Chapter Seven Event Budgeting Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Chapter learning objectives 7.1 Understand the nature and purpose of a budget in an event management context 7.2 Identify the various types of budget that may be used for events 7.3 Identify and explain all aspects of the event budgeting process 7.4 Explain how to use and interpret breakeven analysis Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Chapter learning objectives 7.5 Identify and explain the key considerations associated with developing an income strategy 7.6 Understand the importance of cash flow considerations and how they should be addressed 7.7 Explain key aspects of costing and estimating in the development of an event budget. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Introduction Personal budgets include an estimate of our incomes and expenses. Business budgets are more complex. They express the business objectives of the organisation in dollar terms. Event budgets are event plans in dollar terms. Financial considerations must be planned for in minute detail to ensure positive outcomes. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

The nature and purpose of an event budget Prediction of an event’s costs is critical to ensure costs and cash flows are kept under monitored Event budgets are effective planning and control tool. Purpose of an event budget is to: predict and monitor event costs and revenues provide financial objectives for evaluating performance facilitate awareness of cost reduction opportunities create awareness of financial position for stakeholders create a control system facilitate planning for future events. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Types of budgets There may be the need for separate budgets for one event. Line-item budget Estimation of every cost and revenue item Level of detail may be outlined by stakeholders. Program budget Created for a specific program or element Separating this budget from the main budget allows financial aspects of the program to be considered alone.  Activity: Have students get into groups of 2-3. Outline a basic music festival event, and then have them brainstorm the types of revenues and expenditures that might be required for an event such as this. Have groups compare and discuss their items. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

The budgeting process Environmental factors Forecast of revenue sources such as ticket sales Consider effects on revenue streams: Economic climate Trends for event type Market research Revenue from previous events Change from previous events Forecast of expenditure needs to undertake the same forecasting. Changes from previous events – change to ticket prices, change (addition or subtraction) of attractions, change in venues/location etc., changes to advertising and promotion. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

The budgeting process Levels of uncertainty Levels of detail Increasing awareness of areas of uncertainty is a key benefit of budgeting Creating alternate budgets based on several scenarios can help prepare for uncertainty. Levels of detail List categories, or break them down into smaller items May be determined by stakeholders. Alternate budgets – Creating budgets based on a likely scenario, pessimistic scenario and optimistic scenario can ensure that all outcomes are considered. Level of details – This might include listing Venue Expenses, or breaking it down as Room Hire, Cleaning, Electricity, Food and Beverage, etc. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

The budgeting process Budget objectives To change or not to change? Budgets are mechanisms to ensure sound decision making Stakeholders need to be considered before change is made. Ongoing communication with stakeholders Continuous communication reduces the likelihood of major problems down the track. Budget review Regular monitoring of the budget is recommended If expenses are above expected levels, measures must be taken to control costs. To change or not to change – Whether budgets should be constantly updated, new revenues streams sought, more expensive equipment hired, etc. Some event managers like to maintain consistent budgets and others like to move things around as new opportunities arise. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

The budgeting process Future budgets Easier to develop realistic budgets with experience Financial discipline with budgets increases over time Event budgeting process is summarised here: Analysis of environmental factors Assessment of levels of uncertainty Forecasts and categorisation of revenues and expenditures Budget drafting and assessment against objectives Distribution of budget to stakeholders Negotiation and finalisation of budget Regular review of budget Collection of information for future budgets. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Breakeven analysis Budgets can be developed in terms of revenue or breakeven points. Breakeven point is where all costs are covered by revenue. Additional revenue = profit. Calculating breakeven points require knowledge of: Fixed costs Same cost no matter how many tickets are sold Example: cost of a guest speaker or salaries for event staff Variable costs Costs that change dependant on how many tickets are sold Example: food and beverage. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Breakeven analysis Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Income strategy Income varies dependant on the income strategy. Sponsorship Level of sponsorship reliant on stakeholder views Very important to some event types. Grants From local, state and federal government bodies. Licensing of product sales Can generate extensive income Events managers need to make agreements with manufacturers or distributors for a share of profits. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Income strategy Ticket sales Other sources of income Before event or at the gate Higher price = greater revenue per ticket Lower price = greater number of tickets sold Price people will pay Venue capacity Other revenue sources Logistic issues. Other sources of income Rental for stalls, sale of programs, parking fees, food and beverage sales. Before event or at the gate – Perhaps an ‘early bird’ rate is offered to encourage people to buy early, which in turn gives organisers a better idea of revenue expectations and also assists with cash flow. Price people will pay – How high a price people will pay will depend on environmental factors, perceptions of value for money and the type of event. Venue capacity – will cap the number of tickets that can be sold. A higher price may need to be charged as less can be sold to cover costs. Other revenue sources – Sponsorship and grants can mean that lower ticket prices can be charged. Logistic issues – Selling tickets on the day can mean queues, more security staff, and a range of other issues. Extra costs mean less profit. However, distributing prior to the event through agencies can also eat into profit. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Cash flow considerations Related to pattern of income and expenditure. To avoid cash flow problems: develop a cash flow timing chart delay expenditure as long as possible gain information about supplier terms maintain close control over expenditure design income strategies to bring forward revenue streams. Pattern of income and expenditure – Many event costs must be paid in the beginning of the process where there is little or no income, creating a cash flow problem. Money may need to be borrowed to cover costs until income is generated by sponsorship, tickets sales or other means. Cash flow timing chart – shows clear movement of money. Informed decisions can then be made on funding shortfalls. Delay expenditure – Negotiate favourable payment terms with suppliers at the beginning for the event planning process. Non or late payment is not an option if you want to continue using these suppliers and maintain a reputation so that others will deal with you. Gain information about terms – usually on the spot or within 60 days, but suppliers may be willing to negotiate a small deposit and delayed payment of the balance. Line of credit or invoicing arrangements may also be possible. It is dependant on sound business relationships being developed. Maintain control over expenditure – Avoid late fees or interest, etc. Establish administrative processes to ensure all payments are authorised, and communicate these to all staff and volunteers. Design income strategies – Having clients pay early in the planning, negotiating deposits, getting sponsorship money early, ticket sales in advance, early bird options. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Review of the budget Things do not always go to plan! Unanticipated expenses, budget blowouts, etc. usually result in an unfavourable change. Budgets are the ‘best attempt’ at anticipating financial movements for an event. Constant reviews of the budget increase the likelihood of issues being detected. Control measures and corrective actions can then be implemented to reduce loss. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Information for the development of future budgets Forecasts may be inaccurate due to lack of information. Past experience is useful, but new and unanticipated factors must be considered. Top-down approach – Comparison with similar or previous events early in the planning. Bottom-up approach – Detailed examination of the components of the event, perhaps based on Work Breakdown Structure (WBS). Parametric – utilises the relationship between historical data and other variables, such as cost per person. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee

Chapter summary Budgets are one of the most fundamental planning and control tools for event managers. Effective budget management allows for planning of finances. Cash flow issues can be avoided. Allows for revenues and expenditures to be monitored and controlled. Budgeting relies upon examination of environmental factors, levels of uncertainty, forecasts and categorisation of revenue and expenditure. Copyright © 2011 McGraw-Hill Australia Pty Ltd PPT slides to accompany Event Management: Theory and Practice 1e by Wrathall and Gee