Great Expectations – What a CFO Wants in a Forecast

Great Expectations – What a CFO Wants in a Forecast

As hotel revenue strategy continues its expansion from rooms-only to total revenue and profitability, more department heads and outlet managers are participating in the forecasting process.

NB: This is an article from IDeaS

That’s a step in the right direction, but if you’re new to forecasting—or even a seasoned revenue manager—you might find it to be a rushed, confusing and imprecise process.

Your friendly finance leader can help. As the individual responsible for projecting and managing the organization’s finances, the chief financial officer (CFO), controller or director of finance is tasked with making sense of the various department-level forecasts to create accurate profit projections for the owner, board or shareholders.

To help guide you through the process of providing the best forecast possible, here’s the CFO’s wish list of key forecast attributes:

Accurate & Precise

Hotels depend on accurate forecasting to anticipate business flows, guide revenue strategy, control costs and maximize profits. At the corporate level, forecast data is also used to advise planning, purchasing and investment decisions across the portfolio.

Depending on the goals of ownership, the finance leader may be focused on maximizing top-line revenue or on maximizing profitability to drive hotel asset value. Forecasts are vital for understanding financial risk, and confidence in the numbers is essential.

It goes without saying, then, that your forecast should be as precise as possible. Start from the bottom up, building daily projected revenues based on historical data and business on the books and then adding expected pickup.

Methods of calculation may vary by department. For example, market segments and groups form the building blocks of rooms revenue, whereas food & beverage revenue may be broken down by outlet, meal period, covers and average check.

Uniform & Timely

Forecast data is compared to budget, actuals, previous years and other properties within the portfolio. To make benchmarking easier, data must be presented using standard processes and a shared language.

For accounting and finance processes, hotels follow the Uniform System of Accounts for the Lodging Industry (USALI), a standardized method of accounting and financial reporting practices. Your finance leader should provide you with a forecast template. It’s important to stay within template parameters because the finance leader compiles forecast data from a variety of sources.

Forecasts also need to be delivered on time. Certain parts are dependent on one another. Typically, the process begins with rooms, followed by groups, then catering. One late submission can set back the entire process. Moreover, some hotels are contractually obligated to deliver forecasts to ownership or the management company by a certain deadline.

Consistency in delivery is also important. Forecasting shouldn’t be a once-per-year exercise. The further out a forecast is, the less accurate it tends to be. To increase accuracy and identify potential risks and opportunities, forecasts should be updated at least monthly.

Holistic & Comprehensive

CFOs and other finance leaders play a role in crafting strategy. To make sound decisions, they need to be able to see the whole picture. This means forecasting all business units within the hotel, not just rooms, and accounting for expenditures as well as revenue.

While groups and events are notoriously hard to forecast, they represent a substantial portion of total business. To assess where risks lie, managers should have standard definitions for group status levels and a clear idea of expected pickup, attrition and potential lost business.

Reflective of Strategy

The budget and forecast are the hotel’s strategy in numeric form. Where the budget sets out the numbers the hotel aims to achieve, the forecast provides an indication of how well strategies are working. If the numbers fall short, ask yourself, what are the reasons behind the variances? And how can strategies be adjusted to bring the numbers into closer alignment?

The Payoff

When all departments are on the same page and schedule, everyone benefits. Accurate and holistic forecasting helps managers across the organization plan more effectively and make more informed decisions, which drives higher top-line revenue and ultimately greater profits delivering more cash in the bank. This is particularly true of labor, the largest single operating expense and the biggest source of potential savings.

Best of all, we know revenue managers are commonly incentivized around forecast accuracy. Keeping these key attributes in mind will help you deliver the most accurate forecast possible and achieve those end of year objectives. Lastly, a rock-solid forecast will make your finance leader happy, a good ally to have in the age of data. Not to mention it’s always wise to have the individual responsible for payroll on your side.

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