Hotel Business Management Training Simulation Handbook

Transcription

1 Hotel Business Management Training Simulation Handbook Dogan Gursoy, Ph.D. School of Hospitality Business Management College of Business Washington State University I

2 TABLE OF CONTENTS INTRODUCTION... 1 Basic Idea of the Hotel Business Management Training Simulation... 1 Playing the Simulation... 3 MARKET SEGMENTS INCLUDED IN THE SIMULATION... 6 Business Segment... 7 Small Business Segment... 8 Corporate Contract Segment... 9 Family Segment Affluent Mature Travelers Segment International Travelers Segment Corporate/Business Meetings Segment Association Meeting Segment FACTORS TO CONSIDER WHEN MAKING DECISIONS Hotel Attributes and Amenities Guest Room Quality Reservations Guest Check In/Out Fitness Center Business Center Golf Course Other Recreation Facilities - Pools, game rooms, tennis courts, ect Sales/Management Attention Restaurants Bars Room Service Banquet & Catering Meeting Rooms Entertainment Courtesy II

3 Concierge Housekeeping Maintenance and security Building MARKET DEMAND PLAYING THE SIMULATION Registration Process How to Purchase a Student License How to Register How to Access the Simulation How to Change Your Password What to Do If You Forget Your Password and/or Username? Adding a New Class or Changing the Class PERFORMANCE MEASURES USED IN THIS SIMULATION Occupancy Rate Room s Revenue Total Revenue Market Share Based on Number of Rooms Sold Market Share Based on Revenues Revenue Per Available Room (RevPAR) Average Daily Rate (ADR) Yield Management Operating Efficiency Ratio Profit Margin How to Enter Your Objectives into the Simulation HOTEL ATTRIBUTE AND AMENITIES DECISIONS Difference between capital and operating expenditures Importance of capital and operating expenditures for each attribute and amenity Ideal Quality Level Expectations of Each Segment for each Hotel Amenity and Attribute ROOM RATE DECISIONS III

4 Cost of Distributing (Selling) your Rooms MARKETING DECISIONS ROOM ALLOCATION DECISION HOW TO ENTER YOUR DECISIONS How to Enter Room Allocation Decisions How to Enter Hotel Attributes and Amenities Decisions How to Enter Room Rate Decisions How to Enter Marketing Decision How to Borrow or Pay Your Loans How to View Reports How to View Performance Statistics Reports STRATEGIC BUSINESS PLANNING PROCESS (SBPP) Introduction Identification of Performance Gaps Identification of Causes of Performance Gaps Determining Action Steps IDENTIFICATION OF PERFORMANCE GAPS Step 1: Calculate Performance Measures and Compare Them to Decision Criteria Step 2: Rank Performance Gaps to Determine Top 5 and Top 3 Critical Performance Gaps. 75 Summary of identification of Performance Gaps IDENTIFICATION OF CAUSES OF PERFORMANCE GAPS Analysis 1: Actual Market Share versus Market Share by Positioning Alone Summary of Analysis Analysis 2: Determining Causes of Performance Gaps Using Positioning Maps Summary of Analysis Identification of Most Critical Causes of the Performance Gaps Summary of Identification Of Causes Of Performance Gaps DEMAND ANALYSIS IV

5 DETERMINING STRATEGIC BUSINESS PLAN FOR THE UPCOMING BUSINESS PERIOD Summary of Determining the Business Action Plan for the upcoming Period V

6 INTRODUCTION Welcome to Hotel Business Management Training Simulation Game! Your team has just been hired to manage a simulated 500-room full service resort hotel located in a large city. The previous management team was fired because the simulated resort hotel was managed poorly by them. The simulated hotel is in a bad condition. Most part of the simulated hotel and services provided are in need of renovations and updates. Your team is expected to turn this run down simulated hotel into a competitive and profitable hotel in the city you operate. Your team is expected to perform the following activities during the operation of this simulated hotel: Situation analysis of o your hotel o your customers o competitors o market conditions Evaluate your simulated hotel s performance Identify performance problems Identify the causes of those problems Determine your operational objectives Make operating decisions to solve those problems and to accomplish your operational objectives. Basic Idea of the Hotel Business Management Training Simulation The Hotel Business Management Training Simulation is a virtual management training game where participants are divided into teams and assigned the task of running 500-room hotels in a competitive virtual marketplace. Each 500-room hotel competes against other 500-room hotels located in the same destination that are managed by other participants. Just like in the real world, hotels compete against each other to attract customers from their target markets that will generate the most revenue and enable the management team to reach their monthly and annual financial and operational objectives. 1

7 The Hotel Business Management Training Simulation utilizes both operational decisions made by the management team for their hotel and operational decisions made by competing hotels to determine demand and revenue for each hotel. Operational decisions include, but are not limited to, capital investment, operating expenditures, marketing expenditures and pricing strategies. The external factors such as day of the week, demand patterns, etc. are also factored in the simulation. At the beginning of each month (round of simulation), each hotel management team must determine their objectives and primary and secondary market segments from eight market segments included in the simulation. Afterwards, just like in the real world, the management team must make decisions relating to hotel operations, marketing, distribution, pricing, operational and capital investment decisions, and financing decisions to fund capital and operational expenditures. The challenge is to develop and implement a competitive business strategy that results in a competitive positioning in the marketplace and produces good financial performance as measured by market share, occupancy, RevPAR, ADR, total revenues, net operating earnings and net profits After making decisions for each month, results are made available to all management teams so that they can see how their actions and their competitors actions impact the performance of their businesses. Just like in the real world, each management team must analyze their previous months decisions and the outcomes of those decisions, competitors actions and strategies in the previous months, market and demand conditions for each segment before making their decisions. In order to be successful, decisions must be rational and logical based on thorough analysis of data from previous months and projections (forecast) for the future. The Hotel Business Management Training Simulation game provides invaluable training opportunities for managers and management trainees to improve their managerial and operational skills and efficiencies. It also provides great learning experiences to students who are studying hospitality business management. 2

8 Playing the Simulation This simulation is a competitive business game in which you make a series of business decisions for each period (month). Each decision period is equivalent to one month. At the conclusion of each decision period, i.e. month, you will receive a set of financial and operational reports for your hotel and competing hotels that are operated by other teams from your class. The simulation is designed help participants develop analytical, critical thinking, teamwork and leadership skills by providing a project based learning environment through which they practice and integrate skills and knowledge they have. This simulation will engage you in a challenging learning project in which you and your team will effectively frame and solve problems, demonstrate knowledge of research and information retrieval strategies, and evaluate and compare information in order to develop business strategies that are most appropriate for your situation. Your hotel team will consist of 4-5 members. Each member will take a role (i.e. General Manager, Director of Sales, Director of Rooms, etc) and be the main resource for that specific function. However, it is important to note that the most valuable tool for outstanding performance in this simulation is the communication that takes place among your team members. Sharing timely information and exchanging ideas with your team members is the most significant activity that will determine the quality of your decisions. You will need to work together as a team to make the most appropriate operational decisions and analyze performance. It will probably take about one and one-half to two hours for your team to make the entire set of decisions required for each period. This time will vary depending on the extent to which your team has established and agreed upon a strategy for your simulated hotel. Of course, agreeing on a strategy does not necessarily mean smooth sailing during team decision making. You must also share some common beliefs about the best way to implement that strategy and have some confidence that it will work! Your instructor will determine the expected average market occupancy percentage for each period (month). However, since your simulated hotel is in a really bad shape, at the beginning of 3

9 the simulation, actual average market occupancy percentage will be around percent lower than the expected average market occupancy percentage set by your instructor. You will need to improve the quality of your hotel in order to close this gap. There are eight market segments in the Hotel Business Management Training Simulation. Those are: 1. Business 2. Small Business 3. Corporate contract 4. Families 5. Affluent Mature Travelers 6. International leisure travelers 7. Corporate/Business Meetings 8. Association Meetings Each of these segments has their own wants and needs (explained later); your hotel will establish a strategy of which segment(s) you wish to target (as primarily and secondary segments) and make decisions to entice that specific target market. Make sure that you target all segments as a primary, a secondary or a tertiary segment. Completely ignoring a segment will result in a disastrous financial performance. Each decision period, you will make room allocations for each segment, determine the amount of money you will be spending on marketing activities, establish room rates, and determine capital and operational expenditures. The decisions you make (entered into the simulation) will come back with results of how pleased/ displeased each segment is, which is quantified by attribute scores, occupancy percentage, overall demand, etc. It is up to your group to decide where your weaknesses as an operating team lie (performance gaps), identify why you have those weaknesses (causes), and establish action plans that will solve your biggest problems (Business Action Plans). 4

10 As with all businesses, the point of your hotel is to make money. At the end of the decisions, you will be requesting funds for continued operations. You will present your performance, your problems, and how you wish to solve them to prove your hotel is worth investment. Enjoy the competition, but remember that in the long run, winning or losing the simulation will make no difference. The important outcome is what you have learned in the process. 5

11 MARKET SEGMENTS INCLUDED IN THE SIMULATION In the ultimate mass market, all customers would want the same products and the same services. The opposite would be a completely tailored product or service for each individual. The real world is somewhere in between. How similar are hotel customers? Do they all want a traditional room in a full-service hotel or do some want suites? Do others want a low cost room with limited services or do they prefer a luxury hotel with a full range of services and benefits? Obviously, there are a variety of types of hotel customers. This poses a challenge for the hotel managers. Which customers do you want to serve? Which customers can we best serve? How can we organize those customers into groups or segments, so they can be targeted through our services and marketing strategies? How can we achieve competitive advantage with our targeted customers? A market segment is simply a group of customers who have common requirements for a product or a service. Different segments have different needs and requirements. Segments require evaluation and adjustment according to their responsiveness to your decisions. Segments also show different patterns of usage in terms of days of the week and seasons. Segments present opportunities for developing strategies which cater to the specific needs and requirements of that segment. Your team will be able to set operating budgets and make capital investments that can improve your levels of service of selected attributes. This can help you target segments and result in improved occupancy and, if investments are made wisely, improved profitability for your hotel. The eight market segments in the Hotel Business Management Training Simulation are: 1. Business 2. Small Business 3. Corporate contract 4. Families 5. Affluent Mature Travelers 6

12 6. International leisure travelers 7. Corporate/Business Meetings 8. Association Meetings Business Segment Business segment includes people who travel for business reasons. Their travel expenses are usually covered by the companies they work for. Since they travel to conduct business, most of the time, they will travel during the week. However, a small portion (around 10 percent) may travel during the weekends too. The duration of their stay is one to two nights. Many are frequent travelers and represent opportunities for repeat buying. They tend to be the very demanding in terms of overall levels of services, but are generally willing to pay for added value. Travelers in this segment tend to generate around 15 percent of the demand for the hotels in the area. Importance of Hotel Attributes and Amenities Business Segment As you can see from the chart above, quality of guest rooms is the most important criterion for this segment, but courtesy, guaranteed reservations, and the speed of check-in/out are also important. Golf course, concierge service, fitness center, business center, restaurants 7

13 and bars are also important for this segment. If your team chooses to serve the Business segment, these attributes would be the target of your operating budgets and capital investments. Small Business Segment People in this segment also travel for business reasons. However, travelers included in this segment tend to be owners of small businesses or work for small businesses with limited resources. Like business segment, they travel to conduct business. Most of the time, they will travel during the week. However, a small portion (around 15 percent) may travel during the weekends too. The duration of their stay is one to two nights. Since they travel on a budget, they are not as demanding as business travelers. Travelers in this segment tend to generate around 15 percent of the demand for the hotels in the area. Importance of Hotel Attributes and Amenities for Small Business Segment As you can see from the chart above, most important hotel attributes and amenities for this segment are guest rooms, and business center, but courtesy, guaranteed reservations, the speed of check-in/out and quality restaurants are also important. If your team chooses to 8

14 serve the Small Business segment, these attributes would be the target of your operating budgets and capital investments. Corporate Contract Segment Like business segment, people in this segment also travel for business reasons. However, they are required to stay at hotels that have a contract with the company they work for. Many large corporations have contracts with hotels that guarantees a certain number of room nights in return for discounts. Most of the time, the level of discount they receive depends on the number of room nights they can guarantee to generate; higher the room night, higher the discount. Companies may have contractual rate agreements with more than one hotel in your area. Most of the time, travelers in this segment will travel during the week; only a small portion (around 5 percent) may travel during the weekends. The duration of their stay is one to two nights. Since they have limited options in terms of the number of hotels they can stay, they are not as demanding as business travelers. Travelers in this segment tend to generate around 5 percent of the demand for the hotels in the area. Importance of Hotel Attributes and Amenities Corporate Contract Segment 9

15 As you can see from the chart above, most important hotel attributes and amenities for this segment are guest rooms, guaranteed reservations, and the speed of check-in/out but courtesy, and concierge services are also important. They also value quality restaurants and business centers. If your team chooses to serve the Corporate Contract segment, these attributes would be the target of your operating budgets and capital investments. Family Segment Family segment includes families with and without kids who travel for pleasure and leisure activities and is the best segment for selling rooms on weekends (Friday, Saturday, & Sunday). Research suggests that around 80% of them travel during the weekend. Around 10% of the market demand is generated by family segment Importance of Hotel Attributes and Amenities Family Segment 10

16 Family segment tend to place high value on guest rooms, guest check in/out, restaurants, room service, other recreational facilities such as pools, game rooms, ect. and courtesy They also value courtesy, golf course and spa. If your team chooses to serve the Family segment, these attributes would be the target of your operating budgets and capital investments. Affluent Mature Travelers Segment Affluent mature traveler segment includes mostly retired people with high disposable income. They are highly educated. They travel for pleasure and leisure activities such as spa, golfing and other high end activities. Most of them travel during the weekend (70%). Since some of them are retired they are also able to travel during the week (30). When they travel, they like to be pampered. They are very demanding. Around 10 percent of the market demand comes from this segment. Importance of Hotel Attributes and Amenities for Affluent Mature Travelers Segment 11

17 As presented in the figure above, the most important criterion for them is the quality and comfort of the guest room. They also place great importance on courtesy, golf course and spa. Food and beverage and entertainment are also important for this segment. If your team chooses to serve the Affluent Mature Travelers segment, these attributes would be the target of your operating budgets and capital investments. International Travelers Segment This segment includes international traveler to your destination. These international travelers tend to be highly educated with higher than median income. They are very well traveled and very knowledgeable about travel products. Their length of stay is usually longer than domestic travelers. Since they are on a vacation, they are able to travel both during the week (50) and during the weekend (50%). Around 10 percent of the market demand comes from this segment. Importance of Hotel Attributes and Amenities for International Travelers Segment 12

18 As presented in the figure above, most important attributes for this segment is quality and comfort of the room. They also value golf course, concierge service, courtesy, entertainment restaurants and spa. Other important attributes include reservations, check in/out and bars. If your team chooses to serve the International Travelers segment, these attributes would be the target of your operating budgets and capital investments. Corporate/Business Meetings Segment People in this segment travel to attend corporate and/or business meetings. Most of the people in this segment hold middle to high level managerial positions in the companies they work for. Since they travel to attend business meetings, all of their expenses are covered by their companies. Most of them travel during the week (80%). Around 15 percent of the market demand comes from this segment. Importance of Hotel Attributes and Amenities for Corporate/Business Meetings Segment 13

19 As shown in the figure above, meeting rooms and attention they receive from management and sales are extremely important for this group. They also place high importance on quality and comfort of the rooms, ease of check in/out, and the business center. They also value courtesy, golf course and banquet and catering services. If your team chooses to serve the Corporate/Business Meetings segment, these attributes would be the target of your operating budgets and capital investments. Association Meeting Segment This segment includes people who travel to attend association meetings. Since attendance to association meetings are voluntary, most of them pays for their own expenses. These association meetings can be small meetings of as few as 30 to 40 people or enormous conventions with thousands of members attending. Most of these meeting are held during the weekend (80%). Around 20 percent of the market demand is generated by this segment. When shopping for hotels for groups, the following eight attributes are considered to be most important: 1. Meeting rooms 2. Sales and management attention 3. Banquet and Catering 4. Guest Rooms 5. Check in/out 6. Courtesy 7. Reservations 8. Entertainment If your team chooses to serve the Association Meetings segment, these eight attributes would be the target of your operating budgets and capital investments. The following chart reflects relative values of all attributes for this segment. 14

20 Importance of Hotel Attributes and Amenities for Association Meetings Segment 15

21 FACTORS TO CONSIDER WHEN MAKING DECISIONS Demand for a hotel is driven by three demand criteria. 1. Quality of hotel s attributes and amenities 2. Room rates 3. Marketing expenditures. In this simulation, each segment places a different emphasis on three demand criteria. The table below illustrates examples of the relative importance of demand criteria for each segment. Relative Importance of Demand Criteria for Each Segment Market Segments Attributes and Amenities Room Rate Marketing Operating Business 50% 25% 25% Small Business 30% 45% 25% Corporate contract 35% 40% 25% Families 30% 45% 25% Affluent Mature Travelers International Leisure travelers Corporate/Business Meetings Association Meetings 45% 30% 25% 40% 35% 25% 40% 35% 25% 35% 40% 25% 16

22 Hotel Attributes and Amenities Customers overall quality perception of a hotel and the quality perceptions of a hotel s individual amenities and attributes are likely to play a significant role in consumers hotel selection process. Consumers are likely to choose a hotel that is most likely to satisfy their needs by offering amenities and attributes up to their perception. Research indicates that customers are likely to use 19 buying criteria (hotel attributes and amenities) for full service hotels in your marketplace. The 19 hotel attributes and amenities that are important for your customers are: 1. Guest Rooms Quality 2. Reservations 3. Guest Check in/guest Check out 4. Fitness Center 5. Business Center 6. Golf Course 7. Other Recreation Facilities - Pools, game rooms, tennis courts, ect. 8. Management/Sales Attention 9. Restaurants 10. Bars 11. Room Service 12. Banquet & Catering 13. Meeting Rooms 14. Entertainment 15. Courtesy 16. Concierge 17. Housekeeping 18. Maintenance and security 19. Building 17

23 Guest Room Quality Customers assess the quality of the guest rooms based upon cleanliness, quality and comfort of bedding and furnishings, size of the room, location of the room, working order of all appliances and faucets, number of desks, phones, TV sets in the room, internet access, amenities, etc. Research suggests that around two third of the operational expenditures in rooms division goes to labor and one third is spent on other operating expenses. Reservations One of the major concerns for customers about reservations is the ease of making a reservation. Another major concern is that their reservations are honored, i.e. they are guaranteed a room. Not only do they expect a guaranteed room, but they expect to reserve a specific type of room, e.g. king size bed, non-smoking room, and receive that specific type of room upon check-in. Reservations are affected by the technology you employ and the care and efficiency of your reservations staff. Research suggests that slightly higher than 50 percent of operational expenses are spent on other operating expenses and the rest goes to labor expenditures. Guest Check In/Out How efficient and easy is it to check in and out of the hotel? Do I have to wait in line? Is express check-in/out available? Can I get help with my bags if I need it? Am I greeted at the door? Do I feel welcome upon arrival? Are the front desk personnel polite, efficient, and helpful? In addition to front desk staff and bellmen performance, this criterion is affected by technology, counter space, and customer flow. Research suggests that around two third of the operational expenditures on guest check in and check out goes to labor and one third is spent on other operating expenses. 18

24 Fitness Center Availability of fitness center is an important criterion for some customers. Besides availability, operating hours, size, number, availability and working order of exercise equipment, cleanliness, availability of services such as towel service etc. are likely to influence the quality perception of the fitness center. Privacy and quietness are also valued by customers. Research suggests that around one third of the operational expenditures for the fitness center goes to labor and two third is spent on other operating expenses. Business Center Availability of business center is an important criterion for some customers. Besides availability, operating hours, size, number, availability and working order of equipment such as computers, fax machines, photocopy machine, cleanliness, availability of services such as receiving, package holding, secretarial service etc. are likely to influence the quality perception of the business center. Privacy and quietness are also valued by customers. Research suggests that around one third of the operational expenditures for the business center goes to labor and two third is spent on other operating expenses. Golf Course Availability and quality of golf course plays a significant role for choosing a hotel to stay for some customers. In addition to availability and quality, customers also value availability of club house, caddy service, food and beverage, ease booking, etc. Maintenance, supervision, and general appearance of golf course are also extremely important for customers. Research suggests that around half of the operational expenditures for the golf course goes to labor and the other half is spent on other operating expenses. Other Recreation Facilities - Pools, game rooms, tennis courts, ect Some customers reported recreation facilities such as pool, sauna, whirlpool, tennis courts, game room, etc. as important considerations in their selection of a hotel. They were 19

25 concerned not only about the scope of facilities, but their maintenance, supervision, and general appearance. Research suggests that around half of the operational expenditures for other recreation facilities (pools, game rooms, tennis courts, ect) goes to labor and the other half is spent on other operating expenses. Sales/Management Attention Some customers, especially meeting and association managers and those who labeled themselves as frequent travelers, expressed an interest in the personal attention they received from management. Personal attention for the meeting and association managers includes having one contact person for planning and taking care of problems during meetings, frequent calls or checking by staff to see that everything is going well. Frequent travelers pay more attention to special amenities in their rooms or an occasional call from management to check on their room and offer any assistance. Research suggests that around half of the operational expenditures for sales/management attention goes to labor and the other half is spent on other operating expenses. Restaurants Availability and quality of restaurants are likely to play a significant role for some customers in choosing a hotel. These customers also value service and food quality, menu variety, operating hours, efficiency of staff, seating arrangements, availability of private rooms to hold working business lunches and dinners, cleanliness, quality of furnishing and décor, etc. Research suggests that slightly higher percentage of the operational expenditures for restaurants goes to labor and the other half is spent on other operating expenses. Bars For some customers, availability and quality of bars tend to play a significant role in choosing a hotel. These customers also value service quality, availability of variety of 20

26 beverages, operating hours, availability of food, cleanliness, quality of furnishing and décor, etc. Research suggests that slightly higher percentage of the operational expenditures for bars goes to labor and the other half is spent on other operating expenses. Room Service Some customers value availability and quality of room service. For these customers, operating hours, menu variety, service quality, courtesy and friendliness of service employees, food quality, ect. are also important. Research suggests that slightly higher percentage of the operational expenditures for bars goes to other operating expenses and the other half is spent on labor expenses. Banquet & Catering Individuals sponsoring special events, association and meeting managers are especially concerned about banquet facilities, ballroom size and decorations, banquet menus, special features of food service, and service during breaks at meetings, etc. Research suggests that around half of the operational expenditures for banquet & catering goes to labor and the other half is spent on other operating expenses. Meeting Rooms Meeting and association managers express a strong interest in the quality of meeting rooms: size, access, acoustics, comfort of chairs, audio-video equipment, and lighting. Research suggests that around one third of the operational expenditures for meeting rooms goes to labor and two third is spent on other operating expenses. Entertainment For some customers availability of entertainment opportunities plays an important role in selecting hotels. These customers value variety, quality, and operating hours etc. 21

27 Research suggests that around two third of the operational expenditures for entertainment goes to labor and one third is spent on other operating expenses. Courtesy Customers reported that the friendliness and helpfulness of staff are important considerations for them in selecting a hotel to stay. Research suggests that employee morale and training have a substantial impact on courtesy. Research suggests that around one third of the operational expenditures for courtesy goes to labor and two third is spent on other operating expenses. Concierge Some customers reported that availability of concierge services is important for them in their selection of a hotel, especially if they are not very familiar with the area. Those customers indicated that friendliness, helpfulness and knowledge of staff are extremely important. Research suggests that around half of the operational expenditures for concierge goes to labor and the other half is spent on other operating expenses. Housekeeping Customers indicated that quality of services provided by housekeeping is extremely important, especially when it comes to cleanliness of the room, privacy and safety issues. It is important for hotels to hire right people and provide adequate training to ensure they will perform their duties thoroughly while respecting customers privacy. Research indicates that this is equally important for every segment. Research also suggests that around two third of the operational expenditures for housekeeping goes to labor and one third is spent on other operating expenses. Maintenance and security Customers reported that maintenance and security plays a significant role in determining where to stay. Customers prefer to stay at a well maintained property. Research suggests that prompt action and pro-active maintenance management within a hotel avoids frustration for 22

28 the customer at all times. Customers also indicated that a well maintained property enforces customers positive opinions about the property and their perception of security. Research indicates that this is equally important for every segment. Research also suggests that around half of the operational expenditures for maintenance and security goes to labor and the other half is spent on other operating expenses. Building Research indicated that customers form their first impressions within the first few minutes of seeing a hotel s building. Appearance of the hotel building plays an important role in forming customers quality perceptions. Therefore, it is important to make sure that the appearance of the building says the right things to help create the right first impression. Research also indicated that customers assume that all hotel buildings are structurally safe and meets the building code requirements. Research indicates that this is equally important for every segment. Research also suggests that around half of the operational expenditures for building goes to labor and the other half is spent on other operating expenses. 23

29 MARKET DEMAND Overall expected market demand for reach business period ((month) in the simulation is determined by your instructor. It should be noted that the expected average market occupancy percentage determined by your instructor for each period (month) is simply a demand forecast that is estimated based on the data from previous years and months. Drastic changes in the destination and in the quality of the hotels in the destination are likely to have significant impact on the actual demand for the destination and for your hotel. As indicated earlier, all the simulated hotels in the destination are in a really bad shape. Most of the quests that stayed at those hotels agree that quality of services and amenities provided do not meet their expectations. Most of the guests are not satisfied; in fact they are extremely dissatisfied. However, previous research indicates that about 50 percent of dissatisfied customers choose not to complain directly to the service provider because of three primary reasons: (1) it is not worth the time and effort, (2) they do not know where or how to complain, and (3) they believe that nothing will be done even if they do complain. Instead, they tend to engage in a variety of activities, such as boycotting the product and/or engaging in adverse word of mouth advertising, which are likely to be detrimental to the service provider. As suggested by previous research, those guests who are extremely dissatisfied with their experiences at the simulated hotels are not shy of expressing their opinions about the destination and the hotels they stayed on online websites such as Trip Advisor and through their social networks. This is likely to result in an unexpected decrease in the overall market demand. The consulting company we use, Gursoy Solutions, suggests that at the beginning of the simulation, actual average market occupancy percentage is likely to be significantly lower than the expected average market occupancy percentage set by your instructor. The Gursoy Solutions estimates that the actual demand to be percent lower than the expected average market occupancy percentage determined by your instructor because of extremely high number of dissatisfied customers. In order to close the gap between the expected average market occupancy percentage and actual market occupancy percentage, you will need to improve the quality of your hotel in order 24

30 to close this gap. However, this problem will not be solved by the efforts of one hotel in the destination. This gap can only be closed by collective efforts of all the hotels in the destination. All the hotels in the destination should make significant capital investment on their hotels and amenities they provide and increase operating budgets in order to improve the overall quality. Once all or most of the hotels are able to provide services that meet customers expectations, than the occupancy gap is likely to be closed. In fact, if most hotels quality exceeds customers expectations in the long term, actual market demand may even be higher than the expected average market occupancy percentage determined by your instructor. 25

31 PLAYING THE SIMULATION PAY CLOSE ATTENTION TO THESE: Your instructor will determine the demand - expected average market occupancy percentage for each period (month). However, since your simulated hotel is in a really bad shape, at the beginning of the simulation, actual average market occupancy percentage will be around percent lower than the expected average market occupancy percentage set by your instructor. You will need to improve the quality of your hotel in order to close this gap. Please read the market demand section for details. Each decision period is equivalent to one month (30 days). There are 17 weekdays and 13 weekend days. Friday, Saturday and Sunday are considered as weekend days Make sure that you target all segments as a primary, a secondary or a tertiary segment. Completely ignoring a segment will result in a disastrous financial performance Make sure you allocate all 500 rooms. You will not be able to sell the rooms you do not allocate. The amount of dollars spent on capital, operating and marketing expenditures have an upper limit on their effectiveness. This is also known as the diminishing marginal returns. The law of diminishing marginal returns states that if one factor in production is held constant, an increase in the other factor of production will be beneficial up until a point, but beyond that point returns will decrease. 26

32 Registration Process The first thing students need to do is to register in order to participate in the Hotel Business Management Training Simulation game. Once you register, you will be able to make decisions for your hotel, review the results and reports. Since only registered participants can log-in to make decisions, review results and reports, all team members must register. Here are the steps: Purchase a student license Register Access the website How to Purchase a Student License Before you can register, you need to purchase a student license. Go to Click on the Purchase a Student License link located in the navigation menu on the left side of the main page. Using your credit card for PayPal, complete the purchase process. After you complete the purchase, you will receive a confirmation and your receipt. You will need to enter the Receipt No in the receipt as your payment code during the registration process. 27

33 How to Register To register, please go to: You will see the registration link in the navigation menu on the left side of the main page. Click on register link. In this page, you are asked to provide a class ID in order to be enrolled into the particular training class you are in. The class ID will be provided by the trainers/instructors of the class. Enter the class ID code you received from your instructor. Click on the Next button. Enter the payment code (the Receipt No in the receipt) you received in your after you purchased your student license to access the simulation. 28

34 Choose the Paid User option. Click on the Next button. In this page, you are asked to provide basic information such as your first name, last name and institution to identify yourself. All personal information you provide during registration is used only to establish you as an officially registered participant in the Hotel Business Management Training Simulation game. Your personal information will not be shared with any other party beyond your instructor(s) and/or game administrator(s). Enter your profile information. Click on the Next button Enter the username and password you want to use with this simulation Please make sure that you keep your password in a safe place. Enter a valid address because if you ever need to retrieve your password, your password will be ed to this address. You can change your password later. Your registration will be completed and an account will be created for you once you click the Create User button. Click on the Create User button. You will be directed to the simulation 29

35 main page. Now, you are ready to login and start using the Hotel Business Management Training Simulation game. Using the username and password you have just entered, click on the Login button located on the left panel. Until your instructor generates the reports for month one, and assigns you a role and to a group, you will not be able to view any of the reports. 30

36 How to Access the Simulation Once your instructor generates the reports for the first month, assigns you a role and to a group, you will be able to view the reports and enter your decisions. When you login, you will see the menu on the left panel. Using this menu, you will be able to perform the followings: o Change your password, o Add/change class, o Set your objectives for the simulation game, o Make your decisions, o View reports o Borrow/Pay your loans 31

37 How to Change Your Password After you login the simulation, you can change your password. To change your password, click on the Change Your Password link in the navigation menu on the left side of the main page. Follow the instructions in the next page Click on Change Password button. Your password is changed. Please make sure you keep your new password in safe place. 32

38 What to Do If You Forget Your Password and/or Username? If you forget your password, click on the Forget Your Password link located underneath the Log In button. In the next page, enter your username. Your new password will be ed to the address you provided during registration. Adding a New Class or Changing the Class To add a new class or to change the class you are viewing, Login the simulation, Click on Add/Change class link in the navigation menu on the left side of the main page. 33

39 To add a new class, enter the Class ID you received for the new class in to box located under the Add Another Class subtitle. To change the class you are viewing or to make another class as the defult class (meaning when you login you will be directed to that class), choose the class and then click on the Select button. This will make the selected class the default class. Next time when you login, you will be autometcially directed to the class you have choosen. After you login, the class you are in will be shown on the upper left corner of each page. 34

40 PERFORMANCE MEASURES USED IN THIS SIMULATION This section presents the ten performance measures (PMs) used in the Hotel Business Management Training Simulation game and the decision rules to determine if there is a performance gap (PGs). Those ten performance measures are: 1. Occupancy 2. Rooms Revenue 3. Total Revenue 4. Market Share based on Number of Rooms Sold 5. Market Share based on Revenues 6. Revenue Per Available Room (REVPAR) 7. Average Daily Rate (ADR) 8. Yield Management 9. Operating Efficiency Ratio 10. Profit Margin Performance measures (PMs) provide a benchmark to monitor managerial decisions. There are performance gaps (PGs) if you fall below the objectives you set, norm, rule of thumb, or the results of your competitors for each of the performance measures. Occupancy Rate Occupancy rate is an important operational ratio that indicates the percentage of rooms sold (rented) at a particular property in a given time period. A property's occupancy rates along with the property s average daily rate (ADR) are the foundations for the property's financial performance. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. 35

41 Lower than the industry average Lower than competitors results. Room s Revenue Revenue generated from room sales at a particular property in a given time period. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry average Lower than competitors results. Total Revenue Total revenue generated from all business activities at a particular property in a given time period. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry average Lower than competitors results. Market Share Based on Number of Rooms Sold Market share based on number of rooms sold refers to the percentage of a market's total room sales that is sold by a particular company over a specified time period. Market share is calculated by taking the company's total room sales over the period and dividing it by the total number of rooms sold in the market over the same period. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. 36

42 If your actual market share is lower than your fair market share, there is a performance gap. In other words, if the market share variance is negative, there is a gap. Market Share Based on Revenues Market share based on revenues refers to the percentage of a market's total room s revenue that is generated by a particular company over a specified time period. Market share based on revenues is calculated by taking the company's rooms revenue over the period and dividing it by the total rooms revenue in the market over the same period. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. If your actual market share is lower than your fair market share, there is a performance gap. In other words, if the market share variance is negative, there is a gap. Revenue Per Available Room (RevPAR) Revenue per available room (RevPAR) is an important metric used to measure financial performance in the hospitality industry. The metric, which is a function of both room rates and occupancy, is one of the most important measures of health among hotel operators. The RevPAR provides rooms revenue information for each available room, which enables managers and operators to compare their performance to their competitors with varying sizes. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry average Lower than competitors results. 37

43 Average Daily Rate (ADR) Average Daily Rate (ADR) is another important financial performance metric that represents the average room rate (rental income) per occupied room in a given time period. ADR along with the property's occupancy are the foundations for the property's financial performance. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry average Lower than competitors results. Yield Management Yield management is the process of understanding, anticipating and influencing consumer behavior in order to maximize yield or profits from a fixed, perishable resource (such as airline seats or hotel room reservations). As a specific, inventory-focused branch of Revenue Management, Yield Management involves strategic control of inventory to sell it to the right customer at the right time for the right price. This process can result in price discrimination, where a firm charges customers consuming otherwise identical goods or services a different price for doing so. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry norm. Industry Norm (Rule of Thumb) a. Higher than 90: Think about raising room rates b. Between 70 and 90: good. c. Between 30-70: Acceptable, but a lot of work needs to be done to bring it up d. Lower than 30: BAD. 38

44 Operating Efficiency Ratio Operating efficiency ratio is also known as GOP ratio and managerial efficiency ratio, measures management s overall ability to produce profits by generating sales and controlling the operating expenses they have the most direct control. It is a measurement of what proportion of a company's revenue is left over, before taxes, after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, as interest on debt, insurance, etc. Decision Rules: When does a company have a performance gap? A company has a performance gap if the performance is lower than: The objective set by the management at the beginning of the business period. Lower than the industry norm. Industry Norm (Rule of Thumb): Lower than Norm is a gap! a. Industry norm is between 30 to 40% b. Higher than 40: Very tight cost control. This may work as a good short-term strategy but it may not be a long-term strategy. Because if you have a very tight cost control, you are likely to budget too little on your operating expenditures. As a result, the quality of your product and the customer satisfaction scores are likely to decrease in the long term, which is likely to have negative impact on the demand for your product. c. Between 30 and 40: good. d. Lower than 30: Either you do not do a good job controlling your cost or your sales are low or both. Increase sales while lowering cost. 39