In our previous article, we shared insights and advice from global hospitality experts on how to make the 2024 hotel budget process as smooth and painless as possible.
Here, we share five ways to improve budget accuracy and performance in uncertain times.
1. Benchmark Against Competitors
In the last article, we discussed the importance of strategic planning, aligning stakeholders, and harnessing relevant data. Another key element of the budgeting process is to benchmark performance against competitors.
“Benchmarking is critical,” Pete Sams, chief operating officer of Davidson Hospitality Group, told us. “We look at the first step of the budget process as understanding the competitive landscape. We conduct a lot of due diligence surrounding our competitors.” The company projects RevPAR indexes and competitive dynamics at each hotel such as a renovation, change in management, or new offering, he said.
“We diligently and meticulously review our HotStats hotel benchmarking data to understand how we stack up within the competitive landscape,” he said. The company tends to use the data as aspirational. “We strive for excellence, so we have very competitive comp sets. We want to continuously identify opportunities to be better and more efficient than our competitors.”
2. Leverage Technology to Increase Efficiency
Fortunately, hotels have access to better technology solutions than ever to help aggregate and analyse financial data and connect the dots across data sources.
“Utilising technology or a uniform template helps to minimise the inefficiencies of the [budgeting] process,” said Elena Ladisova, vice president of Brookfield Asset Management. She cited the Uniform System of Accounts for the Lodging Industry (USALI) as a key source for accounting and benchmarking standards in the industry.
Valor Hospitality Partners has built a model that links the financial forecasting and budgeting tool with the software used by the revenue team, said Paul Nisbett, chief financial officer. “We have our fixed cost register and a manning guide… We don't need to guide it by the year, we can do it by day and by month. With our tool kit, as long as the information is being dealt with and updated all the time, the budgeting [process] doesn't take too long… It’s about looking at what parts move and what parts don't.”
“HotStats is one of the key tools we use throughout the budget process,” said Sams of Davidson Hotels & Resorts. With other data platforms, “there are a lot of restrictions in terms of competitors and brand mix and things of this nature,” he said. With HotStats, hotels can choose to benchmark performance against aspirational comp sets in addition to direct competitor sets. “So, we’re able to be more aspirational,” he said.
Dimitris Manikis, president, EMEA, at Wyndham Hotels & Resorts, stressed the importance of preserving the human side of budgeting. “Everybody is talking about artificial intelligence and how you don't need to budget anymore because AI will have all the answers,” he said. “In reality, what data does is create one source of truth. Now, the truth can be interpreted in very different ways. So, data is extremely important, but so are the people who interpret the data and build the narrative for our team members and business partners. That is absolutely critical.”
3. Challenge Assumptions
Another recurring theme from the experts we interviewed is the need to challenge assumptions and take new approaches to solving budget problems.
“[In the past], we tended to rely heavily on third parties to give us a guide to where they felt they were going to be,” said Nisbett. More recently, “we've had to be more forward-thinking ourselves.” A key focus for his company this year is managing costs, he said. “When we look at maintenance, administrative costs, labour, etc., we ask, what can we do differently? How can we challenge it differently? And what can we do better?”
He added, “Once you lock in your numbers, the real time is spent around costs and cost basing and how to challenge some of those costs. That's really where our focus has been.”
4. Consider Zero-based Budgeting
One approach that has gained traction since the pandemic is zero-based budgeting. Unlike traditional budgeting, which is heavily weighted toward last year’s actuals, zero-based budgeting starts from a “zero base.” All expenses must be justified for each new period, and every function is analysed for its needs and costs.
“Traditionally, budgets are based on a hotel being virtually the same property as the year before,” explained Michael Grove, chief operating officer of HotStats. “It’s not a full review of the business model. But things can change dramatically year over year. With zero-based budgeting, rather than tweak last year’s numbers, hotels start with a clean slate, building the budget as if it were a new hotel. It’s a holistic strategy of reviewing and revising the business in entirety each year.”
To do that, however, hotels need relevant data, he said. “Zero-based budgeting is only possible today because hoteliers have access to data for a broad range of business models. They can run “What If” scenarios to predict the impact of business decisions on future performance.”
Grove added, “This is the thought leadership aspect of the budget process. It’s not just about benchmarking, it's about keeping an open slate and aspiring to your business potential.”
At Davidson Hospitality Group, the budget team is focused on zero-based optimisation, said Sams. “Historically, we would use the previous year as a benchmark… Upon further review and evaluation, we ripped the process down and rebuilt it. We decided to take all the history off the table and think about the best way to build our mousetrap. As a result, we've created enhanced and complex tools with more thoughtfulness around zero-based expectations.”
Labour is a top priority this year, he said. “The wage pressures have been immense.” Instead of adjusting last year’s productivity numbers, the company zero-based every position and then let that schedule dictate how to budget labour. “It's a constant process of tinkering, reviewing our portfolio, identifying who our best performers are, and leading everyone, to the best of our ability, through the budget process to the expectation,” he said.
5. Adapt to Changing Market Conditions
Finally, the budget must be treated as a living, breathing document that evolves over time, the experts advised, especially during times of high uncertainty and volatility in the market.
“Over the course of my 30-year career in hospitality I've built thousands of budgets, and I've never encountered a single budget that was exactly right to the dollar,” said Sams. “Understand that it's going to be inaccurate to some extent, ideally for the better. Articulate how you're going to get there and then be prepared to adjust and adapt.”
He added, “The budget instantly becomes a forecast… You must go into the year understanding that it should be updated every month… And then the real measure is your ability to adapt to what’s happening in the market.”
To discover how HotStats benchmarking data and market reports can help your budget process and boost your P&L follow the link.
by Tanya Venegas, Global Head of Customer Success, HotStats