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Part I: Hotel Overbooking Assignment (40%)
During the past tourist season, CFT hotel in Edinburgh did not achieve any high occupancy despite
using a new reservation system. Apparently, potential guests were making reservation that for some
reasons they failed to honour. A review of front-desk records during the current peak period, when the
hotel was fully booked revealed the number of no-shows that is given in Table below. The room that
remains vacant because of no-show results in an opportunity loss of the £40 room contribution. Marian
Linkoln manager of the CFT hotel is considering an overbooking strategy. According to this strategy,
if a guest holding reservation is turned away because of overbooking, then other costs are incurred. CFT
has made arrangement with a nearby hotel to pay for the rooms of guests whom cannot accommodate.
Further, a penalty is associated with the loss of customer goodwill and the impact this has on future
business. Marian has estimated this loss to be approximately £100 for each guest directed to nearby
hotel. A good overbooking policy should strike a balance between the opportunity cost of vacant room
and the cost of not honouring a reservation. Develop a stochastic discrete event simulation model in
Excel and use it to assess the “expected cost” of various scenarios made by changing the reservations
overbooked. The reservations overbooked to consider are 0, 1, 2,... and 7.
Note: As a measure of performance, you need to calculate the “expected cost” (i.e., the probabilistic
cost which might be calculated as e.g., the cost of no-show/overbooking × probability of number of noshows).
You should produce a report to advise Marian Linkoln, manager of the CFT hotel. This report should
consist of four sections:
A short executive summary (10 marks)
This should provide a summary of the results and a concise suggested plan of action.
Model Description (40 marks)
A suitable description of the model is one that would allow the manager to implement the model himself
but also provide the more general structure to verify the finer details are correct. The description should
not include details of Excel formulae as Marian may wish to implement the model in some other way.
It could include mathematical formulae where appropriate.
Results (30 marks)
This section should give more detailed results that were used to suggest a plan of action in the Executive
Summary. The meaning/interpretation of the results should also be discussed. Comment on the validity
of your results.
Assumptions, Limitations and Future Work (20 marks)
This section of the report is, again, for Marian. He will use the information presented to determine
whether the model should be used now or in the future. He may also commission further development
of the model if the future work is deemed of value.
No-shows Probability
0 0.07
1 0.19
2 0.22
3 0.16
4 0.12
5 0.10
6 0.07
7 0.04
8 0.02
9 0.01