emergency capital planning 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.

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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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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!

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October 27, 2011 By John Fulton Leave a Comment

Breathe New Life Into Your Hotel – Let CapEx Do The Job

The statistics quoted in current trade journals are clear in identifying that patrons are finally looking for lodging and hospitality services again!

Having a fresh look and breathing new life into your hotel is now very critical in the process of seizing that new business! Maybe your hotel cannot accomplish a multi-million dollar CapEx renovation; however, based on this “new” business….astute hotel operators will see the need to meet the guests with noticeable improvements.

Some hoteliers will only be able to accomplish a few projects while others will have funds set aside to accomplish more. Those properties that operate under a franchise will no doubt be directed by the franchise system to carry out specific improvements based on brand standards. However, there will be additional issues that will affect the guests’ perception of your hotel. What will the guest see when they arrive? Is the access onto the property clean and groomed properly? Can the experience entering the hotel and approaching the registration desk be improved? And the guest rooms…..are they competitive and fresh in appearance?

This is where “Capital Expenditure Planning” comes into play by addressing issues proactively that affect the hotel guest. If you have formulated a 5 Year CapEx Plan most of the above issues should have already been identified, solutions formulated and cost estimates compiled. At this point, the issues are….when to activate the projects and gaining access to the capital funding. For those operators that do not have long-range CapEx plans in place, all is not lost. It will be necessary to do a walk-thru of at least the issues outlined above. Establish a list of those items most likely to negatively affect the guests’ perception of your facility. Discuss solutions then obtain estimates/quotes for suitable resolutions to these troublesome issues. At that point, set in place a plan to systematically resolve each issue based on the funds available and least disruption to business.

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July 12, 2011 By John Fulton Leave a Comment

3 Secrets Of Mastering Your “Emergency CapEx” – Are You Using Them?

Although the cost of “Emergency Capital” cannot be accurately anticipated – one fact is certain…..Emergency CapEx can be expected! Additionally…..it always happens after the annual CapEx package is “approved and final”!

The dilemma is then……where does the money come from to reconcile these unplanned Emergency Capital Expenditures?

It is advised that hoteliers establish a separate category in their CapEx programs for “Emergency Capital”. This process singles out such expenditures so management has the ability to historically track emergency spends. The following three processes will assist hoteliers in setting up procedures taking Emergency CapEx to a new level of responsibility and organization.

1. Initial Emergency Budgeting – It will be necessary to establish an Emergency CapEx amount for the hotel (or portfolio). If this is a new process, the first year may require a total “guesstimate” without any supporting history. If historical data is available, it should be used to identify a benchmark budget. Younger properties and limited service hotels will generally incur smaller emergency spends; where older, larger full service hotels can naturally expect more capital intense issues to arise.

2. Procedural Strength – Although almost all “major” emergency spends will fall into CapEx, it is very important that the estimated budget not be published within the annual CapEx package. If the dollar amount is circulated among the associates, projects seem to discretely emerge…..that uncontrollably absorb the Emergency monies. It should also be pointed out that most emergency issues will need to be addressed instantly. Because of this, these situations cause the normal Capital Expenditure approval process to be “bent” to meet the urgency. None the less, what is important is that everyone knows the reconciliation details of each emergency spend will have to be addressed immediately with upper management. Policies and procedures must be established and communicated ahead of time to successfully accomplish this.

3. Validation Of Requests – As a warning; non-emergency projects will tend to wander into emergency spends! For an effective Emergency CapEx process to work, all items or projects must truly be “emergency” in nature (ie: Convention Center HVAC failure affecting the attendees comfort and potential revenue disruption, phone system failures, storm damage, etc.). An organization should never be tempted to book project “over-runs” or routine capital to the Emergency category. Doing such defeats the accuracy of historical tracking. Additionally, management will want to single out these emergency expenditures to better understand why they occurred. Such evaluations may identify inferior routine maintenance techniques. Willingness to correct these issues will increase the effectiveness of future Emergency CapEx. Additionally, accurate tracking of Emergency CapEx can be most helpful in anticipating “Emergency” budgets for future planning.

If organizations take the above processes seriously, they will discover that there are important paybacks in establishing a solid Emergency CapEx program.

Future Savings – During the upper management review various improvements may surface. For this reason, it is important to identify what caused the emergency, what could have prevented it and what can be implemented to avoid similar issues in the future. This review process can contribute to substantial future savings, especially if there are multiple properties in the portfolio.

Reduction Of Unnecessary Emergency Spending – It can be expected that there will be attempts to replace major items under the cloak of Emergency CapEx….when they can still be repaired. Often not enough analysis has gone into the rush to spend emergency capital. This results in less expensive resolutions having been missed. Worse yet, a specific department may desire to avoid incurring a “repair expense” at the hotel level. Directing the expenditure into Emergency CapEx to avoid a “hit” in departmental expenses. Hoteliers can expect Emergency CapEx to trend downward once all associates understand that they are accountable to a set of guidelines.

Review Of Maintenance Records – This gives upper management a formal process to identify why items end up in Emergency CapEx. Most are a process of normal wear and tear, but failures to offer proper maintenance may surface. This identifies staff that may need additional training or services. Also it may be found that some maintenance should be “outsourced”….to better meet the more complex nature of today’s hotel systems.

Question: What techniques have you used to master “Emergency CapEx”? Click here.

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

4 Deadly CapEx Budget Oversights – Are You Making Them?

Stolen CapEx Money – Are You Next?

Breathe New Life Into Your Hotel – Let CapEx Do The Job

3 Secrets Of Mastering Your “Emergency CapEx” – Are You Using Them?

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