Production management principles and practices

Improving Project Management in a Hotel Chain

The situation is one that is not unfamiliar to many. A hotel chain is experiencing declining revenues and increasing costs. If this trend continues, the chain is likely to become left by the wayside in a highly competitive mature market, such as the hotel industry. For this reason, improving project management must include evaluating the factors causing this disturbing trend, determining which of these factors is most important to address, for the organization, what solutions can rectify this current challenge, and, finally, how best to implement this solution.

The cause of declining revenues may be out of the hotel's hands. External factors such as health scares, weather and terrorism have negatively affected several areas around the globe. As an example, London has been significantly, negatively affected by the July 7th bombings (Garrahan, 2005). Hotel bookings have fallen dramatically, and are likely to continue to fall after the most recent attacks on July 21st. Japan, and even Toronto, were negatively affected by the SARS epidemic only a short while ago. Earthquakes, tsunamis, and hurricanes also have sent tourism numbers plummeting in areas. In these instances, a hotel chain can do little but reassure customers that their facilities are safe or rebuilt, and entice them with incentives to return.

Despite these external events that are often outside of a hotel chain's control, many factors to declining revenue and rising costs are internal and can be addressed and corrected. Declining revenue may be because the hotel chain is not offering, or is not perceived to offer, a good value for the customer's dollar. The hotel industry is a mature industry, as mentioned, and as such is intensely competitive. Perceived value is crucial to the success of the chain. This may mean differentiating the hotel to improve the quality of the chain, offer additional features, or they may choose to compete on price point alone, all three improve perceived value.

When revenues decline, it is only natural that costs increase. The hotel chain may not be able to take advantage of economies of scale, as it had at greater revenue levels. Some costs, such as rising hotel insurance costs, which equate to $558 per room, 1.4% of total revenue, on average, are out of the hotel's control ("Hotel insurance," 2005). In addition, fixed costs will represent a greater proportion of revenues, as revenues decrease. However, increasing costs may also be a sign of inefficient and ineffective management strategies being utilized.

The first step to any solution the chain may choose to implement is a review of current policies and structure of the organization. Oftentimes, greater efficiencies can be achieved simply by implementing standard policies and procedures for employees to work within (Jones, 2005). Second, the chain may analyze units for profitability and determine they simply cannot be competitive in certain areas, choosing to close the units rather than continue to lose money. However, if the evaluation reveals that they can be competitive, management needs to analyze the costs they currently are incurring.

Some costs are unavoidable and unchangeable. However, even some fixed costs can be lessened with some shopping around. As such, even these should be analyzed to identify areas of savings.