The financial forecast disconnect and how to correct it - Insights

The financial forecast disconnect and how to correct it

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When I work with hotel clients around their financial leadership it’s often centered on getting the team to do their monthly financial forecast. A greater interest in doing it produces better and more consistent results. When doing financial leadership workshops and individual coaching, I inevitably discover the same thing time and time again. It’s the disconnect between the executive team/director of finance part of the operation and the department line managers.

In this piece I am going to explain why this disconnect exists, how to detect it and what you can do to fix it.

Why the disconnect exists

First, why the disconnect exists. It exists because of two main reasons. One, we all come from a world where the numbers have forever been in the closet. We now want them to come out and we don’t know how to get that to happen. We don’t naturally know how to make them part of the mainstream communication inside our hotel. I teach my clients to make the numbers just as accessible as guest service information and colleague engagement content.

Two, we almost always create the forecast to satisfy the masters, the brand and the owner. We construct this forecast on tight time lines and that usually means it’s whipped up by the financial leader with some inputs from the executive only. We do not take the time to get the line department managers involved in the creation of the monthly financial forecast. This is a big turnoff for anyone who then must have anything to do with that forecast. No input from me equals zero buy-in and accountability.

How to detect it

Second, how to detect it. I often do an exercise in my workshops where I ask the participants to pair up and work together. Their assignment is to come up with just one word that describes the financial leadership culture in the hotel today. After they come up with their word, they need to come back to the group and tell us the word and why they chose that word. This is where the disconnect is easily seen. Words like: secret, isolated, elitist, club, and puzzled are very common and this points directly to the diagnosis. When I ask each presenter to explain why they chose their word, the reason is usually because they don’t participate in the forecast or, if they do, they have no idea how the final numbers come together. Bingo, we have just exposed the problem. Sometimes this is all it takes to start the cure. If the GM is in the room and people are brave enough to speak (if the culture is open enough) we can have a productive discussion on why this condition exists and how to fix it. Short of doing the exercise just ask some of your line managers if their numbers are in this month’s forecast. You will know pretty quickly what the answer is.


Third, it’s what you can do to remedy the situation. Line managers want to take responsibility for their numbers. They want to be the one who creates these numbers and owns them so long as it’s safe and productive to do so. The following conditions need to exist in order to foster open communication around the forecasted numbers and how we are performing relative to that forecast.

  1. We need to clearly identify and make agreements with the line managers around who is responsible for each line of: revenue, cost of goods, payroll and expenses in our profit and loss statement. Ensuring someone owns each line is the first critical step and one that we cannot overlook. Simply assigning the rooms accounts to the room’s division manager is not going to cut it. We need to step sideways to the front office manager, the housekeeper, the guest services manager and the reservations manager and clearly agree on who owns each account. Many expense lines have multiple uses so having one owner who can corral the others is critical. Knowing who owns each line also allows us to see the operation and who is and who’s not on top of their numbers much clearer.
  2. We want to make sure that each member of our financial team prepares their own forecast and we want to make sure we use their forecast. This means they are plugged into the schedule and they allow themselves the time to do their part of the forecast. In turn, this also means the director of finance provides clear communication on the schedule and allows time to do the consolidation and most importantly gets back to each line manager when changes are necessary to meet the overriding goals of the forecast. If we ask for the forecast from the line managers and then change it or we don’t use it, we have just spoiled the entire process. This is where most hotels fall off the rails. They may ask for the forecast and it’s submitted, but it is either changed or not used and this is the poison pill that creates the disconnect.
  3. Now that we have the line managers’ forecast inside our final monthly financial forecast we’re off to the races. The next step is making sure each day we talk about the room’s pick-up and the banquet/catering pace as well as the restaurant and bar volumes at our morning meeting. See my article on the “morning meeting.”

Are we going to make our numbers? This is the question we want each line manager to be obsessed with. If we’re not going to make our revenues, we need our line managers to adjust accordingly. This is the pivot and what we train for. Adjusting the schedule and the purchase orders to reflect the change in business volumes is what we want our line managers to do. This allows us the opportunity to manage our flow thru. Without the line managers preparing and using their own forecasts we’re like a ship in a storm without a rudder.

There you have it. If you have a forecast disconnect in your hotel you now know the probable cause and the cure. Having the leadership team plugged into the real forecast and managing the middle of your statement is priceless. It’s also a lot more fun for everyone.

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