What is Financial Responsibility, its Money management or Fiscal control?

Organizing the Revenue Management Function

1.Is the organization ready and prepared to potentially change

business practices and commit resources to making the project

work?

2.Who in the senior management team will be the “revenue

management champion”?

3.Who is going to take on the role of revenue manager?

4.How will the organization find out about the goals, objectives, and

deliverables of the revenue management project?

5.How is the revenue management function related to other

functions, such as sales, reservations, and marketing? What is the

organizational structure?

6.How will the revenue management function integrate with the

different distribution channels, such as the GDS, ADS, wholesalers,

OTAs, etc.?

7.Is there an incentive plan that ties revenue management to the

performance of particular segments and/or departments?

8.Are the sales team incentives linked purely to the production of

room nights and revenue or to the overall profitability of a given

piece of business?

The revenue management function should not be associated with the per

formance of any particular segment, but its sole goal should be maximizing

overall RevPAR and profit.

The first order of business in establishing a revenue management program is

to achieve a consensus among all those who will be affected by the program

as to its proper objectives and to ensure that all have a clear understanding

of its likely results.

The proper goal of a revenue management program is

not to increase aver age room rates. Neither is it to increase average occupancy rates. Revenue

management programs must focus on maximizing the product of the two, the average “revenue 

per available room night,” or RevPAR, which is calculated as follows:

RevPAR = Average room rate × occupancy rate (%)

If the hotel consistently pursues this goal and seeks to maximize RevPAR,

room revenues will increase over time.

In a more sophisticated model, distribution costs are taken into account,

and the revenue management program goal is to maximize net RevPAR

(i.e., RevPAR minus distribution costs). That way, not only the revenue

but the profitability of each segment is considered. As further discussed,

ancillary revenues and other costs may also be included in the rate and

room allocation decision-making.

As the revenue management culture grows, initiatives to truly maximize

profit from all angles can be considered. For example, if it could be estab

lished that the typical profit from ancillary revenue streams (F&B, resort

activities, etc.) of demand from a particular company or channel were

greater than those from other companies or channels paying similar rates,

when demand is high, strategies to ensure that preference is given to the

demand that will capture the most profit can be put into place. This may

seem to be a very logical step to make; however, putting this systematically

into practice requires upfront investment in capturing revenue and profit

data by channel/market segment/demand stream, and then using this in

the forecasting and reservation process.

Revenue management is not only about controlling the demand

that is accepted (as happens on nights when demand is greater than

capacity), but also about the pricing strategy that is deployed in the

market at any given time. For example, the revenue management

team may be able to predict that even if all the demand that existed

was taken on a given night, the hotel would not fill; however, this

does not necessarily mean that the lowest rates should be open.

By understanding the dynamics of the marketplace as a whole, the

revenue management team may be able to determine that offering

the lower rates to stimulate demand will only, in fact, lead to a drop

in revenue and not to an increase in occupancy

Measuring the benefit/impact and return on investment of any

piece of technology requires a systematic and disciplined approach.

Measuring the impact of a revenue management system is no dif

ferent; in fact, in some cases it may be easier. As an example, if

a hotel decided to measure the benefits of installing a new

property management system, many factors would have to be

considered—for example, greater ease of use, reduced “downtime,”

more functionality, etc.; however, it can be difficult to turn these

benefits into hard currency amounts. A desired impact of deploy

ing a revenue management solution is an increase in revenue

attributable to working with the solution—that is, an increase over

and above what would have happened because of market forces.

Techniques now exist that allow revenue changes that are attrib

utable to working with a system to be isolated from changes that

have occurred because of market forces, thus allowing the tangible

impact of working with a revenue management solution to be

measured and utilized in return-on-investment calculations.

It is equally important to note that in addition to quantifiable ben

efits, revenue management system deployment can also bring a

significant number of less measurable benefits, such as improved

access to data, sharper focus on activities that bring benefit, and

reduction in the labor required to deploy restrictions in the PMS,

CRS, etc. The intangible benefits that revenue management systems

ment team to spend less time extracting and manipulating data

and more time proactively managing the business and generating

additional revenues

Primarily money management.