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Mr. Lund

Revenue Management

Measuring and Managing Labor Productivity

By David Lund, Hospitality & Leadership Expert, The Hotel Financial Coach

In hospitality, the measurement and management of productivity is hit and miss and miss again. Time and time again hotels are using ineffective measures to try and capture labor productivity measurements.

"It's not always that we need to do more but rather that we need to focus on less." - Nathan W. Morris

Rooms Productivity

The goal in measuring productivity in the rooms division is to see, monitor and ultimately improve on the number of hours of work it takes to service a room. The expression to use is "hours per room occupied." Hours worked divided by the number of rooms sold. This labor productivity statistic is the most important tool available to manage your biggest expense in the rooms division.

If you were making cars, you would want to know and continually improve on how many hours and minutes of labor it takes to make a car. Regarding rooms, labor comes down to how many hours it takes to service one room. You will want to see this at the total rooms level as well as how it stacks up.

The "rooms stack" is best laid out with the following sub totals: front office, housekeeping, room attendants, reservations and bell/door. These categories must be separate to see where there are productivity wins and challenges. To be able to see labor categories separately, use proper departments and job codes to fall into the different stacks. In addition to the separation of the stacks, you need to know the difference between hourly and management positions in each stack.

To do this effectively and consistently there must be a payroll dictionary. Establishing a consistent way to segregate labor is not difficult. Start by defining the difference between management and hourly positions. For consistency, ignore salaried vs. hourly and union vs. nonunion. These are ignored because they differ greatly from location to location. Instead focus on job title. The word manager is critical. If the word manager or higher appears in the title, they fall into the management category. If supervisor or a lower title appears in the job title, they fall into the hourly category.

Here is an example for "front office." It is important to recognize that management or hourly terminology is only a way to organize data and is not an indication of any regard.

Front Office Stack

  • Front Office Hourly - Front Office Clerks, Reception Clerks, Front Office Cashiers, Front Office Supervisor, Reception Supervisors, Night Audit Clerks, Secretary, Admin Assistant

  • Front Office Management - Front Office Manager, Reception Manager, Assistant Manager, Front Office Director, Rooms Division Director, Night Manager & Assistant Night Mgr.

Repeat the same exercise and organize rooms department and positions into the different stacks and by the "hourly" and "management" classifications.

Once the classifications are established, track the hours worked in each stack. In turn, divide the hours worked in each stack by the total number of rooms sold for the entire hotel: for 1 day, 1 month or 1 year. Anytime you can capture the number of units of labor (hours of labor) it takes to sell the rooms and divide this by the number of units sold, you have rock solid data.

The "hours per room occupied" measurement can be used everywhere. Starting with the annual budget. You will want to know the "hours per room occupied for the year" goal. If the total hours for the rooms division in the budget is 45,978 and the total number of rooms occupied in the budget is 37,525 then the hours per rooms occupied is (45,978 / 31,525 = 1.4585). This number 1.4585 is gold!

In everything you do with rooms labor, you now know the measure of success. Meet or beat the productivity goal of 1.4585 hours per room occupied and you win. If you can use this target in your daily schedule, weekly schedule and monthly forecast you can continually adjust the course to track to your target. It is a simple and effective way to track to the goal.

As the operations manager, you cannot have any effect over pricing or wages, they are out of your control. Any measurement that looks at labor as a percentage of sales in noteworthy but you cannot control it. As the operations manager, what you have control over is the schedule and hitting the productivity target if sales volume is down or up. The hours per room occupied is your speedometer and you can tell what stacks are up to speed or not and see if it is an hourly or management issue.

When you measure and track productivity this way you give leaders and managers on the ground a simple and effective tool. There will be days when you lose big on productivity goals. Days like Mondays in a leisure hotel. Challenging productivity days are heavy arrival or departure days, multiple occupancy, and low occupancy. On the other side of the coin, you will have days where productivity is naturally high: stay overs, long stay guests, business travelers, groups with heavy programs, and single occupancy guests.

What operations managers need to see is the hours per room occupied goal. Knowing there will be losses and wins in the days and weeks is natural. Hitting or beating the monthly productivity target is the magic result for them to see and get excited about. Hours per room occupied is the only productivity measure they need to focus on. Get each manager in the rooms division to do their monthly forecast, weekly schedule and daily log all referencing their productivity target and the actual result. Like tacking on a sailing ship you are constantly moving from a loss to a win and a win to a loss all the time keeping an eye on the desired final destination. Use hours per room occupied in addition to the number of arrivals and departures and room credits on your schedules.

Food and Beverage Productivity

In food and beverage, we want to get obsessed about a similar measurement like we do in the rooms division. In F&B its Hours per cover served. Right out of the gate we need to understand the definition of a cover and it has recently changed. A cover is now properly labeled as a "customer" and it is now calculated by dividing the total sales in all food and beverage items by the total number of customers. Before it was only food sales and we divided the number of people who consumed a food item by the total food sales. Now it's the total warm bodies divided by total F&B sales. See the updated 11th addition of the uniformed system of accounts for the hospitality industry book for more on this change.

With productivity, it's "hours per customer" , that is what we want to get obsesses about. Unlike our brother in the rooms division a "customer" is or can be more challenging to record consistently and correctly then a room sold. You need to be diligent with the food and beverage service staff to ensure they record their "customers" correctly in your point of sale system. Reviewing your point of sale guest checks will tell you very quickly if this is being done properly and consistently. One other tip is to closely review your daily revenue report and look for average covers by meal period that don't make sense.

Productivity in food and beverage is also best measured by dividing hours worked by customers served. Our operations managers have no control over wages or pricing, but they do have control over schedules and this is where we want them to focus. The percentages and per cover/customer costs are important but the trump card is "hours per customer served". What we need to see is this measurement in all our budgets, forecasts, daily reports and schedules. What's our F&B total productivity and how does it breakdown by outlet? We need stacks in each outlet that can stand on their own and we also want to see the consolidated results.

In F&B we have a bigger challenge than rooms with productivity creation. In F&B because of the multiple departmental structure and the allocation of management, food preparation and stewarding we need to set up things a little differently. Again, you're going to need your payroll dictionary and you will need to have the different classifications based on job title.

The first delineation we have is the people in our operations that work on the floor vs. behind the scenes. All service staff for an outlet, both management and hourly are considered "direct". The hourly and management for food preparation, stewarding and F&B administration are considered "allocated".

To design our stacks in F&B we need the following structure. Direct and allocated and inside both we need hourly and management positions.

Any Outlet Hourly Direct

All Wait Staff, Host, Bussers, Bartender, Bar Waiter, Cocktail Servers, Sommelier, Supervisors, Bar Backs, Captains, All Floor Guest Facing Non-Management Positions, Cooks, Dishwashers, Helpers, Apprentices, Supervisors, Pantry, Attendants, Porters, Cleaners, Chef D'Partie, Butcher, Garde Manger, Secretary, Administrative Assistant and Office Clerk.

Any Outlet Management Direct

Outlet Managers, Outlet Assistant Managers, Maître D, Beverage Manager, Assistant Manager Executive Chef, Sous Chef, Pastry Chef, Outlet Chef, Banquet Chef, All Chef Positions - Executive and Jr.

In banquets, we will have several additional hourly and management positions however the same hourly and management "allocated" positions will apply.

Banquets Hourly Direct

All Wait Staff, Porters, House Person, Bus Persons, Bar Person, Bartender, Banquet Supervisor, Banquet Captain, Banquet Bar Supervisor, Office Coordinator, Payroll Coordinator, Revenue Clerk, Host, Hostess, Cashier, Banquet Secretary, Catering Coordinator, Administrative Assistant

Banquets Management Direct

Director of Banquets, Assistant Director of Banquets, Banquet Manager, Assistant Banquet Managers, Conference Services Managers, Assistant Conference Services Managers, Catering Managers, Assistant Catering Managers

The results of these groupings and classifications is well worth the effort. On the chart below we see an example of a single outlet productivity, banquets would also look the same.

In food and beverage, we cannot get away from the allocation game. In your hotel, the most efficient way to manage your food cost and food labor is to have one main kitchen that prepares, cold food, sauces, soups, butchers, pastries, banquets, etc. Then the outlet kitchens prepare the final product, usually the protein with a combination of the resources from the main kitchens efforts with their own. The same idea is applied to stewarding and administration in the F&B division. Hotels that try to capture all the costs for food and labor directly for each outlet are ultimately not successful.

They either spend too much creating the separation and resulting duplication of efforts that the main kitchen scenario provides or they pretend that they can capture the actual costs. Either way allocations of labor and cost of goods is inevitable and in the end, the allocation method is ultimately the most efficient way to manage the labor in food and beverage. What you need is an effective way to measure and manage in food and beverage. The "direct and allocated", "management and hourly" is the way to go. Inside the F&B consolidate statement we see the individual outlets results as well as the total for the allocated areas.

What you want to see in your operation daily is productivity. Have you daily labor analysis produced so you can track and monitor the productivity. Include these summaries in your financial statements each month. From my analysis, I can see where I'm winning with productivity and where I'm not.

In the scenario above for the month of May I see the following:

  • In Banquets we had a great month and I'm ahead of budget and last year, both hourly and management productivity is better with lower volumes of customers, well done.

  • Room service had a poor result for May, lover volumes and more hours worked. This requires my attention. What are we going to do about this ongoing challenge we have? How else can we provide our guests F&B services?

  • My all-day restaurant also had a challenging month with the volume of customers flat to last year and below my budget. I need to ensure my floor managers are adjusting the schedule where possible, sending people home early where possible. I need to emphasize again that every hour counts.

  • The results in fine dining were mixed with an improvement over last year but below budget. Sunday's are the problem and we need to look again at our need to be open on Sunday.

Food prep is creeping up and it appears that little adjusting is being done. My new chef is more concerned with keeping his cooks happy with their hours than he is managing his productivity.I need to remind her again that labor productivity targets are part of her core responsibilities.

The information segregation and the framework outlined above give you a lens to see what is happening in your operation. It's up to you to use it and to manage the team and move in the direction of incremental improvement.

David Lund is The Hotel Financial Coach, an international hospitality financial leadership expert. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with an international brand for over 30 years. Mr. Lund has reviewed thousands of budgets, forecasts, month-end reports and commentaries. He has managed hotels with combined incomes of hundreds of millions and assets of more than a billion dollars. He has combined his hotel business knowledge and communication skills to create strong financial teams and break with accounting stereotypes. Mr. Lund believes that all hospitality leaders have financial skills and talents and he works to see these talents come alive. Mr. Lund can be contacted at 949-791-2739 or david@hotelfinancialcoach.com Please visit http://hotelfinancialcoach.com/freecall/ for more information. Extended Bio...

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