Gazing into a crystal ball to come up with next year’s budget is always daunting.
It’s a mix of professional instinct, historical data, and future predictions that’s never perfect. It’s especially challenging this year when one of those three ingredients is missing: historical data. With the pandemic upending historical patterns, there’s no accurate year-over-year comparison, nor are there any reliable longer-term patterns.
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Besides the inaccurate data, there are a few other things at play that make budgeting difficult. First, guests are booking with shorter lead times, which makes guest behavior incredibly unpredictable. Second, there’s unpredictable seasonality, as work-from-home has changed the calculus for when and where people travel and stay, potentially completely changing your guest demographics. Finally, uneven demand due to the ongoing pandemic makes it nearly impossible to plan for staffing and costs, leading to significant levels of uncertainty in operational and sales & marketing spend. There’s just no way to tell where demand may come from – especially when it comes to business and conference bookings.
As you round the corner into another budgeting season (already!), here are some ways to budget plan amidst ongoing uncertainty.
Shorten your cycle
The very first tactic for budgeting in times of uncertainty is to compress your budgeting cycles. It just doesn’t make sense to commit to a certain spending level – or to a specific basket of priorities – 12 months in advance.
Shorter windows make for more effective budgeting, as organizations can respond more adeptly to changing market conditions. With historical forecasts irrelevant, it can be useful to do “budget sprints” or shorter budgeting windows better suited to respond to dynamic situations.
Another tactic is zero-based budgeting, which resets budgets at the start of each new period, rather than increasing by a fixed percentage. The fixed percentage approach doesn’t account for shifting objectives, and it lacks introspection, as past budget assumptions become the basis for every subsequent budget without considering each line item’s merits.
Zero-based budgeting forces you to evaluate each line item in isolation from previous budgets. You can react to changing dynamics more quickly than if you stayed with a quarterly and annual plan by justifying your numbers in a shorter cycle.
Use scenario planning
Amidst unpredictability, scenario planning for hotels is a valuable budgeting tool. Scenario plans give you playbooks for different business realities. Start with three revenue scenarios: the best case, the likely case, and the worst case:
- Best case
Be cautiously optimistic. What will business look like if things improve and travel resumes at a steady pace without further disruption? By starting here, you’ll have a more confident, calmer mindset to dive into more negative scenarios
next. Plus, there’s value to being prepared for the best case. That way, your property is ready if things go better than anticipated – and can put you ahead of your competition.
Map budget to segment
It can pay off to get more granular when it comes to how you attract your core segments. By assigning a budget to each segment, you can more closely track ROI – and see where you are underperforming. Looking at the individual segments oddly enough, often makes you see things more clearly as things are usually more defined and straight forward. Looking at corporate travel, OTA business and conference groups in isolation makes it easier to predict the change in impact to the property.
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