The Capital Investment Plan

Aug 3, 2018 in Business

Capital Investment Plan (CIP) demonstrates comprehensive description of investments into assets.  CIP consists of two parts: capital budget and capital plan.  Development program for Casablanca hotel used the aforementioned concept in conducting capital investment plan.  Casablanca is a seven year old hotel that has 125 guest rooms, out of which 15 Business Plus and 110 standard.  The hotel has seat breakfast room, leased restaurant, and meeting rooms.  Fitness room is equipped with jogging machine; it has small outdoor pool and lounge area, as well as coin laundry and snack kiosk.  The hotel offers different services to the customer: free Internet, complimentary breakfast, national and international telephone service, and dry cleaning.  Since the opening of the hotel, it has not been refurbished.  Though plan was developed 2 years ago, it had to be postponed due to the weak economy and lack of funds (Spring 2013 HRMA 4367 Actual). 

Budget

Casablanca management has accepted refurbishment plan of the hotel.  All 2 star adjoining hotels in the area has not had any refurbishment in the past years.  Casablanca refurbishment would make the hotel more competitive with respect to other existing hotels.  It should also be noted that last year booking pace of the hotel from January to December showed 4 % - 9 % drop.  Casablanca in the last two years has experienced decline (Spring 2013 HRMA 4367 Actual).  Total occupancy first dropped from 78 % to 68 % and then to 61 %.  In two years, ADR has dropped from $109 to $ 91, which has reduced GOP from 50 % to 27 %.  Above discussed numbers sent management signals that further drop would reduce the book value of the property.  That is why refurbishment is crucial.  Hotel leadership team has set up a budget for the refurbishment of the hotel.  What is budget?  Budget is a framework that is used to control certain business operations for a given future period.  The framework is complete and coordinated.  It is complete because it takes into consideration the aspects of the said business, and coordinated because it recognizes problems related to every segment of the business.  Aforementioned concept played vital role in designing Casablanca refurbishment budget.  The constituent elements of the financial part of Casablanca refurbishment budget are sales revenue, total cost, and profit (Basic concept in budgeting).  The cornerstone of the budget is the sales revenue.  Everything in the budget revolves around the sales revenue figures.  Hotel leadership team realizes this concept.  Based on numerous researches and investigations the leadership team has tailored the budget structure to increase revenue from sales.  The team started from the very basic; to improve the outlook and landscape around the hotel.  Outdoor pool and lounge area were improved to give attractive look.  Management introduced serving of alcoholic and nonalcoholic beverages in the pool area.  The purpose is to increase revenue from sales of beverages and at the same time offer the customer a new relaxing place.  Leadership team studied the existing facilities and determined refurbishment of all guest rooms.  This is important, because travelers need better accommodation.  The team engaged designers and building construction professional to come up with new and creative ideas.  Management intended to use the budget to introduce and improve services, which would increase revenue from sales.  Hotel refurbishment plan has foreseen to own the restaurant than to lease it.  This will help the hotel to offer different cousins to the customers.  Management team’s idea is to make Casablanca an integrated place where the customers can stay in comfortable place, get delicious and exotic foods, relax and enjoy the time.  During current economic condition, Casablanca should focus to generate more revenue from additional services than from the rent of the room.   

Service-Profit Chain

The service-profit chain establishes the relationship between profitability, customer loyalty, employee satisfaction, and productivity (Heskett  et al., 2008).  This relationship is a framework, which describes that revenue from a service-oriented business depends on service quality, while service quality in turn depends on operational input and employee effort (Wagner et al., 2002).  The key elements of this chain are employees and customers.  Harvard researchers found that lifetime revenue stream from a dedicated pizza eater can be $8,000, a Cadillac owner $332,000, and a corporate purchaser of commercial aircraft literally billions of dollars (Heskett et al., 2008).  Casablanca refurbishment budget is tailored to improve service of the service oriented company. Management understood a satisfied customer who lived in a well furbished room and received good food and attention either would be back or recommend Casablanca to others.  That is why; leadership team focused improvement of restaurant service, pool service, and lounge service.  Restaurant employees are paid a portion of profit as bonus every three months.  Management has also introduced certain incentives for both customers and employees those who serve at the lounge and pool area.  The service-profit chain maintains a close tie between customers and employee.  It is manifested in arranging service personnel available at any time and at any place per customer’s requirement.  At the same time, the hotel has improved the internal service quality so the employee can offer prompt service to the Casablanca customers.  Casablanca has made it sure that employees work in a friendly atmosphere, and everybody respects each other.  This has increased employees’ productivity and employees’ retention.  Because of it, customers are receiving better services.  Wisdom, common sense, and variety of options are also added to the services.  Services and its delivery were carefully tailored to meet customers’ needs.  We have introduced customers’ loyalty program like airliner frequent flyer program.

Balance Score Card

Casablanca offers services, and their quality is of paramount importance to the leadership team.  At Casablanca, management has introduced service -performance measurement metric.  The concept of the metric is in evaluation of the hotel performance and improvement as seen by the customer.  Performance has to be measured by the improvements seen by the customer (Performance Measurement).  Casablanca’s goal is to satisfy customers, as well as identifying opportunities for improvement.  The leader has used the balance scorecard shown in figure 1 (Tatikonda & Tatikonda, 1998).       

For Casablanca management, Customer is the key parameter of the balance card.  The next factor is Innovation.  The aforementioned discussion of Casablanca budget planning and service-profit chain demonstrated this fact.  The hotel has implied innovation to improve customer satisfaction.  Without the satisfaction of internal factor, we cannot achieve outstanding results in the area of customer service.  This concept is well explained in service-profit chain section.  Introduction of different rewards to the employee and maintaining friendly atmosphere are some of the examples at Casablanca.  The balance scorecard has four parameters: Financial, Customer, Innovation, and Internal.  Financial success is measured for shareholders in the form of return on investment and other financial ratios; customer satisfaction is measured through quality and cost; innovation takes place by improving products and developing new products; internal process is oriented to satisfy shareholders and customers (Tatikonda & Tatikonda, 1998).  Successful use of customer, innovation, and internal parameters brings financial success to the shareholders.  The metric of successful use of these parameters is the introduction of new services and improvement of existing services at the Casablanca.

Value Model Theory

Casablanca leadership team recognizes that consumer satisfaction and service quality are essential for the hospitality industry business.  However, recent studies show that consumer purchase decision-making is a critical aspect that needs to be considered in the service-oriented businesses.  This concept describes the principles of customer value proposition (Oh, 2001).  Success in service-oriented business is concealed in understanding behaviors and perceptions of customers.  It is necessary to understand the travelers’ needs in the hotel business.  Price, value, and amenities are key factors to satisfy travelers’ needs.  The goal is to satisfy those travelers’ needs, which would make more value.  In other words, value = quality - price.  Higher quality and lower price create more value for the customer.  Higher value of this equation derives consumer purchase decision.  Consumer’s assessment is based on perceptions what is received and what is given (Oh, 2001).  The above equation conceals this concept.  Thus, value model theory has two parameters: one is quantifiable, and the other is subjective.  Search of perfect relation of these two parameters was the primary task of the Casablanca leadership team.  The leadership team understood that the subjective perception of the value of the quality has to be higher than the price that a customer is paying.  In that case, a customer will perceive the higher value of the price.  Casablanca services are designed to offer more value for the price that customers are paying.  

Quality Control

Based on above discussion it is evident that quality control plays vital role in maintaining outstanding services.  Hotel is a service-oriented business.  Service is a work performed for someone.  The recipient of the service is a client or customer.  This is the whole concept of a hospitality industry, which is true for Casablanca.  In the hotel industry, recipients are travelers.  The leadership has studied the characters of Casablanca guests and their needs.  This is Casablanca’s foundation of quality control.  Quality control at Casablanca starts with meeting the travelers at the desk and ends when they leave the hotel.  During their stay, Casablanca guests enjoy various services.  The leadership team recognizes that the hotel makes direct sells to the end users.  Casablanca has designed the service quality to make sure that guests are offered the best services.  In designing quality control, leadership followed Juran J.M. recommendation, “Human beings exhibit a wide spectrum of needs and likes, all stemming from differences in status, personal taste, etc” (Juran, 2009, p. 3).  Quality control strategy paid attention to design "access time”, and "well being" of travelers.  “Access time" considers queuing time at the front desk during both arrival and departure, and "action time", which is defined as the interval between taking the customer’s order and providing with the requested services.  Consumers’ "well being" design considers the atmosphere, feeling of importance, safety, providing with essential travel information (Juran, 2009).  In order to further improvement of quality of the service, customers’ recommendations and opinions were also taken into consideration.

Strategic management

Strategic management for Casablanca leadership played significant role in determining budget, developing service-chain, value model theory, and quality control.  Casablanca is facing the effect of sluggish economy and decline in business.  That is why; strategic management plays significant role at every segment of Casablanca hotel.  The strategic management started with the study of occupancy and market mix.  This study showed the category of guests of Casablanca.  From 60 % - 70 % of Casablanca guests consist of Leisure and Business group people.  The leadership team found out what this group of people would like to have during their stay at hotel.  The answer is services and again services.  That is why; leadership proposed different services at the hotel pool, and lounges, owing of restaurant, instead of leasing.  Casablanca leadership intends to offer variety of food and services at the restaurant.  For corporate and tour category guests hotel introduced arranging of transportation.  Casablanca leadership recognizes that strategic management process in this industry plays a vital role for sustainable business.  Casablanca management focuses to improve current GOP of the company.  Issues those relate to cost and services are significant in evaluating GOP.  Casablanca managerial tasks are to determine the company’s position with respect to cost, product and services.  Innovation and creativity are used to get a unique solution in finding an advantage over the competitors for these issues.  The leadership team has applied differentiation, cost leadership, customer satisfaction, and financial performance strategies (Lo) in the plan.  Differentiation strategy entails new services and products; cost leadership strategy includes managing raw material cost and its availability as well as controlling overall organizational performance; customers’ satisfaction strategy involves further development of service quality; financial performance incorporates profitability and growth in sales.

SWOT Analysis

SWOT analysis classifies the company’s assessment of strengths (S), weakness (W), opportunities (O), and threats (T).  The purpose of this analysis is to provide the information that would help the company to operate in a competitive environment with its resources and capabilities (SWOT Analysis).

Strength: Casablanca’s strength is refurbishment of the hotel and introduction of better services and food that are not available at competitors’ hotels.  Implementation of strategic management enabled to deliver similar services as competitors but at a lower cost, and deliver other services that exceed the competitors’ quality.  Thus, competitive advantage is the company’s strength.

Weakness: Competitors might adopt same concept through refurbishment and introduction of same services.  Casablanca is planning to offer services at lower cost, which is oriented with the large inflow of travelers.  Change of travelers’ inflow will have an impact on profit.

Opportunities:  Management currently is studying unfulfilled customers’ needs to launch new services improve the category to higher star.

Threats: Current world economic situation may reduce travelers’ inflow and increase cost of raw materials.

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