Monday, November 7, 2011

Hotel Forecasting Strengthens Future Business Gains

Investors, owners, and managers are tied together in attempting to maximize a hotel's revenue and minimize costs. In order to do so, all three need to have sound hotel forecasting skills in order to adjust selling strategies and manage investments. Hotel financial analysis is based on the ability to forecast cash flow, taking into account all aspects of the hotel business. Hospitality managers, general managers, revenue managers and any other hospitality professional responsible for financial performance would benefit from learning the intricacies of hotel forecasting.

Forecasting is not perfect, nor should managers rely solely upon the calculations of future earnings. Forecasts are only as effective as the preliminary assumptions. Managers must learn to develop and gather data in order to develop strong forecasting that will accurately project demand and control room availability. That includes quantifying both existing and latent demands. The latent demand is dependent upon selling strategies as well as the dynamic micro and macro environment that exists. The manager must take into account the impact of all new properties, from shops to competing hotels. Accurate forecasting is difficult and requires complex hotel financial analysis. When done correctly, it will benefit every aspect of the hotel business.

Appropriate hotel forecasts utilize many different tools to interpret all of the hotel's data. Managers need to learn how to build booking curves, account for "pick-up," segment demand by market, group, and channel, calculate error, and account for its impact. A booking curve provides a visual reference for the pace at which people will reserve rooms. Keeping this data helps a manager analyze rate changes and trends that result in more or less bookings. Forecasting occupancy helps housekeeping and the restaurant accurately forecast their costs, thus preventing overspending on inventory. This data is also useful to the sales department to focus their effort on different times of the year based on projected occupancy. Collecting this data helps managers run hotels more efficiently, improving the business' bottom line and helping it expand.

A hotel needs to continue to invest in order to grow assets, but a hotel investment opportunity cannot be correctly appraised without accurate hotel forecasting of revenue and expenses that the property will produce. Owners ask that extensive hotel financial analysis take place to estimate the value of individual hotels. Proper forecasting allows managers to evaluate refinancing options in order to reduce debt costs and ultimately free up capital for investments. With the available capital, management needs to have thorough data on every aspect of the business to develop a strategic vision for where to invest. Information on the customers and their motivations for utilizing the hotel are crucial. This type of information empowers management to benchmark a property's revenue and expense performance against the market. Management with a firm grasp on future occupancy, average rate, cash flows and real estate value will be a much more valuable to the success of a hotel business. Forecasting the future in a business is not easy, but it is necessary.

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