The budget setting process within Maltese five star hotels : a qualitative approach

Abstract

One of the main pillars of the Maltese economy is undoubtedly the tourism industry, and ensuring its sustainability is vital for job creation, output growth and the general economic wellbeing of the country. In recent years, tourist arrivals, overnights and total expenditure achieved yearly growth records, but industry stakeholders reiterated on more than one occasion that factors such as economic viability and sustainability have to be given higher consideration. The need for increasing return on investment for owners, in conjunction with escalating costs leads to an increased demand for the sector as a whole to improve productivity. There is a substantial amount of agreement among management in hospitality organisations and academic researchers alike that the budget process is a valuable performance control and management tool. The purpose of this study is to explore the effectiveness with which Maltese five star hotels manage the budgetary process and use it to obtain improvement in operational performance. The reason for choosing the five star sector as test unit for this study reflects the current drive by policymakers to attract better-quality and higher-spending tourists, who generally choose to stay in five star establishments. Since the purpose of the study is to uncover an objectively defined and hypothesised form of budgeting, the researcher opted for a qualitative methodology, one which is also in sync with the exploratory nature of the study. The research utilised data from eight in-depth semi-structured interviews with five star hotels' directors of finance, and the study was driven by identifying the emergent main themes. The data revealed two typologies of subject units: unified owner/operators and divorced owner/operators. The former were loyal to the owning company's objectives, whilst the latter were more inclined towards fulfilling the goals of the management company. The study explored this misalignment by contrasting the views of the two typologies toward the phenomenon that emerged: budget games and the resultant measures participants undertook to break free from budget games. Coherent with expectations induced by agency theory, data collected suggest that participants who had the owner's interest at heart were more aware of budget games and took a more active role in counteracting its detrimental effects. The study concludes that despite the gaming, the budget process is still considered as a valuable management accounting tool but hotel organisations need to pay particular attention to control measures, budget participation and work-related-values (humanised approach). In the right measure, these can contribute to a better implementation of the budget process and ultimately to a better-performing organisation.