In Kava the hospitality industry has many challenges to face and ethical issues seem to be a core foundation to all of the challenges that abound both for the business itself and the community at large. The emergence of tourism in Kava has contributed significantly to more effective operations, the efficient utilization of resources and the growing globalization of the economy. Therefore, industry consolidation seems to be an inevitable trend. Kavas business environment requires organizations with adequate resources, in particular management requires organization with adequate resources, in particular management talent and financing, to tackle the most complicated tasks that are out of reach of smaller tourism enterprises.
The financial planning and control function in an organization has the main objective of assisting its management. This assistance is directed primarily toward the planning and control activities of managers, but other activities will also benefit if the system is well conceived and used: for example, the coordinating and motivating aspects of management. A good financial planning and control system is one which is in contact: what is done is relevant to the purposes of that particular organization and the managers who work for it, whatever those purposes and however they may be measured and appraised. Inevitably, financial planning and control systems in practice fall short of this ideal, either in their design or in the way in which they are used.
If a financial planning and control system is to assist managers, it will be useful to clarify, at an early stage, those activities which can receive particular benefit. They are: (a) choosing between alternative courses of action; (b) planning the action which is to be taken during a specified period of time; and (c) checking performance once action has been taken.
Alternative Choice Decisions
Choosing between alternatives is one of those activities which managers carry out several times every day. Every time someone comes into a managers office and asks, what do you think we should do about such-and-such?, the manager must either suggest doing nothing or recommend a course of action. In making his reply he is involved in choosing. But some of the issues he gets involved with are of sufficient importance to warrant some sort of formal financial analysis and it is with these types of decisions that individuals are particularly concerned.
Two sets of these types of decisions may be identified. Each set has partivular characteristics which give rise to the need for a specific kind of financial analysis.
The first set of decisions may be characterized as strategic. The use of the word strategic indicates that these decisions are of sufficient importance to warrant the attention of relatively senior managers. Strategic also implies that the decisions are likely to affect the organizations survival and well-being in some fundamental way. Therefore, these decisions tend to have long-run effects, lasting over several years. Often they change the capacity of the organization for example, by expanding or contracting the assets in use. Examples of decisions which have these characteristics are: the acquisition of an additional business; the closure of a factory; the closure of an activity accompanied by a switch to subcontractors; the launching of a new product; and the re-equipment of a transport fleet.
A second set of decisions with which managers are involved may be thought of as being more tactical. This implies some sort of maneuvering to achieve an improved result with gien resources rather than senior and top managers. In many cases it is likely that a tactival manouevre will not commit the organization for lengthy periods of time, since the essence of tactics is to be flexible in the face of a changing environment. Perhaps the most frequently found example of a decision in business which has these characteristics is the product-mix decision: a choice between alternatives, in which the managers have to decide which products they prefer to emphasize in their selling and marketing, so as o obtain whatever additional profit is latent in the market conditions which they face. Hotel companies which operate weekend holidats at lower than normal prices are examples of businesses involved in such a decision. They are trying to improve their profitability by filling the spare capacity which exists in the off-season. Their decision as to which hotel to include in the bargain rate scheme, and at what price, is aimed at securing whatever additional profit is available in a limited market. Should the decision appear to be wrong, the consequences are not too dramatic and can be reversed without undue delay and penalty. If the hotel is fully booked and inundated with enquiries, it is a simple enough matter to remove the hotel from the list in the next seasons publication. Contrast this with the strategic situation where a company builds a new hotel of the wrong size, or in the wrong location or to the wrong design!
Action Planning
Planning the action which is to be taken during a specified period of time is the second of the management activities listed earlier as likely to benefit particularly from the financial planning and control function. Planning of this type is much more detailed than the decision-making first described. The extent to which the one type of planning is detailed and the other broad-brush may be highlighted by the following simple example: suppose an organization has an accommodation problem and has identified two possible sites for relocation of staff. Evaluating these alternatives is decision-making of a relatively broad-brush nature, involving an overall appraisal of such issues as the capital and running costs of the twp locations, their convenience from the point of view of access o head office, the amenities they provide, the spare capacity which they offer for future growth in staff numbers and so on. Once a particular location has been chosen, it will be necessary to prepare a much more detailed plan involving such issues as: surveyors reports, legal negotiations, deciding on facilities to be provided, appointment of a project team to supervise contractors, appointment and terms of reference of a project manager. The project manager will, in turn, need a detailed plan covering such issues as the specification to be followed, the sequence of work to be performed, the time to be taken, and the cost to be incurred. She or he will need to plan the information required and the communication system to be set up. Of course, detailed action plans are required in organizations, not only to facilitate the implementation of strategic and tactival decision, but also to ensure the smooth running of all those operations (probably the majority) which are to be carried on without any changes being introduced.
Marginal Costing
Marginal costing in practice has always been fraught with difficulties. The most common are probably the difficulty of determining the fixed or variable costs associated with a particular decision; and unwillingness to abandon one of the longest-serving members of the management accountants list of ideas the allocated and apportioned fixed overhead and a failure to readjust to new percentage margins when setting selling prices. These are points which have been difficulties facing management accountants for many years. For example, some managers will equate fixed cost with committed cost, so that a fixed cost becomes one that connot be altered at the discretion of management, as opposed to one that is not directly affected by a change in the level of activity being contemplated. Similarly, some managers will confuse correlation with cause and effect, when considering variable costs. For them, advertising and order-getting costs generally are variables in that they usually move in relation to sales more advertising usually means more sales. On the contrary, of course, advertising is affixed cost in the terms of the definition given above, leaving the word variable to be reserved for thse costs which are caused by volume changes, such as the postage cost in a mail-order business.
The allocated and apportioned fixed overhead is a concept of value in a number of settings for example, as a component in making a pricing decision and as part of a calculation designed to assess he economic viability of a venture. But, as a component in a marginal cost calculation, an allocated and apportioned fixed overhead, such as rent, has little, if any, place. Perhaps the reluctance which some managers feel about leaving out fixed overhead is born of the feeling that there is such a thing as the cost of something, so that a cost figure produced for one purpose is automatically seen as being useful for another. "The important to budget travel is to approach in advance. When it occurs to family trips, globetrotting, well-deserved trips and/or going to see new spots we have never been before, the actuality of cost and budgeting is always in the back of our heads. Considering and expending our travel budget correctly is a consideration for most families. Minimizing spending and prices, while still experiencing your vacation to its fullest, is the key to certain accomplishment and fiscal responsibility. Your pocketbook and family will thank you! The thinking behind protecting money while traveling is simple: Even if your personal funds is incredibly limited, you can still take a break and enjoy life! Simply put, life is just too short to never step out of the door or departing the homestead! Also remembering that while traveling, whether on a finances or not, even the smallest of things can all add op to a big vacation or travel charge!..". But, of course, a cost figure which is a valuable tool in one setting need not be a caluable tool in another in the same way that, say, a hammer is a very useful rool for putting in nails but not much use for putting in screws! Perhaps, before supplying a cost figure, management accountants should always ask their managers, What are you going to do with it?.
Readjusting to new margins when the base number is on a marginal cost basis is, of course, another old problem. And yet, the finer points of accountancy can tend to get overlooked in practice, particularly when price competition is keen, so that contribution costing can be introduced, even though contribution pricing may be inappropriate, in that it yields too low a return on investment, or in terms of locking up spare capacity at low margins and perhaps preventing the organization from accepting more profitable orders in the future.
Administration and Motivation
It has already been seen that two important problems associated with action planning are administrative and motivational problems and, since budgeting and action planning go hand-in-hand, the former is as much subject to those problems as the latter. For example, preparing a set of budgets which includes figures relating to labor costs, purchases, stocks, material usage, overhead support in the factory, overhead support in administration, marketing, personnel, research and development and distribution with all the detailed sub schedules itemizing the nature of these overheads, such as salaries, stationery, travel and so on, together with budgets for equipment, vehicles, debtors, creditors, cash flow, and fund-raising all takes a great deal of organizing, and often a great deal of time. Add to this the fact that most budgets go through an evaluation phase, whereby first drafts are criticized and amended, resubmitted and perhaps further amended before final approval, and the administrative task becomes even more evident. Most accountants are adept at this: arranging for the preparation and processing of paperwork is a task for which they are trained and for which they usually have the right temperament. But herein lies a degree of danger: that the preparation and evaluation of budgets will be seen to be primarily exercises in processing paperwork as far as the accountant is concerned. Even if the task is seen to include assisting in the development of alternatives so that budgets which are bothe achievable and desirable emerge, a main feature of the process will have been underplayed. This is, of course, the motivational aspect. Budgeting is part of the process of getting ready for action and as such should be considered as being clearly associated with leadership. What matters is not simply what figures are put together and whether all likely alternatives have been assessed, but also how the people involved feel about the outcome.
Conclusion
As peoples view of the world changes, so our understanding of sustainable tourism must change. Yet understanding the outcomes of this thought process is not sufficient, individuals must begin to understand how difficult decisions are made. By informing the managers of today and tomorrow about how they are making decisions then if or when individuals are ready to move to a new financial understanding, the basis on which the decision is reached,will be clearly understood.
References
International Association of Hospitality Advisors. (n.d.) Code of Ethics. Retrieved September
5, 2009 from http://www.hotel-online.com/Trends/IAHA/legal.htm
Roner, Lisa. (2009). Why Has North America's Hotel Companies Been Slow to Adopt
Responsible Tourism. greenlodgingnews. Retrieved August 9, 2009, from
http://www.greenlodgingnews.com/Content.aspx?id=418
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