capital expenditures Archives - Fulton Hotel Solutions LLC

January 13, 2014 By John Fulton Leave a Comment

“Killer Tips” That Turn Your Hotel PIP Into A Winner

Product Improvement Plans can be a tremendous asset to the life blood of any hotel. Even though a PIP is designed to position a hotel for the future, it is also a very serious capital expenditure process. A little work on the front end of the PIP project can be most rewarding to hotel ownership, management and the renovation team. Consider the following tips….to help your team complete a PIP which will postitively affect the guest perception of the hotel.

1. Review & reconcile the PIP document

Product Improvement Plan documents can have mistaken or mis-leading information. Leaving these inaccurate pieces of data in the PIP can cost you substantial money. One of the requirements might read something like….“85 rooms have new wall coverings. These wall coverings are acceptable however the remaining rooms must be re-vinyled to match.” As an example….if the acceptable room quantity was actually 185 units, it could lead to an approximate $80,000 glitch in the cost analysis of the PIP. Even a few misleading issues added together could throw the PIP estimate off by several hundred thousand dollars. Bring all erroneous issues to the attention of the franchise’s PIP department. Get all the inconsistencies resolved, the wording changed and a revised PIP issued.

2. Determine the cost of the PIP

Some organizations use a combination of their Chief Engineers, outside Contractors and an Operations Director to “wing” the estimating phase of a Product Improvement Plan. This leaves too many “gray areas” and overlaps that can cause budget embarrassments at the end of the project. Good examples are such project costs as waste management, freight variances, sales or use taxes, contractor overhead & profit percentages, purchasing fees, equipment rental, storage, etc. Hoteliers can expect a better PIP project if they use an independent consultant to estimate the wide variety of elements involved in executing and completing a Product Improvement Plan. Such services are not expensive. Information and documents produced by such consultants are beneficial to ownership, financial partners, hotel management and the project team throughout the renovation process.

3. Assemble the right team

The mission is to accomplish the PIP renovation with the least disruption to the hotel guest and operations staff. The sub-components of this mission are bringing together a general contractor, architect/interior designer, purchasing group and consultants that all “buy-in” on bringing the project in “at/or under budget and on time”. Unexpected issues will surface in every Product Improvement Plan project, but each team member must commit to resolving those issues without direct effect to the overall budget or schedule.

Need a little help understanding how John Fulton can turn your hotel PIP into a “Winner”?

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September 12, 2013 By John Fulton Leave a Comment

3 Hotel PIP Secrets Exposed

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.

November 16, 2012 By John Fulton Leave a Comment

3 Common PIP Mistakes – Which Do You Want To Overcome?

Don’t let hotel PIP’s waste your valuable dollars

Product Improvement Plans issued by hotel franchise systems are prompted by a property reaching the term of its license agreement, a change of ownership or the anticipation of a change of ownership. Ordering a PIP evaluation suggests that there may be a business strategy at play that involves repositioning a hotel into a different service segment, aligning with a different franchise or refreshing it’s appearance….or all three. Whatever the reasoning, there are three mistakes that ownership should avoid:

1. Not getting prepared for the PIP.

When PIP Auditors see worn or dirty conditions, it causes them to look deeper for deferred maintenance and other infractions that maybe PIP related. By failing to let the hotel show at its best…owners do themselves a great injustice. To make this mistake means more issues will show up on the official PIP document. To be properly prepared, a heavy emphasis should be placed on issues such as a fresh coat of paint on fire lanes, doors/frames and scuffed walls. Overgrown landscaping trimmed or removed, winter kill shrubbery should be replaced, carpets/furniture/light fixtures cleaned and repaired while storage rooms should be cleaned out and re-organized and guest rooms in top condition. The last point in getting prepared for the evaluation is just as valuable as the above items……be present for the PIP “walk-thru”. Not only will you will gain valuable insight from the PIP Auditor, you will be more effective when it comes time for a later face-to-face meeting with the “brand”.

2. Not taking time to eliminate all errors in the PIP document.

Scour the document for comments that are not representational of your hotel. On a recent PIP, I discovered a requirement of replacing the mismatched guest room bath floor tile. Upon further investigation there was not an incidence of mismatched floor tile….anywhere. “PIP Auditors” often see several properties a week; often two in a single day. The reality is that they or the support staff may inadvertently cross-over notations from another property. If the above mentioned PIP were priced out without questioning that issue, it would have amounted to $500 to $750 per room; falsely impacting the PIP project by approximately $120,000. Especially “scrub-down” the guest room obligations, since any one faulty requirement in this area can heavily impact the PIP cost.

3. Failing to evaluate each PIP requirement against guest satisfaction, price/value and revenue generation.

All PIP documents contain requirements that will have varying levels of influence on guest perception and hotel revenue…..and each has a price tag. There may be requirements that relate to signature issues specific to the “brand”. Because of their importance to the franchise, these almost always are not worth the time to negotiate. However, other issues maybe based on general feelings of what that franchise believes will “take care of the guest” in their special way. In addition, other issues may be addressed due to “condition” (or degree of worn-ness). Now is the time to apply “creative problem solving skills” to look at every angle of the last two categories. Can items on the PIP be reconditioned successfully at a lower cost to gain several more years of use versus replacing now with an expensive new product? Can certain PIP requirements be re-scheduled into year 2 or 3, to allow revenue producing projects to be accomplished early in the PIP renovation?

General comments

This is important….approach the “brand” involvement as a valuable associate that brings specific strengths to your future success. Therefore, after you complete above items 1 – 3, schedule a face-to-face meeting with the franchise representative. Based on your hotel’s guests…..discuss the effect of PIP items that add strength to the hotel and those that are counter-productive….due to their nature or un-recoverable cost. Work to produce common ground for a win-win business venture before you implement the PIP renovation. I once had a hotel General Manager tell me that his company could not make him run a bad hotel. In this statement I took it to mean that he had to do what it took to make the hotel experience appropriate for his guest. Don’t’ let a PIP miss the mark of satisfying the guest.
There will be items that are not covered on a PIP. Therefore, take the opportunity to “touch” other needy areas, support systems and equipment not mentioned in the PIP. Evaluate these items based on bolstering guest satisfaction or enhancing revenue versus the dollar spent.

I’ve shown you 3 reasons to get on top of your PIP process. But, I have intentionally left out many others because I would like to hear your thoughts on the matter as well. Leave your remarks in the comment box below.

If you need help pricing out your PIP, watch this short video.

May 29, 2012 By John Fulton Leave a Comment

4 Deadly CapEx Budget Oversights – Are You Making Them?

When building Capital Expenditure Plans, costs that are often overlooked are those that are not tangible. Getting a firm quote from a vendor is relatively easy on a piece of kitchen equipment or even 300 rooms of guest room furnishings. However, it is important to realize that other costs associated with CapEx items or projects may not be so obvious.

“Late announced surprises” can contribute to severe cost overruns at the close out of the project. As it is said, “That could ruin your whole day”!!!!

1. Taxes

a. Sales Tax – These can vary but generally range from 4% to 8.25%. More states are on the upper end of this range than on the lower. Some cities or counties have additional taxes that are imposed due to Enterprise Zones, school improvements, civic improvements, etc.

b. Use Tax – Often it is assumed that purchases from out of state will not incur sales tax. However, it should be known that those states will seek “Use Tax” based on the purchase price of the product. These generally are about the same percentage as sales tax for the geographic location that the product is used or installed.

c. Contractors’ Excise Tax – Certain states require a collection of 2% of Gross Contractor Receipts plus the value of owner furnished materials handled or installed by that G.C. These taxes are imposed on the general contractor and paid by the general contractor; however, the cost will directly affect your CapEx budget through the general contractor’s cost to you. Check the area that you are performing CapEx to identify any such tax.

2. Freight – This category can have a wide swing in variance. Based on early 2012, CapEx budgets should allow 9% to 13% freight on the purchase price of the products, materials or equipment. Issues that would alter these estimates are fuel surcharges, charges for unusual weight or charges for cubic volume. Purchasing groups and logistic companies are very astute in managing freight costs for a hotelier and additionally can enhance the overall effectiveness of a project.

3. Professional Fees – This would include interior design, architectural, engineering, purchasing and other consultants that would be involved in the CapEx project.

4. Other – Installation charges, warehousing (including local delivery to the site), rental equipment, building permits and general contractor overhead and profit.

To assure that all capital expenditure plans are accurate, it is suggested that each project be thoroughly queried of the above questions.

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Need a little help understanding how John Fulton can formulate solutions to better organizing your hotel’s “5 Year CapEx Plan”?

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February 16, 2012 By John Fulton 2 Comments

Stolen CapEx Money – Are You Next?

Assume that $200,000 to $300,000 of your hotel’s much needed capital expenditure program had been “stolen” and will not be recovered. You will not be able to benefit from those CapEx projects, nonetheless; your hotel is still expected to exceed the guest expectations and surpass aggressive competition. On the surface this scenario seems ridiculous, however; this is exactly what is happening to many hotels. Too often CapEx projects waiting for their turn in the chronological order of replacements and renovations are delayed or cancelled. Which of the following procedures are responsible for stealing funds from your future CapEx projects!

1) Prematurely Replacing Guest Room Faucets

Your hotel waited far too long to get a guest bathroom renovation! However; it is now complete, you are well ahead of your competitive set and your company expects to gain some impressive revenues over the next 6 years. Not so quick! 18 months into this cycle you begin to see Q.A. comments regarding conditions of these faucets. As you investigate, you determine that the chrome or plated finish is coming off and allowing the brass to show through on fixtures that should last 10 years!!!

Cause

Many hotel operators have found too late that abrasive cleaning pads or abrasive cleaning solutions “have found their home” onto maid carts. Repetitive use of these products will slowly but surely scrape the finish off to expose the brass.
This unnecessary replacement is unfortunate since faucets will generally clean up beautifully with no more than warm water and a little mild soap. Hoteliers should immediately remove these abrasive cleaners from the faucet cleaning process and re-train their associates!

Projects Stolen from your Capital Expenditure Program

On a 400 room hotel, having to pre-maturely replace the bathroom fixtures could steal $58,000 to $65,000 from that much needed meeting room sound system, roof project or new energy management system.

2) Prematurely Replacing Guest Room Bath Mirrors

In a recent walk-thru you found strange looking black spots about the size of dimes and quarters on many guest room bath mirrors. They are unsightly and substantially lower the guests’ perception of the entire bathroom. Because of the blemishes, franchised properties will face reduced Q.A. scores and independent hotels will face guest satisfaction issues. This situation is a disgrace since bath room mirrors should last 7 to 10 years.

Cause

Black spots are caused by the silver plating separating from the glass and allowing oxidation to occur. The silver plating of a mirror is protected on the back side by a special coating. As hotel associates spray the mirrors for cleaning the liquid often runs down the mirror and collects at the bottom and sides. This liquid then wicks into the back of the mirror.
If ammonia is one of the ingredients of the cleaning solution, its contact with the protective coating causes the silver plating to oxidize and create black spots.
The damage will not be obvious for several months or a year after the new mirrors are installed. By this time it is too late to reverse the damage and replacement is almost always necessary.

ROI Stolen from your Capital Expenditure Program

This 400 room hotel could face $64,000 to $78,000 to replace these mirrors! What revenue producing capital expenditure project could you have put in place if this wasteful replacement had not occurred?

3) Premature Corridor Wall Covering Replacement

You begin to notice horizontal lines on your nearly new corridor wall covering. These lines are not rips or gouges in the vinyl but instead unsightly “lines” that are becoming an eyesore.

Cause

This is a direct result of laundry carts being allowed on the guest floors. Even though cushions, bumpers or suede leather wraps are installed on all four corners of the carts, damage can occur.
The protective bumpers (suede leather wraps included) are rubbing the wall covering. Because of this, they are “burnishing” a line on the wall which changes the light reflective nature of that area of wall covering.
Associates often tie a towel or rope on the laundry cart to pull it as they collect the soiled linen. Laundry carts will veer from one side of the corridor to the other…often rubbing against the wall for some distance. Since the cart is not “gouging” the wall, the associate thinks nothing of it.
The costly results of this will not show up at first, but when it does…..it is too late. Short of installing a horizontal piece of woodwork over the damage, you will need to re-do your corridor wall covering project.

Money stolen from your CapEx program

Unfortunately, this mistake will be responsible for deferring or cancelling $93,000 to $135,000 of your future capital expenditure projects.

As you can see….it only takes a few issues to collectively steal $200,000 to $300,000 from your hotel’s CapEx program!

Share your experiences that relate to this article by clicking here.

Need a little help understanding how John Fulton can formulate solutions to “Extending The Life Of Your Asset” and better organizing your hotel’s “5 Year CapEx Plan”?

Contact John Fulton for details.

January 30, 2012 By John Fulton Leave a Comment

CapEx Planning – If Not Now, When?

It has been noted in many recent trade journals that 2012 & 2013 will see elevated activity in renovations, compliance to brand standards and the repositioning of hotels!

This expectation comes with a solid foundation!

• All indications point to another year of very little debt or equity financing available for new construction. This is a huge advantage for existing hotels that revitalize their properties for the coming business demand. As business improves, no-action regarding deferred CapEx is “poor business”. It is important that hoteliers take action to both “Extend The Life Of The Asset” and position the hotel to outperform the competitive set.

• Even those properties seeking to secure “contract” business will need to invest in their asset! Prospective clients and meeting planners often demand a commitment that specific items be addressed before an agreement is finalized. Requests such as these may involve meeting room technology, guest room upgrades or fitness center improvements. Identifying and completing those improvements before your client visits your property is strategic! For hotels…..you never get a better time to make a “good first impression”……than the first impression!!

Therefore, properties that refuse to strategically plan and activate upgrades and improvements will miss the full impact of a recovering business environment. In reverse, those hoteliers that have prudently performed……or are now “kicking-off” CapEx projects will be the first in line to capture the new business.

So the real question is: Your CapEx Planning – If Not Now, When?

Take a moment to share your insight……click here.

Need a little help understanding how John Fulton can formulate solutions to “Extending The Life Of Your Asset” and better organizing your hotel’s “5 Year CapEx Plan”?

Contact John Fulton for details.

November 21, 2011 By John Fulton 26 Comments

The Power Of A “Black Box” – Are You Using It?

Attention to detail is always a must for hospitality R & M and CapEx!

Although I have shared this story many times verbally, this is the first time I have committed it to paper. I attribute the story to two highly respected hospitality friends of mine; Bob Brock (nationally known hotelier who purchased the 5th franchise of Holiday Inns in the 1950’s) and one of his most valued General Managers, Willard Brittin. Although both have passed-on, I heard both men tell the story deep from their heart…..to point out to hotel staff and management “the importance of attention to detail”.

The “Black Box” of their object lesson is imaginary, yet effective!

• The owner of this Black Box is to carry it to a remote location within the hotel or on the hotel property, leave it behind and return to their office using a different route (through both guest and non-guest areas)….all the while looking at the many details that are noticeable (floors, finishes, lights, fabrics, mechanical, hardware, exteriors, landscaping, paving, etc.). When faulty issues are discovered they are to be noted and converted into “work orders”. Some concerns may be simple Repair & Maintenance projects while other discoveries will require future CapEx as a solution.

• In one week the owner of the Box is to return to the location using a different route. Again, the importance is giving full attention to the items and issues that are exposed on this additional new path to the imaginary Black Box. Upon reaching the Black Box it is moved to its new home in another remote location. Its owner returns to their office using a totally different route, all the while “recording for action” any newly observed concerns.

• Each week this task is to be repeated and “work orders” issued to correct various matters.

This Black Box exercise will do much to place a hotel far beyond its competition in resolving those small details that the staff so often overlooks and guests see! Try it!

To share the techniques that you have used to improve “attention to detail”……click here

“Killer Tips” That Turn Your Hotel PIP Into A Winner

3 Hotel PIP Secrets Exposed

3 Common PIP Mistakes – Which Do You Want To Overcome?

4 Deadly CapEx Budget Oversights – Are You Making Them?

Stolen CapEx Money – Are You Next?

CapEx Planning – If Not Now, When?

The Power Of A “Black Box” – Are You Using It?

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