Today’s hotel managers face the challenge of growing revenue while simultaneously combating continuously rising costs. In this increasingly uncertain environment, hoteliers have no choice but to constantly predicting future outcomes and adapt to them as they change.

Today’s hotel managers face the challenge of growing revenue while simultaneously combating continuously rising costs. While the hospitality industry has always been vulnerable to short-term impacts from global or regional events, new buying patterns encouraged by Internet booking channels, as well as the costs of using them, continue to be extremely unpredictable. In this increasingly uncertain environment, hoteliers have no choice but to constantly predicting future outcomes and adapt to them as they change.

According to STR, the United States lodging industry set new records for most rooms sold, highest room revenue and highest revenue per available room (RevPAR) in 2013, so why are commensurate gains in gross operating profits or net operating income not becoming the standard? Rising costs, such as labor, distribution, food, energy, and interest expenses, are major factors, but something else has to be going on.

With costs on the rise, owners and operators must ask themselves – what additional actions can be taken to improve profitability? The first stop is the top line – employing advanced revenue management techniques and strategies, often through industry-specific technology applications, is one essential method to help pinpoint areas for increased return.

There are three steps that hoteliers should take when formulating revenue management strategies in order to improve profitability:

1. Forecast ancillary revenue streams in addition to traditional room revenue using advanced revenue management techniques and technology.

2. Educate multiple levels of the organization on how to not only read forecasts, but interpret them in a way that derives greater meaning for their respective departments.

3. Encourage a forward-thinking mentality that relies on forecast accuracy for right-now decisions, but employs forecast performance to create long-term benefits.

In traditional revenue management, only a select few within the organization were given the opportunity to truly understand the RMS forecast output. Since technology allows the forecasts to be recalculated at least once a day for the entire booking window, this was simply too much of a moving target to keep all the other departments in the loop. While these decision-makers, often limited to just sales and marketing directors and the revenue managers themselves do have the expertise and knowledge to derive critical insights from the latest reports; teaching managers at all levels how to also formulate meaning from them to drive their operational and financial forecasts is critical. By extending more dynamic forecast visibility to a wider variety of employees, organizations gain unique perspectives of future outcomes that can help to grow profits.

Having a clear picture of the future allows hoteliers to determine what course of action will yield the best results. Bringing this view to more employees within the organization then enables front office, housekeeping, restaurant, and other functional managers to better align their staffing and supplies with fluctuating demand levels. By forecasting revenue streams outside of standard room revenue, such as spa and catering outlets, and then teaching these managers to read forecasts, organizations are taking the first steps toward identifying revenue and savings opportunities.

Instructing managers at all levels of a hotel enterprise how to read forecasts is the first important step, but more importantly, they must be taught the meaning and implications behind these reports. Revenue managers typically create room forecasts, and then set pricing and inventory controls accordingly to optimize top line performance. If they did not understand how to interpret the overwhelming amount of data generated by various forecasts, then they would not be able to make these decisions effectively. Forecasts without context are meaningless, so it is essential to define processes and tools to support forecast analysis.

But, being able to pull data is one thing. Successful hospitality organizations also need to have a technology partner who can help to accurately analyze these historical events into future competitive advantages. The ability to effectively forecast budgeting, staffing and scheduling, inventory and financials is a key differentiator, particularly when many forecasts can be inaccurate in the hospitality industry. A software partner that delivers innovative methods and to-date mathematical formulas, and truly understands the past, present and future industry needs will be the best choice when beginning to implement this exercise across a property. Forecasting is undoubtedly one of the most challenging aspects of good revenue management, but with the right people and right tools, it can be executed to make quite an impact on bottom line results.

With these methods and a solid technology partner as noted above, organizations can combat rising costs by extending beyond standard forecast interpretation to implement a new culture of forecast performance. This “culture” will create a more agile enterprise that assesses relevant factors to formulate a reliable prediction of future revenue. Hoteliers can then make necessary changes quickly and efficiently to reduce spending and diminish potential dangers to profitability. By using forecasting as a tool to optimize inventory, better match staff levels with demand and proactively manage assets, revenue management can become the number one weapon for the hospitality industry to combat rising costs. Involving decision-makers across an organization only helps to increase the power of forecasting performance, creating a collaborative enterprise that relies on the knowledge of many, rather than few.

about the author:

Bernard Ellis, Vice President of Industry Strategy is responsible for defining the go-to-market strategy of the entire Infor product suite for the hospitality industry vertical, including product positioning, messaging and partner relationships. Mr. Ellis also directly oversees product management of hospitality-specific solutions, and ensures the alignment of all hospitality sales, marketing and product management objectives. Prior to Infor, Mr. Ellis held executive positions with IDeaS, a SAS Company, SynXis, now part of Sabre Hospitality, and Micros-Fidelio.