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Rolling HotelBusiness Plan –A SoundStrategy To SucceedWith Numbers!BY: RAM GUPTAIn my consulting experience, I often comeacross managers and entrepreneurs who seekadvice on hotel budgeting process. Now that weare towards the end of August, the process formany of you must have already begun.
Sometimes however, I get alarmed when I hearsomeone raise a question mark on the very needfor a budget or their ability to cast one. Typicaldoubts that you hear are, “do we really need abudget?”, or “how can I look into the nexttwelve months and put a number to it? Well myanswer to these questions is always very simple“Yes we do” and “Yes you can, we will work onit together”It is a fact that the budget process for any periodcommences at least six months prior to the startof the period. As an example if your plan periodis January 1st to December 31st, you would startthe preparation of budget assumptions aroundthe month of July of the previous year. Fromthat point of view, I really sympathize withthose who are yet to sharpen their forecastingskills. But the job has to be done. They better
start learning it. From my experience of beinginvolved with the budget or business planprocess of some of the most reputed andefficient international brands during the pastover four decades, I have finally settled on aprocess with rolling budgeting for the twelveplan sub-periods, month after month.The process is quite simple and once the teamgets involved with it, their perception on entirethe process, needs changes. They startappreciating the plan as their tool, as a guide tohelp them show the path and above all, since thenumbers are churned by them, they start owningthe numbers. This is the magic of the system.The process starts with a very simple exercisecompleted by all functional heads of revenue
producing departments. They do a forecast of anticipated revenue from their respective departments, rooms,food, beverage and recreation and servicesdepartments. The forecasting is done in somedetails so that their assumptions for the numberscould be interpreted and rationalized. Themarketing functional head gives his or herinputs in explaining the existing and anticipatedmarket scenario for the plan period. Thisdocument, once completed will just give thetotal revenue that the hotel expects to generatein the period being planned.The next exercise is now with the hotel’sfinancial functional head. He evaluates thenumbers to see if these would be enough to
meet the expenses and generate enoughsurpluses to meet the ownership’s financialobjectives. The general manager evaluates thenumbers to ensure that they are real enough tobe achieved and yet challenging enough for theteam to give their optimum inputs. However ifthe numbers do not look good, or look too easy,the team goes deeper into their respectiverevenue and cost areas to optimize theiroperating efficiencies.Once these numbers are agreed and signed offthe actual process of plan consolidation starts.The numbers are put in month by month formatand summed up for the year. This is called asPlan Year I. For the subsequent two years orplan year II and III, the numbers are simplyextended on the basis of an agreed growth ratewhich is determined after taking into
considerations factors like the market, thecompetition the economic environment and soon, that were likely to impact the business.The advantage of this process over a simplebudget process is many-folds. While on the onehand it gives you the targets for the next planperiod, it also gives you the mid and long termbusiness objectives in the form of targets for thefollowing two years. This not only helps theteam to plan their operating strategies but itbecomes the most important tool to determinehotel’s long term marketing strategy.
So a budget is a tool that defines the financialtargets in terms of revenues, rates and volumeutilization for all areas, be it rooms, food &beverages or recreation and services. It spellsout the variable and fixed costs, thecontributions and the bottom line. It basicallydefines where one would like to see the businessin each of the next threeyears. Now comes the mostinteresting aspect of theexercise. Having decidedwhere to go, it is now theturn to define the path totake, or in simple terms, “how” to achieve thebudget. That interesting exercise my friend iscalled the “marketing plan”. Without a wellthought out, researched and action orienteddetailed marketing plan, it will be impossible toachieve the budgeted targets. Your three yearsrolling plan and the marketing plan, together is
what we call as the hotel’s business plan. Acomprehensive document that tells you where togo and how to go. It is as simple as that.Here let me remind you that simply preparingdocuments and keeping them as show pieceswill not do wonders. It is the action taken inimplementing the plan that will convert thenumbers into reality. As we go alongimplementing the plan we have to put into placea strong system of operating reviews, varianceanalysis and action steps to deal with them,month on month, re forecasting the business forthe following three months on an ongoing basisso that we could simply avoid any surprises,whatsoever, at the end of each review period, beit month, quarter or the year. You can see themagic? How easy it would be to budget the nextplan period, the process will simply roll into the