Hotel Operations
You are the general manager of a limited service property in downtown Dallas. You have noticed you have been getting a lot of complaints from guests about lack of a gym, lack of an arcade, and lack of a conference room. You have no common space left to renovate so you could theoretically use a room for one of these spaces. Please do a cost/profit analysis on which (if any) of these renovations should you do. (Hint: Start with figuring out what you make in revenue per room)
Your hotel is 100 rooms. Last year you ran at 70% occupancy and your ADR was $125.
For a gym you would not be able to charge directly for gym use but you would be able to increase your ADR by $3. You would also need to buy the equipment: Treadmill $2400, Weight Bench $1000, and Stationary Bike $600. You would also now need to hire an additional maintenance person at $12/hr, 40 hours a week. And an insurance premium cost of $1,000,000 a year.
For an arcade you would need to purchase games at a cost of $15,000 and hire a new recreation coordinator at $8/hr, 40 hours a week to oversee the arcade. You expect revenues from the arcade to be $2000 a month.
For the conference room, you would need to purchase a conference table and chairs for $5000 and new electronic equipment for $8,000. You would expect to be able to rent the conference space out 25% of the year at $1,000 a day.
What is the best option for your hotel? Show your work and explain your answer.
