Hotel operations simulation modelling for total profit management

1. Hotel operations
simulation modelling for
total profit management
Stanislav Ivanov
Email: stanislav.ivanov@vumk.eu
Web: http://stanislavivanov.com
Svetlana Vasileva-Boyadzheva
Email: svetlana.boyadzhieva@vumk.eu
Second Revenue Management Workshop, 15-17 December 2016,
Orlando, FL, USA

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Svetlana Vasileva-Boyadzhieva
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• Associate Professor in Computer
Sciences, Varna University of
Management, Bulgaria
(http://www.vum.bg)

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Stanislav Ivanov
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• Professor and Vice Rector (Research),
Varna University of Management,
Bulgaria (http://www.vum.bg)
• Editor-in-chief of the European Journal of
Tourism Research (http://ejtr.vumk.eu)
• CEO of Zangador Ltd.
(http://www.zangador.eu)

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Content
• Literature review
• Considerations
• Hotel operations modelling
• GPSS Model
• The way forward
• Beneficiaries
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Literature review
We decided that there is no need to include slides
with review of related literature on revenue
management, because you wrote the publications we
have to mention here, hence you are well familiar
with them 
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Considerations:
Total profit management
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Room revenue management
Total revenue management
Total profit management
Room
revenue
Room
revenue
Room
revenue
Ancillary
revenue
Ancillary
revenue
Costs

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Considerations:
Price elasticity of demand
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P
Q
D1
D2
D1 – linear demand
D2 – constant elasticity

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Considerations:
Price elasticity of demand
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P
Q
D3
P1
Q1
D3 – kinked demand
curve

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Considerations:
The “fixed” nature of fixed costs
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FC
VC=VC1*Q
TC=FC+VC
TR=P*Q
QE Q
TR; FC; VC; TC
0
E
FC

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Considerations:
The “fixed” nature of fixed costs
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FC
VC=VC1*Q
TC=ƩFCj+VC
TR=P*Q
Q1
Q
TR; FC; VC; TC
0
E2
FC
Q2
Qmax
E3
QE2 QE3
QE1
E1

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Considerations:
The decreasing returns of sales
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FC
VC=VC1*Q
TC=ƩFCj+VC
TR=Ʃ(Pi*Qi)
Q1
Q
TR; FC; VC; TC
0
E1
FC
Q2
Qmax
QE1

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Hotel operations modelling
Blocks
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Revenues Costs
Performance metrics
Demand Hotel
Channel
Rules

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Hotel operations modelling
Demand
→ Room demand
• Length-of-stay
• Number of rooms
• Room types
• Board
• Lead period
• Price
• Distribution channel
• Segment
• Booking terms (refundable, non-refundable)
• Last minute cancellations, amendments, no-shows
• Elasticities for price increases and price decreases
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Hotel operations modelling
Demand
→ Demand for additional services
• Part of it is a function of room demand, i.e. demand
of services of already accommodated guests
• Part of it is independent of room demand, i.e.
demand by guests who do not use hotel
accommodation
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Hotel operations modelling
Hotel
• Revenue centres
• Costs centres
• Hotel sections/wings
• Room types
• Service operations standards
• Job positions, number of employees per position,
shifts patterns
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Hotel operations modelling
Distribution channels
• Allotments
• Allotment utilisation
• Prices
• Release periods
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Hotel operations modelling
Costs
• Directions of costs
• Fixed
• Variable
• Marginal
• Average
• Total
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Hotel operations modelling
Profit management rules
• Room allocation
• Overcontracting
• Overbooking
• Upgrade and downgrade
• Booking confirmation priority
• Opening/closing of sections/wings/floors
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GPSS Model
Variables
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GPSS Model
Initial values of the cells of the matrices
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GPSS Model
Booking process and rules modelling
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GPSS Model
Blocks reports
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GPSS Model
Reports on model metrics
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GPSS Model
Report on room occupancy (1) and price (2)
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The way forward
To model:
A. Demand:
• Bookings with various length-of-stay, number of
rooms, room types, board, lead period, price levels
• Last minute cancellations, amendments and no-
shows
• Different price elasticities for price increases and
price decreases
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The way forward
B. Hotel
• Hotel with different room types and price levels
• Organisational structure, number of employees,
shifts pattern, salaries and other payments
• Departments beyond the Rooms Division
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The way forward
C. Costs
• Fixed and variable costs
• Salaries and other labour costs
• Marginal costs, average costs, total costs
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The way forward
D. Processes and rules
• Overcontracting and overbooking (marginal room
revenue approach)
• Upgrade and downgrade rules and constraints
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The way forward
E. Performance metrics
• Complete set of revenue, cost and profit
management metrics – for the hotel as a whole and
for the different departments
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The way forward
F. User-friendly design
• User-friendly design for configuring the
accommodation establishment, inputting the data,
visualizing the reports
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Beneficiaries
• Education institutions
• Managers/owners of accommodation
establishments
• Researchers in revenue management, operations
management, service automation
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THANK YOU FOR THE ATTENTION!
QUESTIONS?
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