This is the last post in the series and I wanted to discuss some items that should be considered when reviewing flex/flow numbers. Each period is unique and should be evaluated that way. It is impossible to discuss all of the different issues that can skew flex/flow numbers from month to month, but I am going to discuss a couple situations below that will be helpful in analyzing flex/flow calculations.
How did we get the extra revenues?
This is one of the most critical situations to consider when reviewing flex/flow numbers. As discussed in part one, there are a lot of expenses that are budgeted and measured based on per occupied room (POR). However, flex/flow measures the dollars from the revenue variance to the house profit variance. So what would happen if the property exceeded revenues for the month but sold fewer rooms than budgeted? Well if you consider that your POR costs should have been lower due to fewer rooms sold, the additional revenue had to come from either ADR or another revenue department, so your flow through percentage should actually be higher than your goal. The opposite is also true if you exceeded revenues by selling more rooms than budgeted while the ADR was less. The rooms sold will cause the POR costs to increase but the lack of ADR will hurt the flow through percentage because you got less revenue per room sold. The same should be considered when you fall short of revenues as well. There are numerous scenarios on this, but the point is that you should consider how you got the revenue variance to determine if the goal should have made and if the goal should have been higher.
Approach the small variances with caution.
This was purposely shown in example #2 for parts 3 and 4 of this series. You will see that the smaller the revenue variances, the more likely you are to get an outrageous number in the flex/flow calculation. If I told you that your property just flowed -500% for the month and nothing else; what would your reaction be? I am guessing it wouldn’t be “great job and keep up the good work” but should it be? What if upon further review of the statement you found that the revenues were over $200 and every other line item equaled budget, but you had a $1,000 extraordinary expense and that alone caused the house profit to be under $1,000 and the flow through to be -500%. I think you would agree that this is not as bad as the initial -500% flow number would lead you to believe. In my experience working with flex flow numbers, my general rule is the smaller the revenue variance the less effective the calculation. Therefore it should not be taken literally without some further investigation.
In closing, I hope this series gave you another tool to manage your property. As stated in part #1, the goal with flex/flow calculations is to measure the efficiency between additional revenues and bottom line profit. Thanks for reading the series and stay tuned for posts in the future that will range widely on operational hotel topics. If I can assist in any way, feel free to contact me directly at firstname.lastname@example.org.
Flex/Flow Calculations Poll #1
Flex/Flow Calculations Poll #2