Amidst a slowed economic recovery, a looming war, uncertain budgets and an ever-changing forecast, Owners are extremely challenged in assessing hotel performance and the effectiveness of their management team, given today�s continually changing environment. �Sales are down to budget, up from last year, lower than the forecast, yet higher than the comp set��does this look like an excerpt from your last monthly Owners� report? And, after reading it were you still left wondering whether the news was good, bad or indifferent? If your answer is YES, you�re not alone.  This year, budget submissions were accompanied by even more disclaimers and limiting conditions than in years past. In fact, volumes were written to explain how budgeted results would be achievable IF all of the following conditions were met: the economy stabilizes, we don�t engage in a war, internet rates improve, and the groundhog does not see his shadow. Well guess what, we have just described the operating climate of 2003 (including the groundhog, who did see his shadow by the way).

So, like most Owners you have probably requested multiple iterations of the budget, adjusted for the best, bad and worst case scenarios. And then there is always the contingent war time budget. Now that you�ve braced yourself for the worst, the challenge becomes how to measure the performance of your asset and the effectiveness of your management company within the context of daily changes in the operating environment. CHM relies on a key industry metric, Flex and Flow.

Proper flex and flow ensures that increases in revenue are followed by commensurate increases in profit, while decreases in revenue are accompanied by sufficient cost containment, with the goal being to achieve the highest possible profits under both scenarios. 

Simply put, flex and flow makes sure you are maximizing the profit potential of every incremental dollar your hotel receives (flow) and preserves profits (a.k.a. stop the bleeding) when revenues fall short of expectations (flex).

Profits during a downturn are generated by managing what you CAN control, rather than what you cannot. As an extreme example, say transient business has slowed, group pace is off, the internet tap has run dry and these are trends endemic in the market where you operate, perhaps the result of a war event. These factors then impact revenue, which drops a precipitous 20% from budgeted expectations. Given this extreme circumstance, comparisons to budget and last year alone are not very meaningful; however, valuable insight can be gained by applying the flex and flow metric to budget, prior year, forecast, and even prior month�s results. Although actual results may vary considerably from the typical benchmarks used to measure performance, by measuring flex and flow, Owners can quickly ascertain if management is responding to market conditions.

For instance, if revenue is down by 30%, should the expectation be that profits would decline by 30% as well?  Absolutely not. In fact, we are of the opinion that as revenue drops, profit, under good expense flexing, may potentially yield an increase in the profit margin, which can actually occur when new and lower breakeven points are implemented under reduced revenue operating scenarios. Proper controls, a strong cost containment plan, the ability to forecast accurately and staff to anticipated levels of volume is crucial to maintaining a profitable operation. 

The flex and flow analysis helps answer the question � could management have done better, and if not, why? It helps identify areas where problems exist, as well as uncover more subtle opportunities for improvement. This is just one of the tools that CHM uses to measure the effectiveness of management and ultimately ensure that hotels are achieving highest profits possible.