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23 Jun, 2011

Measuring Hotel Management’s Performance In Ways That Count

David McMillan

By David McMillan, former CEO of the International Hotel & Restaurant Association, presently a hotel industry consultant. David’s blog can be found here. The views expressed are his own.


The experts weigh in on measuring performance in an uncertain world. As is my custom, I question whether the experts have identified the best method.

“Measure hotel managers using RevPAR-adjusted budgets”. Perhaps the day has come to take the clamps off the Uniform System of Accounts for Hotels and really measure performance based on what is controllable and what is not.

The recent announcement by a major Hospitality Consulting group that Budgets are no longer the best measurement of performance was met in my office with a huge yawn. The arguments are well thought through theoretically and I invite my readers to review the logic here,


The logic is sound in the hallowed halls of academia but, respectfully, does not hold water in the hallowed halls of my School of Hard Knocks. It is also a fine method of demonstrating to the industry that Consultants are indeed a worthwhile entity, providing alternate methods of measurement for management’s excuses for not meeting or exceeding budgets.

It is my belief that the time has come to use the full power of technology to break down performance on a regular and scientific basis so that management can ‘land this baby on a dime’. We have long heard the extraordinary stories from NASA’s headquarters of the millimetric precision of their space engineers as they control the destiny of their missions in space. The time has come to use it in our industry.

1. Hospitality is not space science!!

2. Space science is ‘details’.

3. Hospitality is ‘details’.

4. Hospitality is in the present and the future, not in the past.

5. REVPAR is the past, not the present or the future.

The ability of management to foresee the future and plan to deal with it determines the hotel’s eventual performance. Future events are either fixed or variable. Revenues are either fixed or variable. Expenses are either fixed or variable. Measurement therefore of the results should therefore be focused on the variable components because let’s face it, what can you do with something that is fixed?

That’s easy to say, one might conclude. But some expenses are partly fixed and partly variable.  And some revenues are partly fixed and partly variable. Yes, that is true and who is best at determining whether it is one or the other? Managers.


My position in this argument is that measuring financial performance uses an antiquated method of gauging the success of a General Manager and is hugely dependent on who does the measurement and by what subjective means. I would make the argument that we now have the methods, the means and the intellect to determine precisely the effectiveness of an operation financially and then start to measure.

Or at least start the measurement of other more important factors such as

  1. Guest Satisfaction
  2. Employee satisfaction,
  3. Innovation,
  4. Quality Assurance,
  5. Time management,
  6. Community involvement,
  7. Employee performance evaluation & reward,
  8. Employee turnover,
  9. Employee development
  10. Local procurement or Carbon Footprint reduction

………….and other stuff that goes by the inspector’s nose as he seeks to impose his accounting-based performance measurements on the whole team.