Five-Year Revenue Management Plan for Maistra Company - Assignment Example

Introduction Revenue management is the process of providing and making sure that maximum cash is accessible for use in the company. In other words, it means to increase the REVPAR for the specific company. Revenue management also involves the utilization and management of idle funds in the organization on short terms investments in order to engender more returns. This paper will therefore look into a specific aspect revenue management and that is budget. But first, it will develop a five year revenue management plan for Maistra Company Question 1. Five-year revenue management plan for Maistra Company Maistra Company needs to adopt an action plan for the next five years that will see greater revenue collection, expansion and growth for most of the sectors of its revenue drivers. This can only be done if an effective revenue collection and budgetary system is put in place on time. The first part of revenue collection will involve price adjustments in order to maximize the amount of revenue collected and thereafter there is need to budget this collected revenue for further investment (Gustavo, 2002). The following action plan will therefore centre on the need to have correlation between central reservation departments, sales department, website advertisement, distribution channels and customer care departments (Lashey & Morrison, 2000) Since most of the hotel rooms are packed during public holidays, weekends and other prime days of the year, the management would need to make adjustments in prices for offer during these periods. This would make it possible for the company to raise more revenue that would keep the company running even after the peak seasons are over. Ideally, the company would need to raise the price by up to 10% for hotel rooms and a further 5% for other products and services. Food and drinks could be slightly increased by 3% in order to ensure that customers don’t run away from the hotel. This increment can be done in a gradual manner lets say the company starts with 4% increment for the first year, 2% increment for the second year, 2% for the third, 1% for the fourth year and a final 1% in the fifth year. (Gustavo, 2002) As a matter of fact, the company has not been able to meet international standards in terms of the specific customer needs or quality of services and products hence the need to be able to generate more funds to b used for improving the current situation. (Gustavo, 2002)For instance, when a sizeable amount of revenue is achieved for this increment, equitable budgeting can be done especially for the marketing department. If the current crop of problems is anything to go by, more funds will be needed here for the development of appropriate technologies for internet marketing. (Powers, 1995) An amount of 10% allocation of all revenue obtained for the first year after the recommended increase will see into it that the company franchises marketing services and also placing their ads on as many search engines as possible. (Kin-Keung, 2005)This is because many people get information about the hotels they would want to stay from such sources. Since this company also experiences changing customer expectations, more funds would be needed to develop products and services to go inline with customer expectations. Food and drinks can be served as takeaway products for most of the customers for this company who are group tours (Powers, 1995). With more than two five star hotels and resorts being refurbished and constructed, the company is able to make more money and get the right clients including those for five-star class. (Nicola, Kirk, Tankut & Andrew, 2002) Many customers would get into the internet and type key search word in order to locate a good hotel and thereafter locate the hotel’s website or even make calls to contact the hotel. This is an opportunity that Maistra need to adopt and in order to effective utilizes this; it needs to budget for more funds to improve its electronic distribution channels. The price rates that appears on the website need to be adjusted in orthodoxy with the company’s aims and objectives for the future (Nicola, Kirk, Tankut & Andrew, 2002) Question 2. Budget as an aspect of revenue management managerial issue A budget basically refers to a list of planned expenditure and revenue. It makes an estimate of the revenues and expenditure that will be done in future as opposed to just an account used for recording financial transactions within the company. For a company this is a summary of how the company’s management plan to get revenues and how it will spend that money (Powers, 1995). For any organization to fully manage its revenue it needs to make an accountable, all-inclusive and effective budget. This budget is planed by the management and budgeting office and then taken for further discussion by all the stakeholders in the company including the owners, employees, managers and to some extent the players in the industry such as the hospitality industry in our case. This group of people will make any desired changes on the budget contents and instruct the company to make adjustments that is viable to them. (Lashey & Morrison, 2000) One of the most important features of budgeting with reference to revenue management in all organizations and not only in the hotel industry is the budget cycle. The budget cycle and analysis that is normally taken when planning a budget is the projections that the company would want to have in terms of expenditure for the next four or five years(Kotas & Joyawardena, 1994). A budget cycle engrosses various aspects of financial management such as; development of budgetary allocations, budget scrutiny, strategic arrangement, communication of results and then concluding estimation. Companies are required to make budgets for the purpose of sound pecuniary plans and liability. Budgeting provides a significant opportunity for planning the company’s operations, improving the image of the company and achieving the necessary growth and advancement for the future (Kotas & Joyawardena, 1994) The factors that need to be considered before budgeting include the forecast plans for the company, the available funds and the rate of flow of the returns. (Kin-Keung, 2005) In this case, a company would need to seriously do an analysis of available opportunities, threats, weakness and strengths that is available to it. After doing an analysis of existing and also proposed programs of expansion, and also any new permitted by the company laws or by the or by the industry itself, it does an audit and sources for ideas to make the necessary budget fixing. The audits got from the current and preceding financial year’s accounts are also considered to be able to determine the company’s fiscal force. A budget reflects on anticipated income for the subsequent fiscal year of business. (Abhijit, 2004) A budget gives a level of approval of financial planning information to the stakeholders, the employees and also the other companies that offer them suppliers or any other collaborative business. In addition to this, it gives useful information to the taxing authorities such as the public health officers. The budget is also an important tool in the public arena that will be used to showcase the level of financial management that a company can be able to achieve (Nicola, Kirk, Tankut & Andrew, 2002). For this reason, it will be possible for it to be used as a reference point for meeting international recognition and also by other companies working with it. Using Maistra as an example, it is feasible that this company can meet the international standard of being a five-star hotel offering state-of –the art services and products to its customers. The budget will therefore convince potential clients that the company is well-off enough to gather for their individual expectations. Budgeting is a usually complex process that requires a lot of planning and mathematical accounting for a quality document that meets the objectives of the company, clients and employees at ago. (Gustavo, 2002) A successful budget takes into account the income and expenditure and thereafter balances the two in an open way. The budgetary plan should therefore underline all the items that the company intends to spend on and how it will conduct the expenditure process without affecting the budgetary allocations in any way. The importance of lucid and steadfast information about the budget cannot be undervalued by any company and not even a government for that matter. This is because the information is usually reflected to the management functions of the people in charge of the funds. (Abhijit, 2004) In budget preparation, the initial step starts with the top management normally a superintendent, who together with district workers assigned to develop the company’s budget, expend most of the part of the year collecting data from the available resources. After this they make recommendations (Kin-Keung, 2005). The management will therefore come up with a final product which they submit to the board of the company for scrutiny and recommendation. They will make amendments on the part they feel necessary and after that the board will endorse the final financial plan. (Nicola, Kirk, Tankut & Andrew, 2002) All companies that would like to have meaning budgets would need to be very vigilant for the reason that they must track their internal operating costs and also track other many complex fiscal and budgeting such as taxes, idle funds and other expenditures. In some cases, other companies have no written description about the way their budget procedures. Financial heads know these procedures of budgeting and they are able to draw the budgets without written regulations. (Kin-Keung, 2005) While developing the budget, companies make the estimates that it will need to spend for the financial year, and how it will get the revenues to spend. Bruce and Sheree describe this process of budgeting in to two categories. (Lashey & Morrison, 2000) There are two ways either vertical budget; which lists all different revenue and expenditure in that particular year while the company can also use the horizontal budgeting plan that will base its revenue and expenditure on evaluation of the current the previous financial performances of the company. It may slightly take into consideration plans for the future but mostly what has happened in the past and how things must be rectified (Abhijit, 2004) Budget management is an important concept in revenue management that must be taken into consideration to ensure that success is achieved within the set limits(Ball, Jones, Kirk and Lockwood, 2003). Through effective budget and fund management any company can been able to identify the most important things to do first. Management practices by the financial managers are responsible for monitoring the results of any event and thus can make any improvement or modification if there is need for any re-budgeting. Any organization can employ internal auditors to check the financial statements of the organization and verify if there is any misappropriation of resources that are not conforming to the set guidelines in the budget (Nicola, Kirk, Tankut & Andrew, 2002) Every established fund is a sovereign and separate accounting entity that has its individual assets and liabilities together with fund’s equilibrium. Companies will determine the how many funds are created and most probably how they will be distributed. The fund does not depend on the size but the operations of the hotel for that matter and it must take into consideration the issue of urgency. Companies are supposed to maintain the budgets and no deficits are expected if the budgets were prepared in a professional manner. (Kin-Keung, 2005) Pricing is one feature of management that focuses maximum optimization of revenue opportunities for this company and it goes inline with budgeting. Although revenue management obeys the price demand relationship curve, there are more insights with which this company can utilize the pricing aspect to gain more profit and therefore, the budget should be able to correspond to the pricing strategy adopted (Ball, Jones, Kirk and Lockwood, 2003). In the past, many companies avoided the issue of interaction between price positions and absolute price strategies for determining prices for their products and services but today, the issue has been has gained ground and it is being implemented as opposed to using surrogates in budgeting. (Kin-Keung, 2005) Budgeting and proper pricing are of two techniques of revenue management which gives the organization the revenue it requires. When an organization overprices or under prices its products and services, there will automatically be a crisis. (Lashey & Morrison, 2000)There are various factors that are being undertaken in the hospitality industry before a pricing industry is adopted. With reference to a hotel, the factors taken into considerations are; competition, market share, product identity, the income of prospective customers, season of the year and government issues. Many hotels have focused on producing quality products at a premium price which will help the restaurant meet its external costs. (Nicola, Kirk, Tankut & Andrew, 2002) In conclusion, the hospitality industry managers should identify good measures of adjusting to the impacts of competition by having better budgetary allocations and revenue management polices for their business undertakings. Companies should provide an enabling environment that will foster controlling of high wastage of funds through the development of effective budgets thus being able to maximize the usage of revenue in their companies. Analysts have found the hospitality industry to be subject to the present misuse of their revenue because of the complexity of the industry. Read More