By successfully incorporating advanced technology and AI, hotels can redefine their approach to traditional budgeting and forecasting for greater efficiency, accuracy, and strategic insight. Yet it’s still important to balance human expertise with real-world, data-driven insights.

Defining Your Budget Methodology

Before COVID-19, many hotels relied on historical data and trends to guide their budgeting process. However, the pandemic significantly redefined the need for flexibility and the ability to pivot quickly, while not always relying on historical performance. Budgeting has evolved from a monotonous exercise into a more dynamic, strategic process based on current macro- and microeconomics.

Every hotel has a unique approach to budgeting; often it’s influenced by ownership and/or management preferences. Some prefer to set a target figure from the outset; others need a more detailed, ground-up approach. Selecting and understanding the right budget approach is important for your hotel. Simply choosing a method -- whatever it is -- will help set clear expectations, create less friction among team members, and require less time for revisions.

FORECAST AND BUDGET MODELING BEST PRACTICES

WITH TECHNOLOGY: While forecast and budget modeling is a complex undertaking, adhering to these best practices can create more actionable outcomes. Leveraging advanced technology can further enhance and streamline the process, leading to a more accurate forecast and budget.

ESTABLISH ASSUMPTIONS BEFORE THE FIRST ROUND OF BUDGETING: Base them on historical data, market trends, micro and macroeconomic projections, and strategic goals. Using technology tools such as a revenue management system (RMS) or a business intelligence (BI) tool can help provide this data and set the foundation for the budgeting process.

ALIGN THE COMMERCIAL STRATEGY WITH YOUR BUDGET: Your commercial strategy must support the budget, which includes input from revenue, sales, and marketing leaders. This ensures cross-team alignment, goals, and feasibility. Technology can play a pivotal role by integrating revenue, sales, and marketing data with your budgeting tools.

PROVIDE TARGET NUMBERS (IF NECESSARY): While we don’t recommend providing a predetermined or set budget number, some owners like to establish a target. They should communicate this requirement at an early stage, before the first round of budgeting. This helps prevent frustration and wasted effort later in the process. Technology can provide different scenarios based on the target number, offering a range of outcomes that can guide the overall budgeting process.

STRATEGIZE TO OPTIMIZE PROFIT MIX: This is the best time to consider how to change market segments, adjust pricing strategies, and reallocate resources. Looking at key areas like customer acquisition cost by channel (CAC), group booking windows, lead time by channel, digital spend, and more, can help identify the most profitable segments. A BI solution can help aggregate this data to help influence these changes.

OUTLINE THE “HOW” TO ACHIEVE THE BUDGET: A budget is more than just numbers or a PowerPoint presentation that no one ever looks at after the owner’s budget meeting. It’s a strategy to determine how you’ll achieve your goals. It should include specific initiatives, resource allocation, and timelines. Technology can help facilitate this by providing tools that track progress against the budget in real time.

‍EVALUATE PROFIT-IMPACTING INITIATIVES: Instead of focusing on room revenue, consider other direct or indirect revenue streams that impact your hotel’s total profitability. This could include renegotiating contracts, shifting the channel mix to lower-cost distribution channels, or investing in ways to make staff more efficient and help drive revenue growth, like an RMS or upsell technologies. Also consider your ancillary spend. Your RMS might already have the ability to compare ancillary spend vs. pure room revenue.

FORECAST WHAT MATTERS MOST: While it’s important to forecast key metrics, there’s little value in getting too granular. Forecasting by segment and by day is typically sufficient. However, some owners request by length of stay (LOS), room type, and/or rate plan by day. This can be overkill if it doesn’t provide actionable insights. Instead, focus on forecasts that will have the most significant impact on decision-making and profitability.

RECOMMEND A FORECASTING APPROACH: We suggest forecasting by key segments like day, group, transient, and or contract/extended stay. This provides a well-balanced approach and helps make informed decisions that directly impact revenue and profitability. Advanced forecasting tools can automate this process, allowing you to adjust your strategy in real time.

Technology’s Role in Hotel Budgeting

This includes historical performance metrics, real-time market trends, guest behaviors, and more. By analyzing this data, teams can create more accurate and informed budgets and forecasts. Advanced analytics tools can even identify patterns and trends that may not be immediately apparent, helping to predict future performance with greater precision. While there are traditional tools, such as Excel, new technology is entering the market.

Another key consideration, regardless of hotel type or size, is the implementation of an RMS and/or BI tool. The RMS can use advanced algorithms and now, some systems use machine learning to analyze market data, booking patterns, and other variables to generate more accurate forecasts. These systems simplify the forecasting process by automating complex calculations and providing easy-to-understand reports with data-driven insights.

Many hotels are also using a financial BI solution alongside a commercial BI tool. This allows the revenue manager to do a deep dive into the data and push it directly into the commercial BI for a holistic picture. Recently, Dragonfly Strategists sat down with Montage International. They told us, “Our goal has been to move us away from Excel, and this is the first year we’ll be completely Excel-free in our budgeting process.” They also noted that their revenue directors were able to complete their budgets in just a few days, and any changes they make now seamlessly integrate back into their finance system; showing technology advancements in the market.

Debunking Budget Myths

Budgeting is a critical component to any hotel’s strategy, but it’s often surrounded by misconceptions that can lead to unrealistic expectations, employee dissatisfaction, and business challenges. Unrealistic budgets can force unsustainable or ineffective shifts in commercial strategies. Teams may resort to short-term tactics to make immediate progress rather than focusing on sustainable growth and long-term success.

Myth 1: Overly ambitious budgets drive higher performance.

Advanced analytics and AI tools can provide accurate, data-driven insights into market trends, historical performance, and future demand. Using these insights can allow hoteliers to set realistic, achievable budgets. Technology can help ensure budgets are ambitious but attainable. This alignment reduces turnover and boosts employee morale, as teams are more likely to meet goals that are grounded in data rather than speculation.

Myth 2: Without significant stretch, teams won’t be motivated to achieve more.

While it’s important to set challenging targets to drive improvement, these goals must be balanced. Too much stretch can be counterproductive, leading to frustration and turnover. A balanced approach encourages employees to push their limits without feeling overwhelmed. Scenario planning tools allow hotels to explore different budget scenarios, including various levels of stretch, and the ability to assess potential outcomes. These tools can also help teams adjust in real-time to stay on track.

Myth 3: Gut feelings or past experiences aren’t enough to set budgets.

Alise Deeb, Dragonfly Strategists’ CRO says, “Math is math.” Technology shifts the basis of budgeting from intuition to data. Advanced analytics tools aggregate and analyze vast amounts of data, offering insights that would be nearly impossible to decipher manually. This data-driven approach provides clear, actionable insights that empower decision-makers with math.

Embrace the Future of Hotel Budgeting

It’s important to note that AI’s role in hotel budgeting and forecasting is still emerging. However, it’s making significant strides in the hotel industry. While there are concerns that AI might replace humans, we must remind ourselves that AI’s primary objective is to streamline monotonous tasks and process vast amounts of data that are beyond a human’s capacity, leading to more thoughtful decision-making.

The future of hotel budgeting and forecasting lies in advanced technology and AI, offering opportunities for accuracy, efficiency, and strategic decision-making. While we navigate this rapidly evolving environment, it’s important to remember that it’s also important to have effective collaboration between technology and humans – through data-driven insights and experience to swiftly navigate the budget and forecast process with confidence and ease. Understanding macro and microeconomics more effectively will help drive a more accurate budget and forecast for 2025.

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