Balancing Costs and Services At Loews L'Enfant Plaza

"There is a constant balancing act of keeping costs low while maintaining services."

That's the challenge for Lise Adams, Controller of the Loews L'Enfant Plaza Hotel in Washington, D.C.

The balancing act begins with the budgeting process each July. Setting the revenue budget is the first step. The room budget drives all other factors. Adams bases that budget on the forecast of the number, percent, and category of rooms projected to be booked during the coming year. She reviews the fixed changes for room rates every fall. On a more immediate time frame, the hotel's revenue manager tracks what other hotels in the area are doing and adjusts rates accordingly.

"We stay flexible. We look at the pressure for rooms and drop the rate if there is no pressure. It's kind of a game. We open and close reservations constantly. The most flexible area for rates are those quoted to transient travelers and business travelers who do not have a standing contract with the hotel."

Food & Beverage budgeting is next, with all other departments following. F&B has seen a turnaround at her hotel in the last three years, with the arrival of the new F&B Manager. Three years ago, it was, at best, a break-even operation. She expects to see a 15-20% profit this year.

She credits two strategies for the turn-around. On the visible side, the manager began heavily promoting the restaurant and its quality to the public. Behind the scenes, he negotiated 'really good' contracts with major vendors. The restaurant now purchases the bulk of its F&B supplies from a few vendors, instead of from several dozen.

"Working on expenses" is the second step in budgeting. "The most difficult to control are labor costs. This is a union hotel, and we have very good relations with the union. Although we pay higher salaries and benefits, there is less turnover and more longevity, and that's good for everyone."

The latest contract allows for cross-training and staffing of employees, something the employees requested. Employees working in a position other than their usual one are paid the going rate for whichever job they are working, be it higher or lower. Adams says it helps employees appreciate each other's jobs and helps the hotel as a whole to serve guests more effectively and efficiently.

Some expenses are unavoidable and must be figured into the overall budget. Four percent of the annual budget is set aside for FFE (furniture, fixtures, and equipment) expenditures. A block of rooms in the 370-room hotel is 'refreshed' each year. Complete renovations are scheduled less often. The costs for renovations can be staggering: $7-thousand for a basic guest room; $100-thousand for the Presidential Suite, but "this expense is weighed against how much revenue these rooms generate."

There are also some amenities that guests expect, even though they generate no profit. Adams sites the poolside snack bar as one. Guests enjoy the ability to order meals there, so it remains a fixture at the hotel. "You know it will be a loss, and you just figure that into the budget." She has a close idea of exactly what that loss will be, since she watches all areas of the hotel's expenses closely. "We even budget down to how many shampoos we need each month based on past history."

Another area where revenue has declined is in telecommunications. She has noticed a large drop in revenue from surcharges for telephone calls made from rooms. "People are more savvy. They are using calling cards, credit cards, cell phones, and the Internet to make their calls." While the hotel has a business center for travelers, with fax, photocopying, and other business services, Loews does not run it. Adams says it was not profitable, so it is now outsourced, with the hotel receiving a commission from the operators.

Decisions on where and when to spend money come out of Executive Committee meetings. The Committee includes the GM, Controller, Director of Operations (the combined position of F&B Manager and Rooms Division Manager), Sales & Marketing Manager, Catering Manager, and Human Resources Manager. They discuss major expenditures, questioning what they are spending and how it benefits the hotel. Outside the sessions, Adams meets with managers who present ideas to the GM that fall outside their planned budget. She discusses whether the proposal can be accomplished within the existing budget. She then advises the GM on the options available. "Ultimately, he is the decision-maker."

More use of technology is something Adams expects to see in the next few years. "Hotels have been slow to change. The money is spent on guests and less on technology. Y2K put pressure on hotels to push on upgrading their systems. They got new computers, and now they have to get new software."

She does not expect guests to see much change out front, however. "You are never going to find a 4-star, 4-diamond hotel without someone greeting the guests at the front door." Instead, she sees technology helping to cut costs behind the scenes, speeding reservations and check-in, reducing the need for as many accountants or office personnel. "As long as the work is being done and done properly, technology can be a good thing. The Number One goal is to make the customer happy, and that ultimately turns to profit."
-0-