Journal of Convention & Exhibition Management

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Convention and Conference Facilities

A Framework of Statistical Predictions and Judgmental Adjustments for
Daily Occupancy Forecasts

Zvi Schwartz PhD

To cite this article: Zvi Schwartz PhD (1997) Convention and Conference Facilities, Journal of
Convention & Exhibition Management, 1:1, 71-88, DOI: 10.1300/J143v01n01_06

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 Convention and Conference Facilities:
A Framework of Statistical Predictions
and Judgmental Adjustments
for Daily Occupancy Forecasts
Zvi Schwartz, PhD

ABSTRACT. A rigorous statistical analysis indicates that large group

bookings are a dominant source for errors in convention and confer-
ence facilities. This study demonstrates that the accuracy of the
quantitative forecast can benefit from human judgment when an
explicit structured process is applied to the judgmental adjustments.
It develops and fits a correcting model that simulates managers’
predictions. The results suggest that this approach can improve the
accuracy of quantitative forecasting models when applied and cali-
brated to the hotel’s specific characteristics.[Article copies availablefor
afee Jvm me Hawtrh Documenl Delivery Service: 1-800-342-9678.E-mail
adduess:getinfo@haworth.com]

KEYWORDS. Daily occupancy forecasts, conferencdconvention

hotels, judgmental adjustments

The meeting segment of the lodging industry consists of two types of

hotels: conference centers and convention hotels. In 1992, this growing
segment accounted for over 34 million room nights, an increase of 18%
over 1990 figures (ASM, 1993). Conferences and conventions usually
generate above 60% of total occupancy (Powers, 1992), making groups
the major contributor to the profitability of these hotels. However, the

Zvi Schwartz is affiliatedh TechnoLodge, I6500 Lancaster Estates Drive,

Wildwood,MO 63040 (E-mail: technolodge@cdmnet.com).
Journal of Convention 8c Exhibition Management, Vol. l(1) 1998
0 1998 by The Haworth Press, Inc. All rights reserved. 71
72 JOURNAL OF CONVENTION di EXHIBITION MANAGEMENT

resewation patterns of groups severely harm the accuracy of the occu-

pancy forecasts. Due to their “lumpy” nature, group reservations distort
even the more sophisticated forecasting models (e.g., Neural Networks).
In some convention hotels, group bookings caused prediction errors which
were so large that the use of the quantitative forecasting model had been
completely abandoned.
Nonetheless, accurate occupancy forecast is crucial for successful hos-
pitality firms (Metz, 1991 and Schmidgall, 1989). To deal with shrinking
profit margins, hotels must improve revenues (through better marketing and
pricing strategies) andor cut their operating costs. Both actions depend on
accurate occupancy forecasts. Considerable attention has been given to
demand forecasting in tourism (see for example Martin & Witt, 1989; Vary
Cesario, & Mauser, 1985; Witt, Sykes, & Dartus, 1995; Witt & Witt, 1991,
1995), and some research has been performed focusing on specific aspects
of hotel occupancy forecasts (Andrew, Cranage, & Lee, 1990; Relihan,
1989; Schwartz, 1996; Schwartz & Hiemstra, 1996; Yeasawich, 1984).
However, researchers have not yet addressed the difficulties presented by
the confbsing patterns of group bookings and their damaging effect on the
accuracy of prediction in convention and conference facilities.
In practice, convention hotels often adopt a hybrid approach to fore-
casting when faced with failing quantitative models due to large group
bookings. Reservations managers adjust the predictions of the quantitative
forecasting model based on their own judgment of the reservation data and
other information they possess. This common approach is described in
Figure 1. Note that the managers modify the output of the quantitative
model. It is a “mental” process where model outputs are intermixed with
the managers’ experience, their perception of the data used by the model,

FIGURE 1. Judgmental Modificationsof Models Output: How It Is Currently

Done

-----
Reservations
Data

Outside Model
Information
Managersevaluate 3
inputs and submit thelr
prediction
 Zvi Schwartz 73

as well as information which is not accounted for by the quantitative

model.
Until the last decade, the use of such explicit judgment, when quantita-
tive forecasting models were available, was controversial. Empirical stud-
ies suggested that when judgmental rules were translated into a statistical
model, the prediction of the statistical model outperformed the intuitive
prediction of the modeler (see for example Libby & Lewis, 1982). Labora-
tory-based psychological experiments revealed many limitations and
biases in human information processing, and most of these troubling find-
ings applied to tasks performed in forecasting (Hogarth & Makridakis,
1981). However, recent studies challenge both arguments. Experts have
out-performed their models when the judgmental predictions were
compared to the quantitative predictions in a real world situation rather
than in an experimental situation. Furthermore, it has been shown that
forecasts are more reliable than suggested by previous literature if experts,
rather than students, are being tested and when feedback allows for a
learning process (O’Connor, 1989). Bum and Wright (1991) concluded
that “all forecasts require some exercise of judgment” and discussed the
extent to which judgment should be used and its structure. They describe
several interaction levels of human judgment with quantitative models and
emphasize the importance of an explicitprocess structure when judgmen-
tal adjustments are made (both model and output modifications).
This paper proposes a method to improve the accuracy of occupancy
forecasts when the quantitative model fails because of group booking
patterns. The study shows that by applying a rigorous statistical analysis to
the prediction’s errors, the forecaster can identi@ the source of error,
develop a correcting model, and use judgmental predictions in a system-
atic procedure that adjusts the biased predictions of the quantitative model.
First, the errors of a forecasting model are analyzed and group bookings
are identified as a dominant cause of inaccuracy. The correcting algorithm
we suggest is a first order linear model that predicts the forecast errors. Its
inputs are the large increases in reservations (that is, group bookings)
before and after the forecast is made. Future group reservations are esti-
mated by the reservation managers (judgmental prediction) and serve as
an independent variable of the correcting algorithm. Hence, this frame-
work is essentially different from the approach described in Figure 1, It
follows Bunn and Wrights’ recommendations and proposes an explicit
process structure: Judgmental predictions of future group reservations
(extra model information) are imported by a structured correcting algo-
rithm. Furthermore, the manager only predicts group bookings. Extra
model information (e.g., previous experience with a specific group) is
74 JOURNAL OF CONVENTION & EXHIBITION MANAGEMENT

likely to be more relevant with this focused approach, and it is therefore

more likely to outweigh the errors resulting from human prediction biases.
The paper proceeds as follows: the next section describes the data and
examines the pattern of errors. An analysis of various types of charts
indicates that much of the inaccuracy can be attributed to sharp increases
in reservations. The following section develops the statistical models that
relate the magnitude of the changes in bookings to the prediction errors.
The final section describes the way judgmental predictions are incorpo-
rated into the correcting algorithms and concludes with a discussion on the
implications of the findings.

ANALYSIS OF ERRORS
Data
This study uses the forecast errors of a model described in Schwartz and
Hiemstra (1996). The correcting algorithm is applied to their data and
prediction errors to demonstratc its applicability when group bookings dis-
tort the prediction of a solid quantitative model. In their study, Schwartz and
Hiemstra tested the accuracy of several methods in forecasting daily occu-
pancies in three hotels. The occupancy in 45 sampled days was predicted
for each ,of the following forecasting horizons: 1,2,3,7, 14,2 1,30,45,60,
and 99 days in advance. That is, for each hotel, 450 daily predictions were
tested using information from up to 1149 past booking curves (a period of
about three years). The errors of the Curves Siinilarity model are used since
the Curve Similarity model was the most accurate among thc tested models.
Errors are measured as the percentage of the absolute deviation (APE).That
IAi - ~ i l= , I:~
A.100 where Ai is the number of rooms sold at day i, Fi is
is, yq- I
the forecasted number of rooms sold at day i, and ei is the prediction error at
day i. The data set includes 3 hotels; however, due to space limitations, this
study describes how the adjustment process is applied to one hotel only.'
Pattern of Errors
The analysis of the errors begins with a visual inspection of the
observed errors' patterns. The graphs were examined since a systematic
pattern can reveal a cause of inaccuracy and thus indicate what remedies
might be necessary. A chart of the accuracy level (measured as the Abso-
lute Percentage Error) vs. the forecasting horizon is plotted for each day
of the sample. These graphs are grouped as follows: For each forecasted
 Zvi Schwurfz 73

day, the forecasting horizon with the worst performance (or the larger
APE) is identified. Then, all days (graphs) with the same worst forecast-
s
ing horizon are grouped together and lotted on the same chart. For
example, Figure 2 holds 8 sampled days. Thcse days belong to the same
group because all of them have the worst predictions at a forecasting
horizon of 30 days.
Note the similarities of the patterns in Figure 2. This surprising degree
of similarity indicates that there is a systematic cause behind the observed
errors. Furthermore, note how the model’s accuracy is significantly
improved when moving from a forecasting horizon of 14 days to 2 1 days,
and then deteriorates at the 30 days horizon. The reason for this phenome-
non becomes clear when one inspects the actual booking curves of these
days given by Figure 3.
Most curves have a similar shape. The “saddle” pattern in Figure 2
seems to be caused by a sharp increase in the number of booked rooms
(Figure 3) starting around 30 days before the date of stay.
How Does a Large Increase in Number of Reservations on Hand
Aflect the Model’sAccuracy?
Sudden and large shifts in the curve’s shape represent a large amount of
bookings within a short period of time. These significant changes in num-
ber of booked rooms are believed to be a major source of distortion for
quantitative extrapolative forecasting models. It is easy to see why the
changes might affect trend or growth models. These models analyze the
trend, fit a line to the data, and extrapolate to the future. Thus, a sharp
change in the shape of the curve, which occurs immediately atter a predic-
tion is made, is likely to increase the forecasting error. Consider the typical
FIGURE 2. APE of 8 Different Curves (Max. APE at forecasting horizon of
30 days)

APE
35%
30%
25?&
ewe
15%
10%
5%

0 20 40 60 80 100
Forecastinghorizon
76 JOURNAL OF CONVENTION & EXHIBITION MANAGEMENT

FIGURE 3. BookingCurves with Max. APE at 30 Days Forecasting Horizon

Reservations
so0
400
300
200
100
0

150 120 90 80 30 0- Date ol Slay

Days before the date of stay

FIGURE 4. A Typical Booking Curve

Reservations
400 r I
350 AShar Increase
300: InmoRlnga
250 . _,.__._.._.._,._.._.._.._..
200 ‘

150 -
100 - ..-..-.._..
50-
0.

booking curve shown in Figure 4. Note that a large amount of reservations

is added in just a short period. About 140 rooms (or 28% of the available
rooms) are booked during this short period of one week.
Now, suppose that a prediction is made 30 days before the date of stay.
The prediction day is marked by the vertical bar in Figure 5. The part of
the curve which is used by the model to derive the prediction lies left of the
vertical bar and does not include the “jump.” This jump is important
(missing) information, and is likely to cause a large negative error (under
forecast).
Similarly, when the forecast is following a large change, it is likely that
the fitted model will be “fooled” by the jump, and that its prediction will
be biased toward a higher number of reservations (Figure 6).
Figure 7 demonstrates how curve similarity errors were actually
affected by jumps in the booking curve. Note that for predictions that were
made before a large jump (forecasting horizon of 30,21, and 14 days), the
 Zvi Schwartz 77

FIGURE 5. A Typical Error When a Large Change Occurs Soon After the
Forecast is Made

Reservations

150
100.

Days before the date of stay

FIGURE 6.A Typical Error When a Large Change Occurs Before the Fore-
cast Is Made

Reservations

150 120 90 60 30 0
Days before the date of stay

closer the predictions are to the jump, the larger the negative error is.
Predictions made after a jump are higher than the actual (Forecasting
horizon of 7,3,2,and 1 days).
The visual inspection of the charts leads to the following hypotheses:
H(a) Theforecasting error is negatively related to the change in resewa-
tions that occurs in theperiod following theforecasting day.
H(b) Theforecasting error is positively related to the change in ivsewa-
tions that occurs in the period preceding theforecasting day.
78 JOURNAL OF CONVENTION t3 EXHIBITION MANAGEMENT

H(c) The strength of the relation hypothesized in H(a) and H(b) depends
on theforecasting horizon.
H(d) The efect of a change in reservations on the forecasting error is
larger when the changefollows the day offorecast.

A FORMAL ASSESSMENT OF THE RELATIONS

BETWEEN THE ERROR AND THE “JUMP”

The changes in the number of reservations on hand (before and after the
prediction) were recorded for every observation. Table 1 lists the “win-
dows,” or the number of days before and after the prediction in which the
change in reservations was measured.

The Impact of Bookings That Are Made After the Prediction

The plotted patterns of forecastinghorizons 1,2,3,7, 14,2 1,30,and 45

days indicate that there is a strong negative linear relation between the
error and the number of rooms that are booked during the period immedi-
ately following the prediction day. Figure 8 demonstrates these relations
for a forecasting horizon of 14 days.
The patterns of longer forecasting horizons (60 and 99 days) do not
reveal any correlation.

The Impact of Bookings That Are Made Before the Prediction

The relations between the errors and the changes in reservations before
the prediction are more complicated, The plots indicate a strong positive

FIGURE 7. A Booking Curve and Forecast Errors

Reservatlons

120 loo 80 60 45 21 0
Days before the date of stay
 Zvi Scltwartz 79

TABLE 1. Number of Days Used to Measure the Change in Reservations

Forecasting Horizon Days Before Prediction Days After Prediction

10
14 10 10

L 21
I 10
I 10
I
45 10 15
60 10 20
99 10 20

FIGURE 8. Forecast Errors vs. Size of Change in Reservations During the

10 Days Following the Predictions: Forecasting Horizokl4 Days

Prediction's Errors
150 T

linear relation for short forecasting horizons (1-3 days) and a weaker
positivc linear relation for a 7 days horizon. Horizons of 14 and 21 days
show a quasi Sine pattern that converges to zero (Figure 9). The scatter
plot of 30 to 99 days shows little or no correlation.
80 JOURNAL OF CONVENTION & EXHIBITION MANAGEMENT

FIGURE 9. Forecast Errors vs. the Change in Reservations During the 10

Days Before the Predictions: Forecasting Horizowl4 days

loo--

50--
**

-100-

-150 *
.
The Linear Model
A first order linear model with two independent variables was fitted:

Yji = Pjo + Pj lxjiI + P2Xji~+ 13j3XjiI Xji2 + Eji

where
j denotes the forecasting horizon (i = 1,2,3,7, 14,2 1,30,60 and 99 days)
i denotes the observation number (i = 1,2, . ..,45)
Y denotes the forecast error of the Curve Similarity model (the variance
between the prediction and the actual number of occupied rooms)
XI is the number of bookings during a given number of days before the
prediction
X2 denotes the number of bookings during a given number of days follow-
ing the prediction
X1X2 is the cross product term

The Nonlinear Model

A transformation on the dependent variable was considered, since both the
scatter plot and the results of the linear regression model indicate that
some relations are nonlinear. The independent variable XI was trans-
Sine(XI)
formed to: XI’ = XI * (2)
 Zvi Schwarfz 81

The fitted regression function is therefore:

where
j = (14,21),
The fitted regression function in the original units of XIis given by:

RESULTS

The linear regression model (1) was applied to ten forecasting horizons
(SAS Institute Inc. 1988). The results are reported in Table 2. The F tests
for the regression relation are shown at the top of the table. The test
indicates that with a > 95%, HO: = fl2 = 6 3 = 0 is rejected for forecasting
horizons of 1 to 45. That is, for these forecasting horizons, a linear relation
exists between the dependent variable (predictions error) and the set of
independent variables. HO is not rejected for forecasting horizons of 60 to
99. This result is not surprising since no linear relations were observed in
the relevant scatter plots. Also note the adjusted coefficient of multiple
determination. It indicates how much of the variation in the prediction
error is reduced when the two independent variables (bookings before and
bookings after) and the cross product variable are considered. About 70%
of the variation can be eliminated by the regression models of forecasting
horizons 1 to 7. Moderate levels of reduction (30% to 60%) can be
expected for forecasting horizons of 14 to 45.
The partial F tests (not reported here) and the equivalent t tests indicate
that some of the linear regression models might be improved by excluding
one independent variable and the interaction variable. As indicated by the
scatter plots, an improvement can be gained by modeling the nonlinear
relations. The results of the nonlinear model with the Sine transformation
(3), is reported in Table 3. Note the improvement in F test, in adjusted R2
and in the P value of the regression coefficients when XIis transforme&.

DISCUSSION
The results of the linear regression model and those of the nonlinear
model suggest that hypotheses a and b cannot be rejected for forecasting
horizons of I to 45 days. That is, the hypotheses on the relation between a
&
TABLE 2. Results of First Order Linear Model with Two Variables and an Interaction
Horizon
Ragressini9aXs&s 1 2 3 4 14 21
R Square 70% 76% 77% 74% 62% 56%
Adjusted R Square 68% 74% 76% 72% 59% 53%
F-Sianiticance 0.0000 o.oo00 0.0000 O.oo00 0.0000 0.0000

Bookings after
wediction
(hoking before) ..
" P" .*.
.. .... ..,.* *<., ....
,,yq$p ..
(booking after) I -0.006 0.013 1 -0.004 0.035 I -0.003 0.024 0.165 .
bA,. <,,
W$ k&&& 0.192 0.306

Regression Statistics 30 45 60 99
R Square 35% 44% 7% 7%
Adjusted R Square 3o?A 40% 0% OYO

F-Significance 0.00054 0.00003 0.38144 0.41219

Coeffi P-value
tntercept t 54.200 0.012
Bookings before
preaction 0.322
Bookings after
prediction I -0.602 0.000 -0.594 0.000
(booking before)
(booking after) 0.637
 83

TABLE 3. Results of the Non Linear Model -XI Transformed

R Square 73%
Horizon
21
61%
I
Adjusted R Square 71% 58Vo

F-Significance

~~

I
CoeHicie P-value
I
Coefficie P-value
I
Intercept 45.347 0.000
Bookings before prediction 600.420 0.011
Bookings afier prediction -0.740 -0.683
(bookingbeforeMbookina after)

<= P value > .05

change in reservations that occurred before or after the prediction and the
forecasting error are supported. Furthermore, since various significance
levels were observed, it is apparent that these relations depend on the
forecasting horizon and H(c) is supported as well. For forecasting horizons
ofj = 1 .. .7,the absolute value of pjl is smaller than the absolute value of
p.2, that is, lpjll < 10j21. Hence, hypothesis H(d), which speculates that the
change following the prediction has a larger effect, is supported. This
finding does not hold for the nonlinear model. The comparison of the two
coefficients is not immediate. When a transformation is performed, the
estimator has least square properties with respect to the transformed
observations, and not with respect to the original observations (see Neter,
Wasserman, & Kutner, 1990, p. 15 1). Thus, to estimate the effect of Xj, on
Yj, we differentiate Yj with respect to Xjl. In this special case of a quasi
Sine transformation, it is given by:
84 JOURNAL OF CONVENTION & EXHIBITION MANAGEMENT

Unlike pj2, which is a constant, is a function. For some valucs of

Xjl, the absolute value of pjl is larger than pj2 (that is, lpjll > Ipj2l). For
other values, the absolute value of pjI is smaller than 8.2, i.e., @jll C Ipj2I.
Thus, H(d) is not supported for forecasting horizons ohj = 14 and j = 21
days.
Table 4 summarizes the hypotheses and the rcsults. The check sign
indicates that the hypothesis is supported in the relevant range of forecast-
ing horizon. An empty cell means that the hypothesis is rejected.

Managerial Inrplcatin: Using the Findings to Reduce Prediction Errors

The revealed relations for forecasting horizons of 1 to 99 are given in

Table 5 .
The forecaster adjusts the model’s prediction by deducting the esti-
mated error, Yj. That is, for every forecasting horizon j:
Adjusted Prediction = Prediction of Quantitative Model - Yj (6)
To use Yj in (6),the forecaster needs an estimation for XIand for X2-
Recall that XIis the change in reservation that has been recorded shortly

TABLE 4. Summary of Results and Hypotheses

>

ForecastingHorizon: 1-7 14-21 30-45 60-99

H(a) The forecasting error is negatively related to the V V V

change in reservations that occurs in the period
following the forecasting day.

H(b) The forecasting error is positively related to the V V V

change in reservations that occurs in the period
preceding the forecasting day.

H(c) The strength ofthe relation hypothesized in H(a) V V V

and H(b) depends on the forecasting Horizon.

H(d) The effect of a change in reservations on the

forecasting error is larger when the change fo/lows
the day of forecast.
 Zvi Schwartz 85

before the prediction is made. This information is available to the quantita-

tive model. As in any model, some human judgment is required. In this
case, the modeler defines the length of the window, that is, the number of
days before the prediction in which the change is measured (Table 1). X2
represents the changes in reservationsthat are recorded after the prediction
is made and, as such, it is not part of the data that is available to the model.
However, most of these jumps are predictable. The majority of the jumps
represent group bookings and very often are known in advance. Reserva-
tion managers are aware of most upcoming groups and can estimate the
size of the group and the dates on which the group booking is likely to be
added to the hotel reservation records. Note that this prediction is judg-
mental in nature since the forecaster estimates the number of group book-
ings that ultimately would materialize. The “educated guess” is a product
of an expert knowledge and it is based on extra information that the
manager possesses.
Theoretically, XIcan be handled by a computer model and X2 by the
forecaster independently. However, since interaction effects exist, one of
them must “know” both XIand X2 to calculate the cross product X I X ~ .
Considering the amount of data and calculations involved in a daily fore-
casting process of many days into the future, it is recommended that the
task of prediction adjustment be handled by a computer program rather
than by a h p a n forecaster. An adjusting algorithm must have the follow-
ing capabilities: the ability to read XIfrom the data base, and an input
module that allows the user to add its judgmental predictions of group
bookings expected in the near future. Having both XIand X2,the program
can adjust the quantitative model prediction by applying (6) and the rele-
vant equation from Table 5.

CONCLUSION
This study suggests a systematic procedure that combines the predic-
tion of a forecasting quantitative model with judgmental prediction. The
inclusion of human judgment is aimed at reducing the forecast errors by
considering information which is not available to the quantitative model.
The study identified the sharp changes in reservations to be a major cause
of inaccuracy and formulated the relations between the forecast errors and
the large increases in reservations. These relations can be used to adjust
the prediction of the quantitativemodel. The correcting algorithm requires
a judgmental prediction of group reservations.
The framework suggested in this article is significantly different from
the one currently practiced by many convention hotels. Currently, as
86 JOURNAL OF CONVENTION & EXHIBlTlON MANAGEMENT

TABLE 5. Adjusting Formulas

Forecasting Horizon CorrectingFormula

(i) ~~
(Yi)
1 Y 0.174X1-0.478X#.OO6X1X2
2 Y = 8.24+0.163X1-0.467Xfl.O04X1X2
3 Y 12.099+0.167X~-0.499X~.003X~X~
7 Y = 20.96-0.502X2
14 Y = 44.317+856.5[SINE(X1)/X1).740X2+0.003[SINE(X~)/X~]X~
21 Y = 45.347-600.42[SlNE(X1)/X1).683 Xp

30 Y = 54.2-0.602X2
45 Y = 87.759-0.594X2
60 N/A
99 NIA

shown in Figure 1, reservation managers modify the outcome of their fail-

ing quantitative model. The approach advocated in this paper is described in
Figure 10. Managers restrict their judgmental prediction to future group
bookings, minimizing the negative effect of human bias. The judgmental
prediction is “processed” by a second quantitative model to optimally
blend the judgmental forecast with that of the first quantitative model.

Testing the Franiework ’s Eflectiveness

The significant reduction in the variability of the prediction’s error

indicates that this approach might be very effective in improving the
forecast accuracy. Note, however, that this is a theoretical exercise which
indicates how much improvement should be expected. Since the process
requires judgmental prediction by managers, the actual improvement in
accuracy can be measured only when the method is applied as part of the
hotel’s operation and compared in a systematic way to the alternative. A
hotel considering this framework should test the improvement achicved
and compare the results to its alternative. The test must include both a
statistical measure (i.e., Is the new approach significantly better than the
hotel’s alternative?) and a practical evaluation (Le., Is the improvement
worth the effort?).
 Zvi Sch wart2 87

FIGURE 10. Judgmental Modifications of Models Output: The Proposed

Approach

--- -
Reservation
Data
__.--
--

I Outside Model
1 Informatlon

Mana ers evaluate

outst& Model info. and
submit their prediction

NOTES
1. The mechanism of fitting a correcting algorithm and the framework of the
model are identical for all convention hotels; the actual parameters of the correct-
ing formulas as listed in the results section would vary among hotels.
2. Microsoft Excel Version 5 was used in the production of the charts in this
paper. Figure 2 is a scatter XY chart (Microsoft, 1993, p. 328). The curve is
smoothed by the piecewise addition of linearly blended second order polynomials
(Burger & Gilles, 1992, pp. 276-277).

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