DOI NUMBER: 10.

19255/JMPM02508 PAGE 89

THE NEW HOTEL DOING THE RIGHT NEW HOTEL

DEVELOPMENT PROJECT PROJECT HOLISTICALLY,
AND DOING IT THE RIGHT WAY
LIFE CYCLE
GERT NOORDZY Abstract: Based on previous research, the authors know that nowadays,
THE CHINESE UNIVERSITY OF HONG KONG new hotel developers in Asia typically appoint interdependent – but non-
integrated – separate entities during various phases of their projects, to
RICHARD WHITFIELD
make the business case, and to design, build, open and operate each new
EAST-WEST INSTITUTE FOR ADVANCED STUDIES, MACAU
hotel asset. Consequently, important opportunities for integration and
synergistic improvements between phases in new hotel development
KEYWORDS: PROJECT MANAGEMENT, NEW HOTEL DEVELOPMENT, projects can be missed. There are inherent inefficiencies and crucial
PROJECT LIFE CYCLE, HOTEL OPENINGS, HOTEL MANAGEMENT, conflicts of interest in this approach, which inevitably lead to difficulties and
HOSPITALITY MANAGEMENT, ASSET MANAGEMENT.
problems during and after the project. Previous studies have also
demonstrated the root causes and consequences of poorly planned and
executed new hotel opening projects, where time delays of multiple months
and multi-million US dollar cost overruns against the initial project budget
goals, coupled with massive opportunity costs, are the norm.
In this paper, the authors introduce a well-defined project framework that
hospitality asset owners and developers can follow, in order to avoid these
problems and develop their new hotels efficiently and effectively. It also
illustrates how this framework can be used to understand project costs and
shed new light on how to develop new hotels cost-effectively. There is
surprisingly little research literature on these important topics. To ensure an
optimal outcome is achieved, this paper advocates that all phases of this
New Hotel Development Project Life Cycle must be considered holistically,
in order to ensure coordinated planning and execution of project activities in
each phase, and integration of the interdependencies across all phases.

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1. INTRODUCTION This project life cycle for new hotels is the organizational and The work involved in each new hotel project is virtually identical,
logical structure that underpins the delivery of new hotels. It is a which allows for the project activities and their sequencing to be
In an earlier study, the authors noted the strong growth in new
conceptual model that defines the inter-related phases of new standardized. Even if the levels of complexity and the length of
hotel developments in China, the Asia Pacific and North
hotel projects, and provides a framework for governing the specific work elements increase for larger, higher-class
America (Noordzy & Whitfield, 2014). More recently, others
progression of the work. This new approach towards developing segment hotel projects (STR, 2020), the phases and sequences
have noted the ongoing strength of new hotel developments,
hotels ensures that all the project activities in all the sequential remain fundamentally the same (Noordzy & Whitfield, 2014).
estimating that there are over 15,000 new hotel projects (or 2.45
phases, and all the relevant interdependencies, are identified This allows us to define a single standard New Hotel
million hotel rooms) in the current global pipeline (Dobrosielski,
and planned for, in order to avoid problems and greatly reduce Development Project Life Cycle and propose a holistic
2019). Given that new full service and luxury hotel rooms can
the risks of new hotel project failures. framework for carrying out projects in order to develop all-new
cost between USD 350,000 and 700,000 each to build (Major,
From a basic understanding of the principles and practices of hotels effectively and efficiently, in a consistent and predictable
2019), this pipeline potentially represents 1 trillion US dollars of
the discipline of project management (Association for Project manner.
capital investment. While the recent COVID-19 global pandemic
Management, 2012; Project Management Institute, 2017), it is
has severely curtailed international travel, and it is too early to
clear that the problems that can be avoided through our 2 A HOLISTIC NEW HOTEL DEVELOPMENT
speculate, it seems clear that long-term trends will reassert
framework include schedule and cost overruns, scope creep,
themselves in coming years, albeit with some changes. PROJECT FRAMEWORK
and excessive opportunity costs. It also minimizes any
The authors’ previous study also identified the many problems
mismatches between the type of hotel developed and the local Colliers International (2014) noted that hotels are “a specialist
commonly occurring in these new hotel development projects. It
market demand, thus optimizing the return on investment for the asset class requiring active and focused oversight. Hotels are
was found that, compared to the initial project time plan and
new hotel and maximizing the positive cash flows from its dynamic income-producing assets that if bought, developed,
cost budget, time delays of several months and cost overruns of
subsequent operations. This paper focuses on defining the operated and disposed of at the appropriate time would yield
millions of US dollars were the norm for mid-scale and up-scale
phases and activities in new hotel development projects, and superior returns”. To bring about these superior returns, real
new hotel developments in Greater China. Subsequent studies
how they are interrelated and coordinated. It also conceptually estate developers are well-advised to apply a project framework Figure 1. Hotel Asset Life Cycle.
in Southeast Asia indicated similar trends. The problems
considers the relationships between the major costs in new for new hotel ventures. Such a conceptual model defines the
leading to these delays and extra costs were also analyzed by
hotel development projects and the hotel’s subsequent ongoing inter-related phases of new hotel projects and provides a others may require iteration. This is contingent on the type, size,
means of root cause analysis, and determined to be largely
operations to serve paying guests. Here, the authors are not structure for governing the progression of the work (Association location, nature, and urgency of the new hotel project.
caused by poor project planning and execution (Noordzy, 2016,
concerned with the detailed work activities within each project for Project Management, 2012). In the authors’ conception, the Hotel Asset Life Cycle can be
a). These results have since been confirmed by extensive
phase, which the authors plan to consider in a series of future In the case of a new hotel project, both a product and a service naturally divided into 3 major stages, as shown in Figure 1.
anecdotal evidence gleaned from post-project reviews, targeted
research studies. are created. The project life cycle for new hotels is predictive: First, in the Hotel Conceptualization Stage, the market situation
online surveys and interviews, as well as speaking
There are ample bodies of knowledge and literature on various the product and services to be delivered are well-understood, is analyzed, to determine the “optimal” hotel that can be built
engagements at hospitality and project management
hospitality disciplines and related fields. They cover individual and there is a substantial base of industry practice. At the same and to estimate the investments, costs, and returns that can be
conferences, and hospitality educational institutions.
new hotel project phases, such as hospitality real estate time, the project scope, and the budget required to deliver that realistically expected over its working life. Second, in the Hotel
Moreover, from this earlier work, it is clear that the current
development and investment, financing, architecture and scope, are generally determined at a very early stage. Delivery Stage, the actual hotel is designed, built and fitted out
status quo for new hotel development projects is one of
design, engineering, construction, technology, and operations. Project boundaries delineate the phases that constitute a at a particular location and prepared for opening (e.g., the
interdependent, but non-integrated phases, whereby owner-
However, the authors observe that the existing knowledge base project, or in other words, they specify the work that has been operational staff is recruited and trained, etc.). Third, once the
appointed, but separate entities make the business case and
is largely compartmentalized, mirroring the functional included and excluded. A project does not exist until it has been hotel is ready, the final operation and disposal stage of its life
design, build, open and operate each new asset. Unfortunately,
organizational structure of hotels and hotel companies, and with approved and formally authorized, by means of a project charter can begin, wherein the hotel accepts paying guests and is
in most cases, the business case and feasibility study are not
little consideration of how these different aspects of the in the approval phase. This charter provides the project maintained until it is sold or otherwise disposed of many years
developed at all, or they are not fully and consistently articulated
development of new hotels are interrelated and how they impact manager with the authority to apply organizational manpower later. During its long operating life, the hotel may be refurbished
(Noordzy, 2017). There are inherent inefficiencies and crucial
each other. and other resources to project activities. The project manager several times, in order to meet evolving market needs.
conflicts of interest in this approach, which inevitably lead to
This paper does not attempt to offer new insights into existing leads a team of people with the required combinations of This paper mainly focuses on the first two stages of the Hotel
difficulties and problems during and after the project. As a
knowledge. Rather, it proposes a holistic framework for doing domain and project management knowledge and expertise, to Asset Life Cycle in Figure 1, which the authors call the New
result, the overall project goals are unclear. For example,
the right hotel projects and doing these hotel projects the right carry out all the project activities and bring it to a successful Hotel Development Project Life Cycle. The final operation of the
compared to hotel management companies, architects and
way. This paper advocates the simultaneous improvement of conclusion. A project ceases to exist when its final results have life of hotels is a very comprehensive subject that deserves
interior designers often have very different perspectives about
new hotel investment decisions, followed by designing, building, been delivered (i.e., transfer of the finished hotel to operations) separate treatment, which the authors plan to consider in the
the requirements for the new hotel (The Economist, 2017).
fitting-out and subsequently opening and operating hotels and the project team has been disbanded. future.
Moreover, construction companies are always focused on
effectively, and then eventually disposing of these properties Broadly defined, hotel operations and management involve the In the authors’ experience, and based on the data the authors
minimizing the risks and costs of the initial hotel construction,
profitably by introducing and applying a single coherent and domain of knowledge and expertise needed for new hotel have previously collected (Noordzy & Whitfield, 2014), current
which often conflicts with the goal of minimizing the ongoing
consistent project life cycle for new hotels. development projects, in addition to knowledge and expertise in practice for new hotel development mainly focuses on the
lifetime operating costs of the hotel (Whitfield, 2017). Finally,
In the authors’ view, the same time-tested methods that have the general discipline of project management – both are equally architecture, interior design, procurement and construction, fit-
opening a new hotel involves totally different management
proven to be so effective in managing substantial projects in important. out, and pre-opening phases of the Hotel Delivery Stage, and
systems and skillsets, compared to those needed to
other fields, such as information technology, banking, Figure 1 sets out our proposed Hotel Asset Life Cycle for largely ignores the preceding phases. The authors concluded
subsequently operate the property, but the work in the pre-
telecommunications, pharmaceuticals, and construction, should understanding how new hotel development projects should be previously that this leads to many problems, and it is much
opening phase is often executed by operational hotel staff with
be adopted for new hotel development projects. In these other defined and implemented. The starting point of the Hotel Asset better if new hotel opening projects are expanded to include all
minimal project management experience.
fields, it has been amply demonstrated that projects must be Life Cycle is the decision to investigate the need for developing the phases in the New Hotel Development Project Life Cycle.
Here, the authors follow up on this previous work, in order to
driven by their underpinning business case, and that it is crucial a new hotel in a particular location and the endpoint is the final Nonetheless, the entire Hotel Asset Life Cycle must be
propose an extensive and well-defined project framework that
to identify all phases of the project life cycle, and plan them as disposal of the resulting asset at the end of its economic life or considered holistically from the very beginning – hotel
hospitality asset owners and developers can follow, so as to
an integrated whole, before the project is initiated (Feng, 2015; upon execution of the owner’s exit strategy (Baker, 2014). The operational issues are intimately related to the conceptualization
avoid these problems, and develop their new hotels efficiently
Thomas & Mullaly, 2008). phases have been reflected sequentially in Figure 1, but in and construction of the facilities.
and effectively.
reality, some phases may overlap or run in parallel, whilst

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2.1 New Hotel Development Project Life Cycle 2.1.1 Hotel Conceptualization Stage Phase 6 deals with securing financing for the project in its Hotel designs that have reduced initial construction costs at the
entirety. Internal and external approvals happen in Phase 7, the expense of subsequently increased operating expenses are
Anecdotally, the authors hear all too often: “We have hired a This stage is the work of deciding on a suitable hotel concept
final phase of project conceptualization. The final milestone of equally problematic; to take just one common example,
[famous architect/interior designer], franchised [reputed hotel and its environmental, economic and financial viability, and it
the Hotel Conceptualization Stage is the Project Charter imprudently under-specifying building insulation requirements
brand] and signed with [experienced third-party hotel operator], should proceed in seven phases, as follows. It is summarized in
authorizing the project manager to design, build, fit-out and can reduce the initial costs, but this leads directly to
so what could possibly go wrong?” The authors respond by Table 1.
open the new hotel, with agreed high-level scope, timeline, and unnecessarily high ongoing heating and air-conditioning costs
asking: “Who manages these service providers, and the Phase 1 is to determine the necessity of the new project, and
budget. that may far outweigh the initial savings.
interdependencies between their respective individual estimate the current unaccommodated demand, as well as the
Procurement of the building materials and construction of the
responsibilities?” future evolution of the market. This is documented in the 2.1.2 Hotel Delivery Stage building “shell and core” by the main contractor, as well as
A post-project review of 635 new hotel openings in Greater Business Case. In Phase 2, an understanding and appreciation
This stage is the work of developing and delivering the installation of the systems by the sub- and specialty contractors
China revealed that 70% of projects did appoint a construction of the environmental sustainability implications of the new hotel
completed new hotel project to the hotel management team and take place in Phase 12. The milestone is a topped-off, partially
manager (Noordzy, 2016, b). Of course, this is just one is developed. The conceptual plan will be developed in Phase 3,
getting the premises technically, operationally, and completed building ready for to be fitted out, which happens in
specialist consultant contributing to one of the 15 phases only, outlining what the ideal hotel will look like (in terms of its scale,
commercially ready – simultaneously – for paying guests. It Phase 13. In this phase, fixtures, furniture and equipment, as
which alone will not bring about a successful new hotel project. facilities and qualities). Phase 4 deals with determining the
should proceed in eight phases, as follows. This is summarized well as IT hardware and software are installed in all front-of-
The authors ask: “Who manages the project activities in the economic and financial viability of the proposed project, i.e., can
in Table 2. house and heart-of-house areas. The hotel must take
predecessor and successor phases, before and after one afford to develop the hotel? Based on the total
Based on the project charter, the project manager now has the advantage of the best available technologies and be able to
construction?” development costs and projected free cash-flows generated
authority to apply organizational resources to project activities. adopt new technologies as they emerge in the future. Prior to
To avoid these kinds of inefficiencies, the authors strongly from operations, the financial planner can calculate the Internal
In Phase 8, the project manager will put together the project the hand-over of the building to the hotel management team, all
advocate that all phases of the entire Hotel Asset Life Cycle, Rate of Return and determine whether a project is viable or not.
management team and the project team, including relevant of this will be tested and commissioned, and defects will be
from inception to final asset disposal, are considered holistically, The milestone is the decision as to whether or not to proceed.
professional services, specialists and specialty consultants. rectified.
to ensure planning and execution of project activities in each Assuming the project proceeds, in Phase 5, the project sponsor
Unless the performing organization has a “land bank”, the land Phase 14 is the pre-opening of the hotel. Upon hand-over of the
phase, and integration of the interdependencies across all must examine whether the hotel will be more profitable if (a)
will be acquired in Phase 9. The overall footprint and exterior completed building from the main contractor to the hotel owner,
phases. under its own brand or under a franchised brand and (b) if self-
and interior style of the building are done by the architect and the pre-opening team will prepare the facilities for occupancy by
managed or managed by a third-party hotel operator.
interior designer in Phases 10 and 11. The design must reflect associates and paying guests. This includes cleaning, set-up,
the business case, so that the hotel can operate efficiently and on-site training and simulation exercises. Operating supplies
profitably. It is advisable to design and build the hotel so that it and equipment are also procured, and standard hotel operating
can easily adapt to changes in market needs and advances in procedures are defined and set in place. Once the hotel has
operating technologies during the periodic renovations that will been authorized to open for paying guests, the hotel is formally
be carried out during its long operating life. transferred to operations and the hotel development project is
It is important to point out that the efficiency and effectiveness formally closed. Phase 15 is the post-opening phase, in which
of ongoing hotel operations and renovations can be severely the hotel is open for business. This 30-90-day period serves to
hamstrung if there are significant mismatches between the bridge the transition from project to operations. It serves to
kinds of services the hotel was designed to provide and the resolve any and all unresolved/pending pre-opening issues,
demand in the local market. such as outstanding equipment and supply deliveries, non-
critical permits (e.g., cigarette license) and solving any “teething
problems”.

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3 CONCEPTUAL COSTS IN THE NEW HOTEL Before then, any financing charges and interest payments must 6. Fit-out. Once the building has been topped off and the to the overall hotel asset life cycle profitability. Finally, it must be
be included in the development project budget. Once the hotel windows have been installed (so the building is watertight), the realized that the initial soft costs can only be recovered from the
DEVELOPMENT LIFE CYCLE
starts producing income, the interest payments can become a interior fit-out begins. Costs are incurred for the purchase, hotel development budget if the project actually goes ahead,
To give a taste of how this New Hotel Development Project Life normal operating expense, and the principal can gradually be manufacture, and installation of all the furniture, fixtures and otherwise the developer will have to pay them “out of pocket”.
Cycle framework can provide added value, let us conceptually repaid from operating profits. equipment for all spaces in the hotel, both interior and exterior. Within the Hotel Delivery Stage, the procurement and
consider the costs of developing a new hotel. New hotel For example, the guest rooms will be fitted out with wallpaper, construction, and fit-out costs are the largest, and they are often
development is capital-intensive. For example, in the United carpeting, lighting fixtures, bathroom tiles, bathroom fixtures, comparable in size. Like a residential property, hotels
3.2 Costs in the Hotel Delivery Stage
States of America, the total development cost per key (guest bed box and mattress, desk, chairs, television, minibar, etc. At incorporate very high levels of fit-out and specialized living
room) for a full service and luxury hotel room ranges between 3. Land acquisition. The developer will acquire the land for the end of the fit-out phase, the facilities will be tested and spaces, so that this relativity is quite understandable. Land
USD 350,000 and 700,000 (Major L, 2019). Therefore, it is development, unless the company has a “land bank”. Even if commissioned. Almost in parallel with the fit-out phase, the acquisition costs can also be quite large and site preparation
important to understand the basic composition of these costs the developer has a land bank, there will often be a title transfer general manager of the hotel will commence the pre-opening works can be extensive. Next in terms of size are the planning,
when endeavoring to develop new hotels effectively and to the new venture operating business entity at an agreed price. phase, as outlined in Cost Item 7. architecture and design and pre-opening costs. Generally, the
efficiently. In addition to the cost of acquisition and possible change of use 7. Pre-Opening. This comprises two major cost components for pre-opening costs are larger because there are more staff
Based on the authors’ working experience and previous costs, there will be legal and notary public fees, levies and taxes the new hotel project. First, while fitting out of the hotel spaces involved, and pre-opening involves purchasing the initial stock
research investigations, Figure 2 below provides a conceptual to be paid. is underway, the general manager of the hotel and the pre- in terms of the entire hotel operating supplies and equipment
breakdown of the overall costs of developing a new hotel. It 4. Planning, architecture and design (PAD). The first step will be opening management team will plan and execute a detailed (OS&E) inventory. The smallest costs during the Hotel Delivery
divides the overall project costs into eight important components for the Project Manager to hire the project team, including the plan to prepare for the operational and commercial readiness of Stage are Financing, but even here, they can be substantial,
and illustrates cash outflows, as the project work progresses architect, interior designer and MEP (Mechanical, Electrical, and the hotel and its opening for paying guests. Major activities because several members of staff may be needed to coordinate
across the phases of the project life cycle. Plumbing) engineer. These costs are concerned with deciding include mass recruitment and training of the hotel staff, payments to many sub-contractors and suppliers.
exactly what hotel to build and how to build it, and producing preparation and execution of the pre-opening sales and Logically, new hotel developers should be aiming towards
3.1 Costs in the Hotel Conceptualization Stage detailed architectural and interior design drawings, with the marketing plan, finance planning (e.g., insurance and operating maximizing the overall life cycle profitability of the entire hotel
assistance of specialists and specialty consultants, and then license applications), procurement and installation of the IT venture. The conceptual model above is useful in helping to
1. Soft costs. These initial costs are to pay for the activities to
gaining initial regulatory approval for construction to begin. As hardware and software. The two main cost items are the payroll identify strategies to achieve this goal. For example, the
confirm the market needs, conduct the conceptual planning,
part of quality assurance, this team will subsequently monitor and related expenses, and the pre-opening sales and marketing construction and fit-out costs are clearly the first target for cost
determine the financial and environmental viability and potential
the construction and fit-out work, in order to ensure that the expenses. Other expenses include rental of temporary offices reduction, because they are the largest cost components in the
overall returns of the tentative new hotel project. In addition,
hotel gets built as specified. By the time the building has been and training facilities, etc. Upon hand-over of the hotel by the New Hotel Development Project Life Cycle. If construction and
these soft costs may include commitment fees to franchisor and
topped-off and the fit-out begins, the detailed interior design main contractor to the hotel operator, the team will clean and fit-out costs can be significantly reduced there is a direct benefit,
operator, as well as licensing and permitting of the proposed
work will have been largely completed. set up all guest rooms and front- and back-of-house areas, and but the financing that is needed for the project is also reduced,
new hotel project. The end point of this stage is the decision as
5. Procurement and construction. These costs are largely to do conduct in-situ training and simulation exercises. Second, the so there is less debt to be serviced over the whole long
to whether to go ahead with the project or not. Normally, these
with buying all the raw construction materials and equipment, pre-opening management team will establish detailed lists for operating life of the hotel. Similarly, if the construction and fit-out
costs are borne directly by the developer, and will not be
then building the shell and core of the hotel, and installing the the procurement of hotel operating supplies and equipment work can be completed more quickly, without significantly
recovered if the outcome is not to proceed with the project.
mechanical, electrical, and plumbing systems, including life (OS&E). For example, the guest rooms need to be supplied with increasing the costs, then the whole project timeline can be
2. Financing. New hotels are often developed using some form
safety features. It is the largest cost component (Major, 2020) in duvets, bedroom linen, garbage bins, water kettles, mugs, shrunk, and the hotel can open sooner. This can significantly
of debt financing. The cost components are the financing
a new hotel development because hotel construction and fit-out glasses, towels, bathroom amenities, etc. All these materials reduce the opportunity costs in terms of financing – one makes
charges and loan repayments. Generally, financing for the new
work are very labor- and material-intensive. These costs are and equipment must then be purchased, delivered, installed and fewer interest payments before they become an ongoing
hotel development in its entirety must all be in place by the time
progressively incurred as the hotel structure is built. checked. The pre-opening phase ends once the asset has been operating expense, and the completed hotel asset starts
the decision is made to proceed with the project. However, the
approved for guest and staff occupancy, and has been generating income sooner. Prefabricated modular construction
completed hotel will not start generating income until it opens
transferred to operations, marking the practical end of the new is widely touted as a good way to speed up building
for paying guests.
hotel development project (Whitfield, 2015). construction (Bertram et al., 2019).
However, sometimes the strategy that should be adopted to
maximize the overall life cycle profitability of the hotel venture is
3.3 Costs in the Operations and Disposal Stage not so clear-cut. For example, being especially careful to ensure
8. Operations. Once the hotel has opened for paying guests, good building insulation in the hotel facilities will somewhat
operations are the next major cost component, which will increase the construction and fit-out costs, but it will then
continue throughout the entire working life of the property. substantially reduce the subsequent electricity costs over the
Ongoing costs will include normal staff and other operating long operating life of the hotel (because insulation reduces the
costs, debt servicing, maintenance and periodic renovations. heating and cooling load on the buildings, thereby reducing the
electricity needed to heat and cool them). Even a cursory
3.4 Implications of these Cost Structures understanding of building science indicates that, generally, for
As illustrated in Figure 2, the bulk of the project spending most hotels, the operating lifetime electricity cost reductions far
occurs during the Hotel Delivery Stage. However, the initial soft outweigh the increase in construction and fit-out costs in terms
and financing costs and the continuing hotel operation costs of the value of building insulation (“Building insulation”, n.d.).
after the end of the development project are crucial because Another example is that the work done in the initial soft costs
they set the project goals and budget and define the success of and planning, and architecture and design phases can have a
the new hotel venture. Also, the financing costs continue for major impact on the subsequent construction and fit-out and
much of the operating life of the property, so they eventually hotel pre-opening and operation costs. By “front-loading” these
become an important issue in the overall asset life cycle planning and design costs and spending more time and effort in
profitability. The hotel operation costs also continue for the the initial planning and design stages one can potentially (1)
entire operating life of the hotel, so they are also very important
Figure 2: Conceptual Cost Breakdown and Cash Outflow Model for New Hotel Developments

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reduce the overall construction and fit-out costs substantially spanning the architecture and design, construction and Goal Setting and Planning. Most importantly, the project This paper presents a well-defined framework for carrying out
and (2) also considerably reduce the ongoing hotel pre-opening procurement, fit-out and pre-opening phases of the New Hotel manager and the entire development team must understand new hotel development projects, that addresses and resolves
and operation costs. Specifically, there is a lot of research to Development Project Life Cycle, as presented in this paper. that the overall goal for a hotel venture is to maximize the current problems by strongly emphasizing a structured,
demonstrate that prefabricated modular hotel construction Moreover, where hotel management companies are involved, profitability over the long life cycle of the asset; it is not to build holistic approach to managing these projects according to the
methods can reduce the time needed for hotel construction and their work is currently largely a peripheral involvement in the and open a hotel cheaply. The initial business case and well-proven principles and practices of the discipline of project
fit-out by up to 50%, and costs by up to 20% (Bertram et al., feasibility analysis (to justify the hotel management or franchise feasibility study, and the subsequent hotel operations must management. By following our New Hotel Development Project
2019). These methods require much more “upfront” hotel agreement), architecture and interior design (primarily for brand closely inform the actual design and construction of the hotel Life Cycle, hotel developers can systematically create the right
planning and design work. Similarly, by investing much more standards compliance), possibly some involvement in hotel fit- and they must all be consistent with seeing the hotel as a long- hotel to satisfy the market needs and meet their financial goals
initial design effort into increasing the environmental out procurement (as a revenue generator) and the pre-opening lived entity that closely matches the needs of its local market for the life cycle profitability of their asset and the venture as a
sustainability of the building and incorporating more operational activities (as a contractual obligation). All of this work is now and can adapt to changes in the local market over many years. whole. They can also strategically manage how their investment
automation, one can greatly reduce the ongoing lifetime largely done by corporate and hotel operations staff, who mostly The whole new hotel development project must be carefully funds are spent and ensure that project work is carried out
operating costs of the hotel. This is achieved through lack training and understanding of project management planned, with clearly defined goals and performance measures effectively and efficiently, while minimizing the risks of time
considerably reduced ongoing electricity, water and other costs, concepts, and do not have any appreciation of the for each project phase and activity. As the different project delays and cost overruns. Moreover, they can more effectively
and substantially reduced operational staffing needs. Thus, interdependencies between all the project phases. The authors phases are completed, the skill-sets needed among the team balance their initial capital investment in the hotel with the
increasing the planning and design budget and effort in new have previously found that this approach is flawed, and it is the members change greatly, so that new team members need to ongoing operating costs of the property over its long working
hotel development projects should provide very good long-term genesis of many of the problems and causes of delays and cost be brought on board and team members who have finished their life, in order to maximize their overall lifetime investment
payoffs in many situations. overruns in new hotel openings (Noordzy & Whitfield, 2014). contributions can move onto other projects. These team returns.
One final fairly obvious way to reduce the initial construction Here the authors have presented an alternative conceptual changes must be carefully coordinated, and the information and This paper also identifies several potentially fruitful avenues for
and fit-out costs in some circumstances is to build the property approach and framework for new hotel development projects, materials passed from one phase to the next must be well future research, including refining our understanding and
in phases, i.e. initially build a smaller hotel and then expand the that addresses and resolves these problems and issues in a defined and easily understood. standardizing of the detailed work involved in each project
property several years later. Developers generally try to build holistic and proactive manner. It provides significant new An essential part of project planning is to identify and manage phase of the Hotel Development Project Life Cycle; better
hotels in regions that are growing, so that the demand increases insights into how hotel developers can carry out new hotel project risks. Based on past experience with similar projects, it understanding as to how the work in each project phase
continually, which also tends to increase land values. In these development projects more efficiently and effectively and is often not too difficult to identify the things that can go wrong impacts the other phases; further developing the conceptual
situations, hotel operating demand and profitability grows with achieve better project outcomes. In the past, the authors have and put initiatives in place to minimize the chances of such model of the Hotel Asset Life Cycle; examining the actual and
time, thus increasing the value of the hotel operating business seen that a flawed new hotel concept and poor coordination problems occurring in the current project. For example, there is potential impacts of adopting modular and prefabricated
and the capital growth of the land value. Phasing the hotel during design, construction and fit-out, and pre-opening a well-known conflict of interest between property owners and construction methods to new hotel development; investigating
construction over several years means that its guest capacity activities mostly leads to delays in technical, operational, and the construction companies that build their properties, whereby hotel sustainability and automation, and phasing hotel
can grow with the growing demand and the market trends that commercial readiness of the hotel prior to opening, and sub- the construction company has no incentive to spend extra development projects over several years, to better match
were estimated in the initial hotel feasibility study can be verified optimal subsequent operation of the hotel (Noordzy & Whitfield, money on construction, in order to reduce subsequent operating growing market demands.
over time, while simultaneously minimizing the initial project 2014). By adopting the New Hotel Development Project Life costs, because they do not share the benefits. It is quite
investment. Moreover, the initial operating profits can be Cycle, future hotel developers will reduce the probability and/or possible to build subsequent operating cost reduction incentives
accumulated to partially offset the capital investment needed to impact of negative risk, in order to optimize the chances of into construction contracts, so as to avoid this potential problem Disclaimer: The views, opinions, positions, or strategies
expand the hotel, in order to further minimize the initial total project success. entirely. expressed by the authors are theirs alone and do not
investment. Initial planning for later hotel expansion can also In our view, to ensure that an optimal outcome is achieved, the The interrelationships between the important costs incurred necessarily reflect the views, opinions, positions, or strategies of
simplify the work involved to reduce the cost of implementing New Hotel Development Project Life Cycle must be holistically during the development of the new hotel and over the long other parties. You are free to use the content of this paper at
the expansion, and the hotel's operating track record can make implemented as a single, integrated new hotel development working life of the property must be understood and considered your own risk, whereby the authors shall not be legally liable in
it easier to raise funds needed to do the work. Thus, there can project. Moreover, focusing on the following key issues can holistically and strategically when specifying the actual hotel to any way.
be many benefits to constructing hotels in phases. Nonetheless, greatly help in achieving this goal. be built and how it is to be built.
this approach is only feasible in some situations, e.g., remote Leadership and Organization. It is crucial for hotel owners to Communications, Coordination and Adaption. By its nature, REFERENCES
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ABOUT AUTHORS

Gert Noordzy is Managing Director of Northside Consulting, a

boutique firm specializing in the tactical and strategic aspects of
hotel opening processes. He is an international hotelier,
acknowledged hotel opening process maven and Organizational
Project Management expert for the hospitality industry. Gert is a THE NEW HOTEL
lecturer and an avid blogger on the subject. He is the author of
Project Management of Hotel Opening Processes, which has
been translated into 11 languages. gert.noordzy@northside-
DEVELOPMENT PROJECT
LIFE CYCLE
consulting.com
Noordzy is graduated from Hanze College Hotel Management
School in Zwolle, the Netherlands, and holds an MBA from the
University of Saint Joseph in Macau, China, with majors in
strategic management and marketing, as well as financial and
business analysis. Doing the Right New Hotel
Noordzy has over 25 years of professional experience in
Greater China and South East Asia and has been involved in Project Holistically, and
opening over 30 new hotels and 3 integrated resorts. For 15
years, he worked for 3 of the 10 largest global hotel companies
and has held corporate roles specializing in hotel openings and
Doing it the Right Way
project management since 2006. His personal objective is to
help the hotel industry transform itself and embrace project
management as a strategic competence. He is a lecturer and an
avid blogger on the subject for HOTELSMag.com.

Richard Whitfield is president of the East-West Institute for

Advanced Studies. He has been a professor at several
universities in South East Asia and Macau. Richard’s
undergraduate and doctoral degrees are in manufacturing from
the University of Melbourne, Australia. One of the MBA classes
he teaches is Process and Technology Management.
rcw@ewias.org
Whitfield has 10 years IT consulting and computer software
development; 14 years university teaching at post-graduate
level; 8 years academic management and business
management consulting; 8 years experience running substantial
companies in China, Hong Kong and Macau.

JOURNALMODERNPM.COM JANUARY/APRIL 2021

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