An asset manager’s definitive guide to transitioning to a new budget plan.
As we come crawling out of our holiday hibernations, we are faced with a new year, new challenges and yes, a new budget. Coming to consensus on this year’s budget was no easy feat, amidst an outlook that is hazy at best.
The budgeting process is akin to a night of debauchery.
Maybe you pre-gamed a little with some market discussions to get a feel for the direction on how things will go. Perhaps it was an easy going night with a few glasses of the finest red wine. Or maybe it was a heated debate that quickly spun out of control, a “budget bender” of sorts, where you awoke with a pounding headache and only a vague recollection of how you got to the finish line. Regardless of if you awoke unscathed or are still reaching for the Tylenol, you now have a budget plan to execute. Here are some thoughts from an asset manager’s perspective on how to recover with ease and transition to an actionable plan that cuts through the haze and keeps you on track.
Develop specific, measurable strategic initiatives
While a strategic planning process is likely ingrained in your overall budgeting process (and if not, it should be), operators often base budgets on prior year results, which may not be aimed at achieving the “optimal” performance for a given property. Look to align the operating team with the ownership’s investment strategy. Is the hotel operating on a stabilized basis, with minor operational tweaks needed to optimize net operating income? Is it a reset year where major changes are to be implemented to flip the operating model on its side? Is the hotel ramping up from or planning a renovation or repositioning effort?
Each scenario will determine the direction of the strategic focus and serve to align actions with investment objectives in a way that transcends budget guidance. As asset managers, we typically identify half a dozen areas that we believe will have a material impact on bottom-line results. Focusing on more than a handful of items at one time often results in a lack of focus overall. These areas could target revenue, market share, profitability, labor productivity, guest or employee satisfaction scores, building preservation, cash flow, etc.
As often as possible, ensure the goals are measurable or quantifiable. These goals may also extend above and beyond budget expectations to keep the operating team striving for optimal performance. Perhaps a stretch goal of group room nights, or an average daily rate index target based on what is possible versus that prescribed in the budget. Regardless of what goals you set for the year, the most important part of the process is ensuring buy-in from the people responsible. Let them share which focus areas they have identified, and you will quickly ascertain whether they are aligned with ownership expectations.
Track metrics, monitor progress and adjust
Once strategic initiatives are agreed upon, and tactics/action plans are developed, establish a process by which progress will be tracked such as a report card. Progress should be continually monitored to ensure goals are reached. Select appropriate key performance indicators that the hotel team should report on. If you find performance is not moving in the right direction, work collaboratively with the operating team on identifying what needs to be done differently to impact the outcome. As we’re entering another year of unchartered territory, we need to be nimble enough to course correct as we encounter bumps or opportunities along the way.
Stay current on shifting market trends
In today’s business environment, there are many factors that are out of the immediate control of owners and their hotel teams, particularly when it comes to market conditions, economic factors and “black swan” events. Stay informed on what is going on in and outside of your market that could have an impact on travel to the destination. How are political events impacting your market’s business? Is coronavirus (COVID-19) another SARS event? If you’ve identified something that will impact business to your property, understand what the team is doing to get in front of it to mitigate impact. Proactive outreach, special promotions, targeted marketing and creative cost controls can all mitigate trends that could have a seriously detrimental impact on your business and divert focus from the strategic initiatives established.
At the end of the day (or night), success will be measured by our collective efforts. Be sure to cheer on your hotel team when they perform well, celebrating calculated risks that pay off, as well as collaborating with them on ideas for improvement. As asset managers, we can help make the overall process smoother, easing owners into the pre-game, helping them avoid the unexpected, and even holding their hair (or tie) back if things get rough. Hopefully we all come out the other side feeling good and ready for the next round.
Emily Wilson is a vice president of asset management at CHMWarnick, a member of the International Society of Hospitality Consultants (ISHC) and the Hospitality Association of Asset Managers. CHMWarnick is the leading provider of hotel asset management and owner advisory services. The company asset manages more than 70 hotels comprising approximately 29,000 rooms valued at roughly $15 billion and is advising on development projects valued at over $2 billion. CHMWarnick’s hotel owner advisory services include asset management, hotel planning and development, acquisition due diligence, owner-entity accounting, management/operator selection and negotiation, capital planning and disposition strategy. CHMWarnick has eight offices nationwide, including locations in Boston, Phoenix, Fort Lauderdale, Honolulu, Los Angeles, New York, San Francisco and Washington, D.C. For more information, contact 978.522.7000 or visit www.CHMWarnick.com. For the latest company news, follow CHMWarnick on Twitter @CHMWarnick and LinkedIn.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.