Forecasting as a control tool
Key to greater profitability in turbulent periods
Even in uncertain times: Those who (correctly) plans, have success. But what does planning actually mean in the hotel industry? What advantages does forecasting bring? What are the differences between budget and forecast? Or does forecasting in the end only mean additional effort?
We would like to clarify these questions and at the same time show you how you can efficiently ensure the economic success of your hotel even in uncertain times.
Forecasting is a necessity in uncertain times.
What is Forecasting?
Forecasts can be translated to ‘expected calculation’. Behind this simple phrase, composed of ‘expected’ and ‘calculation’, hides an extensive planning process. While a budget consists exclusively of plan values for the respective financial year, values are combined in the forecast. On the one hand, actual is considered for past months, on the other hand, advance planning is adapted to the current circumstances.
Whereas the budget is not changed within the financial year and thus contains the planned targets for the financial year, the planned values in the forecast are adjusted to the actual expectations. Daily updated on-the-books values help to determine the plan values.
The graph shows: The current forecast is the reflection of reality at the present time. It combines past (actual) figures with planned figures. The comparison of different scenarios – budget, previous forecasts, current forecast, what-if, the previous year – show differences and reveals the deviations. The forecast provides the opportunity to make necessary adjustments in time and to use the potential for adjustments.
The choice of intervals between the two forecasts depends directly on market behaviour. In turbulent times like this, when you have to pass through COVID-19, the intervals should be as short as possible. Forecasting is therefore also a method that takes into account the rapidly changing world. The period between budget planning and year-end balance sheet is too long.
The following procedure has proven to be the best practice: After finalizing the budget planning, the budget for the entire financial year is copied once into the forecast. Therefore, at the beginning of the financial year, the budget and forecast are initially identical. Both processes contain the same plan data for the entire financial year.
As already described, while the budget is not changed, the adjustment of the forecast takes place. Actual is considered for past time periods whereas planning is adjusted for the future. This means that you do not always have to plan the entire financial year again. The next three months will often be adjusted, while the budget values will continue to be expected in the future.
Forecast as a control instrument
Forecasting does not mean controlling. Forecasting is the preliminary stage of active success control. To present what has been achieved at regular intervals is the most important step in identifying deviations from the plan and finding solutions to achieve the set goal. The actual process behind this is the control of the variables. So, the answer to the question: Which set screw do I have to turn in order to achieve maximum success in the current situation?
For all hotel departments
For this purpose, deviations from the plan and alternative courses of action must be shown at all levels and in all departments. After all, a result can be achieved in very different ways and booking dependent variables can be found in all hotel departments. For example, higher laundry costs also influence the return on investment, and the change in value-added tax on meals has a direct impact on the profit and loss account result.
For more transparency
What is needed is an unobstructed and simple view of plan deviations at every point, in every department, on every single hotel segment, flexibly adjustable in the level of detail for the various management levels. Automatically calculated key figures quickly show the deviations between target and actual turnover and costs.
The gained transparency leads to a competitive advantage because the complete potential is used to improve the return. Each department can make its contribution to improvement, each one takes responsibility in its own area of competence.
Forecasting with Excel
Excel is used in many hotels. Is the following situation familiar to you?
The question is, are there more efficient methods that better meet the hotel-specific challenges?
- What are the advantages of using tools that are tailored to the needs of the hotel industry and optimize the entire process through automation, reduce the effort and maximize information value through visual representation?
- Wouldn’t it make more sense to use a software solution that is transparent, promotes cooperation and at the same time is flexible enough to meet the different requirements of all stakeholders?
With FairPlanner, success is easier to plan – get to know us.
We have made it our mission to support hoteliers worldwide with a hotel-specific financial planning solution for planning, budget, and forecast. FairPlanner is currently used by over 4,000 hotel customers worldwide.
FairPlanner takes industry-specific standards into account and also offers over 65 interfaces for easy integration. FairPlanner is already a valuable component of its planning and controlling process for around 11,000 users worldwide.