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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 — <strong>This</strong> 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
● Guide Providing ● Entertainment facility ● Cultural activity ● Recreational activity ● Games and sports activity ● Sight seeing facility COVER COVER ARTICLE ARTICLE ● Drop facility to Airport, etc. ABC is applicable throughout financing, accounting, costing, pricing, budgeting and beyond them. The benefits of ABC can be summarised below — ● Better Management ● Budgeting, performance measurement ● Calculating costs more accurately ● Ensuring activity specific profitability ● Evaluating and justifying investments in new area All the Regional Directors, All the Registrar of Companies/Official Upuidators All shareholders ● Improving service quality via better system design ● Increasing competitiveness or coping with more competition ● Managing costs ● Providing behavioural incentives by creating cost consciousness among employees ● Responding to an increase in overheads ● Responding to increased pressure from regulating agencies. Finally, one must say that when the national economy is under the grip of inflation and the global economy, specifically the US and European economy are still struggling with recession and put a question mark on growth, hospitality industry with better measures of hospitality management can bring the global economic activities in the path of growth. ❐ No. HQ/MCA/Digitised/AR/2009 Government of India Ministry of Corporate Affairs Circular No. : 57/2011 5th Floor, ‘‘A’’ Wing, Shastri Bhawan, Dr. R. P. Road, New Delhi-110001 Dated : 28.07.2011 Sub : Filing of Balance Sheet and Profit and Loss Account in extensible Business Reporting Language (XBRL) mode. Sir, The Para 3 of the Circular No. 37/2011 dated 07.06.2011 may be read as under : ‘‘All companies falling in Phase-I class of companies (excluding exempted class) are permitted to file their financial statements without any additional fee up to 30.11.2011 or within 60 days of their due date, whichever is later.’’ Further, in supersession of Para 2 (i) of Ministry’s Circular No. 43/2011 dated 07.07.2011, it is informed that the verification and certification of the XBRL document of financial statements on the e-forms would continue to be done by authorized signatory of the company as well as professional like Chartered Accountant or Company Secretary or Cost Accountant in whole time practice. <strong>This</strong> issue with approval of Competent Authority. Yours faithfully, (J. N. Tikku) Joint Director The Management Accountant |September 2011 741
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