8/18/2024

FORECASTING
& BUDGETING
For B.Sc in HHA
 FORECASTING
As a student of hospitality, understanding the process of forecasting room
revenue is crucial to effectively managing front office operations. In this
blog, we will walk you through the importance of forecasting room revenue,
various techniques and formulas, and how it impacts hotel performance.
Our conversational, explainer-style approach makes it easy for you to
grasp these concepts and apply them in your studies and future career.

Why is Forecasting Room Revenue Important?

Forecasting room revenue plays a vital role in the overall financial planning
and management of a hotel. It helps in:
 Allocating resources efficiently
 Identifying revenue opportunities
 Developing sales and marketing strategies
 Evaluating hotel performance and making informed decision

Techniques for Forecasting Room Revenue

 There are several techniques used to forecast room revenue in the
hospitality industry. Some of the most popular methods include:
Historical Data Analysis
 This technique involves analysing past performance data and trends
to predict future room revenue. It takes into account factors like
occupancy rate, average daily rate (ADR), and revenue per available
room (RevPAR).
Moving Averages
 Moving averages use historical data to calculate the average revenue
over a specific period, which is then used as a basis for forecasting
future revenue. This method helps to smooth out fluctuations and
identify underlying trends.
 Exponential Smoothing
 Exponential smoothing is another method that relies on historical
data, but it assigns more weight to recent data points. This technique
helps in adapting to changing market conditions and improving
forecast accuracy.

Forecast Formulas
There are several formulas used in forecasting room revenue. Some of the
most commonly used ones are:
Occupancy Rate
Occupancy rate is the percentage of occupied rooms over the total number
of available rooms. The formula is:
Occupancy Rate = (Number of Occupied Rooms / Total Number of
Available Rooms) x 100
Average Daily Rate (ADR)
ADR is the average revenue generated per occupied room in a given
period. The formula is:
ADR = Total Room Revenue / Number of Occupied Rooms
Revenue Per Available Room (RevPAR)
RevPAR is a key performance indicator (KPI) that measures the revenue-
generating potential of a hotel. The formula is:
RevPAR = ADR x Occupancy Rate

Factors Influencing Room Revenue Forecast

Several factors influence the accuracy of room revenue forecasts, such as:
 Seasonal trends
 Market conditions
 Local events and holidays

 Competitor pricing and promotions

 Economic indicators
 Evaluating Front Office Operations

A successful front office manager shall continuously evaluate the results of

department activities on a daily, monthly, quarterly, and yearly basis. While
evaluating, the following items and tools shall be used:
 Daily operations
 Occupancy ratios
 Rooms revenue analysis
 Hotel income statement
 Rooms division income statement or schedule
 Rooms division budgets report
 Operating ratios and ratio standards

1. Daily operations report:

It is also known as the manager’s report, the daily report, and the daily
revenue report. This very report contains a summary of the hotel’s financial
activities during a 24-Hour period. Moreover, it serves as to reconcile cash,
bank accounts, and revenue and accounts receivable, and as an important
data that must be input to link front and back office computer functions.

2. Occupancy ratios:
Occupancy ratios measure the success of the front office in selling the
hotel’s primary product (i.e. guestrooms). Below are some common ratios
used in the front office department:
 Occupancy percentage = (number of rooms occupied) / (total number of
rooms available for sale)
 Multiple occupancy percentage = (number of rooms occupied by more than
one guest) / (total number of rooms occupied)
 Average guests per rooms sold = (total number of guests) / (total number of
rooms sold)
 Average daily rate = (total rooms revenue) / (total number of rooms sold)

 Average rate per guest = (total rooms revenue) / (total number of guests)
3. Rooms revenue analysis:
One main report to enhance control over room revenue is the room rate
variance report, which is the one that lists those rooms that have been sold
at rates other than their rack rates. Another form is the yield statistic, which
is the ratio of the actual revenue to the total possible potential revenue if all
rooms are sold at rack rates.
Yield statistic = (actual room revenue) / (potential room revenue)

4. Hotel income statement:

This very statement provides important financial information about the
results of hotel operations for a given period of time

5. Rooms division income statement:

The room’s division income statement (sometimes called a schedule) shall
be referenced on the hotel’s income statement. Moreover, the room’s
division schedule shall be prepared by hotel’s accounting division not the
hotel’s front office accounting staff.

6. Rooms division budget :

These reports are monthly budget forms that compare actual revenue and
expense figures against budgeted amounts depicted both in dollar values
and percentage variances

7. Operating ratios:
Operating ratios (ex. occupancy ratios, yield statistic…) assist managers in
evaluating the success of front office operations. Moreover, for ratios to be
meaningful they should be compared against proper standards such as
prior periods, competitors, and/or budgeted ratios.

TYPES OF FORECAST
Front office may have several types of forecasting formats.
Occupancy forecast are developed typically on monthly basis and are
reviewed by food and beverage department and room division
management to forecast
 Revenue
 Project expenses
 Labour schedule
 Example: A Ten Day Forecast can be used to update labour scheduling
and cost projection and may be later supplemented by a more current
Three Day Forecast

TEN-DAY FORECAST
 Mostly developed by Front office manager and Reservation manager, in
conjunction with forecast committee.
 It consists
1. Daily forecasted occupancy figures, including, room arrivals, room
departures, rooms sold and number of guests.

2. Number of group commitments, with list of each group name, arrival and
departure dates, and number of rooms reserved, number of guests and
quoted rates.
 A comparison of the previous periods forecast and actual room count and
occupancy percentage.
 This forecast is usually used for the expected number of guests which is
referred to as House Count.
 Sometimes the house count is divided into groups and non-group
categories.

 A Ten Day forecast should be completed and distributed to all department

office by mid-week for a coming period.
 TEN- DAY OCCUPANCY FORECAST
Location_______________________ Week Ending
______________________
Date Prepared__________________ Prepared
By ______________________

To be submitted to all department head at least one week before the first day
listed on the forecast.

1. Date and Day(Start week and end week the same as the payroll schedule) Fr. Sa. Su. Mo. T

2.Estimated Departures

3.Reservation Arrivals- Group(Taken from Log Book)

4.Reservation Arrivals- Individual(Taken from Log Book)

5.Future Reservations

6.Expected Walk- Ins

7.Total Arrivals

8.Stay Overs

9.Total Forecasted Rooms

10.Occupancy Multiplier

11.Forecasted Number of Guests

12.Actual rooms Occupied(Taken from Daily Report)

13.Forecasted Variances(Difference between forecast and rooms occupied on

daily report)

14. Explanation (to be completed by Front Office Supervisor and submitted to

General Manager, attach additional memo if necessary)
APPROVED: _________________________ Date:
____________________________. General Manager
 Three- Day Forecast
A Three-Day Forecast is updated report that reflects a more current
estimate of room availability.
 It details any significant change from the Ten-Day Forecast.
 It intends to guide management in fine- tuning of labour schedules and
adjusting room availability information

THREE- DAY FORECAST

Date of
Forecast:_____________________ Forecast
Compared By____________________
Total Rooms In Hotel:________________

Day Tonight Tomorrow 3rd Night

Date

Previous Night Occupied Rooms

-Expected Departure

-Early Departure

+Unexpected Stay Overs

+Unoccupied Rooms

=Rooms Available for sale

+Expected arrivals

+Walk ins and same-day reservations

-No Shows

=Occupied Rooms

=Occupied %

=Expected House Count

 Distribution : General Manager , Front Desk, House Keeping, All Food and
Beverage Department, Accounting, Sales , Banquet, Security.


Forecasting Data

The process of forecasting room availability generally relies on historical

occupancy data. To facilitate forecasting, the following daily occupancy
data should be collected:
 Number of expected room arrivals
 Number of expected room walk-ins
 Number of expected room stay overs (rooms occupied on previous
nights that will continues to be occupied for the night in question)
 Number of expected room no-shows
 Number of expected room under stays (check-outs occurring before
expected departure date)
 Number of expected room check-outs
 Number of expected room overstays (check-outs occurring after the
expected departure)
Over- all, the above data are important to room availability forecasting
since they are used in calculating various daily operating ratios that help
determine the number of available rooms for sale.
Occupancy History of the ABC
Room Room
Room Room
Day Date Guests Arrivals walk-
ins Reser. Noshow
Mon 1/3 118 70 13
63 6
Tues 2/3 145 55 15
48 8
Wed 3/3 176 68 16
56 4
Thurs 4/3 117 53 22
48 17
Fri 5/3 75 35 8
35 8
Sat 6/3 86 28 6
26 4
Sun 7/3 49 17 10
12 5
Total 766 326 90
288 52
Occupied Overstay Understay
Room
Rooms Rooms Rooms
Check-outs
90 6 0
30
115 10 3
30
120 12 6
63
95 3 18
78
50 7 0
80
58 6 3
20
30 3 3
45
558 47 33
346
1. Percentage of No-shows – The percentage of no-shows
indicates the proportion of reserved rooms that the expected guests did not
arrive to occupy on the expected arrival data .This ratio helps the front
office manager to decide, when and how many rooms can be sold to
guests who come as walkins. The percentage of no-shows is calculated by
dividing the
number of room no-shows for a specific period of time(day, week, month,
or year) by the total number of room reservations for that period.
Percentage of No-shows = Number of Room No-shows
Number of Room Reservation
= 52/288x 100=18.06%
Some hotels track no-show statics in relation to guaranteed and non
guaranteed reservations. Properly forecasting no-show rooms also depend
on the hotels mix of business, eg corporate group generally have a much
lower no-show %age than other types of groups or individual business .A
hotel with a large corporate market will most likely have a very low no-show
%age as compared to a hotel having little group business. The %age of no-
shows can be controlled through a number of
policies and procedures such as requesting deposit in advance from
guests, call the guests before date of arrival to confirm arrangements,
check the reputation of travel agents, tour operators ,duplicate reservations
etc before confirming the reservations.
Percentage of walk-ins – The percentage of walk-ins is calculated
by dividing the number of rooms occupied by walk-ins for a specific period
by the total number of room arrivals for same period .The %age of hotel
ABC can be calculated
as follows.
Percentage of walk-ins= number of walk-in rooms x100
Total number of room Arrival
= 90/326×100
= 27.61 %
Walk-in guests occupy available rooms that are not held for guests with
reservations. Often, hotels can sell rooms to walk-in guests at higher rates
since these guests may have less time & opportunity to consider alternate
properties. Front desk agents are asked to show a guestroom to a walk-in
guest—-which is much more effective than trying to sell
rooms over phone. Walk-in guest sales help to improve both occupancy
and revenue. Walk-ins also give a chance to find new guests who can
prove CIPs in future. However, from a planning perspective , it is always
considered better to have reservations in advance than to count on walk-in
traffic
Percentage of Overstays; – It represents rooms occupied by guests
who stay beyond their originally scheduled departure dates. Overstay
guests may have arrived with guaranteed or non-guaranteed reservations
or as a walk-in. Number of overstay rooms for a period by the total number
of expected room check-outs for the same period. The %age of overstay
for hotel ABC is calculated as under ͚
Percentage of Overstays = Number of Overstay Rooms
Number of Expected checkouts
= 47 x100
346-33+47
= 13.06 of exp. Checkouts
(exp.checkouts= Actual check-outs- under stay + under stay To help
regulate room overstays , front-office agents are trained to
verify an arriving guests departure date at the time of check-in. such
verifications can be critical ,especially when the hotel is at or near full
occupancy and there are no provisions for overstay guests. Overstays may
also prove problematic when specific rooms have been blocked for arriving
guests. This is especially important for suits or other rooms that
may have special importance to an incoming guest.
Percentage of Understays
It represents rooms occupied by guests who check-out before their
scheduled departure dates. Understay guests may have arrived at the hotel
with guaranteed or non-guaranteed reservations or walkins. The
percentage of understays is calculated by dividing the number of understay
rooms for a period by the total number of expected room
check-outs for the same period. Using the data given , the percentage of
understays is calculated as under
Percentage of understay= Number of Understay Room
Number of Expec.Check-outs
= 33 x100
346 -33 +47
= 9.17 % of expec.check-outs
Guests leaving before their stated departure date creats empty rooms that
typically are difficult to fill. Thus , understay rooms tend to represent
permanently lost room revenue. Overstays ,on the other hand, are guests
staying beyond their stated departure date and may not harm room
revenue .when the hotel is not operating at full capacity, overstay results in
additional, unexpected room revenues. To regulate understay and over
stay rooms ,front office staff should
1. Confirm or reconfirm each guests departure date at registration. Some
guests may already know of a change in plans, or a mistake have been
made in the original processing of the reservation.
2. Present an alternate guestroom reservation card to a registered guest
explaining that an arriving guest holds a reservation for his or her room.
Guests may be informed in advance about their scheduled check-out date.
3. Review group history. Many groups ,especially associations ,holds large
closing events for the entire group on the last day of meeting.
4. Contact potential overstay guests about their departure date to confirm
their intention to checkout.
5. Room occupancy data should be examined each day, rooms with guests
expected to check out should be flagged
6. Guests who have not left by check-out time should be contacted and
asked about their departure intention.
Forecast Formula
Once relevant occupancy statistic have been gathered, the number of
rooms available for any given date can be determined
by the following formula;
Total number of Guestroom
– Number of out-of-order Rooms
– Number of Room stayovers
– Number of Room Reservations
– Number of Room Overstays
+ Number of Room reservations x %age of No-shows
+ Number of Room Understays
= Number of Rooms Available for sale
Note the above formula does not include walk-ins. The y are not included
because the number of walk-ins a hotel can accept is determined by the
number of rooms available for sale and it various on daily basis. Following
data is available about Hotel ABC, calculate number of rooms available for
sale
Total number of rooms 120, on April 1st. there are three out-of-order
rooms, 55 stayovers, 42 scheduled arrivals (reservations) percentage
of no-shows 18% .Based on the historical data ,six understays and
fifteen over stays are also expected. The number of rooms projected
to be available for sale on 1st. April can be determined as follows.
Total number of Guestroom =120
– Number of out-of-order Rooms = -3
– Number of Room stayovers = -55
– Number of Room Reservations= -42
– Number of Room Overstays = -15
+ Number of Room reser. x %age of no-shows=+8
(42 x 18 % = 8 rooms)
+ Number of Room Understays = +6
= Number of Rooms Available for sale = 19
 Therefore ABC hotel is having 19 rooms for sale on 1st. April once
this figure determined ,front office management can decide
1. Whether or not to accept more reservations
2. Helps to determine its level of staffing.
3. Helps to determine the number of rooms that cn be sold to walk-
ins.
Front-office planning decisions must remain flexible ,as they are
subjected to changes and room availability forecasts are based on
assumptions whose validity may vary on any given day.

FORECASTING ROOM AVAILABILITY

Forecasting room availability is forecasting the number of rooms available

for sale on any future date. This type of forecasting helps manage the
reservation process, guides the front office staff for an effective rooms
management, and can be used as an occupancy forecast, which is, further,
useful in attempting to schedule the necessary number of employees for an
expected volume of business.
In order to forecast room availability, the following data are needed
 Number of expected room arrivals
 Number of expected room walk-ins
 Number of expected room stayovers

 Number of expected room no-shows

 Number of expected room understays
 Number of expected room check-outs
 Number of expected room overstays

These above-mentioned data help the front office in conduct various daily
operational ratios such as:

1. No-shows percentage = (number of no-show rooms) / (number of rooms

reserved)
2. Walk-ins percentage = (number of walk-in rooms) / (total number of rooms
arrivals)
3. Overstays percentage = (number of overstay rooms) / (number of expected
check-outs)
4. Understays percentage = (number of understay rooms) / (number of
expected check-outs)

The forecasted number of rooms available for sale for any future date can
be tracked using the following formula

Forecasted number of rooms available for sale = total number of guest

rooms – number of out of order rooms – number of stayovers rooms –
number of reserved rooms + number of no-show rooms + number of
understay rooms – number of overstay rooms

Under non-automated and semi-automated systems, number of rooms

available for sale forecasts are calculated upon demand and need and vary
from three-day to ten-day forecasts. However, under fully automated
systems, forecasts can be done at any moment for any future period of
time. For, computers run forecasts on a room count considerations, hence
eliminating tedious labor work and human error margins.

FORECASTING TECHNIQUE
Forecasting is a crucial aspect of front office management in the hospitality
industry. It involves predicting future room availability, occupancy rates,
and revenue, which are essential for efficient operations. In this blog, we’ll
delve into the various forecasting techniques used in front office
management, helping you understand how to make informed decisions and
optimize your hotel’s performance.

Why Forecasting is Essential

Forecasting in the hospitality sector is more than just a crystal ball into the
future; it’s a strategic tool for planning and optimizing resources. It helps
hotels anticipate demand, manage bookings, and make informed decisions
about pricing and staff requirements.
 Types of Forecasting
Occupancy Forecasting
 Walking: Estimating the chances of guests without reservations needing a
room.
 Overstaying: Predicting the likelihood of guests extending their stay
beyond their initial departure date.
 Under stay: Calculating the percentage of guests who might leave before
their scheduled departure.
Financial Forecasting
 Revenue: Projecting future room revenue based on current booking trends
and historical data.
 Expenses: Anticipating costs to better control budgets and cash flow.
Introduction to Forecasting Techniques
Forecasting is the process of estimating future trends based on historical
data and current conditions. In front office management, it plays a pivotal
role in ensuring that a hotel’s rooms are utilized to their maximum potential.
Let’s explore some essential forecasting techniques:
1. Moving Average Method
The moving average method involves calculating the average of a specific
number of previous time periods. For example, a three-month moving
average considers the average occupancy rate for the past three months.
This technique is straightforward and helps identify trends.
2. Time Series Analysis
Time series analysis involves examining historical data over a continuous
time sequence. By analysing patterns and trends in past room bookings,
front office managers can make more accurate predictions for the future.
Seasonal variations and long-term trends are considered in this method.
3. Regression Analysis
Regression analysis uses statistical models to establish relationships
between various factors affecting room occupancy. By identifying variables
like marketing efforts, economic conditions, and local events, front office
managers can make predictions based on these influencing factors.
4. Market Research
Market research involves collecting data from competitors and industry
reports. By understanding the market conditions, such as upcoming events
or competitor promotions, front office managers can adjust their forecasts
accordingly.
5. Historical Booking Patterns
Examining historical booking patterns within your own hotel is crucial. This
involves analysing past occupancy rates during specific seasons,
weekdays, or events. This method helps in forecasting demand during
similar future periods.
Selecting the Right Forecasting Technique
Choosing the appropriate forecasting technique depends on the complexity
of your hotel’s operations, the availability of data, and the accuracy
required. It’s often beneficial to combine multiple techniques to improve
forecast accuracy.

Conclusion
Forecasting techniques are invaluable tools in front office management.
They allow hotels to anticipate demand, allocate resources efficiently, and
maximize revenue. By mastering these techniques, you can make well-
informed decisions that contribute to the success of your hotel