Professional Chefs Association
F & B Cost Control Introduction •
Determining Standards
•
The Budget Process
•
The Menu
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Design Effective Controls
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Producing, Serving Controls
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Talking Talking About Food Cost
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Taking Taking Corrective Actions
•
evenue Control
Module One
Introduction The owners of most F&B operations are generally concerned with the level of profit of the operation. In order to maximize profit, it is necessary to make sure that costs are kept in line with what they should have een !expenses" and that appropriate marketing is done to get customers in the door !revenues". It is important to recognize that in addition to profit centered enterprises, many F&B operations do not have profit as their ma#or o#ective. $any institutional operations are focused on reaking even or maintaining a particular udget level. %hichever approach is followed, the primary #o of the chef, as kitchen manager, is to make sure that the uality of the product is as good as it can e and that the costs are kept under control. %hen we speak aout keeping costs under control, we generally mean that we optimize costs, not minimize costs. $any F&B operations get into troule ecause they think that the right approach is to have the lowest costs possile. %hen this happens, the customer is often less than satisfied with the product and'or service they receive. If this should happen, there will e serious marketing prolems for the operation. If we choose to have optimal costs, we are then saying that we will give the customer something that costs exactly what it should cost . %e are in fact giving them a (standardized) product. $any of you may e familiar with the term (standard) as it is used extensively in the industry. The terms standard purchase specifications, standard recipes, standard yields, standard portion size, and standard portion cost have ecome everyday words in the modern kitchen manager)s vocaulary. *ome chefs resist the standardized approach as they see it undermining their creativity or flexiility+ however, nothing could e further from the truth. ny chef can still create whatever dish is appropriate for their customers. The only conditions we are adding are that it must always e the same uality and the same cost. -an you think of a time when you would want to serve a lower uality item to the customer than what you normally serve If you did, they would likely not return to your estalishment. /f course, eing ale to do it exactly the same every time depends on you eing ale to purchase the same uality of ingredients at the same price. If the uality of the ingredients changes, then the dish is no longer the same and if our cost to purchase the ingredients changes, then we have to account for that. There is little dout that the restaurants which fail are the ones which are unale to deliver a consistency of product and service and those which do not properly account for their costs. *hould your customers order a particular dish, they will expect it to e #ust as good the next time they come to your estalishment or as the last time they were there. It is a well known fact that one of the key marketing concepts in F&B operations is the idea of consistency. -ustomers want to know that what they will e receiving will always e good. In terms of costs, you cannot effectively price your menu if you do not know what any particular dish costs.
KEY DEFINITION Standard = What it should be
/nce you have a system of standards in place, you can easily calculate exactly where you are for any given period in terms of costs and therefore, in terms of profitaility as well.
BASIC TRUT ! "
No s#ste$ o% &ost &ontrols &an be e%%e&ti'e (ithout a &o$)lete set o% standards in )la&e*
%hile there are many definitions of the term standard, I elieve that the simplest and most effective one is 0what it should e1. If we are talking aout the standard portion size, we are saying that the size of the portion should consistently e the same. For example, we always serve a 23 oz striploin steak or the urger patty in our cheeseurger is always 4 oz. raw weight. The fast food chains have known aout standards for many years and, perhaps, no one practices cost control etter than them. 5o matter what you think aout their product, you can always e assured that it will e consistent. They have estalished a particular level of uality which they wish to maintain and then everything they do is designed to ensure that it will always e that same level of uality. Their success is ased entirely on that fact. /ne of the key reasons why people go to $ac6onald)s is ecause they know exactly what they are going to get. %ith the exception of minor regional differences, a Big $ac is the same in 7alifax, 7elsinki, or 7awaii. In every location.
BASIC TRUT ! +
No $atter ho( $u&h $one# #ou s)end on ad'ertisin,i% #ou &annot deli'er a &onsistent- .ualit# F/B )rodu&t #ou (ill %ail*
$ac6onald)s marketing success is ased on that consistency of product and service and their financial success is directly a result of that consistency as well. Before the end of this module you will e ale to develop a costing system that will a" help the general management team market your facility more effectively and " provide accurate timely information on which you can ase good decisions and therey maximize the profit potential of your F&B operation.
0EARNIN1 OB2ECTI3ES %hen you complete this module you will e ale to8
a! have an understanding of management practices within the food and everage industry b! understand of the importance of the concept of cost control
c! identify and characterize costs using standard accounting principles d! plan for F&B operations using reak9even analysis, operating udgets, sales pro#ections, and profit planning tools e! explain the relevance of the term contriution margin f! understand how profit can actually e a cost to you
DIRECTIONS :ach of the learning o#ectives portions of this module has a separate section. :ach section has an introduction and contains reuired reading from the textook. The most helpful review and discussion uestions from the textook which deal with each section are identified. There is a self test at the end of each section to check your understanding of the material contained in that section. nswers are provided at the end of the course notes.
Section 1 Basic Overview of the F&B Industry
Introdu&tion To egin, the student should read -hapters 2 and 3 in the textook. These chapters provide a asic overview of management within the food service industry and give the reader a valuale perspective on the views of the author. This ook is clearly written and directed at the food service professional. It descries the classic approach to managing F&B operations ut also looks at more comprehensive and more current approaches to managing costs. It should e clear that no matter what type of food service estalishment you work in, the same asic principles of management apply. *uccess in every type of operation depends on only two things8 a" eing ale to attract customers and " making sure that adeuate controls are in place to maximize profits. /rganizations which are not designed to e profit making or which do not attract customers ut have a population to feed !such as institutional feeders like a prison, nursing home, or hospital" are perhaps even more difficult to operate as they must meet particular udgets. They have to e very accurate in controlling costs as they do not have revenue to make ad#ustments in to offset any increased costs. -hapter 2 gives you an overview of the size and scope of the F&B industry. It also addresses some of the key prolems facing the food service industry. For Turnover, provides you with a rief overview of the prolem of employee turnover in the hospitality industry and provides simple solutions for the manager to implement.
Section 2
Understand the I$)ortan&e o% the Con&e)t o% Cost Control
Introdu&tion %hile -hapter 3 may e the shortest chapter, it provides the foundation for this whole course. It explains the importance of developing an effective control system and descries the implementation of the control process. The control process involves four key steps8 determining a standard y which one can measure operational effectiveness, analyze actual results, compare actual results to standards, and take corrective action if necessary. I once had a very knowledgeale F&B manager tell me that there are only three places where extra food costs go in any F&B operation8
a! in the garage b! out the ack door c! on the customer)s plates
%aste, theft, and over9portioning account for virtually all the cost overruns one finds in F&B. ;roper controls will lower the proaility of incurring many of these costs ut, at the very least, it will allow the kitchen manager to explain and'or account for any losses.
Se&tion 4 In&o$e State$ents
Introdu&tion The textook does not devote space to defining the types of costs and their use in understanding the income statement of a typical food and everage operation. :xhiit 2 illustrates the general format for an Income *tatement !or ;rofit and
E5hibit " In&o$e State$ent
There are a numer of generic categorizations which are used to descrie costs. First, we could look at costs as controllale or uncontrollale. %e could also talk aout costs in terms of eing fixed or variale. %hen we talk aout fixed costs we are asically talking aout those costs which never change no matter what volume of usiness your operation may achieve. n example of this would e your property tax. It is a set amount
whether you did >2? or >2? million. nother way to descrie a fixed cost would e one which you know in advance for a particular period to the penny, e.g. $y monthly rent is >2@?A.??. ariale costs are those which vary directly with your level of sales. For example, my hourly laor cost will generally go up and down as sales go up and down. $ost times we express this as a percentage amount. %e may say our laor cost is CCD or that it is CC cents for every dollar of sales. It is possile to have some costs which have oth a fixed and variale component. Eour rent may e >2??? per month !fixed" plus CD of your gross sales !variale". The term contriution margin !-$" is one which is very useful in analyzing F&B operations. This refers to what is often called the ross ;rofit !;" calculated y sutracting only the food and everage costs from the revenues. %hat -$ actually descries is the amount of money left over, after we sutract our food and everage costs, which can go to cover all our other expenses.
E5hibit + Re&i)e Costin, Wor6sheet