Project on Tourism for Cost Control and Reduction Essay

BARKATULLAH UNIVERSITY BHOPAL SUMMER TRAINING IN MADHYA PRADESH TOURISM DEPARTMENT BHOPAL A REPORT ON COST REDUCTION AND CONTROL LAXMI NARAIN INSTITUTE OF TECHNOLOGY AND SCIENCE (MBA) COMPANY GUIDE: SUBMITTED BY:- MR SANJAY VERMA ARCHIT SAXENA FACULTY GUIDE: MBA 2nd sem Mr. Santosh Solanki Table of Contents • ACKNOWLEDGEMENT. • PREFACE. • EXECUTIVE SUMMARY. • INTRODUCTION TO THE INDUSTRY. • INTRODUCTION TO THE COMPANY. • RESEARCH METHODOLOGY. • OBJECTIVES OF THE STUDY. • RECOMMENDATIONS. • BIBLIOGRAPHY. ACKNOWLEDGEMENT

I take immense pleasure in thanking Mr. Bal Mukund Namdeo (Chief General Manager MPSTDC), and for having permitted me to carry out this project work. I wish to express my deep sense of gratitude to my Internal Guide, Mr. Sanjay Verma (Tourist Officer MPSTDC) for his able guidance and useful suggestions, which helped me in completing the project work, in time. Needless to mention that Dr. A. K Singh (Director LNCT-SOM), who had been a source of inspiration and for his timely guidance in the conduct of our project work. I would also like to thank Prof. Rudresh Pandey (H.

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O. D LNCT-SOM), for all their valuable assistance in the project work. Words are inadequate in offering my thanks to the Project Trainees and whole MP Tourism Staff for their encouragement and cooperation in carrying out the project work. Finally, yet importantly, I would like to express my heartfelt thanks to my beloved Mentor Mr. SANTOSH SOLANKI (faculty LNCT-SOM) and also my parents for their blessings, my friends/classmates for their help and wishes for the successful completion of this project. PREFACE My internship training with the MP TOURISM.

I went through several processes and I successfully completed my training with the help of my seniors. I reported at the office and was introduce to all staff members with the help of Mr. SANJAY VERMA (head of the department) who gave me Companies profile I was placed in FINANCE department for my training. I did my summer internship with MP TOURISM because I wanted an exposure to the travel industry & I got an opportunity to work with a company MP TOURISM which was started by MP GOVT. My training with MP TOURISM was a good experience and during the training time I enjoyed with my seniors.

EXECUTIVE SUMMARY The internship is an integral part of the Travel & Tourism Industry. The organization that I choose for my internship project is MADHYA PRADESH TOURISM. This Six-week period of my internship in such a huge organization gave me a real time exposure to know about the organizational working process through finance in which we study working process of plash residency. All types of tourism in India have registered phenomenal growth in the  last decade ever since the Indian government decided to boost revenues  from the tourism sector by projecting India as the ultimate tourist  spot.

That the reason why mp tourism grows rapidly since few years The reason why India has been doing well in all types of tourism in India India has always been known for its hospitality, uniqueness, and charm – attributes that have been attracting foreign travelers to India in hordes. Indian history can be roughly divided into the 6 periods of Ancient India Heritage Tourism, Ecotourism, Adventure Tourism, Wildlife Tourism, Pilgrimage Tourism, Medical tourism. INTRODUCTION TO THE INDUSTRY The Indian tourism industry can be attributed to several factors.

Firstly, the tremendous growth of Indian economy has resulted in more disposable income in the hands of middle class, thereby prompting increasingly large number of people to spend money on vacations abroad or at home Secondly, India is a booming IT hub and more and more people are coming to India on business trips. Thirdly, aggressive advertising campaign “Incredible India” by Tourism Ministry has played a major role in changing the image of India from that of the land of snake charmers to a hot and happening place and has sparked renewed interest among foreign travelers.

Travel & tourism industry’s contribution to Indian industry is immense. Tourism is one of the main foreign exchange earners and contributes to the economy indirectly through its linkages with other sectors like horticulture, agriculture, poultry, handicrafts and construction. Tourism industry also provides employment to millions of people in India both directly and indirectly through its linkage with other sectors of the economy. According to an estimate total direct employment in the tourism sector is around 20 million. Travel & tourism industry in India is marked by considerable government presence.

Each state has a tourism corporation, which runs a chain of hotels/ guest houses and operates package tours, while the central government runs the India Tourism Development Corporation. The policy is built around the 7-S Mantra Swaagat(welcome), Soochanaa(information), Suvidhaa(facilitation), Surakshaa(security), Sahyog(cooperation), Sanrachnaa(infrastructure) Safaai (cleanliness) Some of the salient features of the Tourism Policy are: • The policy proposes the inclusion of tourism in the concurrent list of the Constitution to enable both the central and state governments to participate in the development of the sector. No approval required for foreign equity of up to 51 per cent in tourism projects. NRI investment up to 100% allowed. • Automatic approval for Technology agreements in the hotel industry, subject to the fulfillment of certain specified parameters. • Concession rates on customs duty of 25% for goods that are required for initial setting up, or for substantial expansion of hotels. • 50% of profits derived by hotels, travel agents and tour operators in foreign exchange are exempt from income tax. The remaining profits are also exempt if reinvested in a tourism related project.

MEGA PROJECT PASSED BY GOVERMENTS FOR DIFFRENT STATES GOING TO BECOME AN EARNING SOURCE FOR TOURISM DEPARTMENT IN FUTURE [pic] INTRODUCTION TO THE COMPANY About Madhya Pradesh state tourism development co. M. P is situated in the heart location of India. It comprises of unlimited potential of tourism. In the hilly region of satpura and vindhyachal. There is vast potential developed for tourism. With respect to the historical sites,natural scenary, glorious temples , forts , and statues are available. Presently 382 tourist spots which entertain tourist.

Inspite of 382 20 spots are those which has international image in itself there are • sites of historical and archeological — khajurao orcha bhimbethika • sites of natural scenary – panchmadhi bhedaghat • site of religious value – Ujjain omkareshwar mahaeshwar chitrakut • national parks- kanha kisli The M. P. Tourism comprises of the following main and distinctive sectors : • Transportation • Accommodation • Tour operators • Tourism Destination Operators/ Destination Management • Ecotourism • Adventure tourism Heritage village (Amla near Ujjain) • Entertainment Zone • Boat club operations. • Catering services through hotel units. • Transportation Tourism industry is heavily dependent on the transportation industry which comprises of airlines, cruise and ferry lines, passenger railways, coach and bus travel, car hire. Thanks to the increase in tourist traffic, over the years, the range of airline services has considerably, not only in terms of frequency of flights and number of destinations, but also in terms of different services, and differing levels of service to meet different passenger needs.

This shows the important role marketing plays as competition and demand intensifies. Coach and bus companies have acted in a similar fashion and so have the car rental companies. Following facilities are provided with respect to transportations :- Bhopal to indore ac bus service Bhopal to shirdi ac bus service Bhopal darshan through open top vehicle. Cruise ship in upper lake. • Accommodation | |Savor the splendors of Madhya Pradesh from a varied range of accommodation facilities offered by M. P. State Tourism | |[|Development Corporation Ltd.

The units are carefully designed to suit specific holiday experiences. For example, Log Huts at | |p|Kisli and White Tiger Forest Lodge at Bandhavgarh reflect the spirit of the wild. The Tourist Village at Shivpuri, a | |i|Mediterranean style resort, is in keeping with the tranquil nature of this summer capital of the Scindias. Palash Residency at| |c|Bhopal, Tansen Residency at Gwalior, Shipra Residency at Ujjain and Kalchuri Residency at Jabalpur are fully equipped city | |]|hotels with every modern facility. There are also motels, tourist bungalows and lodges.

Multi-cuisine and speciality | | |restaurants, bars and cafeterias offer a choice of catering services. | | | | | |Prominent units are well equipped with modern conference facilities. A fleet of cars, coaches and Gypsies at various units | | |suitably cater to the transportation requirements of every tourism. | | | • Tour operators Tour operators are the firms which specialize in providing the whole holiday package, incorporating travel and accommodation needs for the consumer.

M. P tourism provides Holiday packages for Panchmadi, Mandu, Sanchi, Orcha, Jabalpur, Gwalior etc. • Ecotourism & Adventure Tourism. Madhya Pradesh is well known for its green glory and scenaries. Some of hot spots are developed as eco and adventure tourism they are :- Picnic at kerwa dam. Baaz adventure zone. Khushi entertainment zone. Delawadi and Ratapani of sehore district. Choral in Indore. • Catering services MPT established large no. of hotels , retreats unit in whole M. P. they serve tourist and travelers fresh food with star facilities.

This includes:- Highway treats – biora, bhimbethika, dodi etc. Restaurents – wind n wave , rail restaurant (ashoka lakeview) With accommodation – palash residency bhopal, hotel shipra Ujjain , hotel tansen Gwalior etc PRESENT STRUCTURE OF M. P. TOURISM • Minister • Secratory • Depty. Secretory • Administrative officers • Asst. grade 1 • Asst. grade 2 • Asst. grade 3 • Officials and peon. MAIN MOTO OF MADHYA PRADESH TOURISM • Is to develop tourism spots with minimum profit with maximum development. • To point out tourist spot with respect of transportation, lodging, catering. To establish information centre in different state for the promotion of its ecological sites and historical site M. P to large no. of tourist. • Establishment of department in there work area. • It was established in 1961 at that time mpt was under commerce and industrial department of Madhya Pradesh. • In 1972 mpt was separated from commerce department and established as a separate entity. • In 1977 with the end of tourism department the new tourist office was developed. • In between 1978 to observe the increasing importance of tourism sector government of m. p develop m. state tourism department with the initial capital of 1cr. Working of mp tourism • To develop five year planning, annual planning and preparation of budget. • To give information about tourism development to central government. • To collect information about tourism of regional importance. • To observe and take decision on information provided by tourism department and decision making committee. Main area of working • Annual budget control and allotment of budget. • To allot funds under central planning. • To allocate funds to regional office for the development of basic fundamental needs. To provide identity card and guide facility for the help of tourist came to the respective tourism spots. • To allot fund for the adventure tourism in youths. Important facts regarding establishment and works Establishing year – 1978 No. of residential unit – 50 Tourist information centre -9 Regional office – 6 Satellite office – 7 Transport facility – 90 buses Total fund allocation-25 cr Collection of funds – 2497. 21 lakh. RESEARCH METHODOLOGY COST REDUCTION AND CONTROL Cost reduction refers to the real and permanent reduction in the unit cost of the goods manufactured or services rendered.

COST REDUCTION CAN BE EFFECTED BY EITHER OF THE FOLLOWING WAYS: • By reduction in unit cost of production: This is usually brought by elimination of wasteful and non-essential elements in the design of products and from techniques and practices carried out. ( Any reductions in costs due to changes in Government policy like reduction in taxes or duties or due to price agreements do not come into the area of cost reduction as these are not real and permanent reductions in costs ). (As palash is serving food by cutting some units can increase some profits as serving wastefull intregants is of no use ) By increasing productivity: This refers to increase in the volume of output with the expenditure remaining the same. But this should not be achieved at the cost of the characteristics and quality of the product. AREAS OF COST REDUCTION: 1. Design 2. Company organisation and method 3. Product planning 4. Company layout and equipment 5. Utility services 6. Marketing 7. Finance Cost control is concerned with keeping the expenditure within acceptable limits. Its major assumption is that costs are in control unless costs exceed budget or standard by an excessive amount. As palash is main focus is on Accommodation there main moto is to provide best facility in minimum cost possible ) COST CONTROL IS EFFECTED THROUGH BUDGETING: A budget may be defined as a comprehensive and coordinated plan of action, expressed in monetary terms. It is prepared and approved prior to the budget period and may show income, expenditure and capital to be employed to attain the object Budget 2009-10 as on 31-01-2010 |Name of plan |Projected value |Balance |Expense | |Tourism entertainment fair|60. 0 |60 |60 | |Youth and adventure work |25 |25 |- | |District tourism |400. 00 |400. 00 |363. 47 | |development | | | | |Information and |800. 00 |800. 00 |800. 00 | |advertisement | | | | |Development of roads |54. 0 |54. 00 |54. 00 | |Interest subsidy for |1. 00 |1. 00 |- | |heritage hotels | | | | |Tourism training |10. 00 |10. 00 | | |Service tax for investment|50. 00 |50. 00 |49. 22 | |Total |1400. 00 |1400. 00 |1326. 0 | | | | | | Budget showing the plan of action of tourism of 2009-10 . projected value for the plans and expenses done on those plans , remaing shows as a balancing figure. STANDARD COSTING : In this, standards are set and actuals are compared with the standard. Corrective measures are undertaken for any discrepancy found between the standard and actuals. TECHNIQUES OF COST REDUCTION 1. VALUE ANALYSIS: Value analysis is the identification of unnecessary cost i. e. ost that neither provides quality, nor use, nor life, nor appearance, nor customer satisfaction. Thus value analysis attacks costs at production stage. ( In palash I found many such things which have to be cut of ,which have no use or say this services are lagging profits backwards such as providing contramprary food to special guest as well accommodation will raise expenses it is just like donation of no use for business. ) 2. ECONOMIC BATCH QUANTITY: (EBQ) EBQ is that point where carrying costs equals set up cost approximately. At this point the total cost will also be minimum. 3.

ECONOMIC ORDER QUANTITY: (EOQ) EOQ is the quantity fixed at a point where total cost of ordering and the cost of carrying the inventory will be minimum (As such EBQ and EOQ are not been practices in palash hotel so I suggest to involve this practices in financial practices of hotel for cost reduction ) ILLUSTRATION: Palash Residency as an example :- A palash residency purchases 2000 units of beer per year at a unit cost of Rs. 20/-. The ordering cost per order is Rs. 50/- and the inventory carrying cost is 25%. Find the optimal order quantity and the minimal total cost including purchase cost.

If 3% discount is offered by the supplier for purchase in lots of 1000 or more, should hotel accept the offer? SOLUTION: Optimal order quantity or EOQ = [pic][pic] = [pic] = 200units. CALCULATION OF MINIMUM TOTAL COST WITHOUT DISCOUNT: No. of orders to be placed for getting 2000units = 10 orders Average inventory (200units / 2) = 100 units Purchase price of 2000units @ Rs. 20/unit = Rs. 40000 Ordering cost (10orders @ Rs. 50/order) = Rs 500 Carrying cost for 100uts (avg. nventory) (Rs. 20*0. 25) = RS 500 TOTAL COST = Rs. 41000 CALCULATION OF TOTAL COST WITH 3% DISCOUNT WHEN PURCHASE ORDER QUANTITY IS 1000 UNITS: Unit cost after 3% discount (Rs. 20 – 3% of Rs. 20) = Rs. 19. 40 Lot size = 1000 units No. of orders for 2000units @ 1000units / order = 2 orders Avg. inventory (1000 units per order / 2) = 500 units Purchase cost for 2000 units @ Rs. 19. 0/unit. = Rs. 38800 Ordering cost for 2 orders at Rs. 50/order = Rs. 100 Carrying cost for avg. inventory (500 * 19. 40 * 0. 25) = Rs. 2425 TOTAL COST Rs. 41325 The above computation shows that supplier’s offer of 3% discount should NOT BE ACCEPTED because it will INCREASE COST by Rs. 325/- as compared to the EOQ of 200 units. Counter offer of higher discount should be made if the cost is to be less than Rs. 41000/- .

ACTIVITY BASED COST MANAGEMENT ABC assumes that resource-consuming activities cause costs. Its aim hotel to directly control the activities that cause costs, rather than cost. By managing activities that cause costs, costs will be managed in the long run. JUST-IN-TIME APPROACH: (JIT) The aims of JIT are to produce the required items, at the required quality and in the required quantities, at the precise time they are required. JIT helps cost reduction of hotel by – a. elimination of non-value-added activities, b. zero inventory, c. ero defects, d. zero breakdowns, e. single batch ordering. Though the above goals are unlikely to be achieved in hotel , it represent targets and create a climate for continuous improvement and excellence. TOTAL QUALITY MANAGEMENT: (TQM) TQM works on the philosophy that all business functions are involved in a process of continuous quality improvement. TQM reduces hotel cost by producing the products correctly the first time rather than wasting resources making substandard items and incurring additional expenditure on inspection, rework and scrapping.

It helps hotel to achieve their quality goals by providing reports and measures that will improve quality. TQM aims hotel at a customer-oriented process of continuous improvement that focuses on delivering products or services of consistent high quality in a timely fashion. SUPPLY CHAIN MANAGEMENT: (SCM) SCM attempts to build a cost effective chain beginning with the ultimate customer and links all the previous suppliers under one platform. An effective SCM eliminates most of the activities in hotel between customers and raw material suppliers along with associated costs.

Most of the non-core activities are outsourced and hence fixed costs are kept minimal. Close interaction between the corporate R and the suppliers facilitates continuous improvements in product design, process methodologies, etc. resulting in customer value enhancement and cost reduction. A rupee spent on the supply chain can give more value than a rupee spent on marketing. The supply chain in hotel is part of the service offering. Controllers at both large and small companies place supply management in hotel nearly at the top of the list of areas on which they need to focus.

This reflects their response to the economy and the upturn in business conditions. Specifically, it means taking a tougher stand on price increases and renegotiating existing supplier contracts when possible. It also means continuing to consolidate the supplier base, issuing blanket purchase orders for some goods, and shifting inventory to suppliers. At thes ame time, most controllers increasingly recognize their dependence on their suppliers’control of their own costs; hence, they are looking across the entire supply chain and their logistics operations for savings.

Another best practice that purchasing managers now increasingly favor is global sourcing. Foreign-based suppliers are able to cut most companies’ materials costs by 30% or more, although the supply chain Is longer and better planning is necessary. E-sourcing and e-purchasing processes are also gaining favor with purchasing managers, with about one in five now doing either or both for hotel . PERT ANALYSIS: Programme Evaluation Review Technique (PERT) reduces cost by giving an optimum schedule for the activities necessary to complete a project. it gives a shorter way to complete activities in given time . his analysis is most useful analysis for hotel as most of the time workers are spending for finding the way to done the given work. Non-Conventional Approach • Material Cost • Manpower Cost • Cost Management Initiatives • Selling and Distribution • Funding Cost Material cost – • Cost reduction of hotel through • E-sourcing • Discovery of new sources • Competitive pressures • Rationalization of suppliers • Thrust on Value Engineering • Re-Visiting Designs • Application oriented engineering • Product Life Cycle Management Manpower Cost • Right-sizing of Employees – VRS Schemes Optimum utiisation of Manpower • Transition from Machine engagement time to Man-Engagement time. • Productivity-linked wage settlements • Adopting new concepts The importance of cost control and reduction in a manufacturing organisation can never be overemphasized. These phrases that were mere cliches not too long ago, have now come to acquire a new meaning in the last few years. In fact, it may not be an overstatement to say that the revival and subsequent boom in the corporate sector in the last couple of years was primarily driven by the conscious efforts towards controlling costs.

Whether it be manpower reduction, controlling overheads, reducing input costs or bringing down finance charges, Corporate India has done it all in the effort to stay profitable in the new milieu. There have been basically two drivers behind this emergence of cost consciousness in the corporate sector. First is the compulsion to stay profitable, which is the basic instinct of any company. As the demand cycle goes through a dip and sales begins to shrink, companies typically look inward to keep afloat. And the time-tested way of doing this is by slashing at the cost structure and save money.

However, it is the second reason that is the more significant one. In a highly competitive market place increasingly populated by multinationals, the best way for Indian companies to survive and grow is by offering better quality products at cheaper price. The only way to do this is by constantly chipping away at the cost structure to eliminate unproductive expenditure so that the company will have the pricing freedom in the marketplace. Keys to sucess • The Supply Chain • The Balance of Power • The Competitive Landscape • Service not Product • Future Cast

Profit and loss statement ASSUMTIONS |Particular |Amount |Particular |amount | |Indian airlines ticket |25634 |Beer income |154670. 00 | |Guide charges |110000 |Catering income |4518500. 00 | |Bar expenses |3260000 |Colddrink income |45000. 00 | |Beer purchase |80000 |Liquor income |60000. 0 | |Cleaning material |60000 |Lodging income |150000 | |Cold drink |33000 |Staff meal income |25000 | |Discount given |25000 |Laundary income |30000 | |Laundry |22000 |Transport income |400000 | |Liquor |450000 |Miscellenous income |45000 | |Miscellaneous expenses |25000 |Telephone income |10000 | |Transport |350000 |W t f l bandhvgarh |72000 | |Water charges 50000 |Hotel avantika |30000 | |Incentive paid |25000 |Hotel payal |25000 | |Salary and wages |809000 |Bar income |700000 | |Hotel bharhut (satna) |30000 | | | |Jhankar hotel |25000 | | | |Tourist motel jhabua |15000 | | | |Crockery and cutlery |60000 | | | |Furniture and fixtures |120000 | | | |Kitchen utensils |35500 | | | |Labour charges |36000 | | | |Repair and maintainace |28000 | | | |Stationary and printing |30000 | | | |Telephone expenses |40000 | | | | | | | | |Net profit |521036 | | | |Total |6265170 |Total |6265170 | The old equation of

COST + MARGIN = SELLING PRICE has now been turned on its head to mean that MARGIN = SELLING PRICE – COST. Of this, only one variable, cost, is under the control of the company while the market dictates selling price. Margin therefore is a function of how efficient the company is in controlling costs. CHANGING PERSPECTIVE OF PROFIT COST + PROFIT = SALES In a market cost and profits are reimbursed by the customer. SALES – COST = PROFIT With more players in the market place, Selling price is determined by the market forces ; having locked to a level of cost , focus is on cost control and reduction . Cost information is for tactical decision making. SALES -PROFIT = COST

Selling price is determined by market forces: Profit is determined by the risk/return profile of business with a focus on cost management to achieve the targeted results. Balance sheet ASSUMTIONS |1. SOURCES OF FUNDS | | | |A)Capital | |24,97,29,000 | |B)Reserve & surplus | |78,31,17,076 | |C)Capital grant in addi. From govt. |70,58,205 | |TOTAL | |1,03,99,04,281 | | | | | |2. APPLICATION OF FUNDS | | | |A)Fixed assets | |55,70,68,588 | |B)Investment * | |78,40,000 | |C)Current assets . loans & advances | | | |Inventories 13,80,442 | | |Sundry debtors |5,05,90,456 | | |Cash & bank balances |29,40,77,241 | | |Loans & advances |8,97,24,937 | | | |43,57,73,076 | | |Less-current liabilities & provision |16,14,06,862 | | |Net current assets | |27,43,66,214 | |3. Profit account | |10,06,29,479 | |TOTAL | |765538067 | | | | | RECOMMENDATIONS DEPARTMENT SHOULD ADOPT {SCM} SUPPPLY MANAGEMENT SYSTEM TO CONTROL THEIR COST. • DEPARTMENT SHOULD FOCUS ON {EOQ} FOR COST REDUCTION IN QUANTITY . • DEPRATMENT SHOULD ESTABLISH THEIR OWN BRAND FOR MINMISING COST OF SOME PRODUCTS AND AS WELL ADVERTISMENT FOR EXAMPLE :- SOAP. • DEPARTMENT SHOULD FOCU S ON EBQ FOR REDUCTION IN QUANTITY • THEY SHOULD FOCUS ON VALUE ANALYSIS ON VARIOUS FIELD • TQM IS BEST FOR QUALITY IMPROVEMENT DEPARTMENT SHOULD DO WORK ON IT. BIBLOGRAPHY • ANNUAL REPORT • BUDJET REPORT • WWW. MPTOURISM. COM • WWW. MOT. GOV. IN • GUPTA AND SHARMA FINANCIAL MANAGEMENT. • MARKETING MANAGEMENT (PHILLIP KOTTLER) CREDITS [pic][pic][pic] MP TOURISM [pic]

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