Report: following Challenges faced by the Hotels in Implementation of an

effective revenue management system.

Introduction
Revenue Management helps to predict consumer demand to optimize inventory and
price availability to maximize revenue growth. Revenue Management challenges the
resources to gather information about the market so that you can be proactive and
not reactive. Use the information to divide your market and adjust your products
through distribution, to the right customer at the right time and at the right price
(Maier, 2011).
Rooms revenue management (RM) has been around for the past 25 years, has been
widely adopted and has led to rooms revenue increases of 3 - 5%. Rooms RM
systems and practices have increased in sophistication over the years as hotel
operators and consulting companies have sought to fine tune the way in which they
maximize revenue. It has grown in popularity and now a widely accepted discipline
that has brought about significant improvements to businesses worldwide. With
globalization in recent times, there is now space for international hotels, fast food
restaurants, automobile companies and other Industry. Revenue or yield
management has become one of the top management priorities of international
hotel companies in recent years.
Definitions of RM
Revenue management is the application of information systems and pricing
strategies to allocate the right capacity to the right customer at the right price at
the right time. (Kimes & Wirtz 2003). Managing customer behavior at the individual
level via price and availability of Constrained resources to maximize profits.
(Anderson & Xie 2010). The idea is to maximize a companys effective use of its
resources by moving away from mass pricing and mass marketing, to the
management of the micro market. Revenue management does this through two
main mechanisms dynamic pricing and inventory control. (El Haddad, Roper, Jones,
2008). The process of revenue management generates incremental revenues by
accepting and rejecting reservation requests based on the value of the reservation
request. (Vinod, 2005).
Literature Review
In this report, we shall be focusing on the following Challenges faced by the Hotels
in Implementation of an effective revenue management system.
1.Buying or building the Revenue Management system
2.Forecasting and Accurate data storing
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Objective of the Report is to understand the pros and cons of buying vs building
RMS in the current scenario and the importance of Forecasting and Accurate data
storing and Implication on bad data storing on Revenue. So, these two challenges
are interdepended as well as interrelated to each other. A good RMS will give you
more accurate forecast and helping you to take better decision regarding strategies.
Some of the challenges faced by the Hotels in the implementation of an effective
revenue management systems as rate parity, Hotels dependences on OTAs,
overbooking, Capacity Management, Forecasting and Overbooking, Channel
Management and Distribution, Pricing Strategies.
In the process of setting up a RMS the one of foremost challenge is the decision
regarding building vs buying of the RMS system. (BMI paper Vrije Universiteit
Amsterdam Faculty of Sciences Business Mathematics and Informatics De
Boelelaan), and Forecasting and Accurate data storing is much dependent on the
RMS system. India being vast country with so many different culture and
geographical segmentation, each state is having different holidays and even the
months gets changed year on year as Diwali comes in October and November
respectively so the classification and shorting of the data is very difficult. Without
the commitment from the top management, RMS may be doomed to failure.
1. Buying or building the Revenue Management system
This is one of the most important decision that must be taken by the top
management, whether to buy or build the revenue management system. Buying a
revenue management system means that external professionals must understand
your way of doing business, your products and the prices based on different or the
same products. Which means you must disclose much of the information to the
external professionals, more over there focus is to convince the company to go for
their product rather than to understand the need of the company. The company
should take account into fixed costs, for paying the outside professionals during the
whole implementation. After the implementation, there are lot of cost involved in
terms of maintenance, updates or upgraded versions, transaction costs.
Following are the Pros and cons:
Pros:
Industry level updated Product and software has the benefit of being extensively
tested and used by other businesses and competitors. Developed by a highly skilled
developers and team of experts with the most updated features and friendly user
interface
Cons:
Incur high support and maintenance cost. Training is required at each level including
IT/Reservations/RM. Lack of the knowledge about the product means that every
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time any technical issue occurs you must contact the vendor and wait for the lead
time, effecting your business process.

On the other hand, building a Revenue Management system is in the first place
maybe looks like a cheaper alternative than buying a system, but when wrong
decisions are based on data with mistakes and wrong forecasts, the building can
become quickly more expensive. Therefore, it is important to build a Revenue
Management system by experts and step by step. So, companies who have trained
experts in this area and know how their reservations systems are working, will
decide mostly to build a Revenue Management system instead of buying one. A
reservation system is a main facility for any Revenue Management implementation,
because the company get all the data and information from the reservation system.
The user interface is an important component of the building Revenue Management
system. For the user interface, it is important that it is efficient. The user interface
supports for instance the prices, the forecasts, the creating of groups, the
availabilities and the controls. Because in-house software is developed by a team of
your choosing, it also gives you access to knowledgeable support. Rather than
dealing with technicians who may not understand your unique product, you can get
support from the individuals who have developed your software firsthand.
Following are the Pros and cons:
Pros:
The level of customization is perhaps the biggest benefit as build by your own
professional who understand your business more clearly. More specific to your
needs, including reporting capabilities. If your competitors dont have a similar
application, developing your own could give you edge. It gives you total control,
which is important if your business has specific needs and focused on your product
mix.
Cons:
Lack the knowledge and expertise to create sophisticated and up to the industry
standards product and strong IT team must be put-up for the product development
Upgrades can be difficult as technology is constantly evolving and it will be difficult
to migrate to other platform in the future.
Conclusion:
It is impossible to implement Revenue Management overnight, many aspects must
be considered. The decision regarding weather to buy or build the revenue
management system is very crucial depending upon lot of internal and external
factors. Both have their advantage and disadvantages; I would go for buying a RMS
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over building. As hotel is a long-term investment and a wrong product can lead to
destruction of the revenue.
In the contest of Indian Hotel industry, we have yet to have any RMS by Indian
companies. Companies are using the RMS which are tested and successfully
implemented in another country. EIH is using IDEAS, TAJ is Amadeus RMS, which are
development by the experts. As the RMS build by the professionals having
advantage of acceptability in the industry.
Where as Marriott uses their own RMS MARSHA (Marriott Automated Reservation
System for Hotel Accommodation) and IHG uses Holidex and PERFORM, which is one
time investment and saves cost which is one of the major cost cutting giving them
edge over others.

2. Forecasting and Accurate data storing

Weatherford and Kimes (2003) acknowledged that forecasting is the key driver of
the revenue management, and that without accurate forecasts, the rate and
availability recommendations produced by the revenue management systems may
be inaccurate. So, the impotence of highly accurate forecasting is very much vital
for other decisions as well including pricing, purchasing and budgeting decisions.
Hotel forecasting is the ultimate resource for anticipating the future performance of
hotel's key metrics occupancy, ADR (Average Daily Rate), and RevPAR (Revenue
Per Available Room).
India is a vast market and only after 1991, globalization the market was opened for
the Multinationals. Forecasting is not easy as Indian market is still not matured,
dates of festivals vary every year, middle income group is increasing every year,
addition of capacity is affecting your ARR. Sorting the bad data is a challenge and a
good forecasting is a serious challenge and lack of expertise and professionals can
lead you to destruction.
As a matter of fact, forecasting directly impact on your pricing, which is one of the
curial decision. Uncertainty about the future demand for the service that gives
revenue management its revenue advantage and makes it a challenge. It is the
management of this uncertainty that is the essence of revenue management. The
uncertainty is managed by:
Minimizing the uncertainty by producing the best possible forecast of demand and
its degree of unpredictable variation.
Therefore, accuracy of the forecasting has a direct impact on the performance of
the revenue management. Revenue Management system represent a part of the
computer system that requires different data inputs to make future demand
forecast. Therefore, the efficient collection and the storage of the data in the
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Revenue Management system is required to make a good forecast. Lots of data

should be collected, corrected and stored in the system. This process represents the
most difficult and time bounded part. The collected historical data should be
cautiously analyzed and reviewed, and the wrong data should be eliminated.
Conclusion
Revenue management is a proven discipline with a track record of significant
revenue improvement in various sectors of the travel industry.
Cross, R.G. (1997) suggests the use of the following rules for a good forecasting: a)
the forecast should remain at detailed level; b) big amount of data should be
employed in the analysis; and c) he forecasts must be adjusted frequently to
possible economic or company-specific changes. In addition, Raza (2008) argues
that it is important for a company to adjust the data forecasts when the economic,
financial or company- specific changes take place. Those forecasts are not always
simple to achieve and the managers are required to present the data objectively
and truly.
Good demand forecasting is a key aspect of revenue management.
To me following are reasons why forecasting is crucial for the success of a hotel:
1. Setting the correct strategies and drive incremental revenues
2.

For Effective Planning and choosing best Distribution channel mix.

With the change in the consumer behavior now days the hotels need to build a
Revenue culture and align departmental goals everyone should focus the goal of
revenue generation. Revenue manger is not only responsible for revenue
generations, its a team effort and every employ should focus on it.

Reference
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