Chapter 4 Managing Costs

Abstract

In the previous chapter we discussed revenue and identified a range of areas where it can be improved by either sales or control techniques. However, in reality there may be only limited opportunities for you to improve revenues, or you may not have them at all. You then need to look at the other side of the P&L – costs. Controlling costs has always been more popular than controlling revenue with potentially large savings to be made by the manager, or so says the traditional view of the accountant.
In this chapter we’ll look at the principles of controlling costs but within the constraints of maintaining the quality of customer service and product – which if not managed would result in an adverse effect on revenues. To do this we need to understand how costs behave, some being more controllable than others. You need to concentrate on managing what is manageable. As with revenue we’ll also review the relevant ratios that will help indicate problems and then look at a range of techniques to minimise costs.
By the end of this chapter you will be able to:
- Identify the types of costs that occur in the various hospitality sectors
-Define cost behaviour and the difference between fixed and variable costs
- Calculate cost ratios
- Extract the fixed and variable elements from a series of total costs.