Benchmarking Hotel Capital Budgeting Practices To Practices Applied in Non-Hotel Companies

Abstract

A survey was conducted to compare hotel capital budgeting practices employed within and outside the hotel sector. It was found that the propensity to inflate investment cash inflow projections outweighs the propensity to deflate cash inflow estimates and the tendency to inflate projected cash inflows is less in the hotel industry. Hotels exhibit a lower level of development with respect to reviewing required rates of return and also applying post-completion audits. Also, NPV and IRR, which are based on discounting approaches, are used to a relatively low degree in the hotel industry and over half the hotels surveyed either exclusively use the payback method (36%) or use no financial investment appraisal method at all (17%). Consistent with prior findings in other industrial sectors, there appears to be a positive relationship between organizational size and use of financial investment appraisal techniques.

An investigation of Australian and New Zealand hotel ownership

“…Star-rating has been widely measured in hotel research (see e.g., Burgess, 2003;Guilding & Lamminmaki, 2007;Harrington & Keating, 2006;McKay, Clack, Batchelor, Astbury, & Teerapittayapaisan, 2002;Nebel, Braunlich, & Zhang, 1994). The current study used Guilding and Lamminmaki's (2007) measure of star-rating by asking the respondent: "What is the star-rating of your hotel?…”

“…The current study used Guilding and Lamminmaki's (2007) measure of star-rating by asking the respondent: "What is the star-rating of your hotel? "…”

“…It appears that number of rooms is the most widely adopted measure (Garcia-Falcon & Medina-Munoz, 1999;Vallen & Vallen, 2005), although annual sales turnover has also been widely adopted (Guilding & Lamminmaki, 2007;Lamminmaki, Guilding, & Pike, 1996;Property Council of Australia, 2003). It was therefore felt prudent to use both measures.…”

“…It was therefore felt prudent to use both measures. To determine the number of rooms in a hotel, questionnaire measures are typically categorical (e.g., Kasavana & Brooks, 1995;Vallen & Vallen, 2005) or discrete (e.g., Guilding & Lamminmaki, 2007). In light of the advantages of discrete data, respondents were asked:…”

“…a) number of rooms: ___". Following this, in order to measure annual sales turnover, a measure used by Guilding and Lamminmaki (2007) was adopted whereby the respondent was asked: "What is the approximate size of your hotel in annual sales turnover? AUD$_______million"…”