Reducing Operating Costs: How Revenue Management Can Help Avoid the Slash and Burn

By Paul van Meerendonk Director of Advisory Services, IDeaS Revenue Solutions | November 11, 2012

In an increasingly competitive global hotel environment, it is more vital than ever that hoteliers understand industry best practice and the latest supporting technologies to drive revenue performance. As such, many are turning to revenue management for accurate and detailed forecasting, so they can make optimal pricing decisions and grow revenue as a result. However, if hoteliers make the most of forecasting data, they can not only increase revenue, but also decrease costs across a hotel's entire operations and, as a result, bolster profitably. Having the ability to account for periods of higher or lower demand enables hoteliers to make better operational and staffing decisions and match their ordering from external suppliers to ensure wastage is minimized.

Forecasting for Revenue Management and Beyond

Utilizing data and analytics should be one of the foundations underpinning a hotel's marketing, and pricing strategies as well as hotel operational decisions for the future. To do this successfully, hoteliers need to ensure they have detailed historical data and accurate forecasts going forward.

Historical data should include (at least) the number of occupied rooms and revenue broken down into market segments by day, for at least 13 months. If data is collected every day, it will allow the hotel to establish simple booking pace forecasts by segment and day of week, from which they will be able to compare to historical data. If this is done consistently, it allows for any changes in patterns to be quickly identified – i.e. a pickup or decline in demand, and from which segments. From these observations, pricing strategies can be varied accordingly.

While collecting historical data is vital to enabling effective forecasting in any hotel, how does an organization actually know if they have a good forecast? Forecast accuracy has been the traditional measure of this, and while this is a valuable metric, it is retrospective as well as narrow - only taking into account outputs. To drive better revenue performance, hotels can benefit from shifting the focus from forecast accuracy to forecast performance. This holistic measure looks at both a forecast's inputs and outputs to reveal how well the forecasting process is working as a whole. This approach allows for a more holistic and ongoing evaluation of a hotel's overall performance.

It is vital that a hotel has accurate forecasts in place that help ensure that rooms are let out at the right rate. One common mistake hotels can encounter through not having the right forecasting systems in place is to sell-out rooms with lower rated business, and then have to later turn away higher rated business.
Accurate forecasting actually not only makes it easier for hoteliers to determine correct pricing, but it can also be used to save time and save costs across the entire hotel operation.

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