numbers, but clearly the accountants knew you couldn’t budget 2003 or 2004 based on the previous year. To do so would have been counter-intuitive, requiring Draconian cuts to labor and service levels.

We all know what budgeting is. It’s a combination of education, experience, and gut feeling. And yes, conjecture. Guesswork. Worst-case scenarios…

Don’t do any of that.

Go back five years, post-September 11, when we weren’t quite sure how to budget for a changed worldview. Take those numbers and multiply them by five across the board. In any given category, if those numbers come in under your current operating revenues and expenses, even if it’s only by one dollar, go back and multiply it by eight. Then don’t worry about it.

We spend a great deal of time giving employees the right tools and resources to get the job done. It’s time to get the department heads the right resources. They’ve got the tools, now give ‘em the resources. Overbudget, and they won’t have to fudge it. When they come in under-budget, owners and investors will only have one way to judge it. It’s a win-win situation. Think of the time and stress you’ve saved from the quarterly budget revamp meetings. 

There’s always the argument that if you overbudget, the department heads will abuse it. That’s why you have to reel them in and keep a tight leash at all times. Department heads and managers have to remember that it’s their job to maintain and conduct themselves in an ethical fiduciary manner. As my mentor Jim Sullivan always said, “Groom ‘em or broom ‘em.  If they can’t do it, find someone who can.”

Overbudget, don’t fudge it, and start the new fiscal year with a big smile on your face. The trickle-down effect will be amazing. 



Mr. Orilio is the CEO of Orilio & Associates, Inc., a Hospitality Consulting firm that provides services and expertise to hotels, casinos, restaurants, and other customer service businesses. His experience in the Hospitality and Gaming industries spans 30 years and over 60,000 hours of documented on-site observations. He taught Restaurant and Hotel Management at San Diego Mesa College for 20 years and Casino Management at San Diego State University for the past three years. 
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Contact:

William “Billy-O” Orilio
800-711-7776
www.OAHospitality.com
BillyO@OAHospitality.com

 

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Also See: Every Time You Turn Around in a Casino These Days, Something Is Missing with Regards to Service! The 99 cent Shrimp Cocktail Is Long Gone But the Need for Value and Superior Customer Service Remains / William Orilio / January 2007
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