Are you ignoring hotel asset management as an effective strategy to boost your company value? Do you think that asset management is a mere buzzword?.

If yes, you are letting go probably the most powerful tool there is to deliver return on investment for your owners.

How, you want to know?

Fair enough.

I will lay out a compelling case for hotel asset management to deliver the highest return possible on investment.

More specifically, I will tell you the metrics you cannot take your eyes off!

Let’s do this.

Hotel Asset Management – Buzzword or Effective ROI Strategy?

Do you have an effective asset management strategy?

Often, the person asking the question is as puzzled as the person being addressed.

This confusion is born out of one fact.

Traditionally an asset is considered the domain of the bean counters or accountants.

This involves:

• how to account for assets,
• how to physically verify them,
• how to charge depreciation on them
• and so forth.

But asset management as a strategy is far removed from the mere act of accounting for the purchase and use of an asset.

In fact, a lot hinges on how the word "asset" and the term "asset management" are understood to realize their worth and value.

Role of an Asset

While assets have different roles to play in a hotel business their key role is generation of revenue.

In effect, assets are primarily meant for earning revenue.

In the hospitality business there is a saying: "No Top line, no Bottom Line."

Top line refers to revenue and Bottom line to profit.

While this is true of any business, it is more so in the hospitality business.

Having said the above it is appropriate to point out again that an asset has other roles to play.

These other roles are like fulfilling fire and life safety requirements, legal, functional requirements and so forth.

In the modern-day context of asset management, asset will include many other areas.

For example, even powerful but intangible items like the brand, patents and copyrights, goodwill and so on.

Thus, the humble asset, considered only the concern of the accountants, has grown exponentially in its scope and value.

And it squarely needs to have the focus of hotel managers.

What is Asset Management?

In general, asset management can be defined broadly as:

“It is the process of ensuring that a company's tangible and intangible assets are maintained, accounted for, and put to their highest and best use.”

In other words, asset management requires finding ways to maximize a company's value.

This is by managing fixed and intangible assets to be more reliable and efficient.

Included in this process is:

• evaluating asset financing options,
• asset accounting methods,
• operation management, and
• maintenance discipline.

But in many cases, how they are measured has changed.

Why is this critical?

Most financial jobs don't carry an official "asset manager" title.

The truth however is that nearly everyone in the finance world is an asset manager.

How is that, you ask?

Great question.

Let me clarify.

Most financial professionals are assessed on their ability to successfully manage assets -- either directly or indirectly.

Proficiency in asset management makes the difference between a mediocre and a stellar performance at both the individual and corporate levels.

Let us go back to the concept of optimizing value.

Particularly, by managing long and short term, tangible and intangible assets as the goal.

With this goal, asset management takes on a whole new incarnation encompassing:

• Property Management
• Revenue Management
• Market Share Management
• Cost Management
• Profit Management
• Asset Utilization
• Asset Financing initiatives
• Brand Management

It is the "Optimizing Value" strategy that distinguishes asset Management from pure revenue or profit management.

Now the asset is seen as creating and optimizing value and not just generating revenue or profit.

Even matters like optimizing the life of the asset become prominent.

This is because, it creates value by increasing the life of the asset itself.

Let us look at each of these powerful new facets of asset management.

Property Management

Property Management is a thorough assessment of the condition of:

• guest rooms,
• public areas,
• food and beverage outlets and
• other areas of the hotel.

What an asset management review seeks is to understand the asset and its operation.

Included in this process is a study of whether the assets are in a prime state of delivering the output expected of them.

In other words, this ensures that where an asset needs to be maintained, it is so done.

It also determines where the life of an asset needs to be increased or the asset needs to be upgraded.

This is done through an appropriate renovation or refurbishment program put in place.

Guest rooms and food and beverage and other outlets require constant upgrading not merely in the physical sense.

But also to conform to guest tastes, preferences and likes.

It is this aspect, which drives home the value creation role of asset management.

Revenue Management

The focus of asset management in the past has traditionally been on cost control.

Reducing the operational or flexible costs of a hotel is what used to determine the profitability of a hotel.

In a way, the costs of the actual operation were being given more importance than the source - the top line and the revenue of the hotel.

But this is not true anymore!

Revenue Management itself has come a long way since the traditional approach of just increasing revenue dollars.

The attention of hotel asset management has been increasingly moving towards room yield.

Optimizing yield is paramount in the drive towards bottom line enhancement.

Both price and volume play a key part in this crusade.

Driving occupancy and average room rate is the key nowadays to controlling the bottom line of the hotel.

Specific reasons exist why this is the case.

There is now, easy availability and proliferation of sophisticated software systems.

These are for anything from:

• manipulating room inventories,
• hooking on to online reservation and
• distribution systems and so on.

All this has meant that yield becomes a much sought after output.

More and more research is going into the psychology of the customer.

And use of that research into determining buying patterns, product and service preferences have meant one major fact.

Today yield management systems generate astonishingly detailed customer profiles.

This is used to target promotions, which is made widespread by the amazing power of social media.

Market Share Management

Asset management helps to emphasize this stakeholder favorite amongst Key Performance Indicators for an individual hotel or chain.

At the end of the day, stakeholders want to know how much of the pie or market share their property is commanding.

The competitive set is the single most important index of where the property stands in the market it operates.

It virtually determines its continued existence.

RevPAR levels drive a lot of this position in the market.

Asset Managers would like to dig deep and unearth the factors that move the Market Share.

Or alternatively the Revenue Share Index for a hotel property.

Misplaced emphasis on mere Average Daily Rates as opposed to a holistic RevPAR approach often is to the detriment of the hotel property.

How, you want to know?

Well, this amounts to holding first position in ADR but suffering in overall RevPAR and thereby market share.

Asset Managers would like to ensure that the hotel does not take a short-sighted ADR only approach.

Because, this only ensures a top spot in rates but forsakes occupancy and RevPAR superiority.

It ultimately impacts profitability levels, which are the key concern of stakeholders.

Cost Management

Cost Management has long been a panacea for asset management practices.

However, these were not known formally as asset management.

It was known variously as cost cutting, austerity measures, bottom line enhancement and so on.

Ironically, for a long time there was this notion that profit enhancement is majorly the product of cost control.

Very little attention was paid to revenue management.

In recent times, even cost control has graduated to more refined approaches.

For example, analysis of:

• what is the asset behind the costs,
• how can that asset be influenced so that costs may be impacted
• and so on.

Categorizing costs into fixed and variable is a major element of cost management and asset management gave it the importance it deserved.

Variable costs are those that move with the business volumes.

This ability to control such costs in tandem with occupancy and cover count levels was a huge step in bottom-line optimization.

Profit Management

Profit Flow Through as an analysis tool helped in elevating cost management to a much more stakeholder-driven approach rather than the manipulations of an accountant or financial controller.

How much incremental profit dollars result from incremental revenue dollars is determined a lot by how well revenue and costs are managed.

This flow through analysis is a critical element of asset management reviews.

For stakeholders, it measures how much bang for the buck they are getting.

Asset Utilization

When you talk about optimizing value by managing assets, you are in a way shifting the focus to capacity and potential versus mere performance.

In other words, you are talking about asset utilization.

Asset utilization is the process of determining first what an asset is capable of in terms of output and then assessing whether that output is achieved.

Many a time, it means looking at the asset from not merely a hotel business or operation point of view but taking a real estate point of view.

A classic example is the way revenue from Banquet Function Rooms is looked at.

Traditionally, the sale of the function rooms through events and the resultant food and beverage revenue generated are the point of focus.

However, an asset management approach would be to determine the revenue or even profit per square foot of space occupied by the function rooms.

Plus, assessing how that compares to a real estate rent or lease of the space.

Here, the focus has shifted to what the function room space is capable of earning - not just merely through using it for holding events.

Asset financing initiatives

One related element of asset utilization is also how an asset is financed.

An asset's financing plays a huge part in not only returns in a general sort of way but also determines how tax and profit efficient it is.

Prudent use of borrowings to garner tax benefits and shelters will ensure that profitability is enhanced.

This is yet another facet of value creation.

The Stakeholder-take

Stakeholders pour money into their hotel investments expecting good returns.

To achieve this return, the hotel property needs to be looked at in asset management terms and not just financial or operational.

Stakeholders would like to have a professional SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis carried out.

The purpose is to assess their chances of accomplishing the returns they seek.

In recent times, they are turning more and more to professional asset managers to carry out their reviews.

And determine whether the asset is indeed being managed in a manner consistent with earning the returns expected.

As far as they are concerned, a hotel asset is no more the domain of the accountant or the financial controller.

It is the job of an asset manager, and the paramount objective is value creation.

Asset Managers have their work cut out for them.

Lakshmi Narasimhan Soundararajan is the founder of Financial Skills Academy a New York city based enterprise focused on hotel finance training, coaching and consultancy. Lakshmi taught undergraduate and graduate courses for a decade at New York University, Jonathan M Tisch Center of Hospitality as an Adjunct Assistant Professor during Spring and Fall semesters. Topics included hospitality finance, business development among other courses.

Right from the time he was in school, Lakshmi had a head for numbers. In fact, he says, numbers talk to him and tell him stories. At the same time, as he fashioned his career in the hospitality industry, he worked closely with colleagues who did not have a financial background. He saw them struggle with numbers and fear them.

Lakshmi made up his mind to commit his career to hotel finance training by simplifying numbers for the benefit of his non-financial background colleagues.

He is currently working on Financial Skills Academy Membership with the philosophy of assisting hotel middle managers, small business owners and students to Build Financial Skills, Knowledge and Ability in themselves.

His vision is for Financial Skills Academy Membership to be the Ultimate Learning Hub for Hotel Finance Training.

Lakshmi 's all-time favorite historical figure is Leonard Da Vinci and in particular Da Vinci's love for simplicity. While developing his membership site, Lakshmi based the value proposition for his hotel finance training courses on three foundational principles: SIMPLE. NON-TECHNICAL. USABLE.

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