In today’s challenging times, hotel owners and operators are discovering the importance of forecasting. As financial controllers and revenue managers are asked to forecast, reforecast and then reforecast again, the added scrutiny has exposed serious flaws and vulnerabilities in forecasting methods - as well as untapped opportunities.
Finance leaders protect and increase asset value by reporting financial results that demonstrate a disciplined and agile approach to maximizing income and cashflow. Forecasting plays a critical role in this process, guiding purchasing and staffing levels, sales and revenue strategy, cost control and cashflow management.
Today, the stakes have never been higher. Financial projections are informing 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.
When forecasts are inaccurate, bad decisions result. When forecasts are realistic and comprehensive, they help protect asset value and buy precious time until revenues start flowing again.
Forecasting challenges
Some of the major obstacles to reliable forecasting can be summarized as follows:
- Lack of speed and agility. 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 and events, food and 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 and 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?
Benefits to smart forecasting practices
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 and prepared 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. Tools should be leveraged that are cloud-based 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 cashflow. 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 quick 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.
- Better understanding of risks and 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 3 guest loyalty, stay patterns and total spend can significantly boost profitability. Forecasting helps hotels identify the mix of business that brings optimal profitability.
- Better performance in each department. 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 performance across the portfolio. 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 overperformers and adopt the practices that bring long-term health to the company.
While forecasting methods are under the spotlight, financial leaders should seize the opportunity to roll out smart practices and tools that will carry their properties through the worst of the crisis and position them at the forefront of recovery.