Cost and Performance Management: A Case Study of Hotel Elephant

This report provides a comprehensive analysis of cost and performance management at The Hotel Elephant, focusing on the implications of the budget and the hotel's financial standing. It examines cost control measures, performance analysis, and cost-revenue dynamics, identifying key areas of concern such as advertising expenses, labor costs, and repair & maintenance expenditures. Recommendations include cross-training staff, exploring biodegradable energy sources, and leveraging digital marketing strategies to reduce costs and enhance revenue. The report concludes that Hotel Elephant can improve its financial performance by carefully managing expenses, focusing on delivering quality services, and proactively addressing non-operating costs to increase profitability. Desklib provides access to similar solved assignments and study tools for students.

Cost and Performance Management
6/7/2019

Cost and performance management 1
Executive summary
Budgeting is one of the most important tools that are used by the company to analyse
where the company is and where it wants to reach in future. In this report, The Hotel
Elephant has been considered to understand the implications of the budget and whether the
situation is favourable or not for the hotel. The report also talks about the control of the cost
and the overall recommendations to enhance the performance of the Hotel Elephant.

Cost and performance management 2
Table of Contents
Introduction...........................................................................................................................................3
Part 1.....................................................................................................................................................3
Cost control...........................................................................................................................................3
Part 2.....................................................................................................................................................4
Performance Analysis............................................................................................................................4
Part 3.....................................................................................................................................................5
Cost and Revenue Analysis...................................................................................................................5
Make a plan...........................................................................................................................................6
Recommendations.................................................................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8
Appendix...............................................................................................................................................9

Cost and performance management 3
Introduction
Budgeting in the tourism sector is the one of the most crucial factor in growing the
industry of the tourism and hospitality. It acts as a planning pillar that can create a way for
the management to move ahead and secure greater market share in the industry. It not covers
a specific time frame at the same time with the help of the financial plans the company has
the clarity what the actual destination is. In order to find out the income statement is prepared
and it is compared against the budgeted results. If there are any variance it can be found out
and the necessary initiatives can be taken to overcome the situation. The budgets are
necessary for the strategic decision making and the internal development of the organization
(Vukovic, 2016).
Planning and cost control incorporates the nutty gritty estimation of costs, the setting of
concurred spending plans, and control of expenses against that financial limit. Planning of the
budget incorporates the three major stages which are, arranging, control of the costs and
auditing (Turner, 2017). It will probably include the following scenarios as well.
 Decide the salary and consumption profiles for the work;
 Create spending plans and line up with subsidizing;
 Actualize frameworks to oversee salary and consumption
Part 1
Cost control
There are different types of the cost associated with the Hotel Elephant, which can be
bifurcated into the fixed and the variable expenses. The fixed expenses are of static nature
and they are bound to be incurred irrespective of the years. The variable expense on the other
hand is those which are of irregular nature and might fluctuate. As per the income statement
of the Hotel Elephant the following are the fixed and the variable expenses and the
recommendations on how to control them (Ivanova, Ivano & Magnini, 2016).
 Advertising expenses are the one that have been higher than the budgeted amount.
The advertising costs have been increased from $3937 to $4953. These costs can be
controlled by understanding the fact that at times the marketing is not understood by a
large mass and just throwing money on the advertising would only increase the cost of

Cost and performance management 4
the hotel. The quality services will act as the word of mouth for the hotel (Taylor,
2018).
 Labour consumes nearly 50% of the hotel expenses and in order to curtail the expense
the hotel must cross train the staff for hotels like Hotel Elephant.
 Casual employee wages cannot be controlled as such, however if the existing
employees are made aware with the necessary skills the future cost can be retained.
 The hiring costs can also be reduced if the management hires the inexperienced
people and are willing to spend on the enhancement of the skills rather than paying
more than what the training would cost.
 The electricity charges can be controlled by shifting to the biodegradable energy or by
using the solar systems.
 The water charges can be controlled by recycling of the water and by applying the
automatic tabs.
 The better management of the cost would lie where the Hotel tries to circulate the
money in house only to cover most of the costs (Turner & Coote, 2018).
 Credit card commission can be discussed with the bank for making the single long-
term payment rather than doing it as a pay as you go as this will control the cost.
Part 2
Performance Analysis
A performance analysis plan is a spending that mirrors the contribution of assets and
the yield of administrations for every unit of an association. This kind of spending plan is
usually utilized by government bodies to demonstrate the connection between citizen reserves
and the result of administrations given by bureaucratic, state, or neighbourhood governments
(Phillips, Barnes, Zigan & Schegg, 2017).
In order to manage the tourism and the hospitality sector it seems to be more
troublesome than ever. Expanded requests set by buyers, rivalry and contracting supervisory
groups have brought about more enthusiasm for quality administration rehearses. The client’s
decision is built on the basis of the competition prevailing in the market, administration
desires, and at last the estimation of the dollar spent. As the hotel industry business moves
toward becoming increasingly focused, experts in the field are searching for approaches to
pick up an upper hand, draw in, and hold visitors. The nature of administration has been

Cost and performance management 5
observed to be the manner in which hotel’s associations separate themselves (Phillips, Zigan
Silva & Schegg, 2015).
From the performance analysis of the Elephant hotel it can be stated that the company
has performed altogether good and smoothly in comparison to the budgeted figures however
there are some areas such as the advertising, credit card commission, hiring of the kitchen
utensils, cost of the repair and the maintenance and the overall net profit has turned into more
achievable profit. This situation mainly because of the negligence towards the areas
determined above. The repair and maintenance increased from $9375 to $12531 and increase
by 25%, which is a huge expense surge. This needs to be controlled by the management as
this would increase with faster growth as compared to the previous year. The amount of the
credit card on the other hand have increased from $13590 to $16192, this could have been
dealt with care by dealing in the cash transactions. The electricity expense has not increased
much; hence the hotel can improve the existing performance well (Duan, Yu, Cao & Levy,
2016).
Part 3
Cost and Revenue Analysis
Cost analysis supports the company to identify the expected costs and benefits of specific
asset, new product, or plan of the action. The in-depth analysis related to the cost can reveal
the hidden costs that are embedded within the company. Further, the revenue analysis shows
the amount that has been generated from the sales of their product and services. In order to
generate more, the company can enhance the prices of the present goods and services along
with this they can offer the additional services. Collectively, the analysis of cost and revenue
shows that they keep the cost at the minimum so that they can attain maximum revenue. After
the overall analysis, it can be concluded that the BOB and BIB can make sure to follow
certain steps that could necessarily reduce the costs and they would not have to worry about
the business. The proactive decisions shall also be taken with regards to where to spend the
money and how much to spent to (Akbar & Tracogna, 2018). The major cost drivers that
have been pointed out are the non-operating expenses because of which the hotel is suffering
from the low profits. The sales could be increased my diversifying in the areas or by
providing the discount and the schemes. The Hotel can also offer the package deals to attract
the large number of the tourists and the local customer as well. The daily activities can be
organized for the entertainment purpose. The facility of the pool can be made access by the
customers to have more incomings of the people. All these strategies can surely increase the
sales and reduce the costs and can make a balance between the revenue as well as the costs
(Arbelo, Pérez-Gómez & Arbelo-Pérez, 2017).

Cost and performance management 6
Make a plan
Identification of cost
The cost that has been identified in the income and expense statement are advertising, bank
charges, casual employee wages, food delivery vehicle service costs, property insurance,
repairs and maintenance, waste removal, website hosting charges, and Netflix subscription
etc. While making an appropriate plan, it is realised that earlier all the cost are assumed as
variable. In order to adjust the plan and make it more realistic, the company will consider
casual employee wages and electricity are fixed.
Considering variable cost and fixed cost
Fixed cost are those expenses that remain same even when the number of units sales or the
level changes. To have an effective income and expense sheet, it is seen that electricity and
casual employee wage are considered as fixed.
Variable cost is a cost that differs from the level of production and sales.
Variances
While viewing the excel sheet, it is seen that when casual employee wages and electricity is
assumed as fixed. According to actual income expenses, electricity and gases are $37,125 and
budgeted is assumed as $37000, so the unfavourable factor of negative $125 will be
eliminated. Casual employees’ wages is seen as $180625 according to actual income
expenses whereas, budgeted is estimated as $ 187500 which is favourable but it will be fixed
as per actual.
Recommendations
It is important to make a proper decision in regards to the classification of variable and fixed
cost. The basis on which this classification should rely upon should consider the demand of
the customers because the increase in expenses can be controlled by the company only when
the cost is variable. It is mandatory for a business to apply correct costing method so that the
company can identify correct profits. As per the recent criteria, the company should apply
ABC costing. Different allocation to different costs is important as cost per unit based on
activity will be more accurate and it will be reflected as per the actual efforts related to the
production. The companies have begun to use ABC costing information so that it could
practise management based on activity.

Cost and performance management 7
Further, it is recommended to the company to conduct the advertisement through digital and
social media, as this will reduce the cost. The social media tools that can be used by the
company include Facebook, twitter, and many others. On the other hand, digital media
include the e-mail and other online modes. This effectively contributes in reducing the cost
and generating the maximum awareness.
Conclusion
From the above analysis it can be concluded that the Hotel Elephant has performed
much better in comparison to the budgeted figures. All the hotel needs to do is, to curb the
extra costs that can be minimised easily and the net loss of the company can be turned into
profits. Moreover the hotel must make expense wisely and focus on delivering the quality
services. The brand of the hotel will eventually grow and the demand will rise.

Cost and performance management 8
References
Akbar, Y. H., & Tracogna, A. (2018). The sharing economy and the future of the hotel
industry: Transaction cost theory and platform economics. International Journal of
Hospitality Management, 71, 91-101.
Arbelo, A., Pérez-Gómez, P., & Arbelo-Pérez, M. (2017). Cost efficiency and its
determinants in the hotel industry. Tourism Economics, 23(5), 1056-1068.
Duan, W., Yu, Y., Cao, Q., & Levy, S. (2016). Exploring the impact of social media on hotel
service performance: a sentimental analysis approach. Cornell Hospitality
Quarterly, 57(3), 282-296.
Ivanova, M., Ivanov, S., & Magnini, V. P. (2016). Handbook of hotel chain management.
Phillips, P., Barnes, S., Zigan, K., & Schegg, R. (2017). Understanding the impact of online
reviews on hotel performance: an empirical analysis. Journal of Travel
Research, 56(2), 235-249.
Phillips, P., Zigan, K., Silva, M. M. S., & Schegg, R. (2015). The interactive effects of online
reviews on the determinants of Swiss hotel performance: A neural network
analysis. Tourism Management, 50, 130-141.
Taylor, D. (2018). 7 Straightforward Ways to Cut Back on Hotel Costs. Retrieved from
https://blog.capterra.com/7-straightforward-ways-to-cut-back-on-hotel-costs/
Turner, M. J. (2017). Precursors to the financial and strategic orientation of hotel property
capital budgeting. Journal of Hospitality and Tourism Management, 33, 31-42.
Turner, M. J., & Coote, L. V. (2018). Incentives and monitoring: impact on the financial and
non-financial orientation of capital budgeting. Meditari Accountancy Research, 26(1),
122-144.
Vukovic, D. (2016). BUDGETING P ROCESS IN TOURISM COMPANIES FOR THE
PURPOSE OF IMPROVING THE QUALITY OF TOURISM PRODUCTS. Retrieved
from file:///C:/Users/Manita/Downloads/181-186.pdf

Cost and performance management 9
Appendix
Income & Expenses Statement for The Elephant Hotel for the
year ended 30th June 2018
ACTUAL INCOME
& EXPENSES
BUDGETED
INCOME &
EXPENSES
Variance Variance
Analysis
F/
UF
2017-2018 2017-2018
INCOME
RESTAURANT Sales $445,000.00 $425,000.00 $20,000.
00 4.71% F
Sale From Bar $245,000.00 $250,000.00
-
$5,000.0
0 -2.00% UF
TOTAL SALE $690,000.00 $675,000.00 $15,000.
00 2.22% F
Expenses
Advertising $4,953.13 $3,937.50 $1,015.6
3 25.79% UF
Bank charges $810.00 $1,080.00 -$270.00 -25.00% F
Casual employee wages $180,625.00 $187,500.00
-
$6,875.0
0 -3.67% F
Cleaning & cleaning
products $1,215.00 $1,620.00 -$405.00 -25.00% F
Credit card commission $16,192.50 $13,590.00 $2,602.5
0 19.15% UF
Electricity/Gas $37,125.00 $37,000.00 $125.00 0.34% UF
FOOD DELIVERY Vehicle
service costs $3,937.50 $4,050.00 -$112.50 -2.78% F
kitchen utensils hire $1,350.00 $1,250.00 $100.00 8.00% UF
Netflix subscription $1,350.00 $1,350.00 $0.00 0.00% F
Permanent full time
employees wages $315,000.00 $315,000.00 $0.00 0.00% F
property insurance $1,181.25 $1,575.00 -$393.75 -25.00% F
Public liability insurance $945.00 $1,260.00 -$315.00 -25.00% F
Repair & maintenance $12,531.50 $9,375.00 $3,156.5
0 33.67% UF
Superannuation for
employees $47,084.38 $47,737.50 -$653.13 -1.37% F
Waste removal $1,822.50 $2,430.00 -$607.50 -25.00% F
Water charges $9,450.00 $10,600.00
-
$1,150.0
0 -10.85% F
Website hosting
expenses $2,995.31 $3,993.75 -$998.44 -25.00% F
Total Expenses $638,568.06 $643,348.75 - -0.74% F

Cost and performance management 10
$4,780.6
9
Month Net Profit /
(Loss) $51,431.94 $31,651.25 $19,780.
69 62.50% UF