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.

My Top 3 Countdown to # 1.……….

• Fulton Observation #3  –  The show “chatter” indicated that hotel renovations will exceed 2011. 

Independent Hospitality Purchasing Firm – Totally agree with this. Already have many proposals out and just received a new project yesterday so yes, full steam ahead for purchasing……..

Mattress Manufacturer – I agree with your observations. Our contract business has been up since last July and there is a lot of activity out there. I think most hotels will do a soft renovation as a minimum and of course those who have budgeted for it will do full renovations. Booking a hotel room in advance is getting back to the old days when if you don’t……you risk that the hotel is sold out. If the economy holds up I think we will continue to get back to where were in 2008. 

Wallcovering Manufacturer and Distributor – I agree with Hospitality being on the upswing! I have several Hospitality accounts and they have been giving me a lot of business…..casinos and hotels both! Our organization has predicted that Hospitality will be the sector that will be showing growth, next to Healthcare.

Executive over FF & E Sales – I completely agree, renovation cycles have kicked in full board (there were many delays/holds through the recession, so it appears that the requirements have almost doubled)

Purchasing Agent – These topics are interesting to hear about. I know we have numerous customers starting to talk about the “Renovations” for starting in the 3rd & 4th quarter of 2012, increasing thru 2013, 2014 and 2015.

Carpet Manufacturer – My impressions are that we will experience very modest growth in 2011, as the companies that are projecting moderate to significant growth will be offset by companies who intend to sit on the fence and wait out the economic uncertainty through the end of the year. A change in the political landscape might lead to improved enthusiasm in 2013.

Hospitality Purchasing Firm – I too have been hearing a lot of chatter indicating that owners are now in a position to renovate their properties.  I am seeing more inquiries for the limited service properties verses full service. When requests do come through for the full service the overall scope has been dramatically scaled back.  I think funding is still difficult to come by and some ownership groups are just making only the necessary upgrades.   

Hotel Owner/Operator – While owners would like to pocket the cash they also know they have to renovate (and the brand pressure is intense).

Hospitality Purchasing Group – I agree with the “chatter”. I attended a lodging conference in which the talk was centered around the increased demand that is forecasted for 2012.  There was a consensus that the renovation projects will continue to increase to meet this demand and hopefully help increase the room rate average which has dropped since 2007.

• Fulton Observation #2 – Expect longer FF&E lead times in 2012.  Imported casegoods & lighting can be in the range of 22 – 24 weeks and fabrics 20 – 22 weeks.

Independent Hospitality Purchasing Firm – Longer leads on fabrics is my current nightmare right now.  Need to find out more sources that produce in US!  As long as lighting is being produced overseas due to low overhead, we will still be experiencing this long lead. 

Purchasing Agent – As for lead times, very interesting…..lead times have always been an issue, anyway.  This where as a Purchasing Agent, we have tried to explain how this works with every Customer. If you don’t get your order issued in a timely manner, the hang-ups start with the Line Drawing Approvals and sign-offs, the color approvals, deposits, etc…..This moves the lead times out further than the date on the Originating PO when it was issued. Most assume the date when the PO is issued, is the start of the lead-time. If the Line-Drawing Approvals, samples, etc. are approved prior to issuing an Order, this is the best way to get a true approx. ship-date.

Hospitality FF & E Sales Representative – This will be the case down the road; however, our fabric company is stocking many items…..if we have to go overseas it is 10 – 12 weeks.  My lighting company is stocking many items to eliminate the long time frame.

Hospitality Purchasing Group – I have already started to see signs of this.  Vendors who previously were quoting 10-12 weeks are now at 14-16 weeks.  I have even come across some 15-17 week quotes.  However, when you factor in the drawing and finish approval process, I think 22-24 weeks is spot on.  Fabrics for me have maxed out at 14-16 weeks.  I have not seen anything longer than that.

Executive over Hospitality FF & E Sales – Our lead times are 16 weeks worst case scenario. That being said I have heard 20 weeks for fabric as we are usually waiting for COM’s. I haven’t heard 22-24 weeks on case goods. I’m hearing 20 weeks.

Manufacturer and Marketer of seating and tables to the contract industry – For imports, you’re probably right – we hear this too, however, it bodes well for U.S. manufacturers like us.  Lead times, in many respects, have actually shortened, depending upon who the purchasing agent buys from (e.g., we’re consistently running 4 – 6 weeks from receipt of fabrics right now)

Hospitality Purchasing Firm – Yes I have heard that as well about fabrics…They are the “bad” leads.  Owners that I am working with want to go DOMESTIC.  So I really think we will see a bit of a surge in that production.  Even though like Dave Shulman had mentioned there was a slight increase in cost, his owner still wanted to go with it, etc.  I agree and am all for it.  I feel like I have so much more control if the manufacturing is being done in US.  I can just show up on the doorstep, only a short flight away to hold them accountable…..Next one is FABRICS…..nightmare!!!  My goal is to find more sources that are “hidden” sources for the main manufacturers’ hidden gems if you will call it; I know they are out there.  I have a couple already but need to search these out in US.

FF & E Sales Representative – I find your discoveries most interesting…the improvement in business is a crap shoot…as always….the lead times is also fascinating…Retail business is up a little which makes the importing a little tough…securing lead times in plants that make both retail and contract can be tough… plants dedicated to contract only are scheduling nightmares…up and down… feast or famine…I have read where they are releasing more water vessels to help out on the water cargo.

Independent Purchasing Firm – In reference to lead times on FF&E, I have already started experiencing the longer lead times.  We have started advising Owners that lighting and fabrics are taking just as long as axminster carpet.  I haven’t seen as much of a delay in the fabrication time for casegoods as I find the companies that we deal with running pretty true to their quoted lead times.

Hotel Management Company Executive – Yes 2012 is a big year for us in regards to PIPs. We will complete 6 major renovations and PIPs during 2012. Our biggest issue in regards to lead times in FF&E is carpet……causing us some headaches.  All other FF&E we seem to be doing OK with.

Distributor of Decorative Fabrics – As for the lead times….I hope that is not the trend….we can’t afford longer lead times!  Building and renovations are up, that I do know.  I have some designers who are starting to work on projects that have been on hold since 08, so they are happy about that.  They have to start from scratch on everything since nothing is current any more.   I know that our organization is looking to get more mills domestically and not relying on the overseas mills, so we hope to keep good lead times and have some stock here in the US.  That will be great if it happens!?!?!?  US pricing might not be as good, but at least you will get it!  It’s a trade off!   I thank you again for the feedback from the show, it certainly made me think!

Hospitality Purchasing Firm – In reference to lead times on FF&E, I have already started experiencing the longer lead times.  We have started advising Owners that lighting and fabrics are taking just as long as axminster carpet.  I haven’t seen as much of a delay in the fabrication time for casegoods as I find the companies that we deal with running pretty true to their quoted lead times.

Wallcovering Manufacturer & Distributor – Lead times have increased because none of the manufacturers want to stock materials. It is so hard to anticipate what is going to be ordered that a P.O. must be submitted before the material is manufactured.    Also the # of manufacturers has dwindled to a few.

• Fulton Observation #1 — Availability Of Imported FF & E (such as casegoods, lighting, etc.)   – These countries will be consuming more and more of what they manufacture……causing an import shortage and price increase for the USA hospitality furnishing needs.  Many procurement experts anticipate that American companies will take up the “slack” by re-developing manufacturing here in the USA.

Carpet Manufacturer – I believe you are right about the possibility of China being a less dominant force here in the next few years as they furnish the needs of their own economy. India may or may not be able to sustain its economic boom as there are such divides in economic classes there, many of the citizens will not be able to contribute to sustaining the economic growth.

Wallcovering Manufacturer & Distribution – As for the manufacturing I hope that they are right! We need to have more in the US and I am hoping that with the green/sustainable movement customers will want to buy from the U.S.

Carpet Manufacturer – I was surprised to hear the impact the consumption of the emerging counties.

Hospitality Purchasing Firm – I hadn’t heard the concerns over developing countries consuming more of their own products thus creating a shortage for US consumers.   I find that it is still a fine balance between overseas versus North American products as Ownerships still want/need the cost competitiveness of overseas product, but wants the goods more quickly.  I appreciate the “heads up” on this as I will be keeping my eyes and ears open. 

Purchasing Agent – For the Imported FF&E, I have started hearing some things, but not a lot yet….I know there is a lot of building going on overseas.  Interesting to see how this turns out. If the pricing goes up any higher, I would like to see more American Made Products being opened back in the States.

Hotel Operations Consultant based in Italy – With lead-times between 20 and 24 weeks for products, this puts a damper on renovation and repositioning.  How can American manufacturing companies’ take-up the slack? Have they been on stand-by? Or too busy to fill the home orders or because of costs? Taking-up the slack by re-developing can’t be achieved overnight.  It may also take them more than 20/24 weeks to just start manufacturing the goods.

“Costs”!!!  If this is true then CapEx will be affected most likely upward and what happens then to ROI?   It’s vicious circle.  If the industry has to wait 20/24 weeks will the repositioning work? Will it still be effective and sound? 

Just an idea, why not look for the same products in countries other than India, China, etc. where they have same type of manufacturing, but high unemployment? Lower cost and ready availability!!!

Carpet Manufacturer - I believe you are right about the possibility of China being a less dominant force here in the next few years as they furnish the needs of their own economy.  India may or may not be able to sustain its economic boom as there are such divides in economic classes there, many of the citizens will not be able to contribute to sustaining the economic growth.

Hospitality Purchasing Group – I think we have already started to see evidence of pricing increases coming from China and other developing companies.  However, I feel that there will be another shift to Vietnam or another low labor country.  It appears at the moment that there are still some unexplored avenues for low cost import items.  But I am not sure how long that will last.  In regards to upholstered items, I see that a majority of hotels and procurement firms pushing for domestic production.  When factoring in long fabric lead times and costs to ship COM overseas, it is just more cost effective to keep this production in country.

Hospitality Executive over FF & E Sales – I agree with this assessment to a certain extent. I’m not sure the “critical mass” issue is as big as some hopeful US manufacturers hope it is. There seems to be a cultural issue more than a critical mass issue. There is a growing middle class in these countries that are learning to expect more from employers and their governments. Chinese factories are competing for good workers. Workers are being more selective as to where they choose to work. Add that to the frustration many hoteliers have experienced with Chinese product and I think it bodes well for US manufacturers.

Hospitality Casegoods Manufacturer — We have already moved casegoods production back to the USA buying 2 factories. Once again we are comfortably ahead of anticipated trends. Good news is USA is becoming a much more conducive environment to manufacture in than it was in 1999 when we all moved to Asia.  Other mitigating factors: erosion of dollar against RIMB, rapidly escalating shipping costs, no longer state support of lower value industries in favor of high tech and big capital mfg.

Hospitality FF & E Sales Representative – This is probably true and forthcoming. My case goods company is very competitive against China goods and time frame is 10-12 weeks and all USA made.

Independent Hospitality Purchasing Firm – I hadn’t heard the concerns over developing countries consuming more of their own products thus creating a shortage for US consumers.   I find that it is still a fine balance between overseas versus North American products as Ownerships still want/need the cost competitiveness of Overseas product, but wants the goods more quickly.  I appreciate the “heads up” on this as I will be keeping my eyes and ears open. 

Manufacturer and marketer of seating and tables to the contract industry – I hear much the same, however; the manufacturing base has been so decimated here in the U.S., and it’s not so easy to “restart” from scratch.  It’s a monumental problem.  I expect you’ll see a lot of new players jumping into the hospitality game (especially from Mexico and South America), and a ton of “learning curve” quality problems.

***

I encourage you to visit my short video regarding extending the life of your asset and the “Strategic 5 year Capital Expenditure Planning Processes”!

I would be interested in hearing your thoughts……..click here.

John Fulton

“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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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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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.

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.

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

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.

Share your experiences in solving capital expenditure planning by “clicking here”.

Not all is lost! Since most hotel business traditionally slumps from December to February, it still would be appropriate to use that time slot to perform and complete CapEx projects that prepare for the 2012 business.

So your strategy can be….welcome the guests back with something better!

With this being said, you should not initiate work on projects for December thru February until you have a developed a master plan! In that plan, use strategies that formulate a 2012 CapEx Plan aimed at improving guest satisfaction and promoting guest loyalty. To give a little help, the process is as follows:

• Assessment Of Current CapEx Projects – Review your 2010 capital expenditures to identify any projects that should be expanded into 2012.
• Evaluation Of Systems – Identify any new situations that surfaced in 2011 that will need to be addressed in 2012. Certainly it is natural to more focus on adding “glitz” to the facility, but failing mechanical systems, outdated technology, etc. adversely affect guest satisfaction and may need to take a serious position in the upcoming CapEx Plan.
• Revenue Enhancement and Competitive Issues – You will not have a shortage of these projects. In fact, you will labor over eliminating projects that you know are viable, yet other needs seem to have a higher priority.
• Pricing – Obtain preliminary bids and pricing.
• Finalize Your Plan – This is the time to ask the hard questions, look at the costs, run ROI’s, balance the financial expectations and discuss timelines.

Within the above process, you should identify a few capital expenditures that can be kicked-off and completed before the 2012 business picks up. These should carry impact and be very recognizable to the guest!

With a well thought-out CapEx strategy…..you and your team can…….

 Welcome Your Guests Back With Something Better!

 Share your strategies on this timely guest issue – click here.

It goes to say, much work goes into converting Capital Expenditure Plans into actual working documents. Such tasks as gathering information from the hotel, imputing data into a CapEx format, identifying costs, wading through the approval process; are all required to roll out an “approved” Cap Ex Plan. If any of those Capital Expenditures call for a “project”, then there is much more work ahead. Although a brief article such as this cannot list every detail, it can identify some of the major issues that contribute to a successful CapEx project.

1. Leadership – Very early on, most hoteliers will identify a “project manager” to be the point-person and central authority to execute the CapEx work. As expected, a very large percentage of the project success will depend on this person’s ability to work with integrity as a team builder, motivator, and communicator; as well as dedicated to the success of the budget and schedule.

2. Partnership – An early-on collaboration between the project manager, management company and hotel’s senior staff will fine tune job site scheduling and proactively address various administrative Issues. Depending on the organizations’ structure, it is also advisable to keep the “hotel ownership” informed of the general progress.

3. Additional Specialists – Depending on the “scope of work”, other project team members that may be involved are architects, mechanical engineers, interior designers, renovation contractor, purchasing group, logistics company, specialty installers, etc. Strategic partnerships should be cultured between the project manager and each outside consultant.

4. Scope of Work Documents – These formal papers will need to be thorough, accurately defined and prepared in an easy to read format; since they are important directions to each member of the “project team” and cannot be taken lightly. Scope of work documents in collaboration with any project documents (see item #5 below) will define the specifics of what is to be removed, replaced, modified, refinished, etc.

5. Project Documents – Factors that also heavily contribute to successful CapEx projects are the development of accurately detailed drawings, thorough specifications and confirmed quantities.

Pass on your techniques for successful Capital Expenditure Projects (click here).

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.