Value for Money when Purchasing for Hotels: A. Have a Budget

BurjKhalifaPrettyI realise that I am at an advantage here, having been finance director of a wide variety of organizations in Europe and America, but WHY WOULD ANYONE EMBARK ON A PROJECT WITH NO BUDGET??? When I was at the Arts Council, even the smallest theatre company in receipt of public funds was asked to prepare a budget as part of their submission: how else could they, or my finance department, know how much grant they needed?

Yet designers working on huge hotel projects, and even private residences, are, more often than not, provided with no budget. Yet the people funding the work must have some basic understanding of money, otherwise how did they amass the funds to pay for the project in the first place?

Because we can provide lights costing anywhere between £50 and £500,000, our first question is always what the budget is for the light(s) we are to find. The almost standard response is that there is no budget. In other words, not just for the lights, but for everything they specify, the interior designer has been given no financial framework.

This would not matter, I suppose, if the client genuinely did not care what things cost. But they ALWAYS care! Sometimes we are told that "they'll buy it if the like it" -- as true a statement as "the cheque's in the post".... The designer and her suppliers are constantly aware that they must not specify things that the client will find too expensive -- this thought influences every decision. But with no budget, we have no idea how expensive "too expensive" is! So, until we know, we are all shooting in the dark and our time is being wasted.

So what happens? Actually, what happens is what people so often do -- they kind of feel in their waters what the right price for something is (independently of whether they can afford it or not). But, particularly when the waters belong to someone who does not know what things normally cost, there is no basis for what feels right -- it is just an arbitrary number.

This particularly affects lighting. Since, in the UK, most people only buy lights from Ikea, John Lewis or DIY sheds, they assume that a light should not cost more than about fifty quid.

However, maybe the designer has been given an overall budget, but she has not split it down over the main cost areas. We strongly advise doing this. If we have a budget for the whole decorative lighting package, by balancing a costly feature piece against good quality, but less expensive, items for other areas, we can guarantee to come in within that budget (assuming that it is a reasonable one in the first place).

This should resolve another problem that must make the interior designer's life a nightmare: the clients pointing to a single item, asking the price and then saying that they won't pay that for that. In response, she should be able to say that it is "within budget".

The one area where a budget is not just desirable, but essential, is in the creation of bespoke pieces. A key criterion for the designer/artist is the price, because that will affect all the detailed decisions that he or she makes. Two chandeliers could look very similar, but one will be cheaper than the other, the former having moulded rather than cut drip pans, fewer strands and ornaments, crystal set further apart, less expensive crystal or glass where this will not compromise the total effect.... If, having done all this work, the result is deemed to be too expensive, the artist has to start all over again.

And if the artist was told before starting that there was no budget, but then their proposal is rejected because it is too expensive, there obviously was a budget, wasn't there! -- whatever it might have been called, and whatever the basis for it. Since his or her work to that point is all for free -- they does not receive a penny unless a chandelier (or whatever)  is ultimately bought from them -- they are basically being pissed over by people richer than them. Whatever they may say, believe me, they don't take kindly this -- there are certain makers of bespoke lighting who refuse to work for some design consultancies, that's all I'm show some respect, allow enough time, and agree a budget in advance. The final design may still be rejected because it is not liked, but that is different to its being too expensive.

A budget is not an arbitrary number. A budget is built up, line by line, based on what has to be paid for, and the estimated cost for those items. So how do you know how much to allow for, as you build up your budget for lighting? Makers of bespoke items (and we) will always be happy to discuss with you what you should allocate for a specific item and/or for the whole lighting package.

Typically, contractors are the worst at not budgeting properly: they put in an arbitrary figure for something, based on nothing at all, which can end up being half what they should have allowed (and they know what that is because it is shown in the specification). So "they haven't got the budget" for what is specified. Some suppliers believe that they do this on purpose, or deliberately delay confirming the order until it is too late, so they can go back to the client and blame the maker for the not being able to supply the light on time. The client then has no option but to agree to the contractor buying something else, which will, of course, just happen to be more profitable for the contractor..... So the budget, or the lack of one, is again the cause of something being bought which does not represent good value for money.

If there is a budget, and the specification drawn up by the interior designers is within that budget, what they have specified can be bought -- everything is "within budget". There are no financial grounds upon which other things have to be substituted.

However, for a recent example in the Middle East, the contractors won the job with a bid 30% below. They then got permission from the owner to replace whatever had been specified. So now, in spite of one of the world's top interior design practices having been retained, what is actually bought for this five star hotel, that will carry a famous brand, will be selected, not by the designer, but by the contractor, on the basis of what he can find that is cheap enough. The hotel will therefore be filled with cheap things (though, depending upon the margin the contractor takes, they may not be cheap to the owner).

But will the hotel be cheap to run? Unlikely, since poor quality items will regularly need repairing and replacing. For as long as a room cannot be let because something is broken, REVPAR will suffer.

Will matching parts or replacements continue to be available over the expected life of the item? Unlikely -- after all, the manufacturer got the job because the lights they proposed were cheap, not because they were going to provide a reliable, well-made product backed up by good service.

What will certainly happen, because we have all experienced it, is that the hotel, whatever its star rating, will very quickly start looking tired, unloved, poor value. The guest will find his room crumbling away, with items broken, or bent, or joints coming apart, finish coming off....

And will the owner get value for money? Of course not. But if the specifiers are given a budget, to which they keep, and if the items they specified are bought, none of these problems will occur. Well, they might, but it won't be because of a lack of a budget.


Note: this series of posts builds up into a single Briefing, a PDF of which is downloadable here: A Briefing on Value for Money when Purchasing for Hotels.

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