In many respects Scottsdale Camelback Resort (SCR) in Scottsdale, Arizona
is typical of most timeshare/vacation ownership resorts that were developed during the first 25 years of the industries
existence. It was independently developed, its intervals were sold by the fixed week, each purchaser received a
deed, and each owner automatically became a member of an owners association (HOA). At a predetermined point
that developer relinquished control of the resort to the members of the HOA Board of directors that had been elected
by the owners/members other than that developer. As with the majority of timeshare/vacation ownership resorts,
SCR pays most of the costs of operating the resort by collecting an allocable share of those costs from each owner
in the form of an annual assessment or maintenance fee.
If one were to take an independent poll of timeshare/vacation ownership resort owners I believe that the majority
would indicate that their annual assessment or maintenance fee was to large and that they seem to be getting larger
every year. An easy expansion of this thought would be that the costs of operating and maintaining the resort,
paying its taxes and accumulating adequate reserves were/are high. The Board of Directors establishes policies
on behalf of the HOA and many of those policies specifically affect the costs of operations. As an example: the
board policy could be to maintain the highest possible status with the exchange firm or firms with whom the resort
is affiliated. If the resort is affiliated with RCI that status would be Gold Crown and if the affiliate
is Interval International the top status would be 5 Star. In both instances the achievement of these
top ratings are dependent upon the quality of the resort, the amenities it contains and the quality of services
provided to the in-bound exchange guest.
Most resorts and their amenities were put in place by the development entities with the expectation of achieving
sales and the Pizzazz necessary to encourage high closing ratios was at the top of most preplanning.
Little, if any, thought was given at that time to the costs of operating and maintaining those resorts and those
amenities. The fact is that amenities that would save or reduce costs were usually eliminated if they added no
Pizzazz to the sales effort. The same thing usually held true with respect to space allocations.
Housekeeping and Maintenance working areas were always held to a minimum as was office and storage spaces. Most
often areas that would possibly produce revenue other than assessments were not a consideration in the original
development.
At SCR the HOA was required to add a building to house a full service laundry and the housekeeping function.
A shed, which formally housed landscaping equipment, was converted into overnight storage of housekeeping carts
and secure storage for house-wares items. Three Tough-Sheds were purchased to provide routine storage and
the Club House was enlarged to contain office space, a maintenance shop, a computer room, employee restroom and
a break-room. The Club House addition also contained a full service kitchen and restaurant, poolside bar and the
necessary food and beverage storage facilities. Additionally a building was constructed to house poolside ADA
required restrooms. The members of the SCR-HOA (not the developer) paid for these additional facilities and the
costs approached 3/4th of a million dollars. Fifty of the one hundred and ten villas at SCR are studio-suites
and were developer furnished with only a mini-kitchen. In order to even qualify for consideration as a Gold
Crown Resort the SCR-HOA had to purchase and install cook-top units in the kitchen counters.
SCR-HOA, like all timeshare/vacation ownership resorts that are operated by their HOA, has three kinds of costs.
The first is payroll and the entire payroll related items; the second is the payment of taxes. Everything else
makes up the third and those costs are the purchased goods and services necessary to fulfill the purpose. The Articles
of Incorporation for most of those HOA’s will contain language defining that purpose similar to those contained
in the SCR-HOA Articles.
- The general purpose for which this Association is formed is to act as the Association for the operation
and maintenance of the Scottsdale Camelback Resort located at …
……, for the benefit of the owners thereof and for all other lawful purposes for which nonprofit
corporations may be organized.
The ARDA International Foundation recently released an Economic Impact study, which indicated the following
for 2002 as it relates to the Timeshare Industry:
$17.2 billion of purchases
$ 3.0 billion of salaries, wages and related costs
$ 6.4 billion of tax payments (including $789 million
in employee taxes)
There is not a lot that a single timeshare/vacation ownership resort can do to control/contain the tax costs.
For the most part it is the province of the ARDA- State Affairs office, ARDA-ROC and the state or
regional ARDA Committees. Almost nothing occurs with respect to carrying out the purpose that does not require
labor. The costs of labor (and related) are usually the single highest item in the operating budget. Controlling
labor and related costs and maintaining the quality of functions and services performed by employees is without
question the most difficult of all the areas of responsibilities of a resort management staff (including supervisors).
One of the most important staff positions is that of the Human Resource Manager. Many timeshare/vacation ownership
consider having a HR staff member a luxury and leave those duties to the resort management staff members in their
specific areas of operations such as Housekeeping, Maintenance, and Front Office. Much can be done to control these
costs, however that will be the subject of another With Regard. At some point in the future we will
attempt to present the case for a HR staff member in With Regard to Human Resources.
This brings us to the subject matter, purchasing and how we effectively spend that (by now) well
over $20 billion (yes $20 billion) portion of our operations and maintenance costs.
First let me present a typical timeshare/vacation ownership resort purchasing opportunity. At AAA Resort
the staff members collectively did not look (or at times act) like professionals. For the most part you
could not tell an employee of the resort from a guest or visitors. The Front Desk staff wore whatever resort casual
outfits they had in their personal wardrobe, the maintenance staff wore work jeans, assorted tee-shirts (most with
some kind of message on the front or back) as well as ball type hats with different logo’s and the housekeeping
guest room attendants wore assorted smocks. Many did not wear their nametags because they didn’t want to damage
their personal clothing and management was very lax in enforcing the nametag policy. After several attempts to
get uniforms approved by the AAA Resort Associations Board of Directors, management was successful
and the process of acquiring those uniforms began. During the budgeting approval process management had determined
that the 29 following employees would be required to wear uniforms: Housekeeping - Guest Room Attendants – Housemen
– Inspectors, Front Office Clerks, Activities, and Maintenance staff members. It was estimated that each of the
above would receive two sets of uniforms at a cost of $25.00 each and that each set would last three months. Consequently,
the budget contained $2900 as an annual uniform expenditure.
After the budget had been approved each department was requested to make recommendations as to their departmental
uniforms and to be sure those recommendations were within the $100 (per year-per employee) allowance. After two
weeks of research and considerations the resort manager received the following recommendations:
Housekeeping – The Housekeeping Manager had obtained copies of 5 uniform
catalogs and after much deliberation determined that the Guest Room Attendants would each receive a light blue
and white striped smock ($22), the Inspectors would each receive a dark blue and white striped smock ($22) and
the Housemen would receive a dark blue Golf polo shirt ($22). Additionally, each of the Housekeeping Department
employees would be required to wear dark blue work pants and blue low type tennis shoes, which they would have
to purchase themselves. It was anticipated that because the costs would be contained at $88 (per year-per employee)
a few of the department employees could receive a 5th uniform if necessary and still remain under budget.
Maintenance – The Chief Engineer had determined that each of his maintenance
men would go to the local JCPenney store and purchase 2 sets of Dickies® work clothes right off the shelf. This purchase would
include dark blue work pants and light blue work shirts. Because each of these sets had an estimated cost of $33,
each of the maintenance men would be allowed only three sets per year.
Front Office Staff – The Front Office Manager had obtained a copy of
a uniform catalog and had selected a polo type shirt in burgundy which could have the resort's logo placed on its
pocket ($27). Additionally each staff member would be required to purchase- themselves- beige slacks to go with
their uniform shirt. Because of the variety of FO staff (M-F / Size) it was determined that each polo shirt would
be sent to the local tailor to have the bottom squared off ($3) so that the shirts could be worn without tucking
them in. Because of the logo and tailoring the FO budget would be exceeded by over $200.
Upon receiving these recommendations from the department managers and after discussion with each, the resort
manager determined that between the Housekeeping Manager, Chief Engineer and Front Office Manager the equivalent
of approximately 50% of the uniform budget allocation or $1400 in payroll time had been spent developing these
recommendations. The manager also estimated that the new uniform program would exceed budget by a minimum of $850
because the recommended counts did not conform to the 4 set per year allocation, the added costs of logo development,
lack of consideration for employee turnover (new employees would not be required to wear used uniforms), taxes
at time of purchase and shipping costs. The resort manager estimated an additional $150 in senior management time
devoted to the uniform issue. All in all the manager estimated that the first year uniform program costs
would be $5300 or $182.75 per employee and almost 83% over budget.
This real life-like exercise was developed to indicate that what seemed like a reasonable idea [improving the
professional appearance of resort staff] can turn into a time-consuming and expensive process/program. This
of course is only one of the many, many purchase opportunities that occur in the typical timeshare/vacation ownership
resort on an annual basis. The use of this method of purchasing we will identify as #1.
One such opportunity and challenge is the required remodeling/refurbishment of the residence units and the other
resort facilities in order to maintain them at the quality necessary to retain the high status that board policy
demands. For the most part the funding for these projects comes from the accumulated reserve funds and on the rare
occasion via special assessments. These costs can be in the millions in a single year or several hundred thousand
year after year. Many of these costs are for services such as paving, landscaping, tile work and painting, however
the great majority will be the purchase of products such as carpet, bedding, appliances, furnishings, décor
items, and bedspreads & drapery.
In some instances the resorts will retain the services of an interior design professional to assist in the selection
and specification process as well as to do the purchasing function for these remodeling/refurbishment projects.
In many instances these professionals charge a fixed fee for the design/specification work and a commission of
about 5% for the purchasing function. Let’s assume that because of the lack of background, training or experience
there is not anyone on staff that a professional is retained to do a $375,000 project that entails the full remodeling
of 50 two-bedroom units. If $300,000 of that project was direct purchases by the interior design firm plus the
5% commission the fee paid would be $15,000 for that service. The use of this method of purchasing we will identify
as #2.
In the dissertation presented above we have indicated that purchasing can be accomplished by retaining an outside
professional and paying added fees (#2) or they can be accomplished by allowing individual department heads to
purchase those items that were/are specific to their area of responsibility (#1). In actuality there is another
method (#3) of effectively accomplishing the purchasing opportunities that is worthy of being presented herein.
During much of the first decade of SCR’s existence the majority of its operation purchases were accomplished
using method #1 and whenever renovations or refurnishing was accomplished method #2 was usually employed. During
this period the objective was to achieve the necessary purchases with the least amount of impact on the day-to-day
operation. The department manager required to make purchases for goods or services within his/her area of
responsibility spent the least amount of time possible performing this duty and the most amount of time possible
at their primary duty. In truth availability was more important than price and convenience far outweighed value.
During the majority of this period the developer was required to subsidize operation costs and keeping maintenance
fees (annual assessments) low was a marketing tool. Those responsible for renovations or refurnishing believed
that only the professional designers could insure the Pizzazz or Sizzle thought to be necessary
to achieve the sales objectives and the added costs were considered insignificant.
In the early 90’s the SCR-HOA assumed control of the resort operations from the developer and the idea of effective
management of the Association's resources began to emerge. This ‘out-of-the-box’ thinking included the concept
that the quality of product and services need not be sacrificed because good business practices were being installed.
One of the good business practices being implemented was the requirement to bid all contracted services or products.
One such purchase was that of the resort's insurance programs. During the first year the Association controlled
the resort the cost for property insurance exceeded $85 thousand. By implementing the bid system that same insurance
cost was reduced by better than 70% for the second year. By maintaining that same bid system the insurance premium
budget for 2005 remains 36% below the original $85 thousand.
Another good business practice resulted in the following: When the Association gained control it inherited a
purchase policy with respect to the linen and terry items that were provided in all residential units. In effect
the resort owned no linen or terry items and had no laundry facility. The costs to provide clean linen for the
beds and clean terry items for the baths exceeded $100,000 per year at the time of turnover from the developer.
Within 2 years the Association had built a Housekeeping facility at the extreme west end of the property, 50% of
which was devoted to function and storage and the other half to a fully equipped laundry; purchased 3½ par
of the necessary linen and terry items and terminated the existing linen service contract. The costs of developing
the laundry and purchasing the necessary linen and terry items were approximately $121,000. For most of the
last decade, the costs to provide clean linen and terry items to the residential units (including the purchase
of replacement items on an annual basis) has averaged less than 60% of the inherited costs.
Another good business practice (#3) and the one that had the most overall impact on cost, quality and value
was that of internalizing the entire purchasing process. It was determined that, on an annual basis, the resort
purchased major items with combined costs of over $600 thousand and other purchases, that could be handled directly,
of well over $1 million. If a professional purchasing agent could be added to the staff and that agent could achieve
a 5% savings on the purchase of those major items, that savings could cover the majority of the payroll and related
costs inherent to having the new staff member. Given that this could be accomplished, any resulting savings in
the $1 million + purchases would revert directly to cost reductions. An added bonus in this concept was the obvious
increase in value provided by a professional in purchasing and the return of the time spent in the purchasing process
by departmental managers and supervisors to their primary duty. This added presence of department heads in their
areas of responsibility would clearly result in productivity gains by their staffs.
FINAL THOUGHT
My handy dictionary provides the following as it relates to afford or its adjective – affordable:
‘To have the financial means for’ and/or ‘To be able to do with benefit or without harm.’ To me this
means that there are some things you can afford to do and some things that you can’t afford not to do.
My Pop (and Mom) taught me at an early age the trick of analyzing the
upside potential and the downside risk of doing something. They also taught me that this concept applied for the
reverse - not doing something. Some of you will remember the episode with Mom and the castor oil. I thought that
a trip to the river with my friends had greater upside potential than the downside of taking a very large tablespoon
of her favorite elixir. If you don’t remember and would like to read it click here: With
Regard to Mom
In that same With Regard, we referenced that not telling the truth could also lead to learning lessons
the hard way including a trip or two out back with Pop.
Many will indicate that they cannot afford to have a purchasing agent as a staff member at their resort. I would
contend that the upside potential for increased value and effective costs containments far outweigh the downside
risk that the savings would not cover the total costs of having that agent on staff. Likewise I would contend that
they cannot afford to have their various department managers or supervisors spending quality (on the job) time
chasing down 3 or more vendors and attempting to obtain bids on the specified products and/or services so that
a value determination can be made.
