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  1. Explain the purposes of developing an operational budget.

  • The purpose of developing operational budget is to help in the analysis of some key areas within the organization, describe the income generating activities of the hotel services and analysing of the operational profit margins and the income statements.

  1. In your own words, identify and discuss the two major components of revenue management

  • The two major components of revenue management are pricing and inventory controls. Pricing involves the practice that enables differentiation of products while inventory control helps in analysing the number of products of every type available in the entire selling period.

  1. Explain what ‘long term stability’ means and why it is important.

  • Long-term stability is concerned with the businesses ability to pay all of its debts.

  • If a lender realises that a business is in financial trouble they will demand immediate repayment of any debts outstanding

  • This puts more strain on the business and often leads to the business having to be sold, put into receivership or liquidated and closed.

  • The importance of the long term stability is to measure the extent to which the business is funded by debts, to ascertain riskiness of the business for a period of five years and to know whether the business will be in a position to borrow extra funds.

  1. Revenue management is only effective under what business conditions? Discuss.

  • Relatively fixed capacity-it is difficult or costly to add more capacity

  • Ability to segment markets-the product has different value for different customers at different times

  • Perishable inventory-the capacity cannot be stored and sold later

  • Product sold in advance – product/services paid for but not yet rendered

  • Fluctuating demand-inability to store capacity to meet peak demand

  • Accurate, detailed information systems-capacity to book rooms and pay bills

  • Low marginal sales cost and high capacity change cost-it costs relatively little to sell one more unit.

  1. If the average number of no-shows is, for example, 12, why isn’t the best overbooking number necessarily 12?

If it’s more beneficial to serve one more customer without reservation as compared with a customer with reservation then it’s more economical and cost saving.

  1. Why is effective distribution channel management so important to hotels?

It is important where the hotel deals with perishable products, otherwise the hotel may incur losses in absence of effective distribution channel management.

  1. What are some of the biggest challenges in managing hotel channels of distribution? Difficulty in determining how to set prices across multiple channels that are all communicating simultaneously with the market place. Difficulty in determining how to encourage customers to use direct channels, both to minimise costs and gather data for management of the customer relationship.

  2. What are some of the problems experienced when implementing revenue management? Increasing demand for qualified revenue managers. Extension of revenue management to other areas of the hotel, such as spas and function space.

  1. List and discuss the aspects of a revenue management culture that may assist with the effective implementation of revenue management.

  • Top management leadership and support-evaluate strategies to match demand and supply for products.

  • Employee commitment and involvement-attending carefully to management systems.

  • Impact on organisational structure-inventory management and rate management.

  • Training for RM staff-effective personnel for hotel industry.

  • Rationale incentives and reward systems-matching skills with abilities

  1. What are the eight steps in the RevMAP? Identify and explain a strategy or tactic that could be used at each step.

  • Step 1: customer knowledge: The strategy may include; developing new products and services to meet changing trends- this entails coming up with products that will match the customers’ current tastes and preferences.

  • Step 2: market segmentation and selection: The tactic may include; creating product/service to appeal to different market segments-this involves dividing a broad target market into subset of consumers who have common needs.

  • Step 3: internal assessment: The strategy may include; reallocating resources to reduce weaknesses- this involves allocating more resources to the business’ areas of weakness to enhance its competitiveness.

  • Step 4: competitive analysis: The tactic may include; developing more competitive product and service-this will increase the market share for the business.

  • Step 5: demand forecasting: The strategy may include; Use demand to assess proper positioning of prices and inventory-that is matching the current demand of the product with the supply.

  • Step 6: channel analysis and selection. The strategy may include: decreasing the costs of production- use of economies of scale.

  • Step 7: dynamic value-based pricing: The tactic may include; setting the initial prices low to induce trial-that is creating demand for the product.

  • Step 8: channel and inventory management: The strategy may involve purchase of new technology-this will improve on productive capacity of the business

Work cited

; 39(3), 32-39.1998. Print.Restaurant RM: Appliying Yield Management to the Restaurant Industry. Cornell Hotel and Restaurant Administration QuartelyKimes, S.E., Chase, R.B,Choi, S., Lee,P.Y. and Ngonzi, E.N.