During uncertain times: Be secured with Scenario Planning
Software for financial planning and revenue management are currently a tremendous help calculating different scenarios.
How can we restart after this shutdown? And the more important question: When? What happens if hotels from Ruegen to the Alps remain closed for an even longer period? All these questions concern an entire industry, causing them sleepless nights. Therefore, to hang fire might only be a short-term option. Better off are those who actually plan ahead. During this current crisis, does this sound more like clichés to you? Not the least bit, finance planning includes a method that comes in handy: the What-if calculation. This tool has been implemented to display different scenarios of an uncertain future.
Let us look at it one-step at a time:
What is a “What-if” calculation?
To cut a long story short, a What-if calculation is not just a planning tool, but also provides an outlook, e.g. all expected revenues would be measured against all anticipated costs of an upcoming period. The tool calculates the effect of changes of any amended variable on the total hotel result. One can use the hotel’s own P&L as it gives the opportunity to simulate the comeback after this crisis – be it as a short-term scenario or as a worst-case scenario.
What are the benefits of What-if calculations?
1- Gain insights that guide in driving decisions
With the help of What-if calculations, hotel decision-makers gain crucial information about the financial impact of different measures throughout all departments, in particular with the parallel calculation and the subsequent comparison of the different planning scenarios.
The level of insights and the variety of obtained information increase with the level of flexibility of What-if calculations. The tool offers flexible time periods as well as individual evaluation for each hotel department.
2- For quick response times
Using various What-if scenarios allows the comparative analysis of sales strategies and price regulations and their effect on profitability. The scenario with the highest level of profit margins will define the provisions for the room allotments and the corresponding room rate. This is even more important in the case of short-term, unplanned demand variations at the end of the crisis. For example, when people start to spontaneously use their “newly regained freedom to travel”.
3- For the risk assessment of the future
For long-term commercial decisions, What-if scenarios can calculate the future implications of today’s actions. Therefore, the What-if calculation supports the risk assessment of different planning scenarios.
The calculation of different possibilities indicates clearly, how hotel KPIs, (revenue, costs etc.) can develop. This is useful for labor or cash flow planning of a hotel. Moreover, it is also helpful with alternative investment decisions.
Here is a current example: The comparison of three alternative “Post-Corona Scenarios” when a typical leisure hotel resumes operation:
a – Delayed start into summer season, with limitations and partly-opened borders
b – Start in midsummer with relatively strong restrictions
c – Start in autumn, with a very strained economic situation
With this information, it will be possible to make the right strategic decision.
Especially during this unexpected Coronavirus crisis that caught everyone almost completely off-guard, the What-if calculation is a necessary method of hotel financial planning to ensure long-term economic performance, as well as competitive advantages. All information gathered from using this tool are helpful to run through different options, thus assisting in the preparation for decision-making based on fundamental economic principles.All it takes is the right financial planning software with an integrated module for What-if calculations. FairPlanner would be the one, as proven by more than 4.000 hotels around the globe using this hotel-specific software for the planning of their revenues and costs alike.
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