Benchmarking Hotel Capital Budgeting Practices to Practices Applied in Non-Hotel Companies

Abstract

A survey was conducted to compare hotel capital budgeting practices employed within and outside the hotel sector. It was found that the propensity to inflate investment cash inflow projections outweighs the propensity to deflate cash inflow estimates, and the tendency to inflate projected cash inflows is less in the hotel industry. Hotels exhibit a lower level of development with respect to reviewing required rates of return and also applying postcompletion audits. Also, net present value and internal rate of return, which are based on discounting approaches, are used to a relatively low degree in the hotel industry, and more than half the hotels surveyed either exclusively use the payback method (36%) or use no financial investment appraisal method at all (17%). Consistent with prior findings in other industrial sectors, there appears to be a positive relationship between organizational size and use of financial investment appraisal techniques.