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Chapter 1:

Introduction to F&B Cost Control

Learning Outcomes:
Define cost control and explain its significance in food
and beverage management.
Explain the control techniques used in food and
beverage operations.
Explain the steps involved in the control process.
COST CONTROL CYCLE
1.

Purchasing
12. 2.
Accounts
Payable Receiving

11. 3.
Banks
Deposits Storing

10. 1. The Menu 4.


Cash 2. Sales
Receipts analysis Issuing
Accounts 3. Inventory
Records
Receivable

9.
Transfer 5.
food Pre
Leaves Preparation
kitchen

8. 6.
Order
Taking Portioning
7.
Guest Check
Preparation
for
service
DEFINITION OF COST CONTROL

Control is a method of exercising some amount of


power to achieve a particular result.
Controls put restrictions and limits on how a task is
carried out.
Regardless of the size of operation, a cost control
process should be in place.
Cost control is the process used by managers to
regulate costs and guard against excessive costs.
Causes of excessive costs are inefficiency and
waste.
Prime costs: Food, beverage and labor costs
DEFINITION OF SALES CONTROL

Cost control alone will not ensure profitability.


Sales control ensures that all sales result in
appropriate income to the business.
Employees must record each sale accurately.
Check on menu prices. No mistakes in terms
of menu price listed on bills.
Eg. Steak price RM18 not sold for RM15
Verify all receipts and transactions.
Compare sales record and production record.
PRIMARY PURPOSE OF COST CONTROLS

To maximize profits, not to minimize


losses.
To be aware of wastage in the kitchen
and restaurant.
Attention to detail required.
PURPOSE OF COST CONTROLS

Not just computing % and ratios.


Provide management with information for making
decisions.
Monitor the efficiency of individuals and
departments.
Inform management of what expenses are being
incurred, what incomes are received, or whether they
are within standards or budgets.
Prevent fraud and theft by employees, guests or
suppliers (purveyors).
To know the basis of where the business is going.
Emphasise on prevention not correction
Maximise profit.
COST CONTROL VS COST REDUCTION
Cost control
Compiling, assembling and interpreting
data/information and ratios on revenues and
expenses.

Measure what actually happened in the first place


and why.
COST CONTROL VS COST REDUCTION
Cost reduction
Changing of the factors that will influence food,
beverage and labor costs.
Action taken to bring costs within accepted
standards.
Choose alternative ingredient in a recipe that is
similar in taste and presentation but less expensive to
use.
CONTROL TECHNIQUES
1. Establish standard

Quality standards used to define degree of excellence


of raw materials, finished products and job performed.

Quantity standards define measures of weight, count


or volume. Quantity standard to be established in terms
of portion size, number of counts (shrimp, sauce, etc).
Soup served based on size such as a cup or bowl, ladle
used or quantity of garnish used. Labour costs also
included.

Standard costs defined as the cost of goods or services


identified, approved and accepted by the management.
It measures effectiveness and is measured against
actual costs.
CONTROL TECHNIQUES
2. Establish procedures

Procedures - methods employed to prepare


products or perform jobs.
Standard procedures - established as correct
methods, routines and technique for day-to-day
operations.
Required for every phase of operation cycle.
SOP for purchasing, receiving, storage, issuing,
food production, portioning, serving.
CONTROL TECHNIQUES
3. Training

Necessary to teach employees how work is done.


Staff members given established standard procedures
(SOP) of performing any task or jobs assigned to them.
A process of how work is performed as indicated by
SOP. Example: If a standard portion of soup is to be
served in a cup, servers need to use a cup and not a
bowl.
A very exhausting process and not all employees are
motivated to attend training.
Time consuming and in the short term quite costly.
Managers do not devote time for conducting training.
As a result, staff members appear to be incompetent
and lack skills in delivering services to the customers.
Without proper training, control process is quite difficult.
CONTROL TECHNIQUES
4. Setting examples

Managers need to set good examples such as


good attitude towards staff members, highly
disciplined managers.
Employees who lack disciplines, have poor
attitudes, incompetent in performing jobs and tasks
given, even after repeatedly trained and reminded,
need to be reprimanded.
Staff termination should be done after duly
consideration from the management
CONTROL TECHNIQUES
5. Observing and correcting employee
actions

Managers must observe how employees carry out


their tasks and duties.
If employees do not follow SOP, they must be
corrected.
Take necessary actions to correct procedures
against established standards.
CONTROL TECHNIQUES
6. Requiring records and reports

Difficult for managers of large establishments to


observe each and every staff.
Their observations must be abstracted from records
and reports.
The statement of income summarizes cost and
sales information for a particular period.
These reports are compared to past year histories
and judgements are made about operations.
If unacceptable, maybe some or all of the SOPs are
not followed by staff.
CONTROL TECHNIQUES

7. Disciplining employees

Discipline defined as action taken to reprimand


employee for work performance or personal behaviour
incompatible with established standards.
Not the same as observing and correcting employee
actions.
After several attempts at correcting employee actions,
then only disciplinary action taken.
Could be in the form of quiet discussion or as a last
resort, employee dismissal.
CONTROL TECHNIQUES

8. Preparing and following budgets

The most common technique for controlling


business operations.
Budget defined as a financial plan and realistic
expression of management goals and objectives in
financial terms.
There are sales budgets, cash flow budgets and
advertising budgets.
THE COST CONTROL PROCESS

Taking action to reduce operating costs


requires understanding which costs might be
unnecessary and what can be done to
eliminate them.
The cost control process includes:
1. Collect accurate sales and cost data
2. Monitor and analyze sales and costs
3. Take corrective action as appropriate
THE COST CONTROL PROCESS
STEP 1: Collect accurate sales and cost data

Historical sales information


Track sales for different periods such as yearly,
monthly, weekly, daily, meal period, hourly
Yearly and monthly data - budgeting and income
statement purposes
Weekly and sales data -purchasing and scheduling
Daily and meal period - purchasing and production
planning
THE COST CONTROL PROCESS
STEP 1: Collect accurate sales and cost data

Where do we get our sales information from?


Yearly and monthly data - from income statement
Weekly and sales data -POS systems
Daily and meal period - POS systems
Without POS, sales are tabulated from guest
checks or periodic cash register readings.
Need accurate cost information through report on
inventory, food costs and payroll cost.
THE COST CONTROL PROCESS
STEP 2: Monitor and analyze sales and costs

To compare to budgeted amounts, operational


standards and historical information.
Any variance to be monitored.
Regular basis.
Budget should be checked against actual figures
and the differences should be noted using line item
review.
Sample Line Item Review

Budget Item $Budgeted $Actual $Difference %Difference


Food Sales $100,000 $90,000 $10,000 -10%
THE COST CONTROL PROCESS
STEP 3: Take corrective action as appropriate

When costs are out of line, the cause should be


investigated.
If the budget and actual values do not match,
analysis is done to see what might have gone
wrong.
Eg. If labour cost is off, scheduling and production
standards should be analyzed.
It may also be necessary to reforecast and make
changes to operating budget.
THE COST CONTROL PROCESS
Examples of Corrective Action for Cost Control
SUMMARY

Control is needed in all operating phases of a


successful business.
Cost control starts with the menu and continues
on through purchasing to finally service.
There are eight common control techniques and
four control processes to be used in foodservice
operations.
Without controls, there is no way of determining
whether the business is profitable or meeting its
goals.