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“How accurate is my forecast? Well…it’s very accurate – usually falls within the industry standard 5% variance for a monthly forecast, and we automate at the market segment level.” This is the response I typically provide when asked about the RevGEN forecasts, but sometimes what I really want to say is, “it doesn’t matter how accurate it is; what matters is that it works, and the forecast is automated!!!” The hotel industry has gotten a little carried away with forecasts and reporting. It’s common practice to submit a revised forecast for the next 90 days every month. More than that, most management companies require that this forecast is done manually in antiquated systems, at the market segment level, and for rooms sold & ADR. If you are forecasting 10+ market segments for 4+ properties, you might as well change your title from Revenue Manager to Forecast Manager. I understand the need for accurate forecasts both operationally and financially, but this amount of workload which does almost nothing to drive incremental revenue is bad for business! Two things need to happen to solve this glaring problem: First, forecasts need to be automated at the market segment level. Kriya RevGEN has done this for you! Okay that’s the end of my shameless plug. And two, the industry has to stop judging a Revenue Manager and hotel’s success by their forecast accuracy. This second point requires elaborating…

On a more macro level such as an annual forecast or even a monthly forecast, it makes sense that the forecast whether manual or automated should be within a 5% variance of the total outcome with the exception of large unforeseen shifts in business. On a daily basis, however, a forecast should be viewed as a demand INDICATOR more so than a target to hit. Let’s use the following image as an example:

forecast accuracy blog


Saturday, March 12 is forecasting 63 rooms sold, $72 ADR, and $4,539 revenue while we have sold an average of 85 rooms on the last 4 Saturdays. I am not going to look at this forecast and say, “Great, I’m forecasting 63 room nights; therefore, I will ride with my current strategy to get as close to that number as possible.” Instead, I’m going to say, “oh crap, 3/12 looks terrible and I better do something to fix it!” I may lower my rate, run a promotion, open opaques, increase TravelAd bids etc. I’m going to do everything in my power to boost bookings and thus, my forecast will automatically adjust higher as the bookings come through. A forecast is not a static number set at the beginning of each month but an ever-changing demand indicator that assists the Revenue Manager in continuously outperforming prior outcomes.

A lot of Revenue Managers are bonused partially on forecast accuracy. This should drive any hotel owner nuts. This incentivizes Revenue Managers to spend more time forecasting than actually driving revenue to their hotel, and even worse, it incentivizes sandbagging. I propose a new bonus solution: Let the RMS determine the monthly forecast at the first of the month for the 30, 60, and 90 day forecast. Then, incentivize the Revenue Manager based on the positive variance between how the month finished and the initial RMS forecast. It’s not perfect, but it will somewhat reflect the Revenue Manager’s ability to influence and manage the demand indicators to push the revenue beyond what was expected of him or her. Happy forecasting, er I mean revenue managing, and as always, please reach out for any assistance you may need!