Appraising Performance

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Appraising Performance
Week 8 and 9
Learning outcome
• Understand appraisals performance methods and techniques
Performance appraisal
• Revenue
• Costs
• Profits
• The product
Fundamentals of appraisal
• Knowing goals and objectives
• Placing a value on a measurement
• Being prepared to make decisions
Basis of appraisal
• Established aims and objectives
• Existing budgets
• Existing standards required
Effect of changes in price and volume
Spend per head and average check
Key points of revenue appraisal
• Revenue is product of price and volume
• Appraisal needs to take account of changes in both price
and volume
• Averages not always accurate and prone to
misinterpretation
• Allow for inflation and/or price rises
• Need to compare like with like
• Incorporate 12-month rolling totals to determine true
trends and performance
• Revenue cannot be fully appraised by itself
Appraising costs
• Fixed costs
• Variable costs
• Semi-variable costs
Change in costs and revenues
Industry norms for cost percentages
Key points of cost appraisal
• Structures vary, and change over time
• Can be measured in cash or percentages
• Proportional relationship between costs
• Relationship between costs and inflation
• Cross-sectional and time-series analyses useful
• 12-month rolling totals identify true performance
• Operators with the lowest costs perceived as having a key
advantage
• Allocating indirect costs more complex than allocating direct
costs
Profitability measures
• Gross profit
• Operating profit
• Net profit
• Net operating profit
• Departmental and unit profit
• Yield
Example profit and loss account
Comparison of gross profits
Comparison of operating profits
* Costs will include ingredient costs and
staff cost. The extent to which other
costs have been included needs to be
established
Yield comparisons
Relationship between revenue, costs and
profits
Comparison of GP in relation to revenue
Comparison of cash GP and GP %
Potential cash GP and GP %
Effect of changed sales mix
Sales mix example (beverages)
Example of profitability calculations
Popularity and profitability ranking
Menu engineering matrix
Adapted from Kasavana and Smith 1999
Menu engineering matrix
Adapted from Kasavana and Smith 1999
Comparison of net operating profit measures
Key points of profit appraisal
• Be clear how profit measures are contrived
• Compare like with like
• Appraise against objectives to give value
• Setting objectives includes subjective judgements
• Sales mix analysis determines real trends
• Profit percentages measure efficiency, not profitability
• Cash contribution is what is being sought
• Comparison with industry norms us useful
• Use rolling 12-month totals to indicate true performance
• Take account of stakeholders’ priorities
Appraising the product
• Approaches include:
• Measuring customer satisfaction
• Complaint monitoring
• Staff focus groups
• Mystery shopper
• Process reviews
• Quality audits
• Quality standards analysis
Customer importance / operational
achievement matrix
Customer importance / operational
achievement matrix
Customer importance / operational capability
matrix
Customer importance / operational capability
matrix
Customer importance / staff importance
matrix
Customer importance / staff importance
matrix

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