Rolling Hotel Business Plan - A Sound Strategy To Succeed With Numbers

By: R Gupta

In my consulting experience, I often come across managers and entrepreneurs who seek advice on hotel budgeting process. Now that we are towards the end of August, the process for many of you must have already begun.

Sometimes however, I get alarmed when I hear someone raise a question mark on the very need for a budget or their ability to cast one. Typical doubts that you hear are, “do we really need a budget?”, or “how can I look into the next twelve months and put a number to it? Well my answer to these questions is always very simple “Yes we do” and “Yes you can, we will work on it together”

It is a fact that the budget process for any period commences at least six months prior to the start of the period. As an example if your plan period is January 1st to December 31st, you would start the preparation of budget assumptions around the month of July of the previous year. From that point of view, I really sympathize with those who are yet to sharpen their forecasting skills. But the job has to be done. They better start learning it. From my experience of being involved with the budget or business plan process of some of the most reputed and efficient international brands during the past over four decades, I have finally settled on a process with rolling budgeting for the twelve plan sub-periods, month after month.

The process is quite simple and once the team gets involved with it, their perception on entire the process, needs changes. They start appreciating the plan as their tool, as a guide to help them show the path and above all, since the numbers are churned by them, they start owning the numbers. This is the magic of the system.
The process starts with a very simple exercise completed 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 services departments. The forecasting is done in some details so that their assumptions for the numbers could be interpreted and rationalized. The marketing functional head gives his or her inputs in explaining the existing and anticipated market scenario for the plan period. This document, once completed will just give the total revenue that the hotel expects to generate in the period being planned.

The next exercise is now with the hotel’s financial functional head. He evaluates the numbers to see if these would be enough to meet the expenses and generate enough surpluses to meet the ownership’s financial objectives. The general manager evaluates the numbers to ensure that they are real enough to be achieved and yet challenging enough for the team to give their optimum inputs. However if the numbers do not look good, or look too easy, the team goes deeper into their respective revenue and cost areas to optimize their operating efficiencies.

Once these numbers are agreed and signed off the actual process of plan consolidation starts. The numbers are put in month by month format and summed up for the year. This is called as Plan Year I. For the subsequent two years or plan year II and III, the numbers are simply extended on the basis of an agreed growth rate which is determined after taking into considerations factors like the market, the competition the economic environment and so on, that were likely to impact the business.

The advantage of this process over a simple budget process is many-folds. While on the one hand it gives you the targets for the next plan period, it also gives you the mid and long term business objectives in the form of targets for the following two years. This not only helps the team to plan their operating strategies but it becomes the most important tool to determine hotel’s long term marketing strategy.

So a budget is a tool that defines the financial targets in terms of revenues, rates and volume utilization for all areas, be it rooms, food & beverages or recreation and services. It spells out the variable and fixed costs, the contributions and the bottom line. It basically defines where one would like to see the business in each of the next three years. Now comes the most interesting aspect of the exercise. Having decided where to go, it is now the turn to define the path to take, or in simple terms, “how” to achieve the budget. That interesting exercise my friend is called the “marketing plan”. Without a well thought out, researched and action oriented detailed marketing plan, it will be impossible to achieve the budgeted targets. Your three years rolling plan and the marketing plan, together is what we call as the hotel’s business plan. A comprehensive document that tells you where to go and how to go. It is as simple as that.

Here let me remind you that simply preparing documents and keeping them as show pieces will not do wonders. It is the action taken in implementing the plan that will convert the numbers into reality. As we go along implementing the plan we have to put into place a strong system of operating reviews, variance analysis and action steps to deal with them, month on month, re forecasting the business for the following three months on an ongoing basis so that we could simply avoid any surprises, whatsoever, at the end of each review period, be it month, quarter or the year. You can see the magic? How easy it would be to budget the next plan period, the process will simply roll into the period as you keep forecasting on a rolling basis, year on year.

I had never imagined a better way to befriend numbers, and you know what? They are not only my friend, they talk to me, they speak to me, we follow each other and they tell me what to do next. Numbers speak only the truth; they could be your best friend too. Befriend them…start listening to the number music.

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Ram Gupta is a professional consultant with specialization in hospitality. He has over four decades of experience in Asia, Far East, Middle East and Europe. He has been associated with over two dozen luxury hotel projects and a number of state of art wellness centers and spas. His web site can be viewed at and can be contacted at [email protected]

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