The devil is in the detail

Forecasts and budgets are a normal part of managing any Business and the Hospitality industry is no different.

The challenges the Hospitality industry faces are much like any other industry, identifying sources of business and the related dependencies. Once you have done this it’s important to assess the impact from both a macro and micro level such as unemployment levels, general health of the economy, inflation, employment laws, interest rates and special events taking place In their market (major sporting events, concerts, trade shows and exhibitions) and competitors entering the market.

At the forefront of the process is identifying any capital requirements of the establishment. It could include expenses that address guest safety issues, revenue optimisation opportunities such as a restaurant refurbishment, cost avoidance or investment in energy management planning as an example. Then you have to assess if any of these projects may disrupt the normal course of business, such as a guest room renovation in particular or anything that might constrict capacity. A critical component of this review is a calculation of a return on any investment and the source and cost of capital funding for such projects.

Once the capital plan and associated expenses have been established for a Hotel, the revenue component of the hotel operational forecast can be determined. There are numerous factors and sources that come into consideration when determining the data inputs for volume projections, occupancy rates as well as the room rates and pricing of meals.

In the rooms division of a hotel, projections need to factor sources of business from group contracts, contracts with airline crews, online travel agency portal and offers on brand websites, each source of revenue will have to be weighted against the standard room rate after discounts and seller fees have been applied.

You then have to step change by dates the increased demand and increase in room rates that come with special event such as those listed above on the area in addition to previous year’s actuals to try to determine the supply and demand on any given day. Local market knowledge is important in this process, so the forecast needs to be broken down by hotel and potentially distributed to the local management for their input. Other factors that come into play regarding determining average rates are the length of stays and arrival patterns.

In the food and beverage area of the hotel, capture percentage rates come into play when determining how much business will be generated by hotel guests, catering for special events, versus business that comes in off the street to eat in the restaurant. Determining the revenue per guest is a derivative of menu pricing as well as meal period i.e. Breakfast, Lunch or Dinner.

Full-service hotel operators, those with restaurants, spas, retail, banqueting, catering and a large number of rooms need a more sophisticated tool to produce an effective budget and forecast. The operators of these facilities need the ability to modify labour expenses (the largest opex cost to any hotel operator) based on business volume, seasonality and productivity standards. They need the ability to adjust their variable operating expenses including labour based on volume of occupied rooms, arrivals and departures, customers in the restaurant, spa or golf facilities. They will need the software to drive a variety of expense drivers such as cost per occupied room, cost per customer and cost per available room as examples. Once the hotel determines the daily revenue and transactional activity (rooms, guests, etc), the expense component would fluctuate accordingly as business volumes change.

Labour projections are also critical to the profitability of the hotel. It is a delicate balance to try and contain labour costs without negatively impacting the guest experience. Productivity per head should be as an example, how much time it takes to clean a room in relation to the revenue and volume projections in order to determine how many individuals are needed in a particular position on any given day.

With ProForecast and our capacity yield model, we offer you the flexibility to plan your budgets and forecasts to the right level of granularity to ensure it is as close to the actual outcome for your business.

Doing less you might as well ask Siri or Alexa to come up with a plan.

Visit us at www.proforecast.com and book a demo to see the most powerful forecasting application on the market.

Mark Harrison

Chief Commercial Officer

09/10/2019