Hotel Product Improvement Plans (PIP) are usually encountered due to a re-licensing event or a change of ownership occurrence. The ultimate question is “How much does this PIP cost?” Knowing this dollar amount is critical in calculating the future financial success that the hotel property will generate for the ownership. When these business decisions must be made, there never seems time to properly obtain bids and quotes. For that reason, most hoteliers will settle for an “estimate” to identify the possible cost of a PIP. Three issues are critical in producing a PIP estimate that is trustworthy.
1. Identify the PIP requirements that affect large volumes of individual items such as guest room casegoods, commercial and guest room carpet, etc.
* Review these items for subtle costs associated with each item that would add up to substantial project expenditures due to the quantity multiplier (such as guest rooms). On the reverse side, look for opportunities to reduce the per item cost. Even small reductions per item can add up to significant savings when dealing with 500 or a 1,000 units of the item.
* Identify alternate methods of solving a PIP issue. Then request waivers to reduce the financial impact to the project.
2. Pay close attention to phrases such as “Refinish to like-new condition or replace”
* These PIP comments can work to your advantage and still produce a product that will please the guest expectations. An example would be guest room casegoods that are not out dated in style, but are in need of repairs and revitalization. Such furniture can be given a fresh 5 – 7 year life by spending $250 to $500 per room. A far less cost than new casegoods at $1,700 to $2,200 per room. With this said, it is critical to have a hotel refinish company examine your casegoods and determine the quality of the existing pieces before assuming there can be a “savings”.
3. Include the additional costs that may be less obvious. Individually, these can be moderate costs but enough of them can severely push the project into an over-budget status, yet still incurred by ownership before the PIP is complete.
* Professional services: Architectural, Engineering, Interior Design, Purchasing services, on-site project management, G.C. “Excise Tax” (S. Dakota & Hawaii – approx. 2% on gross contract amount plus the value of the owner supplied items that are handled by the G.C.)
* Life Safety: This category is difficult to anticipate. An audit by a local company is advisable since they know the current and anticipated regulations. Meeting these regulations can be a minor cost in fulfilling a PIP or a substantial impact if the existing equipment or critical components are out date or undersized.
* Other costs: Warehousing, local delivery charges, freight/tax, waste removal, local permits, installation/G.C. contingencies.
I’ve identified 3 critical areas to address when dealing with a PIP. I would like to hear your thoughts on what makes a PIP estimate effective. Leave your remarks in the comment box below.
If you need help pricing out your PIP, watch this short video.
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