Project Management Institute Melbourne Chapter Root Causes of Hotel Opening Delays Thursday 30 August 2018

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2 Project Management Institute Melbourne Chapter Root Causes of Hotel Opening Delays Thursday 30 August 2018

3 INTRODUCTION Educational and professional background. Nothing at hotel school had prepared me for the rigours of opening a new hotel. Previous and current jobs. How did I get into project management? I used to be an accidental project manager. 3

4 INTRODUCTION * Worldwide hotel pipeline now stands at 11,130 projects comprising 1.9 million rooms the highest level ever recorded. Greater China: world s 2nd biggest pipeline: 2,340 projects. 525,640 rooms. ASEAN Countries: world s third, Asia s 2 nd biggest pipeline: 165,528 rooms. 4

5 INTRODUCTION New hotel openings in the region are frequently delayed. Status Quo seems to be that delays are part of the landscape. This presentation will talk about the discrepancy between the perceived reasons and the actual reasons of these delays. Financial consequences of poorly managed projects: Wasted project resources, Opportunity cost, Share price. 5

6 ASSESSING NEW HOTEL OPENING PROJECT PERFORMANCE * 6

7 ASSESSING NEW HOTEL OPENING PROJECT PERFORMANCE Consequences of delays in technical, operational and commercial readiness: Incremental pre-opening expenses. Tie up corporate resources. Damage to reputation and credibility. Revenue disruptions. Opportunity costs. Pre-opening budget overrun 35% on average. Lost revenues US$ 15 million. Lost management & incentive fees US$ ,-. 7

8 CHINA HOTEL DEVELOPMENT * 8

9 CHINA HOTEL DEVELOPMENT Differences with US: US growth was less steep and took place over a longer period of time. Several major hotel management companies achieved current size through acquisition. The bulk of the openings in China / Asia will be achieved through new built projects. Branding: North America 66% of inventory is branded vs 22% in Asia. 9

10 REGIONAL GROWTH PLANS OF MAJOR INDUSTRY PLAYERS Synopsis Marriott International InterContinent al Hotels Group Hilton Worldwide Wyndham Hotel Group * JinJiang International Choice International Accor Hotels Over 535 open properties in Asia-Pacific, another 475 in the development pipeline. Largest China development pipeline of 215 properties, plus 122 properties for the rest of Asia, totaling 89,170 rooms. Hilton will open 206 hotels in China, more than three-quarters of the 266 it s targeting for the Asia-Pacific region in coming years. Our long-term vision is to have a footprint in China that rivals our presence in the US acquisitions of Plateno Group and Louvre Hotels Group (e.g. Golden Tulip has a pipeline of 250 hotels). Global development pipeline of 745 hotels (no data on Asia or China). The largest hotel pipeline in Asia Pacific outside of China, with more than 230 hotels and 48,000 rooms in the pipeline (160,000 globally). 10

11 KEY QUESTIONS 11

12 NEW HOTEL PROJECT LIFE CYCLE

13 HOTEL OPENINGS STATUS QUO Project Management methodology and standards are not applied in hotel industry! Use of isolated elements perceived as PM, such as Critical Path, software and a vague, undocumented notion of a Project Life Cycle. The Project Management Process Groups of Initiating, Planning, Executing, Monitoring & Controlling and Closing are not applied. PMBOK Knowledge Areas are not applied. These areas for improvement are huge and would produce measurable positive results. Ex: Project Risk Management would improve accuracy of forecasting. 13

14 HOTEL OPENINGS STATUS QUO Hotel brand / management companies do not physically own the real estate, therefore have no control over construction, budgets, etc. * The relationship with the asset owner is based on a TSA, HMA / FA and TLA. ** Hotel opening efforts are driven by corporate operations, supported by: Hotel General Manager. Property based task force. Corporate preopening support functions. 14

15 HOTEL OPENINGS STATUS QUO Approach does not work on large scale and has severe limitations: Not enough people in the existing hotels to assist. Projects run simultaneously, not concurrent. Hotel owner approval and incremental workload. Generally, the Hotel General Manager is parachuted in, frequently hits the ground running and ends up doing PM related tasks! * Skill-set to open a hotel is very different from managing ongoing hotel operations. ** 15

16 HOTEL OPENINGS STATUS QUO 16

17 A SURVEY TO UNDERSTAND HOTEL OPENING DELAYS Interviews with over 80 hospitality professionals: To better understand how international hotel companies operating in Greater China approach new hotel openings. To better understand the nature and causes of these delays. Respondents worked for one of 15 international and regional hotel companies. 17

18 OBSERVATIONS ON THE RESPONDENTS None were expert in the field of project management and its methodology. None had received any formal project management training. * None (property based) had experienced a new hotel project which opened by the target opening date. ** 18

19 OBSERVATIONS ON THE RESPONDENTS None held any type of project management certification. Only 1 respondent (with an engineering background) had held PMI certification in the past. About 95% (77) had never heard of the Project Management Institute. 19

20 OBSERVATIONS ON THE HOTEL MANAGEMENT COMPANIES Only 2 out of 15 hotel management companies had a dedicated hotel opening support function. None of the hotel management companies employed certified project managers. None of the hotel management companies had a project management department. 20

21 A SURVEY TO UNDERSTAND HOTEL OPENING DELAYS Two questions: 1. How does your company approach new hotel opening processes? 2. In your view, which issues cause new hotel openings to be delayed? 21

22 PERCEIVED CAUSES OF NEW HOTEL OPENING DELAYS 81 Respondents raised 825 points, sorted into 51 subcategories and grouped into 10 categories, ranked by using Pareto analysis: 1. 38%: Hotel design & construction %: Hotel owner %: Hotel operator. 4. 8%: Pre-opening activities & operational readiness. 5. 4%: Procurement. 22

23 ROOT CAUSE ANALYSIS RCA to determine the basic underlying reasons that cause the problems: Step 1: Review of sub-categories and categories to determine direct * and intermediate causes. ** Step 2: Apply the 5 Whys technique to examine why these causes would occur. *** Step 3: Deduce the underlying reasons and formulate the root causes. Step 4: Map out the sequence of events and vectors, as well as the relationships between direct, intermediate and root causes. 23

24 RCA 24

25 ROOT CAUSE ANALYSIS & CAUSAL CHAIN Conclusions: Four sets of perceived causes are actually direct causes: Delays in concept, design, construction, hand-over. Delays in preopening activities & poor execution. Delays in procurement process. Non-compliance with brand standards. Remaining six sets of perceived causes are actually intermediate causes. 25

26 ROOT CAUSE ANALYSIS & CAUSAL CHAIN Conclusions: Actual root causes are: Project investment motivation. No project management culture. Management company modus operandi. Delays can occur because of a single cause or multiple causes. None of the identified root causes were mentioned by the respondents. 26

27 INTERMEDIATE CAUSES OF HOTEL OPENING DELAYS

28 SO WHAT IF HOTEL OPENINGS ARE DELAYED PMI 2017 Pulse of the Profession: US$ 98M wasted for every US$ 1B invested in projects. Project success rates: High-performing organizations: 92%. Low-performing organizations: 33% Organizations that invest in Project Management waste 28 times less. Global hotel development pipeline of the Top 10 international hotel management companies: projects / 1,247,000 rooms, US$ 117 billion worth of fix asset projects. * US$ billion at risk. US$ 123 billion combined owner / operator opportunity 28 cost.

29 RECOMMENDATIONS A hotel opening is in fact a project!!! Standard PM methodology is well suited to hotel opening projects on large scale: Processes involved in each hotel opening are virtually identical, which allows for plans & schedules to be standardized. * To open new hotels on large scale effectively, the hotel industry needs to significantly upgrade its understanding of project management, methodology and techniques. 29

30 THE WAY FORWARD Essential points to recognize: The hotel industry seems not to link project delays to the absence of project management culture and the lack of an all-encompassing project management methodology. What the hotel industry perceives to be the causes of new hotel opening delays are only symptoms of more deep seated systemic problems. Five Building Blocks to improve project performance. 30

31 FIVE BUILDING BLOCKS TO EFFECTIVELY IMPROVE PROJECT PERFORMANCE

32 HOTEL INDUSTRY CHALLENGES 1. Limited understanding of Project Management as a strategic competence. * 2. Few project management champions and almost no hotel companies employ certified project managers. 3. Hotel management companies are traditionally conservative. ** 4. Most hotel management companies are set up as functional rather than matrix organization. 5. General misunderstanding in the industry as to what causes new hotel opening delays. 32

33 HOTEL INDUSTRY CHALLENGES 1. Internal roadblocks. * 2. Implementation challenges. 3. The knowing-doing gap. ** 4. The difficulty of selling project management to senior leadership. *** 33

34 INTERNAL ROADBLOCKS 1. Lack of understanding of PM by senior executives. 2. Control of processes. 3. Fear of being tracked, monitored, held accountable. 4. Perceived cost concern. 5. Defensive attitude of status quo. 6. Time constraints for taking on projects. 7. Lack of willingness to enforce management contract. 8. Ignorance/arrogance. 9. Incompetence (Kruger and Dunning). * 10. Lack of higher / continued education in upper echelons. 34

35 THE COST OF NOT EMBRACING PM AS A STRATEGIC COMPETENCE Ultimate bottom line: 1998 study: correlated news on failed IT projects with stock price declines. Stock price of companies experiencing major PM problems: down 20 to 90%. Seven firms lost an average of 59% of their stock value while the projects were under way and while receiving adverse publicity. Estimated increase of 6% in average net earnings if projects would not have failed. PM applied effectively to new hotel opening projects would contribute to improved earnings and stock value. 35

36 RECAP Hotel openings in the region are frequently delayed and causes are mainly self inflicted. Hoteliers do not link delays with a lack of project management culture. There are hospitality industry challenges to embrace project management. The solution is not rocket science and has been applied in many other industries... 36

37 OUR MISSION Project management is now used in more than 85 occupations across a wide swathe of functions and industries. Personal objective: help the hotel industry transform itself and embrace Project Management as a Strategic Competence. 37

38 THE LAST SLIDE Q&A Questions later? 38

39 THANK YOU