Monday, April 16, 2012


The powerful tool for performance management, ‘The GOPPAR Model’

a generous container of KPIs for hospitality
The powerful tool for performance management, ‘The GOPPAR Model’
Revenue management, also called yield management, is the main focus in hospitality. Room nights being a perishable good it is of vital importance selling them for the highest room rate possible before their sudden demise. Let"s call it what it is: rent revenue management. Being highly focused on this narrow task hotels will miss out on maximizing efficiency and secondary revenue sources, and are not aware enough of the dependency between those sources. The purpose of this article is to show the possibilities for improved daily performance management by introducing a GOPPAR model that intrinsically contains many departmental KPIs, including the most used ones, Occupancy, ADR en RevPAR. The model can easily be tailored and expanded depending on hotel specifics.
The GOPPAR Model: mathematics
The model is derived by translating the gross operating profit (GOP) calculation into an equation containing many useful key performance indicators instead of numbers that by themselves are not really useful for performance monitoring or benchmarking.
The formula below shows us the gross operating profit (GOP) derived as the sum of all operational revenue (Rev) minus all operational costs, split into variable costs (VC) and fixed costs (FC). The suffix "n" stands for the set of differentiated revenue sources and suffix "m" for the set of fixed cost categories, departmental or undistributed. The first part (the sum of revenue minus variable costs) is the gross profit (GP) and the last item is the sum of all fixed costs (FC).
'Equation for Gross Operating Profit (GOP)
'Equation for Gross Operating Profit (GOP)
When translating into the KPI enriched equation for GOPPAR, GOP per available room, we need to:
  • reformulate revenue minus variable costs using a variable for the gross profit margin,
  • replace revenue items by the product of the average daily spending and the number of booked room nights,
  • divide the equation by the inventory of room nights.
Equation for The Goppar Model
Equation for The Goppar Model
Beside its total, which is the notorious gross operating profit per available room (GOPPAR), all variables are useful for performance monitoring. Margins (m) for the different revenue sources are indicators for efficiency, average daily spending (ADS) figures are related to pricing and demand which are giving valuable insights into customer buying and marketing effectiveness, and all items of fixed costs per available room (FCPAR) are useful for longer term analysis and benchmarking of the overall efficiency of the business.
The GOPPAR Model: example
In the example we take figures for a whole year for an imaginary hotel with continuous availability of 100 rooms and an occupancy of 70%, giving a total of 36.500 room nights available and 25.550 room nights rented out. To enrich the example variable costs are differentiated between sales & marketing and operations. With regard to rent the first contains transaction costs like commissions paid, and the second for example cleaning costs.
In the example there are four revenue sources (rent, services, food & beverage and retail) and four cost types for undistributed fixed costs (wages, utilities, maintenance and general & administrative).
[for the full story read the article in pdf]

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