Forecasting & Budgeting

How to Successfully Navigate the Choppy Waters of Budget Season

By , Principal Solutions Engineer

With an “expect the unexpected” mindset and the right set of budget & forecasting tools, your ship—er, hotel will confidently chart a course for calmer waters.

Yep. Whether we like it or not, budget season is upon us. Is it going to be difficult to develop and get your 2022 budget approved? For sure. Will it be any more so than previous years? Probably not. What many of you now have on your side is a new set of skills that enable a more holistic approach to creating a budget.

Long gone is the top-down only approach which typically includes a Flamenco-style dance with owners and operators to get to a mythical number when, in reality, they just wanted to increase gross operating profit or net operating income by some seemingly random, year-over-year percentage increase.

The pandemic has taught the hospitality industry many things, one being the need to take a more intelligent and agile approach to the forecasting process, and by that, I don’t necessarily mean a more accurate budget—which would of course be great—but rather a focused effort to define agreed upon goals and develop a budget that supports them.

In a utopian world, the revenue leaders would create a budget as they see fit and then discuss the path to reach it with ownership and management, but we all know this is more of an exception than the rule. So, in the interim, let’s figure out how to make this work as smoothly and effectively as possible so we can arrive at the best results.

How do you clean such a big window?

Budgets become stale, in most cases, the day they are approved. It is hard enough to forecast 14 days out, let alone 14 months out. Too much can and will change in such a large window. So how do you manage a budget with so much variability?

You align expectations. Work with each group that needs to approve your budget well in advance of the submission to define acceptable uncertainty, create a process to make real-time adjustments and agree upon the goals and KPIs that mean the most to all stakeholders. Gabriel Stein, a senior associate of CHMWarnick, shared some key insights in a CoStar November 2020 article which will have much more meaning this year than in previous years, including:

  • Heightened need for cash conservation
  • Timing and triggers to increase staffing levels
  • Likelihood of increased lender involvement—impact to critical agreements such as hotel management agreements and loan documents
  • Owner risk threshold and access to capital

If we all don’t understand what is important to each other, this will be a messy budgeting process; however, with clearly defined expectations, you will be able to navigate the next 16 months with open communication and less fear of making mistakes. Remember, this can go both ways. If there is an opportunity to adjust the budget or forecast, we must be nimble enough to take advantage of these situations—whether that means adjusting the top-line revenue or managing expenses to achieve optimal flow through. Don’t get constrained by the rigidity of a budget and the large window it represents.

When do you check your rearview mirror?

Most experts, globally, suggest checking your mirrors while driving every five to eight seconds. Of course, there are times that require you to do more than just take a glance (think of parallel parking). The point is that even during a situation that can have catastrophic results, you are only checking on what’s behind you far less than 20% of the time—and probably less than 5% in actuality.

If this works for safely driving a car to your destination, why wouldn’t the same premise hold true for driving your hotel’s revenue to meet/exceed your budget? If my obtuse reference isn’t clear, I am trying to say our revenue teams spend far too much time looking at historical data. Yes, the reports that show how you fared the last 30/60/90 days are important, but are you using these insights to drive future performance? Are you spending enough time on what you can impact or are you wallowing over or celebrating last month’s STAR Report? Keep your eyes on the road and look toward the next mile on your journey.

There is a highway full of signs that will help you reach your goals, but the ones in your rearview mirror are behind you now, so don’t spend too much time focusing on what could have been but rather what will be. Especially following a year like 2020 when STLY is not especially helpful for budgeting, on-the-books data must be part of the forecasting process so you can factor in future short-term trends into the broader budget.

Time is still your most precious commodity.

Without a doubt the one thing that caused me the most angst during my days on property in both sales and revenue management was the budget process. I dreaded this more than any other aspect of my job since it sucked all my time up and kept me from doing things that drive revenue.

Of course, I had no other choice but to get them done, but I wasn’t the only person who spent an exorbitant amount of time on budgets. At the end of 2020, HSMAI and ZS Associates surveyed revenue managers to better understand how they spent their time, and the data is astonishing but not surprising.

Why are we spending so much time on budgets? Is it due to difficulty in collecting the necessary data? Changes in the market? Stakeholder expectations? Whatever it may be, you and your organization can gain efficiencies by leveraging automated technology like IDeaS RevPlan which eliminates dependencies on spreadsheets and time-consuming manual work, freeing you up to spend more time on strategy and revenue-enhancing tasks.

Plan for the unexpected.

Expect that changes will come during the budget process but be prepared for them. When I was in an above-property role overseeing revenue management and sales, we would ask the hotels to put time into evaluating risks by the likelihood of them occurring and the impact they would have. This would include events such as losing a big client, citywide cancellations, and even combatting negative press from what we called “tomatoes” (aka, bed bugs).

The point of this exercise was to engage the entire revenue team in a process to expect the unexpected and ready themselves to overcome these with potential action plans. Yes, these issues did arise. Were the hotels 100% prepared with a plan of attack? Not quite, but definitely better off since they put in the work up front—although I wish at the time we had technology like RevPlan to help us manage multiple versions of the forecast for scenario planning. They were far more prepared to respond quickly, which was a big win. An ounce of prevention is worth a pound of cure and the time saved will be impactful.

Budget season is here. You may already be familiar with IDeaS’ best-in-class revenue management solutions—but now we also have a tool for operational forecasting that gives you the ability to produce accurate forecasts and budgets across all revenue streams in a matter of minutes.

RevPlan was designed as a standalone solution to save you time (and your sanity), streamline the budget process, and increase the accuracy and precision of the final budget for the entire hotel. With RevPlan you can:

  • Easily start a budget or forecast with the data you want already pre-populated at as granular a level as you report
  • Build an accurate budget for rooms and non-rooms revenue based on relevant data
  • Ensure all departments work off the same numbers with an integrated total revenue forecasting platform—one version of the truth!
  • Plan for different business scenarios without the complexity of managing multiple spreadsheets
  • Quickly rework the budget and see the cascading effect of the change

Click here to learn more about how IDeaS RevPlan can help you alleviate those budgeting-induced headaches.

Principal Solutions Engineer

As a Certified Revenue Management Executive (CRME), an HSMAI Minnesota chapter board member and president, and the recipient of the “Outstanding Sales Achievement” award from Hyatt Hotels & Resorts, Steve frequently speaks at industry events and academic institutions. He holds a Bachelor of Science in Hospitality and Tourism from the University of Wisconsin – Stout and an MBA from the Carlson School of Management at the University of Minnesota.

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