For hotel owners and operators alike, the annual budget is often a gruelling and time-consuming process. This year, with persistent inflation, added pressures on cost control, and uncertainty about the economy, the process is as fraught as ever.
Are there ways to make the 2024 budgeting process more streamlined and efficient? For insights and advice, HotStats reached out to leading hospitality experts around the world.
1. Start Early but Submit Late
Hoteliers often complain that the budgeting process seems to start earlier every year. This is especially true for large hotel groups with multiple approval levels. In fact, many hotel teams already started planning for 2024 months ago.
“With my team, we start very early preparing and managing the timeline, working back from the delivery date to owners all the way to conceptualising what we're going to do,” said Neetu Mistry, chief commercial officer at Cycas Hospitality. “We generally try to start this around May or June. So, we've got enough data for the early part of the year, but also enough time to take into consideration when the budgets need to be delivered toward the end of the year as we have to manage this across multiple owners across 54 hotels. For the later part of the year we rely heavily on our current forecasts to build the numbers for the following year as well as up-to-date market and industry forecasts and trends.”
Starting early doesn’t necessarily mean submitting early, however. “A lot of management companies start their budget process in August, and there's already a great margin of error when you're trying to forecast the next few months,” Joe Pettigrew, chief commercial officer of Starwood Hotel Asset Management, told us. “By the time January rolls around, the margin of error has only gotten greater. So, we try to finalise our budget as late as possible now. Obviously, under certain circumstances it’s not possible, but where we can we try to do it late in the year.”
2. Create a Strategic Plan
“Planning is critical,” said Elena Ladisova, vice president of Brookfield Asset Management. “Set yourself enough time ahead with the different phases of budgeting, deliverables, and accountabilities… Have a roadmap to the submission date and plan who's doing what and by when and how, outlining the process and deliverables… This will help to get to the end of the process in a more organised and smooth way.”
For Pete Sams, chief operating officer of Davidson Hospitality Group, the budget process is a chance to step back and create a big-picture strategic plan. “The strategic plan is more critical to me than the budget,” he said. “It speaks to where we're going, how we're going to get there, where we belong in the marketplace, and how we are going to improve our standing and generate the results that we aspire to. The budget serves as the financial support behind that plan.”
Mistry recommended combining a realistic, bottom-up approach with a visionary, optimistic, top-down approach. “Especially when you're working with multiple owners and stakeholders, it's important to do a couple of scenarios in terms of unknowns and assumptions because there's always an upside case and a downside case.”
3. Align the Stakeholders
Aligning all the stakeholders from the outset in terms of targets and timelines can save a lot of time and frustration in the long run. “Involving all the stakeholders and understanding their aspirations and expectations is really important in the early stages of planning,” said Mistry.
Paul Nisbett, chief financial officer, EMEA, of Valor Hospitality Partners, would agree. “The most frustrating thing is spending months putting together the data, and then [ownership] says, “But the number I need is X.” Well, couldn’t we have done that three months ago? And had a high-level debate about it and then let the hotel go away and work out how they will achieve that number? Alignment of view among parties at the top will make the process easier.”
For David Hart, chief executive officer of RBH, it’s when the expectations of owners and operators are miles apart that the budget process becomes painful. “If your relationships with the hotel owner, bank, and other stakeholders are good, you should be having a constant discussion about what you're seeing in the macro environment and the local market and what your expectations for performance are and why. When people are realistic and everyone is sensible, it works fantastically well.”
He added, “Sometimes there needs to be a number to make it work for the bank or investors, but if it’s unrealistic or not sensible or doesn't stack up to what's actually happening in the market, it’s never going to get there just by magic … At the end of the day, it’s about communication.”
4. Plan for the Long Term
While the focus of the annual budget is the upcoming year, the long-term impact of budgetary decisions must be factored in as well.
“For example, utilities was a big topic last year,” Mistry told us. “Planning in terms of what commitments you made to what deals, what energy you purchased in advance, etc., was important. So, there’s those wider things that are going to drive a bigger impact in certain parts of the business that need to be considered.”
As another example, she cited technology planning. “How do we ensure that we're leveraging technology and driving efficiencies in the business? There might be an initial investment that needs to be undertaken, but then how do we make sure that it has a long-term benefit and payback for each of the properties and functions?”
It’s also a good idea to map out the lifecycle of hotels over the long term, Mistry said. “We opened a number of hotels in the pandemic. So, the brand-new hotels are in really good condition, but then we have a cycle of hotels for which we need to consider the refurb and renovation impact. And some of that needs to be considered in our budget planning and thought about in terms of long-term investment.”
5. Harness Relevant Data
If there’s one thing the experts agreed on, it’s the critical role of data in accurate planning and budgeting, from historical data to market data to forward-looking data.
“Whether you’re an owner, operator, or asset manager, you need real-time access to monthly performance data,” said Michael Grove, chief operating officer of HotStats. “This will allow you to benchmark the latest performance numbers against competitors and the market as a whole, view a complete picture of revenue streams and operational costs, and dig deep into granular data—all in one place. This will facilitate the primary objective of the budgeting process: finding ways to boost the bottom line.”
Ladisova of Brookfield Asset Management said that the abundance of data available in the hotel industry today is of great benefit to the budgeting process. “In many ways, Europe is still catching up with the U.S. in terms of the tools and resources we use to monitor and track performance,” she said. “Whether it’s top line or P&L data, there's still room to improve as the market is relatively fragmented and there are a lot of owners and hotel groups that don't participate. If anything, we would like to see more data.”
At Rocco Forte Hotels, “We have streamlined the forms and data input or base that we use across all hotels,” said Amy Stevens, group director of revenue and distribution. “So, from a consistency standpoint, we all use the same data, data points, and system of truth, as most companies do. And we've worked hard to create a user-friendly input platform to ensure everybody is entering that same consistent data. It's also data that we track year-round. So, we're all working or singing from the same hymn sheet, so to speak, and using data that we have already validated and that we trust.”
6. Focus on the Big Picture
Some experts cautioned against becoming so mired in granular data you lose sight of the primary performance drivers.
“You can have analysis paralysis if you dig into things too deeply,” said Stevens. “I think we've done a good job at balancing the depth of detail without over-analysing and losing sight of the bigger picture.”
Pettigrew of Starwood Hotel Asset Management remarked that the industry has a tendency to over complicate and overthink things. “Many consulting companies put out forecasts based on lots of different economic factors,” he said. “I would take one, make any tweaks you think the experts have missed, such as unique events in your local area, and use it as your anchor. Once you have a picture of what the market is expected to do next year, then it becomes much easier to put numbers around it.”
Sams of Davidson Hospitality Group follows the Pareto principle, also called “the 80/20 rule,” which states that about 80 percent of consequences come from 20 percent of causes. “Focus on the big-ticket items,” he recommended. “What moves the needle? … If you want to drive profit and loss performance, you need to be exceptional at driving topline revenue. On the expense side, over half of a P&L is salary and wages, benefits, and labour spend. Another big controllable is food cost.
“We're constantly revisiting and trying to fine-tune our numbers,” he said. “Are there places where just the status quo isn't good enough? Challenge the benchmarks.”
7. Compress the Process as Much as Possible
One of the biggest downsides of the budgeting process is how long it can take, sapping the time and energy of participants over a prolonged period of time.
“I would say wait as late as you can to start the process and compress it into a very intense six-to-eight week period, as close to your deadline as you can do to get the most up-to-date data,” said Stevens of Rocco Forte Hotels. “The efficiencies, the accuracy, and the overall better budgets that you will get out of compressing the process into a short, intense period is game-changing. You will also ensure that your team does not drop the ball in peak season when most of us are budgeting. Compressing allows them to continue to do their day jobs but still focus on the budget.”
Discover how HotStats can help your hotel company find the path to higher profitability during the 2024 budgeting process.
by Jeannette King, Marketing Manager at HotStats
Photo by Joshua Sütterlin