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HOSP 4040

DEVELOPING BENCHMARKS CASE STUDY

BACKGROUND:

The development of benchmarks is a critical part of an overall continual improvement strategy.

The basic process is straight forward.

1. Identify those metrics that are most important to the success of the business units (in this case individual hotels).

2. Identify those hotels in the portfolio (owned, managed, branded) that are performing the best on each of these metrics.

3. Calculate a benchmark based on this data.

4. Publish the benchmarks and hold all of the hotels in the portfolio accountable for achieving them.

5. Repeat.

The devil is in the detail of course. Here are some common considerations when developing benchmarks.

1. Benchmarks should always be based on “like hotels”. Meaning hotels that are like each other. It would be nonsensical to attempt to hold luxury hotels and select service hotels to the same benchmarks. The hotels do not need to be the same size, because using units of production as a benchmark eliminates the differences between hotels of different sizes. For example, if a benchmark for housekeeping labor is 30 minutes per room occupied, that benchmark is the same whether the hotel is 150 or 500 rooms.

2. Benchmarks should always be based on the units of production. In the case of hotels, this is rooms occupied or covers served in F&B. Because pricing is varied across the country and changes constantly, benchmarking off of revenue would be unwise.

3. Labor benchmarks should always be based on productivity – not labor cost. Labor costs vary widely by market and are not controllable by local management. So, using labor cost for benchmarking is also counterproductive. You should always use man hours per unit sold.

4. Cost benchmarks should always be on units of production, and only for those expenses where the cost of the products have been negotiated for the entire portfolio – so each hotel is paying the same cost for the items.

5. Achievement of the benchmarks should be incorporated into both performance reviews and into incentive compensation plans for management.

6. The number of benchmarks should be limited. Focus on what is most important.

7. Benchmarks should be developed using the average of the highest performing group of hotels – not on an individual hotel. Most benchmarking programs use either the highest decile (best 10%) or quartile (best 25%) averages.

The Case

You are an asset manager working for an owned portfolio of 20 “like hotels”. Your company has established several benchmarks, and these have been used and measured for years. Each year, prior to the budgeting process the benchmarks are updated, based on the most current data for the portfolio.

Your analyst has prepared the attached excel file detailing the most recent data. Each tab on the file is a separate benchmark.

Your assignment

Using the attached excel file, create a benchmark using the average performance of the upper quartile on each of the benchmark tabs. Insert your benchmark into the assigned cell.

Steps:

1. Sort the data from best to worst.

2. Take the average of the best quartile (in this case, the top 5 hotels).

3. Enter this average of the best quartile performance into the given cell on each tab.

4. Summarize the benchmark on the first tab for all of the benchmarks.

5. Save the excel file using the name “yourname.xlsx” and submit using the assignment link.

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