Benchmarking Hotel Capital Budgeting Practices to Practices Applied in Non- Hotel Companies

A survey was conducted to compare hotel capital budgeting practices employed within and outside the hotel sector. It was found that the propensity to inflate investment cash inflow projections outweighs the propensity to deflate cash inflow estimates and the tendency to inflate projected cash inflows is less in the hotel industry. Hotels exhibit a lower level of development with respect to reviewing required rates of return and also applying post-completion audits. Also, NPV and IRR, which are based on discounting approaches, are used to a relatively low degree in the hotel industry and over half the hotels surveyed either exclusively use the payback method (36%) or use no financial investment appraisal method at all (17%). Consistent with prior findings in other industrial sectors, there appears to be a positive relationship between organizational size and use of financial investment appraisal techniques.