This Issue - Icwai

COVER COVER ARTICLE
ARTICLE
Inventory management — Analysing different
goods according to their requirement and value and
application of perpetual inventory control can help
in reducing the carrying cost and wastage of
inventory. As the hospitality industry is seasonal in a
number of cases, so studying the flow of demand and
lean consumption of goods, helps to control unwanted
cost. Improvement in the quality of output, can be
done by inspection, testing, reviewing the process
from time to time.
Budgeting — This is a very common and easy tool
to improve efficiency and helps in pricing decision.
In case of hospitality industry event management
budget with reasonable accuracy can be a pricing tool
in future.
Cost-Volume Profit Analysis — Also known as
Break Even Analysis to find capacity at which the
enterprise has neither profit nor loss. CVP analysis
helps the management to take decision in different
situation whether it is a loss making or a growing
enterprise. During the period of global recession,
which is still supposed to be continuing, almost all
the airline companies are unable to meet their cost.
CVP is useful tool in pricing, capacity expansion and
survival decision.
Linear Programming — Pricing is market-driven,
not cost based in hotel industry. When a hotel chain
is to set its prices, it starts with comprehensive market
research. Based on the data, the correct price for each
marketplace and each category of room is determined
with the help of linear programming. If there is a major
shift in a market, then the prices will adjust for that.
However, if there is a major shift in a demand curve,
then a shift of price may have no effect. It may actually
leave more money on the table. For example, if an
airline goes on strike, a significant shift in the demand
curve would result. Under such conditions, increasing
the rate would have beneficial result. If there is an
opportunity to go after a new targeted market with a
specific offer, enabling the chain to capture a greater
market share, then lowering the rate serves its
purpose. Generally, however, lowering rates across
the board is not a preferred pricing strategy.
Queuing theory — In restaurants and bars in the
situation of queuing may cause to dissatisfaction of
customers resulting business loss. To handle queuing
problem, data on footfall of the number of customers
and their wants with time are collected and studied.
Data may be collected on different parameters like
customers with family, officials, tourist and verities
in their choice. Seasonal change in the pattern of
customers visit, seasonal impact on variation in
number of customers, can be analysed with the help
of statistical tools.
Risk management — One of the root causes why
the hospitality industry is so less developed is that
the huge risks associated with it. The risk may be —
● Change in government policy
● Change in foreign policy
● Attack or threat of terrorism
● Strike by Airlines
● Spread of epidemic
● Economic recession
● Fire and natural calamities
Most of risk factors are external and therefore
impossible to contain with or managed by human
effort. However we can minimise and avoid risk by
systematic planning and decision making. Risk
management is based on following principle —
● Acceptance of risk if the benefit is more than
risk cost
● Avoid unnecessary risk
● Take risk decision at the right level and right
time
● Manage the risk by planning.
Trade off between risk and return - Risk and return
are positively correlated .Higher the risk, higher is
the return. Risk/return trade off is the balancing act
between risk and return. The important point here is
that to ascertain the cost of accepted risk level; and if
the return is higher than the cost of accepted risk level
the same is beneficial. At the time of recession tourist
service provider allows high discount to the customer
in anticipation of higher demand. So there is a cost of
allowing discount in one hand and some extra revenue
generated on the other. If the revenue generated is
more, it is beneficial to the service provider. Another
long term benefit derived by the service provider is
the growth in market share which may be a strategic
advantage in the long run.
Activity Based Costing — Implementation of ABC
methodology is not easy but it is a very effective
managerial tool. Tourism industry is in fact a
combination of a number of activities those can be
identified, such as —
● Air transport
● Land Transport
● Water Transport
● Pick up facility to the tourist
● Lodging facility
● Food and Beverages
● Camping
● Supporting transport
● Travel agency function
740 The Management Accountant |September 2011