As hotel revenue managers are asked to forecast, reforecast, and then reforecast again, the added scrutiny has exposed serious flaws in forecasting methods—as well as untapped opportunities.
When forecasts are inaccurate, bad decisions result. When forecasts are realistic and comprehensive, they help protect asset value and will buy your business precious time until revenues really start flowing again. And we’re not just talking about forecasting guest-room business alone. Using data-driven science and technology to bring greater accuracy to forecasting across all revenue streams has never been more imperative.
Hotel finance leaders are entrusted with protecting and increasing asset value. They also must regularly report financial results to show how they’ve maximized income and cash flow. Forecasting plays a critical role in this process, guiding purchasing and staffing levels, sales and revenue strategy, cost control and cash-flow management.
These financial projections inform critical decisions such as whether to close hotels temporarily or scale back operations, when to reopen and how to prioritize payments. In more dire situations, decisions are being made on whether to refinance, rebrand, sell or face foreclosure. To put it bluntly: the stakes for hotel forecasting have never been higher.
Some of the major obstacles to reliable forecasting come from outdated processes and outmoded tools.
- Lack of Speed – Current forecasting processes are either overly simplistic or so convoluted that a few tweaks to the numbers requires a completely new forecast. This causes unnecessary delays at a time when the ability to adapt swiftly to market changes is essential. During these unprecedented times, agile planning is made more challenging when relying on manual tools to manage a forecast. Spreadsheets tend to multiply as they float around an organization, making it problematic to stay current.
- Rooms-Centric Approach – Typically, the forecasting process starts with guest rooms, followed by meetings & events, food & beverage and other revenue. If room numbers are off, all numbers are off. The effect is compounded for hotel groups when property forecasts are rolled into a bigger corporate forecast.
- Lack of Accuracy – Even when the rooms data is accurate, forecasting in other departments tends to lack precision and consistency. If managers are unschooled at the process or fearful of delivering bad news, they may choose gut feel over data or optimism over realism—risky propositions at the best of times.
- Department Silos – Forecasting methods vary broadly by department, with different formats, metrics, calculations and assumptions. For example, your food & beverage director may simply assume a safe increase in year-over-year for guests’ checks and covers, while your more optimistic revenue manager uses an aggressive annualized factor for determining occupied rooms and guest counts. Regardless, the finance team must also chase department heads down for their numbers and then interpret, do a sanity check on the numbers and reconcile the data for the overall forecast. It’s an inefficient and error-prone process.
Under these conditions, how can finance leaders reassure owners and lenders the data and strategies are sound when they themselves lack confidence in the numbers?
By strengthening forecasting practices, hotels can derive an array of benefits that have a direct and positive impact on asset value and performance.
- An Agile & Proactive Recovery – In the wake of so much uncertainty, hotel plans should be evaluating aggressive, moderate and conservative scenarios for recovery and use them to develop a robust plan of action. Cloud-based tech should be leveraged to facilitate easy sharing across the organization and avoid the dreaded multiple-versioned worksheet, while also having the capability to conduct what-if analysis to quickly play out different recovery scenarios.
- Improved Cash Flow – With the right revenue and forecasting tools in place, hoteliers can improve their top and bottom lines. A clearer picture of expected demand leads to more effective pricing and inventory strategies. Accurate projections of occupancy, covers and space utilization help operators optimize staffing and supply purchasing, manage utilities efficiently and schedule maintenance to avoid displacement and better control costs.
- One Source of Truth – Having a view into upcoming performance data that is refreshed daily allows for speedy reforecasting and quick changes. Tools should consolidate data daily from across the hotel, creating “living” forecasts and budgets that are not bound by month-end deadlines. Enabling forecasts to be used as a strategic tool, instead of just a reporting vehicle, that facilitates adjusting tactics mid-month versus waiting until next month can make a substantial difference to the bottom line.
- Understanding Risks & Opportunities – By forecasting for multiple scenarios, understanding probabilities and risks, and paying close attention to the sales pipeline, hoteliers can quickly adapt to changes in market conditions and internal demand.
- More Profitable Business – When demand is low, it’s tempting to take any business that comes along. But not all business is equally desirable. Deep discounting can cut into profits and damage positioning, whereas paying close attention to factors like guest loyalty, stay patterns and total spend can significantly boost profitability. Forecasting helps hotels identify the mix of business that brings optimal profitability.
- Cross-Departmental Enhancements – By applying detailed, uniform forecasting practices to each department, not just rooms, hotels can scrutinize every line item and drive stronger results across the property.
- Higher Productivity – With the help of automated tools and standardized templates, department heads can produce forecasts more efficiently and consistently, freeing up time for analysis and strategy. Here the chief financial officer or finance director can play a critical role, providing clear direction on reporting protocols and assumptions.
- Improved Portfolio Performance – For owners and management companies, a foundation of strong forecasting practices at each property will bring benefits to the entire portfolio. Executives can easily identify underperformers (and over-performers) and adopt the practices that bring long-term health to the company.
While forecasting methods are under the spotlight, hotel financial leaders should seize the opportunity to roll out smart practices and tools that will carry their properties and portfolios through the worst of the crisis and position them at the forefront of recovery.