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Mr. Ellis

Revenue Management

Why Increasing Stakeholders Helps to Increase Profits

Extending Revenue Forecast Visibility

By Bernard Ellis, Vice President of Industry Strategy, Infor Hospitality

Today's hotel managers face the challenge of growing revenue while simultaneously combatting 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.

For example, if the housekeeping manager is granted this perspective, he or she will not only see the very latest forecast of arrivals, stayovers and departures, but also the market segmentation that is expected. A week dominated by a single-occupancy business certification group will have very different staffing and cleaning supply requirements from a boys' sports group, sleeping four to a room. Without the additional insight, the first week would have likely been overstaffed, and the second one would have required paying overtime to recover from the trashed rooms.

This challenge is made worse by ever shortening booking windows. Employee schedules are often made, and supplies ordered, before the business is even on the books. What if demand does not materialize as expected? What if marketing then does what they are supposed to do and distributes a last-minute bed and breakfast promotion that fills the house with leisure guests wanting their free breakfast, but the restaurant has no way to see it coming?

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. Thus, it is equally as important for decision-makers connected to ancillary revenue streams to employ this type of critical thinking. Forecasts without context are meaningless, so it is essential to define processes and tools to support forecast analysis in order to improve the bottom line.

When interpreting forecasts it is also critical to differentiate between forecast performance and forecast accuracy. For short-term operational decision-making, forecast accuracy is crucial to help mitigate costs. Inaccurate reporting works against profitability improvements by painting an incorrect picture of supply versus demand. Organizations should encourage managers to closely examine profit and loss statements (P&Ls) to identify where financial efficiency improvements can be made within their department. Urging employees to pinpoint opportunities for upsell can also directly influence guest spend levels to help further enhance profitability.

In comparison, forecast performance refers to integrating forecasting into the culture of an organization to facilitate a longer-term view, and thus long-term decision making. Hoteliers must be responsive to varying demand conditions from both a revenue generation and cost containment perspective in order to effectively respond to forecasts. Organizations with the agility to quickly react to varying predictions can more easily mitigate profitability risks, as they have the flexibility to change course if current processes and procedures become ineffective down the line.

To further demonstrate the juxtaposition between forecast performance and forecast accuracy, consider this illustration. Hotel X, one property of a multi-chain hotel, bases all of their fall revenues on football season. This year only 20 percent of the games are away, but the previous year 80 percent were away, which obviously changes the long-term forecasting for that year. By using state of the art forecasting technology and identifying the additional games as events that should behave similarly to the prior year's, Hotel X was able to forecast its performance for the year and automatically update that information to its system when the football schedule was released. This provided an accurate view of what the year would look like well in advance, so they could closely align staffing to the new occupancy levels. Those additional weekends where the team is in town means that six months in advance, the hotel knows they can uphold a two-night minimum stay, maximizing revenue for the regional event. Then closer to that fall, as forecasts continue to be automatically updated and transmitted through the organization's systems, they are able to more accurately order sundries, hold room promotions and offer discounts at the spa, knowing that they have the space and time to bring more non-football fan guests to the property on the away game weekends. Having insight into short-term and long-term needs is of utmost importance when looking to make up revenue in other months throughout the year.

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.

Bernard Ellis, Vice President of Industry Strategy for Infor Hospitality is responsible for defining the global go-to-market strategy for the entire Infor solution suite for the hospitality, travel, and leisure industry vertical. In addition to general product positioning, brand messaging, and industry relations, Mr. Ellis directly oversees product management of Infor’s hospitality-specific PMS, RMS, and POS industry applications, and pursues their tight integration with Infor’s world-class solutions.. Mr. Ellis also guides these other solution groups on the “last mile” functionality required to achieve specialized hospitality editions that outperform best-of-breed industry solutions, yet are still cost-effective to implement. With his launch of Infor CloudSuite™ Hospitality in 2014, Mr. Ellis marked over 15 years of evangelizing SaaS solutions. Mr. Ellis can be contacted at 202-232-3839 or bernard.ellis@infor.com Extended Bio...

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OCTOBER: Revenue Management: Technology and Big Data

Gary Isenberg

Hotel room night inventory is the hotel industry’s most precious commodity. Hotel revenue management has evolved into a complex and fragmented process. Today’s onsite revenue manager is influenced greatly by four competing forces, each armed with their own set of revenue goals and objectives -- as if there are virtually four individual revenue managers, each with its own distinct interests. So many divergent purposes oftentimes leading to conflicts that, if left unchecked, can significantly damper hotel revenues and profits. READ MORE

Jon Higbie

For years, hotels have housed their Revenue Management systems on their premises. This was possible because data sets were huge but manageable, and required large but not overwhelming amounts of computing power. However, these on-premise systems are a thing of the past. In the era of Big Data, the cost of building and maintaining an extensive computing infrastructure is incredibly expensive. The solution – cloud computing. The cloud allows hotels to create innovative Revenue Management applications that deliver revenue uplift and customized guest experiences. Without the cloud, hotels risk remaining handcuffed to their current Revenue Management solutions – and falling behind competitors. READ MORE

Jenna Smith

You do not have to be a hospitality professional to recognize the influx and impact of new technologies in the hotel industry. Guests are becoming familiar with using virtual room keys on their smartphones to check in, and online resources like review sites and online travel agencies (OTAs) continue to shape the way consumers make decisions and book rooms. Behind the scenes, sales and marketing professionals are using new tools to communicate with guests, enhance operational efficiencies, and improve service by addressing guests’ needs and solving problems quickly and with a minimum of disruption. READ MORE

Yatish Nathraj

Technology is becoming an ever more growing part of the hospitality industry and it has helped us increase efficiency for guest check-inn, simplified the night audit process and now has the opportunity to increase our revenue production. These systems need hands on calibration to ensure they are optimized for your operations. As a manager you need to understand how these systems work and what kind of return on investment your business is getting. Although some of these systems maybe mistaken as a “set it and forget it” product, these highly sophisticated tools need local expert like you and your team to analysis the data it gives you and input new data requirements. READ MORE

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