Forecasts and budgets are a normal part of any business and companies in the hospitality industry are no different to others in the United States. The challenges the hospitality industry face, like other industries, is identifying sources of business and the related dependencies. In addition, the always present impacts from both a macro and micro level— national unemployment rates, general health of the economy, inflation, labor laws and interest rates as well as local regulatory impacts (e.g., taxes), local unemployment rates, special events taking place in the market (e.g., Super Bowl, National Political Conventions, etc.), competitors entering the market and whether the hotel is unionized need to be considered.
At the forefront of the process is identifying any capital needs a hotel may require. It could include expenses that address guest safety issues, revenue enhancement opportunities (e.g. restaurant refurbishment) or cost avoidance (e.g. energy saving initiatives) and if any of these projects may disrupt the normal course of business, such as a guest room renovation. A critical component of this review is a calculation of a return on any investment and the source of the capital funds.
"Hotel operators that are successful are those that leverage all available technology and embrace their strengths"
The revenue component of the hotel operation’s forecast and budget is the starting point of the revenue and expense process once the capital plan has been determined. There are numerous factors and sources that come into consideration when determining the data inputs for volume projections (occupied rooms, guests) as well as the rates and pricing for rooms and 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 portals like Expedia and offers on brand web-sites. Many hotels use sophisticated revenue management software (similar to the airline industry) that looks at the pricing of its competitors in their market for a particular day or time period. It also takes into consideration special events (city wide conventions) in the area in addition to previous year’s actual to try and determine the supply and demand on any given day. A hotel manager has the ability to modify these algorithms by placing more emphasis on one element of the algorithm over another based on their knowledge of the local market. Other factors that come into play regarding determining average rates are the length of stays for particular reservations as well as arrival patterns (Sunday–Wednesday versus one night stays, etc.).
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–breakfast, lunch or dinner.
In many hotel operations in the U.S., Excel spreadsheets are still the major resource for creating a hotels forecast and budget. This works well for hotel operations that are more predictable due to the simplicity of the operation such as a select service hotel, which is a hotel that does not have a restaurant on site or banquet facilities. The downside to this is the risk of individuals over writing formulas and breakage of links between tabs in Workbooks. Many operators are willing to accept this risk because of the low cost of entry.
Full service hotel operations–those with restaurants, spas, retail, banquet and catering services and a large number of rooms need more sophisticated tools beyond their revenue management systems. The operators of these facilities need the ability to modify labor expenses (the largest operating cost to a hotel operator) based on business volume, seasonality, union rules and productivity standards. They need the ability to adjust their variable operating expenses including labor based on volume of occupied rooms, arrivals and departures, customers in the restaurant, spa or golf facilities. Properties that use this type of software utilize a variety of expense drivers such as cost per occupied room, cost per customer, cost per available room as an example. Once the hotel determines the daily revenue and transactional activity (e.g. rooms, guests, etc.), the expense component would fluctuate accordingly as business volumes change.
Labor projections are also critical to the profitability of the hotel as noted above and there are many software tools that will assist the operator in determining the right amount of staff. It is a delicate balance to try and contain labor costs without negatively impacting the guest experience. These tools look at what the productivity of a position should be (e.g., how much time it takes to clean a guest room) in relation to the revenue and volume projections in order to determine how many individuals are needed in a particular position on a given day. More sophisticated systems create staff schedules and allow them to access and even change or swap shifts with co-workers (with management approval), all via their smartphone and still be in compliance with union rules.
There are a broad range of software solutions available to hotels to improve and enhance revenue and cost projections and the sophistication of these tools has dramatically increased in recent years. The hotel operators that are successful are those that leverage all available technology and embrace their strengths. Through these efforts, management and owners are better able to project their cash flows and ensure the viability of the hotel in both the short and long term.