Information and Telecommunications Costs
Just as technology has become more ubiquitous throughout our lives, it is now impacting guest service and hotel operations throughout all departments in a hotel. To provide more exposure to the growing costs associated with hotel information and technology systems, the 11th edition of the Uniform System of Account for the Lodging Industry added a discrete undistributed department to capture these expenses.
June 29, 2022 5 Minute Read
Just as technology has become more ubiquitous throughout our lives, it is now impacting guest service and hotel operations throughout all departments in a hotel. To provide more exposure to the growing costs associated with hotel information and technology systems, the 11th edition of the Uniform System of Account for the Lodging Industry added a discrete undistributed department to capture these expenses. Prior to the 11th edition the costs for phone and internet service, payroll for telephone operators and computer technicians, and charges related to information systems were allocated to multiple departments within the operating statement.
Expenses within the information and telecommunications systems (IT) department are separated into four major categories:
Labor Costs and Related Expenses
The salaries, wages and employee benefits for telephone operators, directors of information systems, and systems analysts and programmers.
Cost of Services
The cost of phone, internet, cell, and fax services for administrative purposes, or when offered to guests on a complimentary basis. When hotel guests are charged for these services, the revenue and cost of sale are recorded in other operated departments.
Software licenses, maintenance, service, storage, and software fees associated with IT systems used in both the operated and undistributed departments.
All other IT department expenses such as operating supplies, training, system storage and optimization, uniforms, and travel.
Not included in the IT department are capital expenditures for major IT software and hardware installations.
To gain a better understanding of property-level technology-related expenditures within U.S. hotels since 2015, CBRE analyzed the IT department costs of 2,600 properties that participate in our annual Trends® in the Hotel Industry survey and report. In 2021, these 2,600 hotels averaged 207 rooms in size, and achieved an occupancy of 54.6% along with a $151.74 average daily rate (ADR). It should be noted there was a lag in the adoption of the new IT department, so we have only analyzed the performance data from properties that submitted IT department cost data each year from 2015 through 2021.
Not a Major Expense
IT department expenses averaged $766 per available room in 2021 at the 2,600 hotels studied. This represents just 1.9% of total hotel revenue. This is the lowest department expense ratio among all the undistributed departments.
On a dollar-per-available room (PAR) basis, IT department expenses are greatest at resort hotels ($1,558), followed by convention ($867) and full-service ($850) properties. Limited-service and extended-stay hotels averaged approximately $400 PAR in 2021.
Measured as a percent of total revenue, IT department expenses were greatest at convention hotels (2.4%). Because of their strong top-line performance in 2021, IT department expenses at resort hotels were just 1.3% of total revenue. Limited-service and extended-stay hotel IT expenditures averaged roughly 1.6% of total revenue in 2021.
IT Department Staffing
Among the 2,600 in the study sample, only 16.4% of the properties reported labor costs, indicating that they have dedicated IT department staff. Among the six property types CBRE analyzes, the greatest incidence of IT department staffing was found at larger hotels with extensive services and amenities, and oriented to meet the needs of convention and meetings demand. Approximately 80% of the convention hotels in the sample reported IT department labor costs, followed by full-service hotels (29%) and resorts (7%). Given the size and nature of the properties that reported IT department labor costs, it can be assumed that these personnel are IT technicians as opposed to PBX operators.
Without staffing, IT department expenses at the limited-service and extended-stay hotels are split evenly between the costs for phone and internet, versus system costs. Most select-service properties offer complimentary phone and internet service, accounted for in the IT department.
At the convention, full-service and resort hotels, system costs account for most expenses within the IT department. Phone and internet costs are limited to the expenses associated with administrative use.
IT Cost Decline
Like all costs, IT department expenditures declined significantly during 2020 (28.9% from 2019). To provide some perspective, total undistributed department expenses for the hotels in the study sample declined by 40.1% during the year.
Interestingly, we observed annual IT department cost reductions before the 2020 industry downturn. IT department expenses declined by 0.9% in 2018 and fell another 9.4% in 2019. The compound impact of three years of declining expenditures put 2021 IT department costs at 89% of 2015 levels.
The greatest percentage cuts from 2015 through 2021 occurred in labor costs, followed by the cost of phone service and system costs. The cost of internet service, as well as all other department expenses, have been increasing since 2015.
Convention, full-service, and resort hotels, with the greatest staffing levels, have cut their expenses the most since 2015. Limited-service and extended-stay properties spent more on IT-related expenses in 2021 than they did in 2015.
One way to control costs is to perform a diagnostic IT inventory. The diagnosis consists of an evaluation of your hotel’s current service plans and invoices. Understanding what’s currently in place, owners and operators can identify ways to enhance service plans, negotiate new contracts and get the most out of their technology spend.
A thorough IT inventory can:
- Identify billing errors and recovery capital
- Provide a Mark-to-Market on information and telecommunication services with the goal of contract re-negotiation and more flexible terms
- Show alternative options to consider if they exist
IT Within Hotels
The use of technology within hotels originated in the back-of-the-house departments. Accounting and reservation systems were the first to be used within a hotel. Going forward, there is a trend toward more guest-facing technology. Smart phone apps and other technology designed to assist with check-in, room service, concierge services, guest requests and complaints, entertainment, and payment are examples of technologies that are currently under development to enhance the guest experience. The payback for these investments is easier to measure now that hotels can track and benchmark their technology-related operating expenditures within the IT department.
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Robert Mandelbaum is Director of Research Information Services for CBRE Hotels Research. Adam Barry is Vice President of Sales for CBRE Network Advisory Services. To benchmark the IT department expenses of your hotels, please visit pip.cbrehotes.com/benchmarker. For more information about an IT inventory, please contact Adam at [email protected]. This article was published in the June 2022 edition of Lodging.