Decisions are easier to understand if you categorize them into four categories, where each category requires different types of action. Hotels have a fifth type of decision as in routine decisions that solve day-to-day problems according to a standard operating procedure.
Operational decisions - known parameters
These are well-defined problems with clearly defined decision parameters and available data. There are three types of technologies hotels can use to solve these problems
Hotels need some kind of business rules on how to make commercial decisions. Other words for rules are guidelines and policies. One example is that when on-the-books are 80 %, the rate will automatically increase by 10 %. Many business rules can easily be added to the hotel PMS or other systems and automatically be applied when something triggers the rule.
Instead of human-designed business rules, these models rely on a sophisticated statistical analysis of historical data. For example, many pricing systems use AI to adjust rates so the hotel will sell more rooms and increase revenue.
Constraint solving and optimization
Technologies like constraint solvers and optimization engines quickly identify answers that humans take years to discover without technology support, streamlining businesses' decision-making. Optimization is very difficult in hotels which explains why some of the revenue management systems in the best case only are close to a "good enough" solution.
Operational decisions - unknown variables
Operational decisions must be made without the necessary data available. Hotels excel in making decisions based on a gut feeling or prior experience. There is no such thing as a perfect world where perfect information is readily available. Technology cannot provide a perfect solution to these types of decisions, but it can do much better than the old-fashioned approach of relying on instinct and intuition.
Examples are in business planning, budgeting, and forecasting where historical data, day-of-the-week and seasonal patterns, statistical modeling, and human input provide a "best guess". This is more accurate than human intuition, objective, and capable of improving as new data is added.
Simple strategic decisions
Computers excel at simple, repetitive tasks, whereas strategic decisions are more dependent on human insight and outside-the-box thinking. Therefore technology has focused on operational decision-making. This is about to change with business intelligence (BI) and analytics solutions. BI tools extract, aggregate, and visualize operational data from systems such as the hotel PMS, to give strategic decision-makers insights to assess business performance and decide where to focus. For example, a BI tool might show the revenue manager pick-up for packages from specific countries and distribution channels. Another example is to show the customer acquisition cost per segment or assess the profitability of contracted customers. By starting from high-level dashboards and drilling down to more detailed data, the commercial team can understand where the risks and opportunities are and take action to optimize revenue.
Complex strategic decisions
Complex strategic decisions include "Should we expand the business and open a new hotel?", "How can we gain from becoming more digitalized?" "Should we add a spa to the hotel?"
Hotels need human leaders: business brains with the big-picture vision and keen strategic instincts to understand the ramifications, foresee the risks, and make the right call. Even the most sophisticated artificial intelligence can’t (yet) model a problem at this kind of scale and multifaceted complexity.
Final thoughts and conclusions
Hoteliers should spend more time thinking about strategy, to make the right complex strategic decisions that will lead to success. The general manager should let the team handle operational decisions and simple strategic decisions and can easily feel comfortable doing so if the hotel has implemented systems that support the decision-making and continuously keep the general manager in the loop. After all, the general manager is responsible for delivering a sustainable healthy profit to the owners.