In most performance management solutions, key performance indicators (KPIs) are developed and implemented with targets and thresholds that appear to remain constant throughout the year. However, in the real world, KPIs will vacillate from month to month or even week to week due to the dynamics of business trends, cycles and seasonality. During the course of a year, monthly KPI levels can experience up to a 30% shift between peak and trough values due to seasonal impacts alone. In the hospitality industry, weather profiles, major holidays and vacation cycles can cause tourist demand to fluctuate dramatically from season to season and month to month. The bottom line is that KPI targets need to be adjusted to reflect this uneven customer demand across the year. This prevents the inevitable "roller coaster ride of emotions" as targets are exceeded or missed due merely to seasonal aberrations. This month we will investigate the simple technique of deseasonalization that allows us to translate "static" KPIs into more seasonal "dynamic" KPIs. The impact can be quite dramatic. In the following case study, KPI actuals from three of the months would have been misread as being below the KPI target level when, in fact, the actual KPIs exceeded the KPI target levels.
As I mentioned in the August issue of DM Review, standard metrics such as RevPar (revenue per available room), ADR (average daily rate) and occupancy (rooms sold divided by rooms available) have been developed to capture financial and operational excellence in the hospitality industry. Although we will specifically focus on the seasonal attributes of the occupancy KPI, the following approach can certainly be applied to both the RevPar and ADR KPIs, as well as consumer demand patterns in many other businesses such as food products, beverages, pharmaceutical and oil industries.
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