Did you enjoy the recent budget season?

By Paresh Bhandari with Kelly McGuire

No points for guessing that the answer is always “No”. This is one of my favorite questions to ask hoteliers, and I ask it a lot. Everyone I have spoken to, to a person, cringed when they heard the question. Starting from revenue managers, through property and corporate leadership, to owners and asset managers, everyone reacted the same. It’s not like they were unhappy with the outcome, they were not happy with the process. They hated the frequent back and forth; arriving at numbers based on a methodology and then having to update without proper justification, just to please certain stakeholders; delay in getting to the final numbers; not trusting the numbers; and most importantly — how long the process dragged on.

We at ZS with our partners at HSMAI conducted an industry wide study called Voice of Revenue Manager where we asked property-level revenue managers to report the amount of time they spent on various tasks within their scope of responsibility. What we heard was eye-opening — shocking even (although not surprising). Property level revenue managers across the globe spend [Wait for IT] more than 8 weeks full-time effort on budgets alone. Add to this, time spent by other roles — sales, marketing, operations, general manager, corporate team, owners and asset managers. Back of the envelope, probably conservative, calculation, budgets take at least 15 to 20 weeks or 4 to 5 months of full-time, people hours across the entire team.

So, questions which pops in my, and I’m sure everyone’s heads, are “Who is running the business while this is happening?” “Who is thinking about the hotels’ profitability during this time?”, “Who is finding revenue opportunities or developing the strategy for next month or next quarter?”, and most important “Is the outcome really worth all this time and effort?”

I understand that Budgets are important, especially to some groups. Owners need to provide the information to the bank, and operational teams need guidance for longer term planning. However, does the outcome really require this much time to achieve? Can we meet the requirements in less time? And importantly, especially in the times we are living, with budget season starting in the late summer for the following year, are we really able to accurately predict performance 18 months out?

Customer preferences, weather patterns, economic outlook, travel conditions and many other macro factors, which are not in our control, impact performance. Hence, instead of aspiring to create a granular and accurate budget for entire year, we should find ways to be agile and create both long-term and shorter-term budgets, depending on the use case.

Long term budget (next 12 months) is high level, not granular and shares directional approach on how we foresee the year to be. Whereas short term budget (next 3 months) is granular by day of week, room type, and customer segments. Real time insights about customer preferences, booking trends, propensity to buy with advanced analytics enable accuracy for short term forecasts. Higher accuracy in short-term will allow the team to take required actions to drive revenue and reduce operations costs thus impacting the overall profitability of the hotel.

To balance time spent and value provided, I recommend teams to re-look at the process, and the first thing to do is to define key objectives from the budget process:

· Why do we need to create budget?

· Who is going to use this budget?

· How are they going to use this budget?

Once there is clarity on the objectives, the Why, Who and How, these objective should be clearly communicated with everyone involved in the process to ensure everyone is working towards a common outcome. The next step is to think through the People, Process and Technology involved to find opportunities for efficiencies on the path to meeting your goals.

People:

· Who should be involved?

· When should they be involved?

· What should their role be (create budget, review budget, approve budget) in the process?

· Are the people involved trained to deliver on their responsibilities? Do they even understand what they are supposed to do?

· Which team/ person will manage the overall workstream (managing timeline, taking care of hand-offs etc.)?

Process

· What level of granularity do we need in the final budget output?

· What level of accuracy are we comfortable?

· Do we need same granularity and accuracy from monthly, quarterly, and yearly budget numbers?

· What are the steps in the process? Are any steps redundant?

· Do any steps further along in the process result in extensive rework?

· How many reviews are required and when?

· How many approvals are required and when?

Technology

· Do we have the right technology to support the process?

· Are we using the right analytical models to generate the initial set of budget numbers?

· Are we leveraging all the existing data available within the systems?

· Is the data accurate?

· Is there any additional data that could support better outcomes?

Finally, can we learn from other industries? Manufacturing companies do demand planning for production and ordering. Retail companies produce short- and medium-term forecasts of sales, even down to the item level. CPGs need to demand plan for both current and new products they are about to launch. Pharma companies budget for sales force allocation, drug development and production planning. I’m sure all these companies could inspire hospitality to make some changes (and I’m sure all of them have room for improvement too).

With lingering resource constraints and staffing shortages from pandemic cutbacks, relooking at this time-consuming process will help the industry identify areas of opportunity to save valuable time and resources. Companies that do this will return precious productive time to their teams, motivating them to leverage this new-found time on revenue or demand generating activities, which in turn will help improve employee engagement and hotel revenue. Doesn’t that sound like a more valuable outcome than three months spent on a spreadsheet?

As we have just wrapped up the 2022 budget season, this is the perfect time to brainstorm with the team on how to improve the process. I would love to hear your thoughts and challenges, so feel free to share them in the comments.