Hard Rock Cafe Forecasting - Finance Essay Example
Hard Rock Forecasting Forecasting is fundamental to all organization - Hard Rock Cafe Forecasting introduction. In the service sector, such as restaurants and hotels, forecasting is used for their long term, intermediate term and short term operation. In the video, Hard Rock Cafe uses forecasting to help them better operate their business. Hard Rock uses forecasting in all their cafe, hotels, and night clubs. They use it to forecast the capacity needed for growth per store for long term, and determine quantities of items for the intermediate term, for example, leather for jackets; for the short term, they have to forecast the amount of foods and labor they need.
Todd Lindsey, Senior Director of Finance of Hard Rock, uses different techniques of forecasting and manages all the forecasting activities in Hard Rock. They uses techniques such as Moving Averages, Weighted Moving Averages and Regression Analysis to forecast their sales, so that they can lock into long term purchasing contracts, and determine what the financial borrowing from the bank is going to be. Weighted Moving Averages, for example, is used to set their basic sales target to each store. They take last four years’ performance, and weight them as 40, 40, and 20.
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The most current year’s performance is heaviest weighted which is 40 percent, and the year prior to the current year is also weighted as 40 percent; the other 20 percent is for those three years prior. Moreover, they also use regression analysis when planning menu changes. In order to gather more meaningful data, they use some advanced mathematical techniques and multiple regression analysis to identify how the demand on one particular menu item is related to the demand of another menu items, so they are able to better determine the prices for items and what the impacts of the price changes.
They gather the data by using POS system, and the data is sent to data warehouse, so that they can come out some statistics. These statistics when combine with data on weather, conventions, food and beverage cost, affects the finalized forecast. The general manager uses this to determine the short term schedule. Corporate headquarter reviews the long term forecast to ensure they reflect any plan changes, such as remodeling and menu changes.