Each year, Carpedia Hospitality works alongside our clients to ensure their forthcoming year’s budgets will drive performance for all stakeholders. As travel resumes globally and occupancy rates further move towards returning to pre-pandemic levels, hospitality leaders can approach the 2022 planning process with a bit more optimism and clarity than we collectively experienced last budget season. However, countless organizations still face the challenge of recouping financial losses from the prolonged rough patch precipitated by COVID-19 all while meeting the high service expectations of guests emerging from varying levels of quarantine. Add a widespread labor shortage, ongoing supply chain challenges, and the delayed recovery of the historically profitable group and business travel segment, and it becomes clear that relying on “tried-and-true” budgeting strategies may not be sufficient to set your organization up for success next year. However, a thorough consideration of a operational processes with a focus on flexibility can position leaders for a strong 2022.
The Changing Face of Demand
While many organizations, particularly those in drive-to and resort markets, have seen volumes return to historical norms as restrictions are lifted, there has been a significant shift in the profile of today’s traveler that requires a different approach to planning. The recovery trajectory for business travel is still not completely clear, requiring operations that may be accustomed to group business to adapt their service models to accommodate leisure guests. This can mean less predictable flow patterns, shifts in use of amenities, and a higher cost of sales as F&B volume skews toward a la carte menus versus the economies of scale generated with banquet events. To react quickly and counter the negative impact that these shifts may have on profitability, more agility and flexibility should be built into operating models. This will require careful analysis of existing processes across all operational and administrative positions to ensure that all areas of the operation are able to adapt to variability.
Strategic Revenue Goals
As operators strive to maintain strong room rates, average checks, or ticket prices while serving the traditionally lower-margin transient guests, increased focus on optimizing incremental revenue offerings will be a vital component to any topline strategy. Comprehensive review of operating hours, pricing, historical capture scenarios, and standard operating procedures surrounding sales opportunities will help leaders establish more aggressive but realistic revenue expectations. This is a level of granularity that most organizations do not consider when building an annual budget, but precision will be key in maintaining profit margins in 2022.
Analyzing Supply Chain
The ongoing impact of the pandemic on the cost and availability of ingredients and supplies, in addition to inconsistent lead times, has shed light on the need for careful review of the organization’s supply chain when budgeting cost of sales. Additionally, a strong strategy for inventory flexibility will need to be incorporated to appropriately serve a more variable rate of captured guests due to decrease of banquet volumes. Again, this will likely require deeper analysis than many leaders are accustomed to conducting as part of the budget process, but the impact on cost management during the forthcoming year will be profound. Having a balance of creativity and a quantitative approach will be necessary to appease your guests and manage your cost of goods sold.
Adding Variability to Fixed Cost
2021’s volatile demand patterns have forced many operators to examine their fixed cost base and add variability where possible to become more efficient and protect profit margins. Improved utilization of on-property labor and organizational redesign of central services roles are strategies that operators are using to lessen the fixed element of labor cost. Many operators are also examining service levels and offerings to further alleviate margin pressure. The ability to add variability to fixed costs and manage variable costs with rigor is key to protecting profit margins and adapting to the new normal in 2022.
Thinking Outside the Box to Reduce Overhead
Forward-thinking hospitality leaders recognize that now, more than ever, a creative approach to managing overhead can make a world of difference in planning a successful 2022. Each overhead item should be re-evaluated to determine where administrative tasks can be streamlined, utilities can be shared, physical footprint can be consolidated, and services can be complexed. This can be a difficult undertaking in businesses that have been operating successfully for long periods of time, but this period of change calls for a transformational approach, which is often best accomplished with consultation from outside of the organization.
Volume-based Labor Standards
Projecting labor cost can be especially complicated for hospitality organizations in the midst of the current labor shortage faced by the industry. Operations that have typically relied on building labor budgets off of historical percentages will not be able to rely on the last two years’ performance to make sound assumptions. However, before building in considerations for an increase in staffing compared to 2021, organizations should fully evaluate their operational processes to understand what their true minimum staffing requirements are and how best to increase coverage based on shifts in volume. In many scenarios, a zero-base approach will be necessary to both overcome the inability to confidently use recent years as a baseline but it will also increase the likelihood that previously untapped productivity gains can make their way into the budget.
By establishing productivity metrics that are directly tied to the operational responsibilities of each role or a new combination roles, leaders can easily plan for all possible demand scenarios. This is also an ideal time to review processes and procedures to ensure a streamlined model is built into all future planning in order to appreciate opportunities for cross-functional workspaces and cross-utilization of team members. Whether it is by instituting best-in-class metrics or creating custom models for unique operations, the availability of data and the knowledge to use it accurately to when designing workforce scenarios will ensure interruption to the operation is limited.
Successful Execution
In order to achieve the results embedded within a strong 2022 budget, operating leaders will need to be provided tools and training to lead their departments to success. Greater visibility on a daily and weekly basis to performance through improved reporting and structured review will be invaluable. Businesses will also require a continuous improvement culture where department leaders remain adaptable and proactive. In many established organizations, this may be the most difficult task to execute effectively.
Conclusion
Budget season is an excellent opportunity for operators and their owners to incorporate the lessons learned through the first year of recovery and to further analyze the operation to pave an even smoother road to maximum profitability. Though the amount of analysis involved in building an optimal 2022 budget can seem daunting, clients that have enlisted our support in conducting their review can enter an uncertain year with confidence that they have left no stone unturned.
If you believe your organization could use additional support through budget season or if you would like one of our experts to review the vitality of your plan, please reach out to our team for support.
