Forecasting a hotel’s future revenue — including occupancy and average rate — is an important and foundational factor in a hotel’s ability to design successful revenue optimization strategies. There are different forecasts that should be put together for every hotel, and each forecast has a different objective.
They should be completed in this order:
1. Demand forecast: A demand forecast is determined by the amount of demand a hotel would have for its rooms on a given night in the absence of any constraints. This is referred to as unconstrained demand. A hotel’s unconstrained demand or demand forecast is the forecast on which all revenue optimization decisions, including rates, availability, and restrictions, are based. Demand forecasting requires the use of historical patterns and current trends to forecast future demand.
2. Strategic forecast: A strategic forecast is used to support strategic objectives such as understanding the impact of the demand forecast and its effect on occupied rooms. It is the place where hoteliers will assign their rate strategies based on the demand forecast. The strategic forecast should be completed for the same timeframe as the demand forecast, and updated and reviewed each time the demand forecast is updated.
3. Revenue forecast: Once the strategic forecast is complete, the next step is to complete the revenue forecast, the purpose of which is to provide hoteliers with a realistic picture of probable future occupied rooms that they can use for budget comparison purposes and to identify variances. The information that was reviewed for the purpose of creating the demand forecast will also be used for the revenue forecast. However, this time the focus will be on what hoteliers believe will actualize for the hotel.
4. Operational forecast: The operational forecast is the final forecast created. It provides the operational departments with the information they need to properly prepare their areas of responsibility. The operational forecast is relatively easy to put together, and in most cases requires only basic information that is easily extracted from the revenue forecast. Some hotels will simply distribute the revenue forecast to the appropriate departments, while others prefer to extract and distribute the specific information for each department.
Excerpted from HSMAI’s Evolving Dynamics: From Revenue Management to Revenue Strategy — The Study Guide for the Certified Revenue Management Executive (CRME) Certification, by Kathleen Cullen, CRME.