The quest to optimize housekeeping costs is an old one.
Budgets are and have always been tricky. From setting them up to getting them approved to executing them, everything is a challenge in itself. Add to it the dilemma of adopting the latest products with the promise of long-term benefits, staff rotations, or a pandemic with far-reaching consequences and challenges is strengthened even further.
In wake of the current situation, housekeepers are employing several methods to make the entire housekeeping operation more efficient, thereby lowering costs per room.
We’ve spoken about how the housekeeper and their team are responsible for the appearance of the hotel, the cleanliness, and most importantly, the hygiene. But how does a housekeeper set a budget for the year? How do these budgets then get restructured with different circumstances? What is given more priority?
To dive deep into the details of housekeeping costs, Clean Middle East spoke to industry experts across the Middle East in an interesting webinar. The panelists included Denise Frem, Senior Housekeeping Professional; Prabhat Shukla, Director of Housekeeping, Intercontinental Doha The City, and Intercontinental Residence Suites Doha The City; Tatjana Ahmed, Housekeeping Manager at Grand Hyatt Dubai and Functional Specialist Housekeeping for Hyatt Hotels. Here is an excerpt.
A breakdown of housekeeping budgets
The housekeeping budget consists of different expenses. One of the highest expenses has always been the labor cost. There are fixed labor costs (which include your employees) and then there are variable labor costs that potentially include the contracts. There are expenses of cleaning supplies, guest supplies, decoration, laundry, linen, and uniform expenses, operating expenses and so much more.
Apart from these, there is a new expense that has come up for most of the hotels across the world - the cost of disinfection during the pandemic. It would be apt to say that this new line of expenses seems to overshadow the rest of the expenses now. A large number of operations have been frozen due to the pandemic and so are their costs while others have surged significantly. For instance, the demand and cost of cleaning supplies have seen an all-time high.
Apart from these operational expenses, housekeepers have to take care of capital expenditure as well.
Setting the budget - what, when, and how?
“Every time you set your budget, you are setting it on the basis of previous financial performance. So before anything else, the performance of the past 12 months needs to be considered,” says Denise Frem, a senior housekeeping professional, who brings about 11 years of experience across the Middle East, providing critical support across a rich portfolio of hotels.
The financial performance includes cost per room occupied and consumption factors for all items you purchase. Denise also asserts that any positive inventory from the previous year needs to be taken into account before setting new budgets. She also likes to study the time motion dynamics of room cleaning in order to be able to make smart and informed decisions. Citing an example from the pandemic types, Denise states that she has seen an increase in the cleaning time of departure rooms from 7 to 15 minutes and factors like these must be considered while budget planning.
Then again, any organizational restructuring, fluctuations in market pricing, or new project implementation plays a pivotal role in the annual budget.
It is also important to reconsider all your expiring contracts - do you really need them? Do they bring any value to the table? Can you renegotiate your contracts? These questions need to be answered and thoroughly evaluated before any major decision is taken.
Another very instrumental factor in determining the budget for the year is your revenue, adds Prabhat Shukla, Director of Housekeeping, Intercontinental Doha The City, and Intercontinental Residence Suites Doha The City. “When we housekeepers make something, we put our heart into it. But whether it will be implemented or not depends on the sales. So we have to understand what expenses can be cut down and what shouldn’t be. For instance, the experience adding elements can be restricted but cleanliness and basic hygiene cannot be compromised,” he says. It is a very fine balance that housekeepers have to really set between offering an amazing guest experience and adhering to a set budget.
Towards the start of January, all housekeeping budgets are in place. For Denise, things are slightly different. In her part of the world, budgets have to be finalized by September.
The time of the year is dependent upon the accounting year, although a certain margin is kept for any changes that may need to be incorporated. The budget goes up and down for a couple of months before it is finalized. It takes months of ideation and negotiation to set it.
Cleaning and Laundry Budgets
The budget for cleaning supplies is closely linked to the housekeeping budget. So housekeepers decide on the budget for cleaning chemicals, tools, equipment, etc. In fact, cleaning is among the nine components of the housekeeping budget. On the other hand, laundry is a standalone department. It has two components - the non-revenue generating part and the revenue generating part. The non-revenue department is that which caters to internal service for other departments (F&B, rooms, spa, hotel uniforms, etc). This is charged to the department according to the manning or according to the weight of the laundry. Regardless of the status of revenue generation, laundry has costs associated with it. There are costs of cleaning and costs of operating supplies. The former refers to the tools and chemicals used and the latter includes everything that is non-consumable used to perform the job.
Tatjana Ahmed, Housekeeping Manager at Grand Hyatt Dubai and Functional Specialist Housekeeping for Hyatt Hotels, says that under cleaning supplies, she also makes it a point to charge all the paper supplies which go in the public washrooms. They are not included in the housekeeping profit and loss statement.
The ideal budget allocation
Typically, 0.1% of the hotel’s revenue is dedicated to cleaning supplies. So the budget really depends upon the revenue of the hotel. If the revenue is high, then you’ll be cleaning more rooms. If it’s less, you’ll be cleaning accordingly. The budget allocation also depends on the type of hotel. If it’s a budget hotel, the allocation will be less. If it’s a luxury hotel, the allocation will be more. The budget allocation also depends on what you’ve used over the few years as well as external forces.
Adjusting the budget for new practices
If you have an FF&E (furniture, fixtures and equipment) budget, you might not be able to go over and above it unless it is something of great importance. In case you are pushing for an indispensable practice or equipment, the FF&E budget can be adjusted to meet that requirement. You also have the option to substitute it. If you cannot do that, you can present a study showing that buying this equipment will give you a return on investment meaning that if you are going to spend.
Typically, hoteliers across the world try to minimize their housekeeping expenses by working on their analytics and constantly assessing their key performance indicators. There is also a third scenario - if you are more profitable than what you had estimated or have retained more than what you aimed for, then you can use the surplus to buy any equipment that you think will further enhance your operations.
However, in most cases, it is a barter system. If you want something out of your box, you have to remove something from it.
Defining the CAPEX
The CAPEX is a piece of equipment that has a lifespan of more than five years. It is considered an asset for the organization. For instance, if a vacuum machine has a lifespan of five years, you can consider it CAPEX. So if you have a contract with any chain and the owner breaks the contract, this piece of equipment is still going to remain an asset. A piece of equipment may also be considered to be CAPEX if its value is more than a certain defined threshold e.g. USD 2000.
When you do your FF&E budget and you put all the equipment that you need, order it and fill a CAPEX form ( a capital expenditure form). In fact, before placing the order, you have to get two to three quotations which need to be attached to the form. This needs to be controlled by the financial controller and in some cases, even by the owners.
What happens if your costs surpass your budget?
It could be that the occupancy of your hotel unexpectedly goes up. In this case, the estimated budget will also need to be adjusted. It could be that certain soaps or chemicals are expiring and you need to write them off. These situations do arise in a hotel housekeeping operation and these need to be adjusted as and when they happen with the financial controller.
Budgets in standalone properties
Properly organized budgets are a characteristic of brand or luxury hotels. For standalone properties, there is no such thing as an annual budget. This is a very tricky situation. In this case, it is better to stick to whatever guidelines are provided by the revenues department and to stick to identify the standards of the property and plan accordingly. Once you begin to do that, you’ll see a budget is formed over the years.
You can take cues from your owner. If they tell you that the guest experience needs to be strengthened, it means that you can spend more. If they say that you’ve been spending too much money, it means you need to be smarter in budget planning.
The pandemic effect
The pandemic turned the world topsy turvy. Initially, housekeepers had no idea how to deal with this novel virus because there was limited knowledge available about it. Safety of the property became the most important thing. Guidelines after guidelines from international standards and local authorities followed. For the first three months, every hotel adopted an experimental approach. Every day, you learned something new about the virus.
Did this impact the budgets? Yes, it certainly did.
With the start of COVID-19, a lot of things changed and several expenses were immediately frozen. These included travel expenses, training, decoration, gifts, guest transportation, printing, and stationery, et al. If there are no guests, there is no need for all this extra expenditure. All contracts were ceased and all outsourcing came to a sudden halt. Full-time employees did pretty much everything, from cleaning to guest experience to stewarding and everything in between.
“We cannot really base any expenses on 2020. We are basing our performance back on 2019 and our aim is to be as profitable as we used to be before COVID-19,” says Tatjana.
The world of hospitality is surely stabilizing in 2021 and housekeeping budgets will be fairly impacted by new policies of disinfection.
This article is an excerpt from our webinar, Houskeeping Costs: Budgeting challenges & Best Practices.