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Project Management Skills Urgently Needed in China’s Booming Hospitality Sector
Incoming CUHK faculty member shares why project management is urgently needed for new hospitality real estate projects, especially in China
By China Business Knowledge @ CUHK
As the Chinese tourism and hospitality sector shakes off the lockdowns that have curbed travel, China Business Knowledge talks to Gert Noordzy, who recently joined The Chinese University of Hong Kong’s (CUHK) School of Hotel and Tourism Management as Adjunct Assistant Professor cum Project Management Champion, about how the country’s hotels urgently need to implement project management to take advantage of the expected rebound in the sector. Mr. Noordzy is also Managing Director of Northside Consulting, a boutique firm specialising in the strategic and tactical aspects of project management.
China Business Knowledge @ CUHK: Welcome to CUHK! As a hotel opening specialist and project management champion, could you tell us about your mandate at the School of Hospitality and Tourism Management?
Gert Noordzy: My mandate is to support the school’s development and delivery of courses on programme & project management, and transfer of practical know-how and do-how related to hospitality real estate projects. My personal objective is to help the hospitality industry to transform itself and embrace project management as a strategic competence. Where better to start than with the future leaders of the hospitality industry?
CBK: Why is Project Management strategically important to China?
Mr. Noordzy: The global hotel industry is exploding (even if it has currently hit the pause button), and in the midst of this, China is one of the most important markets. Before the pandemic hit, China had the second largest hotel construction pipeline in the world. In the fourth quarter of 2014, the country’s pipeline rose by 28 percent by projects and 11 percent by rooms year-over-year to new records at 3,526 projects or 643,435 rooms, according to a recent study. In 2019, China opened a third of all new hotel openings in the world.
With the coronavirus largely under control in China but most of the traditional Chinese destinations, including Japan, the U.S. and Singapore, still under varying degrees of lockdown, it has been widely acknowledged that domestic tourism in the country will be one of the first parts of badly-hit global travel sector to recover. This means that Chinese tourists may look to redirect the hundreds of billions in tourism spend that would otherwise have gone overseas, further underlining the importance of getting hotel openings right in China in the near- to medium-term.
However, like their counterparts around the world, many of the upcoming hotel projects in China suffer from schedule and budget overruns and scope creep. The causes are mainly self-inflicted and easily preventable by applying Project Management. Project Management is a strategic competence: it is the ability to consistently, predictably deliver projects for strategic goals. Project Management is now used in more than 85 occupations across a wide swathe of functions and industries, but not hospitality.
CBK: Why not (yet)?
Mr. Noordzy: There is a general misunderstanding in the industry as to what causes new hotel opening delays. The hospitality 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 industry perceives to be the causes of new hotel opening delays are only symptoms of more deep-seated systemic problems. In addition, the hospitality industry is very conservative when it comes to implementing new management systems.
“In view of the global hotel development pipeline of around 15,000 projects or 2.45 million hotel rooms, we must ask the question: “How can real estate developers and hotel operators open new properties on this scale effectively, efficiently, and in a consistent and predictable manner? – Mr. Gert Noordzy.
CBK: How acute is the problem of hotel opening delays?
Mr. Noordzy: The problem is extremely acute because of the current size of the global hotel development pipeline, and the significant amounts of money that both owners and operators lose as a consequence of delays. In 2016, we completed a Post-Project Review of over 600 new hotel openings in Greater China. The results demonstrated that the average delay is 45 weeks from the moment the General Manager starts. In other words, the General Managers started not 12, but 23 months before the opening!
These delays resulted in an average 35% pre-opening budget overrun. In addition, these delays cost hotel owners US$15 million in missed revenues and operators US$850,000 in missed management and incentive fees on average. And of course, poorly run projects also negatively impact scope, brand and quality.
CBK: Can you put this into global perspective?
Mr. Noordzy: Let’s do some simple maths. The global hotel development pipeline currently stands at 15,000 new hotel projects or 2.45 million guest rooms. In addition to China, ASEAN also has the world’s third biggest pipeline. Statistics from the Pulse of the Profession 2020, a report produced by the industry association the Project Management Institute, tell us that 11.4 percent of project investments is wasted due to poor or no project management performance.
The estimated development pipeline of the Top 10 Global Hotel Companies contains approximately 8,000 projects. Multiplying each project by a conservative US$15 million development budget adds up to US$120 billion worth of fix asset projects. Applying the institute’s percentage suggests that US$13.7 billion would therefore be at risk! Finally, extrapolating from the data of the Greater China study suggests a US$127 billion combined owner/operator opportunity cost.
CBK: How can the industry solve this problem?
Mr. Noordzy: It’s about improving project performance. A Project Management Maturity Indicator is a simple and powerful measure, to what degree an organisation has implemented project and programme management practices. It ranks organisations’ project management practices on a scale from 1 (no established or randomly applied process) to 5 (a well-established, tested process). Based on experience, a typical hotel company generally scores 1. To get better at planning and executing new hospitality real estate projects, a hotel company is well-advised to implement five building blocks. The technical components are project management methodology and project management standards. However, before these can be implemented effectively, the company must work on the fundamental components: culture, organisation and education. This may require a change management programme, which is a project in itself!
CBK: How has the coronavirus affected the hotels pipeline in China, and what do you see happening in the near to medium term?
Mr. Noordzy: Obviously, most projects in the construction and pre-opening phases were put on hold to avoid clusters of human onsite activity. At the same time, project work in the feasibility, architecture and interior design phases can proceed by working from home. Construction may not restart immediately, but if the situation stabilises we can expect a large part of economy, midscale and upper midscale projects to restart or proceed, fuelled by domestic business and leisure travel demand. We can anticipate a review of the economic viability of upper upscale and luxury projects and possibly repositioning. Finally, the way new hotels will be designed is likely to change. For instance, instead of the traditional reception desk, self-check-in stations may become more prevalent.
CBK: What can CUHK graduates do with project management knowledge and skills?
Mr. Noordzy: Knowledge and skills in Project Management are transferable and can be used in most projects, in most countries, most of the time. And then there is the widening gap between employers’ need for skilled project management workers and the availability of professionals to fill those roles.
According to the Project Management Institute’s Job Growth and Talent Gap 2017-2027, by 2027, employers will need 88 million individuals working in project management-oriented roles. China and India will represent 75 percent of the total project management-oriented employment. Just think of the number of project managers, pre-opening general managers, asset manager, but also architects, interior designers, engineers and pre-opening teams (revenue managers, executive chefs, room division directors, etc.) that are needed to design, build, open and operate those 15,000 new hotels alone!
Adjunct Assistant Professor