Today’s Biggest Challenge in Hospitality:
Eliminating Cost Disadvantages continued
At first glance, all conditional activities
will appear to be value-added
activities. However, when such
value is examined in conjunction with verbal feedback from
guests, it often becomes clear that such activities exist to
make up for doing things poorly in the past. Whether conditional
activities add value depends upon what happened
in the past.
In my quick example, eliminating non-value-added costs
seems to be straightforward and is as simple as finding
those costs and discontinuing these activities. In practice,
it’s not so simple. The evaluation of non-value-added
activities must be centered on cost, quality, and time. For
most activities, elimination of
non-value-added activities is
accomplished in small steps
during a protracted period of
time. It is extremely important
to keep in mind that the quality
and the price-value equation
are not impacted by the cost
cuts. Keep your satisfaction
scores in mind as you make the changes. Then with a laser
focus, watch the problem resolution scores.
Competitive Target Costing
The utilization of competitive target costing is of overwhelming
importance. As managers, we may not receive the
accolades awarded professional athletes, but we can certainly
learn from watching and competing against others just as
athletes do. If we do not know and understand the
cost and activity structures of our competitors,
how can we possibly know whether our own cost
figures are the best they can possibly be? Thus,
every management control system should contain
some type of competitive target costing system
and/or some type of benchmarking.
We can determine whether quality goals are met
within various activities and activity groups by
employing a quality cost accounting system.
Such systems can evaluate whether or not quality
cost expenditures are made for prevention,
while attempting to measure failure costs. But
such assessment systems work in the shadow of
management control systems. In order to ensure
that the quality goals themselves are appropriate,
total quality management should be part of every management
control system.
Conclusion
Evaluate, routinize, and place boundaries on the time
required to complete staff related activities. For all
other areas including Administrative, Sales functions and
Maintenance, the key to finding and eliminating non-valueadded
costs is simple: rationalize operations. Identify
and eliminate non-value-added
activities. To identify nonvalue
activities, communicate
with customers and ask them
directly which activities are
value-added. Expect to be
embarrassed at times, but also
expect to identify some value added
and non-value-added
activities. Bottom line: Durable profit involves better use
of resources, not just cutting spending.
Greg J. Miller is the Chief Operating Officer and co-founder of PM
Hospitality Strategies, Inc., the hotel management affiliate of The Buccini/
Pollin Group (BPG). In addition to charting the company-wide aspects
of PMHS’s operations, Mr. Miller is an active participant in each hotel
design and renovation project for BPG. He also functions as the Managing
Director for each of the company’s hotels. Mr. Miller is a designated
Certified Hotel Administrator (CHA).
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