Rolling forecasts are nothing new but I must point out that most hotels don’t use them, and they really should. It’s an incredibly useful tool that is literally worth its weight in gold. That being said, it doesn’t weigh much but once you start to use one it’s an indispensable tool that you must have each month, and its impact and importance usually gains weight and momentum into the final few months of the year. Like the plot in a good mystery, it can take a sudden turn and produce an unexpected ending.
To start out we need to define how we produce a rolling forecast and point out the best practices around its creation. Then, we want to understand how we communicate its findings and finally we want to see how we can use it to change financial direction, allowing us yet again a chance to make our numbers.
In the beginning there has to be a budget. Without the budget we can’t have a rolling forecast. A detailed 12-month hotel budget that is compiled by the departmental managers, consolidated by the financial leader, and approved by the brand and ownership. That certainly sounds straightforward and easy enough but it’s anything but easy. Read a sidebar blog on why it takes so “bloody long” to create the budget here.
Once we have the budget approved it’s permanently locked up and no more changes are permitted. It stays the same forever, almost like a woolly mammoth from a long-ago forgotten ice age it’s never going to change. That’s the part the rolling forecast plays. Once we roll into the new year or very late in December depending upon your brand’s schedule, you’re going to forecast January, February and March.
The basis for the 30-, 60- and 90-day forecast is most certainly the budget, but now we see the landscape in front of us much more clearly than we did when we wrote the budget in, say, August/September. We now see the rooms on the books, the pace, the groups, and the task at hand is to forecast each month as best we can all the while keeping the budget as a comparison. We also line ourselves up with the same months last year as a meaningful comparison.
Here is an example of how we use the rolling forecast. Let’s say we budgeted a REVPAR in Jan of $150, Feb $140 and March $165. The latest forecast shows us getting somewhat close but falling behind. REVPAR in Jan of $130, Feb $125 and March $170. A mixed bag compared to budget, but clearly we are behind in pace and the revenue picture is not great. So, what do we do now?
Now we pivot and the game’s focus turns from revenues to GOP. What can we do to mitigate any lost profit in the first quarter given our forecasted decrease in revenues compared to the budget? What can we postpone, delay, reduce, eliminate in our operation when it comes to payroll and expenses in Q1 that will help us reduce the loss without killing the patient? That last part is critical. We need to know in detail what we can throw off the sinking ship without it blowing up in our faces.
That’s the picture we want to create and manage. How can we keep things together as much as possible on the bottom line even when the top line is not materializing like we had planned in the budget. Month by month we track and adjust our spending as much as possible. In this scenario, we just want to come out of Q1 with most of our skin still attached. That’s the rolling forecast in action.
Each month we updated the next 30- ,60- and 90-day picture and, at the same time, we backfill the “actual months” so we have an ever-increasing view over the horizon to the ultimate goal – year end budgeted GOP.
Let’s use the April forecast as our next example. We now have actual for January, February and March! I now see the YTD numbers as of March and we are behind in revenue and GOP to budget, plus the latest forecast for the next 3 months and finally budgeted numbers for the last 6 months. All the while I’m keeping my eye on the prize – year end. The forecast for April and May is strong but June is weak, and the summer is still too far off to get too excited. I take my latest forecasted numbers for April and May, and I see where I can make up for some of Q1’s weakness. I also have a laser focus on June, what can we shut down and right size so we can get through the first half of the year on or very close to budgeted GOP.
Each month we actualize another month and write our forecast. This is the process we follow throughout the year.
Let’s use the September forecast as our next example. I now have YTD August results and the picture for September is solid, but October and especially November are way behind especially with group pace. Here is where I want to rally the troops. Our GOP to budget as of August 31 is super close. I do not want to lose this game in the last 4 months of the year. I pull out all the stops with my sales and revenue management teams. We need to put specials in the market to make up for the soft group picture. We need to ensure our short-term focus is dialed in. What can we do to maximize revenues and minimize expenses?
It’s not rocket science, but it is how we manage the budget. We use the rolling forecast to keep us as close to budgeted year-end GOP as possible. When were behind we doubled down on expense management and revenue ideas. When were ahead we focused on maximizing the flow thru.
Each and every month up until the December forecast, we perform the same dance with our rolling forecast and budget. It’s how we effectively manage. And by the way, we never give up. A few bad months certainly means there is a great month ahead. I have always said, Managing the budget is like playing baseball.
Look for an upcoming piece titled “Smoke and Mirrors” on how to under-promise and over-deliver year-end results and fill your cupboards at the same time.
David Lund
The Hotel Financial Coach
+1 415 696 9593
David Lund
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