ACC408
2nd SEMESTER 202324
Individual Coursework Assignment
MODULE TITLE:
STRATEGIC BUSINESS MANAGEMENT
Merry INN Hotels
You have recently started work as a management accountant at Merry INN Hotels, reporting to the financial controller.
Draft management accounts have been prepared for the year just finished, and the financial controller has told you that one of your first jobs will be helping her to analyze the results in order to produce the board report. However, she has warned you to expect a wide variety of tasks, because the year end is always a very busy time.
The financial controller has given you some information to help you familiarize yourself with the company and the issues it is facing (Exhibits 1-3) and you have also collected some further information yourself (Exhibit 4 and 5).
Exhibit 1: Company overview, prepared by the financial controller
Exhibit 2: Summary management accounts
Exhibit 3: Notes from meeting with the Head of Internal Audit
Exhibit 4: Internal memo from the Head of Internal Audit
Exhibit 5: Notes on internal control issue
The task requirements are included in the task shown below:
1. Required
Using the information provided, draft, draft an extract for the board report which analyses Merry INN Hotel’s performance in 20X7, including both financial and non-financial aspects of performance. (28 marks)
Professional skills marks are available for demonstrating analysis skills relating to Merry INN Hotel’sperformance. (4 marks) (Total = 32 marks)
2. The Finance Director (FD) has forwarded you the CEO’s email about a potential strategic opportunity for Merry INN, and asked for your thoughts about it.
Required
Draft a briefing paper for the FD which evaluates the appropriateness of the proposed acquisition. (16 marks)
Professional skills marks are available for demonstrating evaluation skills in assessing the appropriateness of the acquisition. (4 marks) (Total = 20 marks)
3. The FD tells you that one of Merry INN’s non-executive directors has raised some concerns about the balance of strategic and operational risks included on the company’srisk register
(a) Required
Prepare briefing notes which assess the risks currently included in Merry INN’s risk register in the light of the non-executive director’s concerns, and your meeting with the head of internal audit. (12 marks)
Professional skills marks are available for demonstrating skepticism skills in questioning the range of risks covered in the register. (4 marks)
(b) The FD also mentions that an additional issue to consider in relation to the risk register is the potential impact that disruptive technology could have on the hotel industry. However, the FD is concerned that some of the directors may not yet be familiar with the concept of ‘disruptive technology’ .
Required
Prepare information for a slide to be presented to the board, including relevant bullet points and supporting notes, explaining what ‘disruptive technology’ is and highlighting its potential impact on Merry INN. (12 marks)
Professional skills marks are available for demonstrating communication skills in highlighting the key points to include in the slide, with clear supporting notes. (4 marks) (Total = 32 marks)
4. Shortly after your meeting, the Head of Internal Audit sends you a memo about a recent incident which he felt you should be aware of, in case the external auditors ask you about it.
However, the Head of Internal Audit is now on leave, and the FD has asked for your thoughts about how the internal control deficiency exposed in the fraud could be addressed.
Required
Prepare a briefing paper which recommends how the specific internal control deficiency exposed by the fraud could be addressed. (12 marks)
Professional skills marks are available for demonstrating commercial acumen in judging how to address the deficiency and recommending an appropriate response. (4 marks) (Total = 16 marks)
Exhibit 1: Company overview
Merry INN company operates a chain of 35 hotels across the country of Teeland. The hotels are all of a similar size, and an average each hotel has 90 rooms.
The majority of Merry INN’s hotels are located in major cities, and the company’s target market has primarily been business customers. In recent years, however, demand from business customers has started to decline, due to tough economic conditions.
The company’s policy is to set standard prices or the rooms in each hotel, with that price reflecting the hotel’s location and taking account of competitors’ prices. However, hotel managers have the authority to offer discounts selectively in order to obtain bookings – for example, by reducing the room rate for regular customers, or lowering prices at times when occupancy rates are expected to be low.
Each hotel manager has the authority to offer a discount of up to 25% off the standard room rate. The average standard price per night (across all 35 hotels) was $150 in 20X7, compared to $145 in 20X6. All of Merry INN’s hotels are open 365 days per year.
All the hotel rooms have the same facilities and specifications so that business customers staying in any Merry INN hotel across the country will know in advance what to expect from their stay. Hotels in Teeland are rated on a ‘star’ system, with 5* hotels being the most luxurious. Merry INN’s hotels all have 4* ratings.
In addition to room bookings, the hotels also generate revenue from additional activities, such as restaurants and bars. No discounts are offered on any of these additional revenue streams.
At the end of their stay, all customers are invited to complete a short survey identifying the reasons they chose to stay in a Merry INN hotel and how satisfied they were with their stay.
Feedback from these surveys shows that the comfort of Merry INN’s rooms, the convenience of the hotels’ locations, and the quality and efficiency of customer service are key factors in customers’ choice of hotel. The quality of the guest’s experience, and their level o satisfaction, influences not only the likelihood of them making repeat bookings but also the likelihood of them recommending Merry INN Hotels to friends or colleagues.
As such, the board have identified customer satisfaction scores as a key performance indicator. Other key indicators the board monitor are occupancy rates (% of rooms occupied) and operating profit margin.
Exhibit 2: Summary management accounts
Other performance information
Notes:
*Capital employed is calculated using the depreciated cost of non-current assets at all of the hotels.
**Customer satisfaction scores are graded on a scale of 1- 10, where ‘10’ represents ‘Excellent’ .
On average, in any given location, the top 10% of hotels earn scores of 9 or above. The top 25% of hotels earn scores of 9 or above. The top 25% of hotels earn scores of 8.5 or above.
Three themes have become increasingly frequent in the comments customers give alongside their scores.
- Customers resent having to wait to check into their rooms, and several have asked whether Merry INN could implement an automated check-in process.
- Customers who have stayed in Merry INN Hotels before have commented that the standard of service in recent visits has not been as good as in earlier visits.
- The rooms would benefit from re-decorating, and some of the fixtures and fittings need replacing (for example, the beds would benefit from new mattresses to improve the level of comfort they provide to guests).
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Merry INN had originally planned a two-year refurbishment programme beginning in 20X7, in which all of its hotel rooms would be refurbished. However, this programme has been delayed, due to the current economic conditions and the need to reduce expenditure.
Exhibit 3: Email from CEO
From: CEO
To: Directors of Merry INN
Re: Potential acquisition
Dear All,
Our strategic review earlier this year identified ‘profitable expansion’ as one of Merry INN’s key objectives, and our shareholders are becoming increasingly vocal about their desire for the business to grow.
To date, Merry INN has grown organically, and we have identified a list of desirable locations where we would like to open new hotels, but there are currently no suitable properties available in those locations.
However, I have learned that a small privately owned chain of hotels – Hovis Co – is coming up for sale, because the majority owners are looking to retire.
Hovis owns ten hotels. Four of these are in-town, while the other six are rural hotels. Hovis’ hotels all have 4* ratings, like Merry INN’s own hotels.
The majority of Hovis’ guests are leisure travelers, and many of them choose to say in Hovis hotels because they have a charm and character which is not found in more contemporary hotel designs. However, due to a lock of capital expenditure from the current owners, some of the hotels ae in relatively poor condition internally and externally.
I would be keen to get your thoughts about this potential acquisition.
Exhibit 4: Notes from meeting with the Head of Internal Audit
Merry INN – Risk management policy
Overview of Merry INN’s internal controls and risk management system
The company’s internal controls and risk management system are designed to help us achieve our business objectives and protect our business.
This relates not only to ensuring the safety and security of physical assets, people, systems and processes, but also to Merry INN’s brand, reputation and business model more generally, and our ability to respond effectively to changes in the marketplace.
Key risks
It is vitally important that Merry INN provides a safe and secure environment for all of our guests as well as our staff working in our hotels. As such, we need to maintain high standards of health and safety across all of our hotels, and to ensure we have appropriate information and systems in place to identify and address any health and safety concerns.
We regularly consult with our hotel managers to ensure that risks are identified, and prioritized, and improvement actions are identified as necessary.
Risk register
We summarize the key risks facing our business in our risk register. The register describes the key risks we face, and identifies the controls in place to mitigate them. I can let you have a look at the register in detail later if you want, but the risk areas covered in the register are:
Guest safety
There is a constant need to protect the safety and security of our hotels, our guests staying in them. This underpins our whole risk management programme.
Security
Includes the physical security of the hotel buildings overall, as well as the individual rooms
Staff safety
Safety doesn’t only relate to guests. We also need to ensure the health and safety of our staff working in them.
Staff retention
As a service business, we need to recruit and retain the right people to ensure we can deliver the quality of service our customers expect. Failure to do this is likely to damage our financial performance and our long-term growth.
Technology
Technology has increased the information available to customers (for example through comparison websites and social media reviews) as well as changing booking channels (with online bookings). Booking is an important part of the guest experiencesowe need to ensure that our booking processes areas efficient as possible. A number of our smaller competitors in the Teeland hotel sector have very recently started accept cryptocurrency payments for accommodation bookings made via their online booking systems. Merry INN does not currently operate the IT infrastructure necessary to accept cryptocurrency payments. The need to continue to invest in our IT systems is crucial.
Information security
We need to ensure that information – particularly about customers’ details and payment cards – is held securely.
Exhibit 5: Notes on internal control issue
A fraud has recently been discovered in one of our hotels. The hotel manager had been encouraging customers to pay in cash by offering them small discounts of around 5% to 10% for doing so. However, he was then recording the discount at the maximum 25% and retaining the difference for himself.
The manager’s wife worked on the front desk of the hotel, and so received the money from the customers and she provided false invoices to them.
The manager and his wife have both been dismissed now, although we have not yet worked out how much they stole.
More importantly, though, we will be reviewing our internal controls to tr to prevent similar frauds happening again.