Why Budget Is Very Important

In his book First Things First (1994), Stephen Covey uses the metaphor of a compass to emphasize the importance of direction and purpose, which must be clearly defined before speeding up a task—symbolized by a clock. The compass must always come before the clock. Jumping into action without first ensuring the right direction and purpose is a wasted effort. This echoes Benjamin Franklin’s famous saying: “If You Fail to Plan, You Plan to Fail.”

In line with this idea, before a hotel begins operations, an operational budget must be established. The budget serves as a compass guiding the hotel’s operations. However, it’s essential to ensure the reliability of this compass. If the quality of the budget is poor, it won’t provide accurate direction, leading to unsatisfactory results. Therefore, preparing an operational budget for a hotel should not be done carelessly. The budget must be carefully crafted, using valid data and handled by competent and experienced professionals.

Here are some key benefits of a budget:

1. Budgeting sets clear and realistic financial goals. A budget helps set targets for revenue, costs, and profits over a specific period.
2. Budgeting acts as a cost control tool. It allows for monitoring and managing expenses, ensuring funds are allocated efficiently.
3. Performance measurement. The budget serves as a benchmark for evaluating operational performance. By comparing actual results to the budget, areas of underperformance can be identified.
4. Cash flow planning. A budget helps ensure sufficient liquidity to cover routine expenses, short-term obligations, and to anticipate long-term liabilities.
5. The budget provides a reference for strategic decision-making, such as hiring staff, upgrading facilities, or planning refurbishments.

In today’s technological landscape, various operating system software (PMS) have been developed to assist with the daily operations of hotels. A good PMS allows the budget to be integrated into the system, tracking real-time data. The system can then systematically generate reports addressing the five points above. With these comprehensive reports, decision-makers can take appropriate action. Effort is important, but knowing where to focus that effort makes all the difference!