Using Value-Based Performance Measures to Improve Hotel Profitability
DOI: 10.1300/J149v04n01_02
Title: Using Value-Based Performance Measures to Improve Hotel Profitability
Journal Title: International Journal of Hospitality & Tourism Administration
Volume: Volume 4
Issue: Issue 1
Publication Date: January 2003
Start Page: 23
End Page: 50
Published online: 12 Oct 2008
ISSN: 1525-6480
Author: Chee W. Chow PhDa, Kamal M. Haddad PhDb, Simon Leung PhDc & William Sterk PhDb
a School of Accountancy , San Diego State University , USA
b College of Business Administration , San Diego State University , USA
c Department of Accountancy , The Hong Kong Polytechnic University
Abstract: Relative to enterprises from other business sectors, hotels have relatively high proportions of physical assets and fixed costs. Further, because their products are perishable and cannot be stored in inventory, hotels cannot use over- or under-production relative to sales to manage their capacity. As such, profitability especially hinges on the effective allocation and use of resources. How a hotel measures and rewards its managers' performance can significantly affect the latter's attention to these issues.This article shows how commonly used, traditional financial performance measures may fail to motivate or guide effective resource allocation and use. It also shows how Value-Based performance measures, which charge managers for the opportunity cost of capital that they use, may be more effective for inducing such results. Findings from a survey of hotel managers support the existence of such potential benefits. They also provide the basis for suggesting important considerations for successful implementation.
Accepted: 9 Dec 2002

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