CHAPTER 1

THE PROBLEM AND ITS BACKGROUND

Introduction
In the modern business world, firms struggle to survive and find its place
in the industry through winning customers. To keep abreast with the very
unpredictable business environment and to remain competitive, managers must
have a forward-thinking attitude. This is where planning comes to place. There is
an adage that says, If you fail to plan, you plan to fail. Planning becomes even
more important in the business setting where resources are scarce and hence
must be allocated effectively and efficiently. In this regard, profit planning proves
to be essential. It plays a vital role in a survival of a business and it gives
management a direction for its decisions. It encompasses the use of accounting,
finance and management tools to forecast demand, project revenues and plan
and control expenditures. Whilst focusing on the short-term, it gives businesses a
sense of direction on how to manage scarce resources.
In the very competitive hospitality industry, businesses try their best to
market their facilities and services aggressively. Here, satisfied customers are
the lifeline of the business. Winning customers is the way to compete. Internally,
resources have to be managed in the most efficient way in line with the goal of
winning customers.
Hence, managers and prospective managers should know how to win
customers, project revenues and plan and control expenditures. It is therefore an
imperative that managers should have a working knowledge of profit planning
and short-term budgeting tools because the same will prove to be handy in
determining their businesses viability in the immediate short-run and in the short-
run. It is for this reason that the researchers look into the prospective managers
proficiency on profit planning tools. In this pursuit, the researchers envision an
even more aggressive competition in the hospitality industry through detailed
profit planning and budgeting.

Background of the Study
Solaire Resort & Casino (formerly known as Solaire Manila) is a resort
complex operated by Bloombery Resorts and Hotels Inc., a Filipino corporation
listed in the Philippine Stock Exchange. The facility includes a five-star hotel with
488 room and a casino. It is first casino and hotel to be located in
the Entertainment City complex along the Bay City area of Paraaque
City, Philippines. It was opened on March 16, 2013 and became the tallest hotel
in the Manila Bay area outside Manila, a distinction previously held by Sofitel
Philippine Plaza.
Solaire aims to bring Las Vegas standard to Manila in terms of quality
entertainment and hospitality. The company is run by Bloomberry Resorts and
Hotels Incorporated through a subsidiary Sureste Properties, Inc. (formerly
Bloomberry Investments Holdings Inc), headed by Enrique K. Razon Jr.,
chairman of the Manila-based company, International Container Terminal
Services Incorporated. The project was given an investment of $1.2 billion.
Solaire takes pride as a majority Filipino-owned business that competes well with
many multinational players in the industry like Resorts World.
Despite being a baby in the industry having been operational for barely
just one year, Solaire already posed a profit of P2.3 billion in the first half of 2014
(http://www.abs-cbnnews.com/business/08/01/14/bloomberry-resorts-posts-p23-
b-profit-h1 Retrieved August 5, 2014). The proficiency of Solaires finance staff in
profit planning and short-term budgeting is the subject of this study. This study
looked into the finance staffs understanding of the business and its operations
and rationalization on profit planning and budgetary planning and how it
contributes to the companys success.
Theoretical Framework
This study is primarily founded on the Theory of Constraints (TOC). Dr.
Eliyahu M. Goldratt (2007) introduced the theory of constraints in his book
entitled The Goal. It is based on the application principles and logic reasoning to
guide human-based organizations.









Figure 1. Theory of Constraints
TOC is geared to help organizations continually achieve their goals.
TOC is based on a set of basic principles (axioms), a few simple
processes (Strategic Questions, Focusing Steps, Buy-In processes, Effect-
Cause-Effect), logic tools (The Thinking Processes or TP) and through the logical
derivation of these some applications to specific fields (Operations, Finance,
Distribution, Project Management, People Management, Strategy, Sales and
Marketing).
TOC brings in the powerful five focusing step methodology to identify the
constraint in the company and systematically attack the associated problems.
Many times, when we finally break a constraint, we do not go back and review
THEORY OF CONSTRAINTS
TOC is geared to help
organizations continually
achieve their goals
TOC is based on a set of basic
principles (axioms)
Simple Processes
Logic Tools
Logical Derivation
- Strategic Questions
- Focusing Steps
- Buy-In Processes
Thinking Processes
- Operations
- Finance
- Distribution
- Project Management
and change the rules and policies that caused the constraint initially. Most
constraints in organizations are policy constraints rather than physical
constraints. The result is dramatic improvements of throughput (or contribution)
and customer order due date performance, and inventory reduction. The steps in
applying TOC are as follows:



If the Constraint is broken
Figure 2. Steps in Applying Theory of Constraints
1. Identify the systems constraints.
2. Decide how to exploit the systems constraints. Once it is decided how to
manage the constraints within the system, how about the majority of the
resources that are not constraints? The answer is to manage them so that
they just provide what is needed to match the output of the constrained
resources.
3. Subordinate everything else to the above decision in Step 2. Since the
constraints are keeping us from moving toward our goal, all the resources
are applied that can assist in breaking them.

Identify
constraints

Exploit
systems
constraints

Subordinate
everything

Elevate
systems
constraints
4. Elevate the systems constraints. If we continue to work toward breaking a
constraint (also called elevating a constraint) at some point the constraint
will no longer be a constraint. The constraint will be broken.
5. If the constraint is broken, return to Step 1. When that happens, there will
be another constraint, somewhere else in the system that is limiting
progress to the goal.
The process must be reapplied, perhaps many times. It is very important not
to let inertia become a constraint. Most constraints in organization are of their
own making. They are the entrenched rules, policies, and procedures that have
developed over time. Many times, when we finally break a constraint, we do not
go back and review and change the rules and policies that caused the constraint
initially. Most constraints in organizations today are policy constraints rather than
physical constraints. According to Theory of constraints:
Every organization has at any given point in time at least one
constraint which limits the systems performance relative to its goal. These
constraints can be broadly classified as either an internal constraint or
market constraint. In order to manage the performance of the system, the
constraint must be identified and managed correctly according to the Five
Focusing Steps. Over time the constraint may change (e.g., because the
previous constraint was managed successfully, or because of a changing
environment) and the analysis starts anew.
(http://en.wikipedia.org/wiki/Theory_of_constraints. Retrieved July 14,
2014).
Dr. Elihayu Goldratts (2007) Theory of Constraints Series will serve as
one of the most effective platforms to improve business productivity in
Production, Supply Chain, Logistics, Project Management and other important
segments. The application of Theory of Constraints reveals the reasons projects
never finish on time or within budget or within specifications, and develops an
alternate approach to managing projects. In terms of financial aspects, it will play
a big role to utilize all the financial resources of the company and it will serve as
a guide in making a financial planning. Theory of Constraints as a holistic
approach will enhance the quality of decision-making, improve communication
and stimulate new solutions, providing benefits for the entire company.

Conceptual Framework

The conceptual framework discussed the flow of the study to be taken.
The study used the systems approach. The system of three (3) frames is
composed of input which went through the process or operation and emerged as
the output.



















Figure 3. Conceptual Paradigm
Feedback

Profile
Age
Sex
Civil Status
Highest
Educational
Attainment
Level of
Position in the
Company
Length of
Experience in
Hospitality
Industry

Understanding of
Entitys Operations

Rationalizing
Profit Planning
Use of Cost
Data
Budgetary
Planning
o Revenues
o Expenses
o Financial
reports
o Human
aspects
Survey
Observation
Documentary
Research
Unstructured
Interview
Statistical
Analysis
Frequency
and
Percentage
Ranking
Weighted
Mean
Chi-Square


INPUT PROCESS OUTPUT
Statement of the Problem
This research aimed to look into the working knowledge and proficiency of
Solaires finance staff in profit planning and short-term budgeting.
Specifically, the study sought to answer the following:
1.0 What is the profile of the representatives of Solaire Resort and Casino in
terms of the following:
1.1 Age;
1.2 Sex;
1.3 Civil Status;
1.4 Highest Educational Attainment;
1.5 Position in the Company; and
1.6 Length of Experience in Hospitality Industry?
2.0 What is the respondents understanding of entitys operations?
3.0 How do the respondents rationalize profit planning and control in terms of the
following:
3.1 Use of cost data;
3.2 Budgetary planning;
3.2.1 Revenues;
3.2.2 Expenses;
3.2.3 Financial reports and projected financial statements; and
3.2.4 Human aspects of budgetary planning?
4.0 Is there a significant difference between the profile of respondents to the
following lead variables:
4.1 Understanding of entitys operations; and
4.2 Rationalization of profit planning?

Scope and Limitation




Significance of the Study
This study sought to provide supplementary information that will guide and
help raise consciousness about the importance of the working knowledge of
management accounting tools in profit planning. The study will benefit the
following individuals and organizations.
Business Owners. This study will be very beneficial to business owners,
small and large alike, especially those engaged in the hospitality industry. It may
help them gain insights on short-term budgeting as it relates to profit planning. In
so doing, they can use these short-term plans in strategizing for their businesses
long-term survival.
Management. This study may prove to be useful as managers and
employees review and assess their working knowledge of essential budgeting
tools as used in profit planning. Findings of the study will serve as a valuable tool
for the management in generating quality reports as an input in formulating
financial management policies and strategies towards profit maximization.
Investors. This study will help prospective investors delve into the profit
maximization, planning and management of businesses within the hospitality
industry particularly in the aspects of planning, decision making and control as
they relate to maximizing shareholders value.
Academe. This study could be used as reference material and case study
in teaching management accounting subjects, particularly topics dealing with the
hospitality industry, use of cost data, profit planning and short-term budgeting.
They could be furnished with technical literature and situational analysis as
tailored input to suit their classroom lectures and case study methods in
accounting.
Other researchers. This study will be an effective tool and reference for
the researchers who would intend to make any further relevant study about profit
planning, short-term planning and businesses within the hospitality industry.

Definition of Terms
The following terms used in this study are operationally defined to provide
better understanding.
Actual cost. Actual amount paid or incurred, as opposed to estimate.
Age. This refers to the number of years the respondent has been living
during the conduct of the study. This is classified according to the following
brackets: below 25, from 25 to 29, 30 to 34, 35 to 39, 40 to 44, 45 to 49, and 50
above.
Budget. A financial plan for a future period of time. The budgeting process
translates the strategic plan for an entity into financial terms and identifies the
steps for achieving the goals of the plan.
Budgetary planning. Use of budgets in planning.
Budgeted cost. An expense that has been planned for in advance.
Cash flow. Actual peso that are received by an organization or paid out
by an organization.
Civil status. This refers to the respondents marital status during the
conduct of study. It is classified into: single, married, separated and
widow/widower.
Cost center. A responsibility center in which the manager is held
accountable only for controlling costs.
Decision Making. The thought process of selecting a logical choice from
the available options.
Expenses. Costs incurred in the ordinary course of business aimed at
generating revenue.
Financial reports. These are reports intended for internal users of
financial information, i.e. managers.
Highest Educational Attainment. This refers to the classification of
respondents according to bachelors degree, masters units, or masters degree.
Human Aspects of Budgetary Planning. It refers to the respondents
perspective on how budgets affect human behavior in the organization.
Length of Experience. The duration of service or employment of the
respondents in the hospitality industry during the conduct of the study grouped
into the following brackets: less than 3 years, 3 to less than 5 years, 5 to less
than 10 years, and more than 10 years.
Level of Position in the company. This refers to the managerial area or
level the respondent belongs during the conduct of the study. It is classified into
the following brackets: top managerial level, middle managerial level, supervisory
level, lower managerial level and staff level.
Planning. The management function concerned with identifying goals and
the specific methods of achieving them.
Profit center. A responsibility center in which the manager is held
accountable for sales and costs. In Solaire, this refers to the revenue-generating
departments, i.e. hotel, casino and resort.
Profit planning. It refers to the projection and budgeting of revenues and
expenses in the short run aimed at maximizing profits. This will be the main
subject of this study.
Revenues. Gross inflow of economic benefits during the period arising in
the ordinary course of activities of an entity.
Sex. This refers to the biological classification of respondents as to male
or female.
Standard cost. The planned or expected costs as reflected in the
companys budgets.
Theory of Constraints. a management paradigm that views any
manageable system as being limited in achieving more of its goals by a very
small number of constraints.
Variance. The difference between the actual figures and standard or pre-
determined figures reflected in the budgets. Figures may be used to express
revenues or costs. Differences are reported as either favorable or unfavorable,
as the case may be.