Budgeting

The Budgeting module is a software tool used for preparing periodic and annual budgets for revenues, volumes, labor costs, and all other expense items. It also predicts business volumes and calculates labor and expense requirements for periodic forecasts or annual periods. Budgeting uses established cost standards to develop labor and expense projections that are linked directly to key business indicators (KBIs) such as occupied rooms, covers, and revenue dollars.

Budgeting allows for better performance evaluation by using a flex budget model that accounts for actual business volumes. As the budgeted business volumes change, the budget automatically changes in the right proportion. Expenses are reflected in hours and dollars per unit rather than percentages, which makes them more accurate.

In addition, the flexible budgeting process provides you with a quantitative plan that projects revenues and costs for varying levels of activity. It helps you project and evaluate performance because it compares actual revenue and expenses with budgeted data, based on actual volumes. The flex budget also improves your 30-, 60- and 90-day forecasts by accurately reflecting the impact of volume or rate revisions.

For reference purposes, LMS Budgeting stores several versions of actuals, budgets, and forecasts. These references allow you to compare results over time, look at trends, and examine changes in performance to understand why variances have occurred.

Budgeting allows you to do the following:

• Use the same labor standards that are used in the day-to-day operations.
• Create rolling forecasts and "what if" scenarios.
• Incorporate the quality standards that are key to customer service.
• Utilize hours, not percentages, when creating the annual and periodic budgets.
• Accurately and automatically adjust labor costs and expenses, to changes in business volumes.

Topics in this section include:

• Budgets
• Configuring-Viewing Budgets
• Copying a Dataset
• EPEP
• Flex Budgets & Actuals
• Forecasting KBIs
• New Budgets
• Opening Budgets
• Rebuilding the Cost Structure
• Re-Forecasting
• User-Defined Types

The Budgeting Cycle

Phase 1: Configuring Budgeting

Before any work can take place, the System Administrator must first enter data for the labor standards, KBIs, number of rooms, size and type of revenue centers, departmental, pay code, pay period, and general accounting information.

Phase 2: Creating an Annual Budget

Typically, you will create your annual in the third or fourth quarter of the current year, for the upcoming year.

1. Forecast revenues and volumes (KBIs).
2. Establish your property's labor standards.
3. Forecast secondary revenues (for example, phone revenue).
4. Enter and budget cost assumptions for all other expense items.
5. Run/review reports.

Phase 3: Using the End-of-Year Forecast (EOY)

You should revise your EOY forecast on a monthly basis by importing actuals for periods that have passed and revising volume estimates for future periods, through the end of the year.

1. Lock annual budget.
2. Copy the budget into your rolling end-of-year forecast.
3. Perform your beginning of the month tasks.
   • Revise your KBI forecast for the next 90 days.
   • Print your revised year-end forecast which uses prior period actuals combined with the revised forecast.
4. Perform your end-of-month tasks.
   • Import P&L actuals and KBI actuals to produce monthly variance reports.

Phase 4: Creating the Flex Budget

Usually this process is done at the end of the month after you have finalized your P&L actuals in the accounting system.

1. Enter /import actuals.
2. Generate the flex budget.   

Phase 5: Analyzing the Data

After you have completed the first four phases, you are ready to use the information to analyze your performance for the period just ended. This analysis is done by using a four-way comparison between the following:

• Original budget (what you said in September, that you were going to do this period).
• EOY Forecast budget (what you said at the beginning of the month you would do).
• Actual budget (what you actually did).
• Flex budget (what you should have done based on volumes).

Your comparison table might look something like this:

1. In September, you said you were going to spend $3,000 and have $10,000 in revenue. (Original).
2. At the beginning of the month you changed your forecast to say that you would spend $3,300 and have $11,000 in revenue. (EOY Forecast).
3. You actually spent $3,281 and had $10,500 in revenue. (Actual).
4. When you apply 30% of what you budgeted for actual room revenue, it reveals that you spent $3,150 on $10,500 revenue (Flex).

Your analysis:
You overspent by $131 for that period (3,150 - 3,281 = -131).