Avari Group is an American based consortium with business operations in multiple industries. Over the years,...
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Avari Group is an American based consortium with business operations in multiple industries. Over the years, the group has seen a growing revenue and profitability, however since 2018 there has been a downfall in the trend. To counter this adverse trend, the group is considering diversifying its operations by launching a project in the hospitality industry as the board of directors feel that they should do more to try and improve the revenues and profits. The group is planning to open a hotel in one of the large cities in the UK and the board of directors have identified three possible proposals with regards to the project. The following graph provides information about Avari Group's performance during the past years: 20 0 37 Avari Group (in Million £) 40 39 2015 2016 2017 2018 Revenue Profit 37 5.3 2019 33 4.8 2020 The board will identify a property in one of the large cities in the UK, and due to funds shortage, the company will not be able to purchase the property outright instead the property would be leased out with equal monthly lease payments being made. The three proposals for the use of property are elaborated below: Proposal 1 (Hotel Rooms + Restaurant) Under proposal 1, Avari Group plans to use the property as a hotel and a restaurant. It is planned that 70% of the property will be used for the purpose of hotel. The remaining 30% of the property will serve the purpose of a restaurant. The restaurant will be open to hotel guests as well as the general- public for dine-in. Proposal 2 (Hotel Rooms + Conference / Meeting Rooms) This proposal entails using 80% of the property for the purpose of hotel while the remaining 20% of the property will be used for providing conferences/meetings rooms services to corporate clients. This proposal will have two customer bases: Tourist coming in to spend the night and corporate clients arranging their events in the hotel. Academic Year 2021/22 Page 2 of 8 Proposal 3 (Hotel Rooms + Wedding Hall) This proposal entails using 60% of the property for the purpose of a hotel. The remaining property will be converted into large spacious halls which will serve the purpose of wedding halls. Being a completely new line of business, the board of directors have limited knowledge about the specifics of the hospitality industry. You work as the Budget Analyst (Manager) for the company and have been approached by one of the directors to prepare a report highlighting the feasibility of all the above- mentioned proposals. Requirements: The directors have asked you to draft a report to be addressed to the company's board of directors on the proposal and prospects of Avari Group that will set out the following: a) Discuss the three proposals chosen for expansion and the implications on the company performance in the context of the latest event(s) affecting the economy and/or industry and/or the company; b) Prepare an operating budget for the next 12 months for all the three options that relate to the company's expected activities and objectives for 2022; (Clearly highlight the assumptions and information about the figures being used in the preparation of the budgets) c) A critical discussion evaluating the process of budgeting as a tool for decision making, planning and control for Avari Group and the final recommendation with regards to which proposal should be selected. Notes: 1. II. III. IV. V. VI. VII. VIII. IX. You will have to use various sources to obtain realistic figures for items to be used in the operating budget. You will have to identify and include reasonable estimate for items to be included in the operating budget. Clearly mention the assumptions that you are using in the preparation of the budgets. Assume that a year consists of 12 months of equal lengths The company plans to start the expansion on 1 January 2023 Profit margin of 12-20% Ignore taxation Theoretical and/or practical innovations of management and/or operation and/or marketing etc. are recommended. Wider reading is recommended. Avari Group is an American based consortium with business operations in multiple industries. Over the years, the group has seen a growing revenue and profitability, however since 2018 there has been a downfall in the trend. To counter this adverse trend, the group is considering diversifying its operations by launching a project in the hospitality industry as the board of directors feel that they should do more to try and improve the revenues and profits. The group is planning to open a hotel in one of the large cities in the UK and the board of directors have identified three possible proposals with regards to the project. The following graph provides information about Avari Group's performance during the past years: 20 0 37 Avari Group (in Million £) 40 39 2015 2016 2017 2018 Revenue Profit 37 5.3 2019 33 4.8 2020 The board will identify a property in one of the large cities in the UK, and due to funds shortage, the company will not be able to purchase the property outright instead the property would be leased out with equal monthly lease payments being made. The three proposals for the use of property are elaborated below: Proposal 1 (Hotel Rooms + Restaurant) Under proposal 1, Avari Group plans to use the property as a hotel and a restaurant. It is planned that 70% of the property will be used for the purpose of hotel. The remaining 30% of the property will serve the purpose of a restaurant. The restaurant will be open to hotel guests as well as the general- public for dine-in. Proposal 2 (Hotel Rooms + Conference / Meeting Rooms) This proposal entails using 80% of the property for the purpose of hotel while the remaining 20% of the property will be used for providing conferences/meetings rooms services to corporate clients. This proposal will have two customer bases: Tourist coming in to spend the night and corporate clients arranging their events in the hotel. Academic Year 2021/22 Page 2 of 8 Proposal 3 (Hotel Rooms + Wedding Hall) This proposal entails using 60% of the property for the purpose of a hotel. The remaining property will be converted into large spacious halls which will serve the purpose of wedding halls. Being a completely new line of business, the board of directors have limited knowledge about the specifics of the hospitality industry. You work as the Budget Analyst (Manager) for the company and have been approached by one of the directors to prepare a report highlighting the feasibility of all the above- mentioned proposals. Requirements: The directors have asked you to draft a report to be addressed to the company's board of directors on the proposal and prospects of Avari Group that will set out the following: a) Discuss the three proposals chosen for expansion and the implications on the company performance in the context of the latest event(s) affecting the economy and/or industry and/or the company; b) Prepare an operating budget for the next 12 months for all the three options that relate to the company's expected activities and objectives for 2022; (Clearly highlight the assumptions and information about the figures being used in the preparation of the budgets) c) A critical discussion evaluating the process of budgeting as a tool for decision making, planning and control for Avari Group and the final recommendation with regards to which proposal should be selected. Notes: 1. II. III. IV. V. VI. VII. VIII. IX. You will have to use various sources to obtain realistic figures for items to be used in the operating budget. You will have to identify and include reasonable estimate for items to be included in the operating budget. Clearly mention the assumptions that you are using in the preparation of the budgets. Assume that a year consists of 12 months of equal lengths The company plans to start the expansion on 1 January 2023 Profit margin of 12-20% Ignore taxation Theoretical and/or practical innovations of management and/or operation and/or marketing etc. are recommended. Wider reading is recommended.
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TABLE OF CONTENT 1 Introduction 2 Analysis of the three proposals 3 Operating budgets 4 Conclusion 1 Introduction This report has been commissioned by the board of directors of Avari Group to assess t... View the full answer
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