W10_APE_Low Cost Hotel Accommodation-LCHA, Breakeven & Sensitivity Analysis


  1. Problem Definition

This blog is the third part analysis for container hotel business: breakeven (BEP) & sensitivity after established final MARR and hotel tariff in previous blog.

 

Figure 1 

Figure 1 KL Container Hotel

 

  1. Identify the Feasible Alternative

Two options are foreseen for the analysis. First option is all fixed cost with variable revenue and second option with some variable cost and revenue together with their sensitivity analysis to find the main driver element for this business.

  1. Development of the Outcome for Alternative

 The business element taken from previous blog W6, and they are:

  • Ex Container lifetime is 15 years for 10% salvage value
  • The hotel tariff price per night is 200 k-IDR
  • i for MARR = 23%
  • The hotel area will be in East Bandung

Breakeven simulations based on references[1], [2], [3]are present hereinafter:

 Figure 2a

Figure 2 Breakeven Option 1, All Fixed Cost and Variable Revenue

Figure 2b

Figure 2 Breakeven Option 2, Fixed + Variable Cost and Variable Revenue

The sensitivity analysis for both BEP options present in Figure 3:

Figure 3

Figure 3 Sensitivity Analysis for BEP Option 1 & 2

  

  1. Selection Criteria

The goal for this simulation is finding the number of beds for breakeven condition based on commercial strategy taken in previous blog with their main driver from sensitivity analysis.    

  1. Analysis and Comparison of the Alternative

BEP analysis for shows around 6800 beds per year correspond with fixed cost or some partial annual variable cost compare to 8400 beds taken as “selling strategy” in blog W6. It means that I should sell this number for my business survival otherwise I get bankrupt. It shows from sensitivity analysis that MARR and initial investment [P] are two sensitive factors, but the most important thing is the revenue factor [the reversible sensitive graph on the spider plot] that really required my attention. In other words, if I lock my hotel price as they already in competition line, then my focus should be on beds occupancy.

  1. Selection of the Preferred Alternative

Important factor that I should monitor during the business life cycle is the hotel revenue from beds occupancy and at least 6800 beds [81% from 8400 beds selling point] for breakeven.     

  1. Performance Monitoring and the Post Evaluation of Result

Since BEP target is quite challenging, I should very creative to attract my customer. Identified marketing actions that I recover so far are: a. lowering the price for holidays, b. family package price, and c. guest “door price” for special day [birthday/marriage anniversary/graduation…etc].

References

[1]home.ubalt.edu. (2013). Breakeven Analysis and Forecasting. Retrieved from http://home.ubalt.edu/ntsbarsh/business-stat/otherapplets/breakeven.htm

[2]seas.gwu.edu. (2013). Sensitivity Analysis. Retrieved from http://www.seas.gwu.edu/~dorpjr/tab4/publications.html

[3]Sullivan, William G., Wicks, Elin M., & C.Patrick, Koelling. (2012), Engineering Economy 15th Edition (pp. 451-465). New Jersey, United States: Prentice Hall.

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1 Comment

Filed under Arif P, Week 10

One response to “W10_APE_Low Cost Hotel Accommodation-LCHA, Breakeven & Sensitivity Analysis

  1. WOW!!!! Awesome posting, Pak Arif!!! Really nice analysis!! I loved it!!!

    I can’t wait to visit East Bandung and stay in your new hotel!!

    Seriously, you did a fine job on a very realistic case study. Now my only concern is can you do this same calculations on your calculator? The danger in passing your exams is you can do the problems in Excel but can you do them when you are in the actual exams and can only use your hand held calculator?

    Just something to think about as you wrap up your paper and start to focus on the exams themselves.

    BR,
    Dr. PDG, Jakarta

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