By Arlene Ramirez
Operational benchmarking is a crucial practice in today’s volatile, uncertain, complex, and ambiguous (VUCA) world, especially in industries like hospitality. In the hospitality sector, the Uniform System of Accounts for the Lodging Industry 11th edition (USALI™) serves as a standardized framework, enabling hotels to utilize operational benchmarking effectively to assess and enhance their financial performance. When hotels adapt USALI™ reporting, leveraging its structured approach, they can compare their financial performance against industry standards and competitors.
However, operational benchmarking extends beyond merely tracking financial metrics. It requires a deep understanding of the marketplace and competitors. Organizations can introduce benchmarking as part of their financial culture through fundamental tools like vertical and horizontal analysis. Vertical analysis involves dissecting performance by comparing it to a specific base, while horizontal analysis compares performance to a budget, forecast, or previous year. These analyses reveal trends that empower hoteliers to investigate further to understand their operations better and make informed decisions, including reallocating resources and addressing competition.
The USALI™ framework offers metrics and ratios that can be integrated into comprehensive reporting. With detailed formulas and definitions, these metrics provide insights into the overall performance of hotels and specific departments or line items. For instance, the average daily rate (ADR) assesses how much revenue the hotel generates, on average, for each room sold—a crucial metric for comparing against competitors and evaluating a hotel’s pricing and selling practices. Operational benchmarking utilizes these metrics and ratios to compare against operational plans, past performances, and competitors, enabling a nuanced analysis of performance within the marketplace and an understanding of how managerial decisions impact profitability.
When benchmarking is part of the organization’s continuous improvement process, it may pose more questions than answers. Once trends or variances are identified, how can management identify or understand what is causing the observed results? In the next blog post, the discussion will focus on further evaluation of results and how the consistent use of the USALI™ framework facilitates this analysis.
Professionals in the hospitality industry can master operational benchmarking through courses offered by HFTP. Specifically, the Hospitality Benchmarking course covers key performance indicators, competitive set selection, and the effective application of benchmarking tools, equipping hospitality professionals with the skills to leverage this analytical approach in reviewing hotel operations. For more course information, visit the HFTP Academy and explore the certificates offered (https://www.hftp.org/professional-development/academy/certificates).
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