Mr. Tadmor

Revenue Management

Who do I Trust... My Gut or My Revenue Management System?

By Motti Tadmor, Technology Business Analyst, MICROS Systems, Inc.

Somewhere in the world, a group of talented people sat down and developed a Revenue Management System that will help revenue managers manage their business better and maximize their revenue.

Somewhere else, sat the experienced revenue manager at his chair, looking at the screen and wondering – Could this be? My hurdle for today should be so high? Should I be turning down business at this point? My gut instinct tells me something else, what do I do?

This scenario is probably one of the most common ones among today’s revenue managers who work with a revenue management system and are told to “let go of their gut feeling.”

Now, every modern sales pitch for a revenue management system somehow says – “ you MUST let those gut feelings go” and “there is no absolute proven ROI” and “no one can predict the future market,” etc… but how true are these statements? What can be done or explained to strengthen the confidence revenue managers need in their Revenue Management software?

The answer is simple, first and foremost, what used to be manual calculations is now bundled into sophisticated mathematical algorithms that systematically collect your past events, demands, lead times, ADRs, etc… and present you with a prediction, assuming the same trends are repeated.

However, one can claim that a good revenue management system cannot rely on history alone. What if we lack historical data? What if events from the past are not re-occurring or new events are occurring today? Can someone look at today’s economic downturn and compare it to business in hotels 10 years ago?

To combat these issues, an accurate revenue management system is not only built by experienced personnel from the Revenue Management world, but also factors in the obvious and most common rules while at the same time factoring in past trends.

I personally believe that a good revenue management system should mirror the revenue manager rather than prophesize. Since revenue managers are experienced professionals that understand their business better than anyone else, a good Revenue Management System should show them the dynamic picture every day, considering all possible factors and suggest the right decision to make. A good system will also provide the revenue manager the ability to apply the suggested changes immediately to affect their business.

More sophisticated systems, like the OPERA Revenue Management System, not only show the entire picture, but also operate in real-time, dynamically changing the picture as the market adjusts and demand changes throughout the day. Yet, it is still flexible enough to allow the revenue manager to intercept and change system decisions.

So, who do I trust? I believe that the more clever the system is, the more accurate it is. We must remember that the system is, after all, just a computer and not an actual revenue manager. The code behind the software tells it what do consider and how to react and we are only observing the logic of the software developers. Revenue Management Systems today are powerful, and have proven beyond a doubt that they save money and maximize revenue by simply presenting a true picture quickly and in a user-friendly fashion. Imagine having to explain why the graph below (figure 1) is accurate without a system to support the forecast. It would probably take a long time and would not make sense to management anyway. But with a good Revenue Management System, the tool is there to make the revenue manager’s life a lot simpler and easier.

The easiest way to determine the ROI of a Revenue Management System is to look at the historical revenue. Of course when revenue increases year over year, all “players” will claim credit – marketing, guest service, revenue managers, etc… but what if revenue decreases? A good Revenue Management System will show hotel management a comparison of what the revenue should be, if revenue goals were met, if they fell short or if they exceeded them. I believe that in the future, assuming the ability to plug in exceptional events such as weather, war, and economic conditions, Revenue Management Systems will have the ability to maximize revenue even more. Where the human mind is smart but relatively slow, computer software is able to calculate and present the obvious conclusion much faster allowing hotels to adjust accordingly.

Here are 5 key attributes to look for in a Revenue Management System:

• Rapid processing, analysis and suggesting – changes in trends and markets conditions are reflected in near real-time.
• Integrated - integrated systems are always better as they sit with or within your hotel operation’s database and required adjustments can be implemented sooner and more accurately
• Scalable – A revenue management system must be able support your business and enterprise growth
• User friendly – This goes for all applications in my opinion, but especially for systems such as a revenue management system. It is essential that the complicated mathematical algorithms are wrapped in a very simple, user friendly and beginner-proof user interface (UI).
• Sophisticated - analyzes all business types accurately. For instance a hotel in the casino market is analyzed and hurdled correctly although its lead time, length of stay and type of guests is completely different from a business hotel in Manhattan or resort hotel in Hawaii.

The world’s economic crisis over the past few years has made the development of revenue management systems even more difficult. In normal economic times the market is more repetitive year-over-year and relatively easy to predict and simulated by revenue management systems. The current economic state makes the market much more difficult to analyze. How does it affect last year? This year? Next year? When will it end? As mentioned before, most revenue management systems are based on analyzing and comparing previous occurring trends, however great systems are prepared for the unpredictable and allow plenty of room for corrections.

The next big step in the development of revenue management systems is the ability to move past the prediction of hurdles and start collecting information for other revenue maximizing actions. Similar to the path the Internet took, like collecting our search patterns and habits and today offering us the exact things we are interested in, revenue management systems need to offer advanced functionality such as ranking guest values and offering more than just a hurdle.

So in summary, should the experienced revenue manager let go of his gut feeling? Probably not, especially if you know your business and historically have made good judgment calls. However, it is important to also trust the Revenue Management System and to explore and try to understand why the system is making the projection? In most cases, people are surprised to see that the system actually took more into consideration than the human mind did and is more accurate. With that being said, where the human mind can make an intelligent decision and change the course of business by being dynamic and taking risks, the computer may miss opportunities and stick to its mathematical algorithms. So in conclusion – remember you can’t live without an RMS, but trust your experience when using one!

Motti Tadmor is the Technology Business Analyst in charge of central systems development for the MICROS OPERA Suite of products. Mr. Tadmor has many years of hotel industry experience having worked for Melia Chen Hotel in Jerusalem, before joining MICROS Systems, Inc. Since joining MICROS in 1998, Mr. Tadmor has gained knowledge across many hotel business products, including property management systems, call centers, loyalty program modules, interfaces, POS, and more. Recently, Mr. Tadmor assumed leadership for the development of the OPERA Revenue Management System. In this new role, Mr. Tadmor is focused on simplifying and stabilizing the world of revenue management, along with other improvements to the MICROS OPERA suite of products. Mr. Tadmor received his Bachelor of Science degree in Hospitality Management from the Business School at Nova Southeastern University, in Fort Lauderdale, Florida. Mr. Tadmor can be contacted at MTadmor@micros.com Extended Bio...

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