Budget Season: Understanding Costs and Productivity

Productivity remains one of the most critical factors to consider when preparing a hotel’s annual budget. As highlighted in our previous article, operators typically measure productivity by comparing full-time equivalents (FTEs) with last year’s results or analysing payroll costs against prior-year figures. However, one of the most common budgeting pitfalls we encounter is the assumption that payroll or FTEs should increase in direct proportion to growth in rooms sold or F&B covers. This linear approach overlooks the complexities of hotel operations and often results in unrealistic or inflated budgets.

Understanding Fixed Labour Costs

In practice, many hotel labour costs are fixed, regardless of business volume. For instance, in Food & Beverage, management staff and stewarding teams are generally stable and do not fluctuate with the number of covers. Similarly, in Housekeeping, positions such as executive housekeepers or floor supervisors remain essential regardless of occupancy levels. Simply applying a percentage increase across all roles fails to capture operational efficiency or the true staffing needs of the property. This is why planning for labour costs requires a tailored, role-specific approach.

Global Asset Solutions’ Approach to Productivity Analysis

To encourage more accurate budgeting and minimise unproductive discussions, Global Asset Solutions has developed a suite of tools and reports based on industry best practices.

1. P&L-Based Productivity File (USALI Format)

We have created a Profit & Loss–style file where productivity is calculated at the outlet level in line with USALI standards. Key metrics include hours per customer, such as kitchen hours or service hours per outlet. This approach enables operators to:

Compare budgeted productivity with current and historical performance.

Identify opportunities for savings, particularly in casual staff payroll, where over-budgeting is

frequently observed.

2. Payroll Variance Analysis

A second report analyses the variances between budgeted payroll and the latest forecast, broken down by department (e.g., Rooms, F&B, Spa). For example, if payroll is set to increase by €100K, the first step is to separate the linear rise due to cost-of-living adjustments (e.g., a 3% increase) from any additional variance.

Consider this case:

Rooms payroll increase from last year to budget: €100K

Cost-of-living adjustment (3%): €45K

Remaining unexplained variance: €55K

This difference could be attributed to factors such as sick leave taken in 2025 or carried-over

holidays from 2024. However, our reports frequently uncover attempts by operators to justify

additional labor costs indirectly through inflated payroll allocations.

Beyond variance analysis, it is also important to monitor other payroll-related risks. A notable

example is non-taken holiday accruals on the balance sheet. Some hotels attempt to increase payroll forecasts by planning large “payouts” of unused holidays. While this may be presented as an unavoidable expense, it is not necessarily a recurring cost and can distort the budget.

The earlier these reports are introduced into the budgeting process, the greater their effectiveness. Identifying anomalies early prevents operators from submitting unrealistic or overly conservative budgets. It also ensures that budget presentations can focus on strategic discussions rather than on challenging flawed assumptions.

A disciplined approach to productivity analysis payroll review, supported by robust reporting, is essential for preparing a defensible budget. By avoiding flawed assumptions, identifying true cost drivers, and aligning forecasts with strategy, hotels can build budgets that are both accurate and performance-driven. Ultimately, these practices strengthen accountability and elevate results in the year ahead.