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Asset Management

Asset Management

Posted on Aug 2017:- By: PaperHub
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Introduction

            Copenhagen Plaza Hotel found in Bernstorffsgade, Copenhagen in Demark needs some renovations so as to make it attractive to customers. The hotel is found in a strategic place within the city as it is found in near the Central Station, thereby making the touring the neighboring areas and the city easy for any customers. Given that the hotel is old, there is need of making the renovation of its facilities to upgrade them so that they can be modern in nature. For example, the bathrooms, toilets, floor and bedding facilities need to be fully renovated so that they can be modern in nature. The hotel serves modern customers and facilities need to reflect modernity, especially adding new infrastructure that makes the stay of the customers in the hotel satisfactory, such as the internet. Also, the hotel will introduce new sources of energy, whereby, it will tap into the benefits of solar energy by installing solar panels to generate the required electrical energy to help run most of the operational in the hotel. The renovations will be expected to cost $1 million.

Reasons for Renovation

            There are various reasons why renovation in Copenhagen Plaza Hotel is justifiable. One of the reasons why the hotel need renovation is building quality and design needs. According to Ransley and Ingram (2012), hotel facilities need to keep on being renovated for purposes of enhancing their quality and changing the design to be in line with prevailing times. For example, a hotel many are having bathrooms and toilets that were designed 100 years ago, and due to changes in time, and the introduction of better facilities, the hotel management needs to undertake renovation to ensure that the facilities design reflects modernity. In the case of the Copenhagen Plaza Hotel, some of the facilities are too old and not in good shape, making the quality of the building poor. Hence, to address the issue, there is need of renovations to improve the quality of the building. The renovation should also focus on introducing new modern designs to make the hotel attractive to the younger generation in the future.

            Second, there is a need for the hotel to make renovations in some of its facilities and designs. Enz (2009) notes for strategic purposes a hotel needs to keep making improvements in its facilities to meet certain operational standards. The Copenhagen Plaza Hotel needs to make improvements in the existing facilities, such as rooms, bathrooms and introduced new facilities and amenities aimed at reflecting modernity. For example, the hotel needs to introduce internet services to allow customers access the internet at low cost during their stay. The designs of the major facilities, such as bar, rooms are outdated and need to be changed for purposes of introducing some modernity concepts. For example, the hotel should renovate the rooms to increase the available space for customers to make their movement easier.

            Additionally, undertaking the renovation of the hotel facilities and designs is economically viable. Andrew, Schmidgall, and Damitio (2007) notes that before undertaking any project within a hotel, it is crucial to consider the economic viability of the same. This requires one to undertake cost –benefit analysis with an objective of determining whether the cost incurred are less than benefits or more so as to undertake a project that will have more benefits than costs. In the case, the hotel's location is strategic enabling it to attract huge customer bookings at any period. Hence, making renovations in the hotel will be beneficial as it will increase customer bookings at any given time. This means the rooms will have higher occupancy rate, and the hotel can charge higher prices for rooms due to their ultramodern facilities without customer complaining. The renovation project will be economically viable as more revenues will be generated by the hotel in the future as well as build a customer base of individual who are satisfied with the facilities available and services provided.

 Furthermore, renovation is important as it will help the hotel to introduce environmental sustainability practices. Currently, the hotel relies on non-renewable sources of energy, which in a great way contributes to the pollution of the environment. Customers nowadays are sensitive of environmental sustainability of any business and those businesses that engage in practices that promote environmental conservation have a competitive edge over those that do not. Thus, given that the renovations intend to ensure that the hotel introduces the use of solar energy by installing solar panels to help in electric energy generation, from an environmental sustainability perspective the project is justifiable.

            Also, the firm will be expected to have a financial value on the project, and positive returns will be generated from the undertaking renovations in the hotel designs and facilities. Newell and Seabrook (2006) argue that when making investment decisions in a hotel, it is always critical to consider the expected returns and financial value of the capital investment being made. When it comes to the Copenhagen Plaza Hotel, renovating the facilities and various designs found within it will increase the number of sales generated annually. As a result, the hotel will manage to generate higher returns and improves on its profits in the future. This means that the renovations will add positive financial value in the hotel operations and its returns will be positive.

            The renovation of the Copenhagen Plaza Hotel will impact some stakeholders. One of the groups of the stakeholders that will be affected is the owners. The owners will be expected to spend a huge amount of money in financing this type of project aimed at improving the facilities and designs of the hotel (Wood and Brotherton 2008). Customers will also be impacted by the project as they will be able to get satisfactory services in the future from the hotel, once the renovations are completed, especially introduction of internet services, renovated rooms, bathrooms, and toilets. The community members will benefit from the renovation as it will help in reducing levels of pollution generated by the hotel's operations in the future.

            Lastly, the hotel renovation is justifiable as it will benefit different major stakeholders in different ways. Customers will get value for their money by staying in rooms that are modern in nature with the best facilities as well as amenities in the city of Copenhagen. Employees will be working in a friendly environment after renovations and increment in sales volumes might result in their salaries being raised in the future. The managers will be able to meet sales targets following the renovations as they will improve the rating of the hotel among target customers making it more attractive. The shareholders will benefit from the renovations as return on their investments will increase in the future due to a generation of higher sales after completion of the project (Wood and Brotherton 2008).

Applications and Discussion  

            Sustainable facilities implemented: The renovation of the Copenhagen Plaza Hotel will result in the introduction of solar energy as a primary source of electric energy in the hotel. This is in line with the vision of the hotel management to ensure it engages in environmentally sustainable practices. Gursoy and Swanger (2007) indicates that any business that implements the sustainable measure in place has a strategic edge over its competitors and can improve its financial in the long run through attracting customers. The renovation at the Copenhagen Plaza Hotel will help in ensuring that this hospitality business engages in environmentally sustainable practices as part of its corporate social responsibility strategy. The use of solar electric energy will play an instrumental role in reducing the level of pollution generated by hotel's operation due to the use of non-renewable sources of energy.

            Financial Implications: The renovation of the hotel designs, facilities and the introduction of new systems, such as the internet and solar energy will cost the owners $1 million. Once the renovations are completed, it is projected that the sales of the hotel will increase by a 40% margin. Therefore, the annual revenues to be generated will be $ 500,000 in the next five years. The expected return on investment rate will be 10%. The following table summarizes, the NPV calculations involving the project.

Cash Flow Stream Detail

Period

 

Cash Flow

                                                                                                                             Present Value

0

-1,000,000.00

-1,000,000.00

1

500,000.00

454,545.45

2

500,000.00

413,223.14

3

500,000.00

375,657.40

4

500,000.00

341,506.73

5

500,000.00

310,460.66

 

Total:

895,393.38

This table indicates that the NPV for the project will be positive; hence the project is economically viable (Kaplan and Atkinson 2015). Having considered the present value of the expected future cash flows from the hotel following the renovations, the ROI will be as follows;

(2500000-1000000)/1000000=150%

 Thus, the expected ROI will be 150%, and this is a higher rate making the hotel to generate higher financial returns from making investments in the area of renovating its facilities and introducing environmental friendly sources of energy. Finally, the payback period for the investment made by the owner in renovating the hotel will be two years.

            Risks involved: Before undertaking the renovation, the first course of action is to identify various possible risks that might impact negatively on the completion of the project. The first risk identified is inflation, which might increase the cost of materials and labor. To manage this risk, the management will enter into a contract with the contractor to fix the total cost of the project, and allowance of 10% was given during the budgeting process. Also, use of future contracts will help in hedging against increment in cost of supplies and raw materials needed for completion of the renovations project (Deegan 2013). The second risk is related to substandard work being done by the contractor. The risk will be reduced by ensuring that the contractor will take the responsibility for catering all costs related to losses incurred due to substandard work. To ensure that high standard is maintained during the renovation, the management would carry out regular inspections as a way of managing the substandard risk. Furthermore, there is the risk of theft from the project, and this would be managed through the employment of security guards and keeping proper records of all the materials used on a daily basis (Younes and Kett 2007).

 Outcomes: The owners will be expected to benefit from the renovation as the return on investments in the next five years will be 150%. This will be a major increment in the returns generated from the hotel's operations. Also, the employees will benefit from the renovations through improvement in working conditions and future salaries due to the generation of higher profits from operations of the hotel (Jagels and Ralston 2007). The management will benefits from the renovation by managing to meet sales target, thereby, generating higher bonuses in the future.

Conclusion

 This projected innovation will have great benefits on the operations of the hotel as it will increase room occupancy rates and profits generated by the owners. Hotel innovations as demonstrated in this paper are critical in improving and managing assets of a hospitality business. Innovations help in improving the hotel's assets designs and quality, as a way of making them attractive to customers (Ransley and Ingram 2012). The innovations help in keeping the assets of a hotel in good shape, thereby, making it attractive to customers in the future. It also aids in ensuring that facilities can keep their sales high by ensuring they engage in sustainable business practices, such as environmental conservation. Renovations also aid in enhancing the quality of the facilities by ensuring that they are modern in nature so as to be in line with technological and engineering changes in the society. In conclusion, the renovations within Copenhagen Plaza Hotel will be beneficial to all the key stakeholders.