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Hotel Feasibility Study In India: The what, why and how

Hotel Feasibility Study is carried out to determine certain factors inclusive of economical, financial, demographic and geographical elements. In other words, it is a study based upon market and financial analysis along with economical and technical feasibility. Above stated factors, altogether define the potential achievements of a Hotel Project. Hotel feasibility concentrates additionally on hotel's administration with crucial data that could keep the organization from uncertainties of risk management- to an extent.


THE WHY OF HOTEL FEASIBILITY STUDY:


Hotel feasibility provides an analysis on the practicality of the proposed hotel project. Hotel feasibility studies contribute to business advancement. They target the operational tendencies of a hotel. They can likewise distinguish potential snags that may obstruct its tasks and hamper funding in order to get the business ready for action. It proceeds in the direction of market advertising systems that can help persuade financial backers or banks that putting resources into a specific venture or business will produce profits.


  • Draws practical parallels to proposed design for the project: Proposed/ existing hotel project seeks a detail centric study with highly professional approach in determining financial attributes, hospitality market viability, regional and overall economy, investments and capital budgeting. Comprehending the marketing strategies and categorical demand with the targeted customers. Identifying realistic opportunities and preventing major failures is one of the strong purposes of a feasibility report.

  • Assures greater ROIs with alleviated economical value: With an ability to analyze hotel competitiveness, feasibility reports assist in highlighting underlying crucial factors that would mostly lead to low development costs, data driven market analysis, expected NPVs and IRRs thus, greater economic viability.

  • Determines involved risks and alternative plans: The potential of a hotel is also marked by its local-friendliness that in no way disregards cultural aspects and rather preserves environmental embodiment. The project should hold the certainty to meet the local as well as international tourism demands and simultaneously create employment and income opportunities for locals ensuring sustainability.

  • Suggests the economic and technical viability of the project: Feasibility study works on the model of cost benefit analysis in the view of development project viability. As a systematic tool, it provides a significant amount of support to the developer in the decision making process taking limitations and recommendations into account. The set of propositions should have firm grounds as well the feasibility report concluded must provide supporting evidence within recommendations.

  • Strategies determining potential development of hotels: The key methodologies involved in determining the feasibility of a hotel project surely involve the development of proposed financial asset in a manner that would not only guarantee reasonable annual returns but also contribute to the regional economy.


ELEMENTS OF HOTEL FEASIBILITY STUDY:

What defines the profitability and sustainability of a business model? Lenders, operators and investors carry out the studies at regular intervals to ensure consistency. Hotel feasibility studies are undertaken by the developers to determine cost estimates of the project, recognize the investment of resources and maximize the return on investments.

Unique concepts of hotel feasibility with an innovative approach help standout amongst the finance providers. Certain elements comprise the cornerstone of these studies guaranteeing a productivity induced analysis.

  • Concept development: Gathering best of advisory to proposed business model with an intention to establish product positioning, market visibility and definite third party management of facilities and services

  • Estimation of regional economy: Based on the studies concentrating on area of the proposed project and demographic attributes

  • Availability and accessibility: Access to various resources and project related amenities

  • Re-evaluation : Reviewing the project costs and outreach and other multiple aspects

  • Analysis: From financial to market and economical to geographical, productive analysis is carried out on the basis of surveys and data accumulated after extensive research.

  • Estimation of project: Keeping a record of performance through Occupancy Rate (OCC), Average Daily Rate (ADR), Revenue per available room (RevPAR) and further establishing presence in the market, increasing feasibility. It is all the more dependent on seasonal occupancy

  • Annual audits: Operational analysis of project conducted annually

  • Project growth: Calculating financial worth through the concepts of discounted cash flows and direct capitalization

  • Revenue: Positive values of NPP(Net Present Value) indicates low cost investments and greater revenues. IRR (Internal Rate of Return), similarly, is calculated to analyze capital budgeting of projects and draw expected annual returns

  • Development recommendation: Recommendations are made to compare the alternatives with the main study to distinguish efficiency and viability


PROCESS OF HOTEL FEASIBILITY


For increased economical feasibility, the architect and development team create a project that has greater economical value than development costs. However, the entire process is complex and takes different formats as per the content but includes these three basic steps in one form or the other. Commenting on a generic process, the hotel feasibility consists of three main steps.


  1. The very first step is to determine the regional economic value of the proposed/existing project with respect to relative competitiveness where local hotel demand is recognized and allocated. Factors like seasonal occupancy and room night demand analysis are evaluated in order to provide reports with annual occupancy and average room rate.

  2. The second step is to project the hotel’s operational revenue and expense consequently leading to calculate annual net operating income.

  3. Third and the last step is to change over Net Operating Income into an estimated rate through discounted cash flow methods. The end estimate is the determined financial worth i.e. the economic value which is differentiated with absolute development cost.


CONTENT OF THE FEASIBILITY REPORT


The content of a Hotel Feasibility Report varies as per requisite and is formatted and structured accordingly.


The first and foremost section of any report includes title, acknowledgement of third-party organization, email and the organization of client. This section is precise yet descriptive.

Since there is no sole criterion for setting a format of the report, thorough analysis is carried out before structuring the format in the right style. As an illustration, one must ensure

  • Sub-headings and abbreviated title of the report.

  • Headings should be properly formatted

  • Maintain the same style of headings throughout the document and use same font and size

  • Use same citation format in the entire document

In terms of information to be included:

  • Executive Summary: The following portion consists a description about the proposed/existing project, the visionary and detailed customer-oriented approach

  • Background: This provides the efficiency of the feasibility report, who is structuring it and it’s application in the past, if any.

  • Analysis:

  1. In-depth implementation of methodologies regarding Hotel Feasibility Study with a project-centered and highly professional approach

  2. Hospitality Market Analysis: Achievable occupancy and average daily rate based on regional hotel market analysis, identifying competitive projects and projecting operational potential to lenders, investors and management companies

  • Alternatives: Study of alternative proposals to the main research/proposal

  • Cost-benefit evaluation: A thorough analysis carried out to evaluate cost-benefit effectiveness in reference to development costs and speculate economic feasibility

  • Conclusion: A synopsis of the research and consultant’s narratives regarding the proposal and its study

  • Recommendations: Includes any and all recommendations and continued reformations in context to the study and derived conclusions

Lastly, we attach a reference page that is inclusive of all references used by the consultants throughout the project evaluation (articles, blogs, periodicals, books etc.) cited in the report.


OPERATIONAL PROFORMA: HOTEL FEASIBILITY REPORT


Hotel Feasibility study inculcates in-depth analysis and thorough speculation of developer’s proposed plan with a detail oriented and highly professional approach. It is primarily carried out to provide the client with accurate data involving cost development charges, risk management, NOI, etc. to assist them in decision making for their proposed project.

  1. Studies involving hotel feasibility bring an insight into the crucial steps and output while setting up a hotel namely Product Positioning, Net Operating Income, DSRC and IRR ratios, Economic Value.

  2. The identification, exploration and recognition of any opportunity, here proposed/existing project, comes under Pre Feasibility.

  3. The developer/third party can carry out a Highest & Best Use study (HBU) for increased feasibility and core examination of financial, geographical and economical viability.

  4. All highs and lows in interest of the stakeholders can be analyzed including potential ROIs and investments.

Comprehensive Hotel Feasibility Analysis is foremost essential while accessing financial attributes of hotel development. In short, this study focuses on the entire project and it’s contributing factors that would affect its sustainability. As discussed in hospitalitynet blog, the study includes

  • Architectural and Engineering study: Utility accessibility, soil and land attributes, construction and plan alternatives, land-use plans

  • Legal study: Hindrances caused due to political and legal interference

  • Compatibility study: Advancement of development project with respect to environment laws and public policies, surrounding land uses

  • Location and Market analysis: Assessment of economic and regional in-demand surveys to cater the sustainability of location and market for business

  • Market Feasibility study: Revolves around the contemporary functionalities of market as well as future market dynamics

  • Strategy study: Analyzing the project thoroughly and development objectives, policies and plans

Preliminary Hotel feasibility, to a great extent, allows the consultants to determine the feasibility of the proposed hotel project within the provided criteria of developer/owner/stakeholder. On the other hand, Comprehensive Hotel Feasibility comes with a holistic approach covering all the aspects and operational outcomes including cost benefit and capital budgeting analysis along with various financial alternatives.


How can ProMiller help?


ProMiller can be your one-stop assistance for Hotel Feasibility study.. From best financial advisory to assured management assistance, we provide:

  • In depth analysis of current and future market dynamics,

  • Majorly focused on maximizing productivity and

  • Turning development costs into greater ROIs

  • 100+ years Industrial experience

With a well-established recognition and reputation in the hospitality industry, our service is entirely based on a client-based approach.

Is your project feasible? Does your hotel hold greater economic value? Do you need better development strategies like hotel assets and total revenue management? We not only answer them, we successfully implement within the best of our hospitality management experience.

  • Financial-economic analysis, Market Feasibility and Merchandising expertise, Legal compliances to Estimated Net Operating Income and Strategic Advisory, we help you at every step keeping the major portion of risk management at bay.

  • Providing a holistic cum data driven hospitality consultancy, we ensure operational and financial expertise. With Equity, Innovation and Mutual Growth being our core values, we maximize the potential of our service.


CONCLUSION


Hotel Feasibility Study is not only a crucial step but also marks the underlying viability of the proposed project. Feasibility differs from economic to technical to operational aspects but the vital benefits are consistent. Feasibility studies carry a thorough analysis on various revenue and expense categories. The foremost purpose of a Hotel Feasibility Study is to provide the client with data driven analysis along with absolute transparency and accuracy that would assist the developer in the decision making process whether to advance with the proposed project. It highlights the potential risks that a project will witness in the course of development and furthermore focuses on sustainability. No viability in a feasibility report does not count otherwise as it safeguards developer’s financial resources and time.

Written By, Ritik Negi

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