Proven cost-control solutions a benefit for the industry

Hotel & Motel Management, May 2, 2005 by Jay Troutman

IN THE details

Cost-control solutions

* Manage vigilantly

* Find solutions from other industries

* Evolve decisions as data changes

The hospitality industry and the economy as a whole, gratefully, have rebounded from a string of difficult years. This is good news for operators who have worked hard and made the tough decisions to adjust their business plans and for the companies that support them. Although revenue per available room is up in most segments and forecasted by Smith Travel Research and others to stay that way throughout the coming year, vigilant management still is called for.

At the Americas Lodging Investment Summit in January, panelists observed that the current positive market cycle is creating an excellent opportunity for management companies to perform, but they also noted that strong operational controls still are necessary. While revenue is at pre-9/11 levels in many markets, profit is not. Margins are still under pressure, and intelligent management of expenses and costs needs to continue. To quote Stephen Bollenbach, co-chairman and c.e.o. of Hilton Hotels Corp., "Operational excellence is critical."

Numerous expenses, such as insurance costs, labor and utilities, did not take a break during the downturn and continue to require constant attention. Many companies are wisely redoubling their efforts to monitor expenses and manage costs. Some are appointing executives to handle the job; others are automating the expense analysis process with sophisticated technology borrowed from other industries. When hospitality companies adapt cost-control solutions proven elsewhere to improve the bottom line, this type of plagiarism is a good thing.

Tracking expenses and other financial and operational metrics on a daily basis for a large hotel group is a huge job, but necessary if operators intend to boost and hold profits from rising revenues. Hilton recently appointed Scott Farr to the post of v.p., performance management to champion its business planning process. Other forward looking companies, including Peabody Hotel Group, Concord Hospitality Enterprises and Starwood Hotels & Resorts Worldwide, have implemented business intelligence and performance management technology as part of stronger corporate initiatives to capture important operating information and monitor costs that determine profitability.

Performance management is a set of applications used with business intelligence that generate performance data to guide business strategies. These systems, although new to hospitality, are based on technology from companies like Cognos, a publicly-traded software giant whose applications have been widely used by Fortune 500 companies in other industries from banking to pharmaceuticals for more than 10 years. Only in the last five years have business intelligence and performance management tools been adapted for hospitality.

Many hotel companies still handle information gathering, goal setting and budgets with standardized Excel spreadsheets. This method is useful but it does not provide automated rollups and consolidations of performance numbers to allow analysis by market segment, brand, region or owner. In hospitality, the three components of performance management form a circle of processes: budgeting and forecasting, analysis measures to check performance against goals, and analytical tools that drill down into all data sources, including property-management, back-office and point-of-sale systems. Hotel operators can enter the circle from any point. The objective is to evolve accurate decisions as quickly as operational data changes, which results in an improved performance management capability and increased revenue.

Now that a growing number of hospitality organizations are pushing business intelligence and performance management practices to the operational level, our industry is becoming more efficient and profitable. It could not come at a better time. Higher average daily rate and RevPAR coupled with improved profitability are attracting investors to the hotel companies that have kept a tight rein on costs. These wise and prudent plagiarists who took a risk on the new technology are seeing their organizations grow as investment partners recognize the solid financial opportunities they represent. These early technology adopters are today's hospitality success stories.

hmm@advanstar.com

Jay Troutman (jtroutman@aptech-inc.com), a member of the International Society of Hospitality Consultants (ishc.com), is president of Aptech Computer Systems in Pittsburgh.