Lecture 3 financial safeguard

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Event Management

Subject Code: CEM4104

Lecture 3

Developed & Presented by :Roy Ying, B.Comm., Msc. (Corporate Governance), BGS, MHKIoD

Financial Safeguard

Note: Pictures used in thispower point file is for academicPurpose only

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Table of Content

• Safeguarding financial and legal position

• Procurement policy

• Corporate structure

• Insurance

• CSR

• Money management

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Protecting the financial investment

• Event budget is always on the agenda of 1st organizing committee meeting

• It is the projection of future revenue and expenses, and it should be a working document that keeps updated everyday, week, month

• This will help organizer understand how much they will need to invest or expect to profit

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Do you remember this?

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This shows financial risk management’s importance

“他稱，當時的「維港巨星匯」統籌活動小組由5名司局長組成，包括時任財政司司長的梁錦松、工商及科技局局長唐英年、經濟發展局局長葉澍、財經事務及庫務局局長馬時亨及民政事務局局長何志平，自己則擔任秘書，故只須負上部分責任，其餘的小組成員亦需要共同承擔責任。他指責，當發現結果不如理想時，政府的領導層就將公務員推出來做代罪羔羊，以保護政治問責官員。”

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Protecting the financial investment

• Apart from event organizer, who would have financial investments?

– Sponsors?

– Venue operators?

– Service providers?

– Contractors?

– Performers?

– PCOs?

What can go wrong

for them?

What can go wrong

for them?

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Table of Content




• Insurance

• CSR


• Contract management

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Where do PCO come in?

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Procurement policy can be simple

Sample clause:

• PCO to procure supplies on organizer’s behalf based on the approved budget.

• For items outside of approved budget, written agreement must be obtained from organizer’s authorized personnel

• Invoices up to $1,000 – PCO may procure based on a reasonable quotation

• Invoices between $1,001 to $10,000 – PCO is required to obtain 3 verbal quotes and select from the lowest price

• Invoices between $10,001 to $50,000 – PCO is required to obtain 3 written quotes from qualified suppliers and select from the lowest price

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Procurement – Tender Board

• For procurement of major services, PCO should agree with organizer in set up a tender board inviting representatives from the organizing committee to chair the selection process

• This will involve issuing RFP

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Request for Proposal

• Commonly called RFP

• The content of RFP will eventually be forming part of your contract with supplier

• Key to administrating RFP is your ability to identify qualified suppliers

• As event manager, you should possess basic competence to evaluate supplier’s service.

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• Where do I build such supplier list?

– Previous event’s archives

– Word of mouth

– Venue operators

– Research on competitor’s events

– Industry association

– Tourism board

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• Key elements of RFP

– Event brief

– Services required (must be precise)

– Submission requirement

• Company profile

• Quotation & fee schedule

• Project structure

– Evaluation criteria

– Deadline and timetable

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Table of Content




• Insurance

• CSR



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Corporate structure

• Do you want to run your event as a sole proprietorship (SP)?

– Generally not advisable as too much risk involved

– As director of SP, you are personally liable for any losses, damages and debts

– Not too many benefits except cheaper administrative expenses

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Corporate structure

• Why do major events are run under an incorporated entity?

– Organizing committee members become directors of this corporate entity

– Employees are hired using this company

– Liabilities are limited as this company will be disbanded after the event

– Some level of guarantee is required for banks and creditors

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Table of Content




• Insurance

• CSR



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Insurance

• Again, you need to be able to identify the potential risk before you know where you need to be insured

• Most insurance companies require some kind of risk assessment report

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Sample of Risk Assessment Report

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Premium may be different depending on the risk assessment

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Table of Content




• Insurance

• CSR



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FSC Logo

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• What does it mean for event managers?– If you are going to want CLP as your client, you

cannot serve HK Electric– Your portfolio of clients should be good corporate

citizens– Suppliers providing service to you should also stick to

these values

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CLP’s sustainability report

If you want CLP as your client, you too should have social and ethical standards in your workplace in compliance with CLP’srequirement

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Table of Content




• Insurance

• CSR



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3rd Party Handling of Money

• There should be a mutually agreed guidelines between PCO and client

• Objective is to ensure that client finances are properly safeguarded, recorded and accounted for on receipt and return, protecting the interests of clients and staff.

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What’s client’s money?

• Sponsorship money

• Registration fee

• Service charge

• Deposits

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5 General principles

1. Income received and expenditure made on behalf of clients must be properly authorisedand accounted for.

2. Records of financial transactions must be kept and made available for inspection, on request, by clients and their authorised representatives.

3. Monies held in client's accounts must be regularly reconciled and controlled.

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5 General principles

4. Systems and control procedures should be kept under regular management supervision and review to protect clients’ interests and staff against claims of misuse and negligence.

5. Client’s money is kept separate from staff member’s personal money at all times. In no circumstances should money belonging to a client be processed through a staff member’s personal bank account.

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Best PracticeClient accounts

• Keep clients' money in a designated account(s) • Include the name of the firm and the word "client" - to

distinguish the account from your office account • Obtain bank confirmation of account conditions,

including making sure the bank doesn't combine or offset funds in your client account with any other account your firm holds

• Advise client and agree terms of account handling in writing

• Obtain clients' written approval to make payments from their accounts

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Best PracticePCO should ensure that:

• only a Principal or appropriate staff independent of accounting staff open incoming post

• all cash and cheques received by post or by hand are promptly recorded

• procedures exist to identify and distinguish between clients’ and office money

• mixed monies are initially paid into a client account and the office element paid to the office

• fees received in advance for professional work not yet billed are paid into a client account pending completion of the work

• unbanked client money receipts are kept secure

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Profit & Loss or Income Statement

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Revenue

• Many businesses divide their accounting into two groups: cost centers and profit centers.

• Profit centers are sources of revenue.

• Cost centers are the departments that are not responsible for generating revenue, such as the accounting or human resources department.

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Revenue - organizer

• The following are the typical sources of revenue for an exhibition organizer:

– Raw space rental

– Shell booth rental

– Admission tickets

– Advertisements

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Expense - Organizer

• Expenses come in different shapes and forms, but generally, they can be categorized into:

– Fixed costs (examples)

• Equipment depreciation

• Insurance, utilities

• Office and warehouse rent

• Salaries for non-project based staff

– Variable costs (examples)

• Venue rental

• Sub-contractors’ services

• Labor costs

• Project financing

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Expense

• Profitability of the company is often determined by its ability to control its fixed costs, and how they are allocated to individual projects.

• Common allocation mechanisms:

– Time sheet

– Fixed percentage on service fees

– Surplus target contribution

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Exercise

• 2,000 sqm of raw space to be sold @ $1,000/sqm

– 50% via agency with 15% discount

– 50% sold by in-house sales team with 5% commission

• 200 shell booths available @ $30,000 each

– 95% sold via in-house sales team with 5% commission

– 5% barter booths with no income but received complimentary advertisement in various magazines

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Exercise

• 20 advertising light boxes @ $20,000 each

• 15 full page ads on fair directory @ $10,000 each

• Of the 20,000 visitors, about 10% will register onsite and they are subject to $100 admission ticket each

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Exercise

• Venue rental: $3 million

• Contractor: $1.5 million

• Media & Publicity: $1 million

• Temp. staff: $400,000

• Additional electricity: $500,000

• Equipment rental: $1 million

• Administration: $100,000

• Commission: As a percentage of sales

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Exercise

• Plot the figures on the following table

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Exercise

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Exercise - Questions

• Is the exhibition profitable?

• Assume all the space has been fully occupied, what can be done to increase revenue?

• Assume you are the organizer of multiple exhibitions in Hong Kong, what can be done to reduce expenses through economy of scale?

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Cash Flow Projection

• A management accounting tool in making sure that the project account has sufficient funds to meet its current liabilities every month / week.

• Exhibition managers may deploy pricing or financing tools in arranging revenue to be brought forward, or expenses to be deferred.

• If necessary, bank loans may be considered.

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Cash Flow Projection

• Cash flow projection statement

– It tells you when you need to spend money, and by how much

– Investors can judge whether this project is financially viable

– PCO uses it to request organizer to provide event’ seed money

– An accurate analysis of the event’s ability to meet its current liabilities

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Exercise

• Assume it is January when you prepare this cash flow projection statement

• The exhibition will be held in Dec

• Please indicate all the incoming revenue, outgoing expenses and bank account balance on a monthly basis

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Exercise

Revenue assumptions:• Raw space (agency): $600,000 to be paid by

March. The rest, after payment of commission, to be paid by June.

• Raw space (in-house sale): Average of $200,000 between May to August. The rest, after payment of commission, to be paid by September.

• Shell booths: Average $1 million between Feb to Oct every other month. The rest, after payment of commission, to be collected by December.

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Exercise

Revenue assumptions:

• Light boxes: Average $100,000 between July to October

• Ad on fair directory: $100,000 in August. The rest to be collected by October

• Visitor admission: All tickets are sold during the fair period.

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Exercise

Plot each revenue item on corresponding field based on the following format

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Exercise

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Exercise

Expenditure assumptions

• Venue: $500,000 in Jan and Mar; $1 million in May and July

• Contractor: $500,000 in Jun, Sep and Dec

• Publicity: Average $200,000 between Mar and Nov bi-monthly expenses

• Temp staff: $100,000 in Nov and the rest in Dec

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Exercise

Expenditure assumptions

• Equipment: Deposit of $300,000 in May and the rest to be paid in Dec

• Additional Electricity: Deposit of $250,000 in May and the rest in Dec

• Administration: $50,000 in Mar and the rest in Dec

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Exercise

• Produce a full cash flow projection statement based on the following format

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Exercise

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Bank account balance

• Plot in the opening and closing balance

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Exercise

• Which month will you see a cash flow problem?

• What can be done to solve the problem?

• Why is it important to prepare this cash flow projection statement prior to the event?

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Feasibility Studies• Major projects are evaluated under the TELOS model

• For events in HK, budget (economy) and timing (schedule) are usually the only factors most organizers look at

• As event managers, we have a duty to brief clients on all the risks involved under the TELOS model.

• If necessary, an indemnity of liability document should be signed by the organizer who will have to pay you regardless of whether the event will go ahead as planned

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Why wasn’t there enough support?

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Remember what Legco said?

“we only commented on the proposal and supporting documents provided by the government…….we are not trying to be negative.”

Dr. Hon. Lam Tai Fai

Industrial (2)

It is clear that the feasibility study report was not conclusive enough. With so many questions unanswered, legco members felt there were too much risk, which was the main reason for the rejection of Asian Games application

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Feasibility - TELOS

• It’s a go or no go decision

• There are five common factors (TELOS):

– Technology

– Economy

– Legal

– Operation

– Schedule

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Feasibility Report

A feasibility report can become very complicated, but even in its simplest form, it should answer the following questions:

• What are the goals and objectives of the project? • Is there more than one way of arriving at the desired result? • Does the project fit with the company’s overall philosophy and long-

term strategy? • Will the project meet the goals and objectives of all stakeholders? • What are the project’s costs and benefits? • Does the company have, or can it readily obtain, the resources it will

need? • How long will it take to see results? • Does the project (i.e., the event) have long-term potential? • Are the risks known, understood, and manageable? If the risks are

not manageable, are they acceptable?

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Feasibility report example

• London’s bid for World Cup

http://www.isrm.co.uk/news/enews/enews68/world_cup_feasibility.pdf

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Key Elements in a successful Bid for FIFA World Cup

Since the government is bidding, the legal feasibility is less of an issue

Process is the schedule

Key factor in the operations

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Case Tutorial• Organizer of high profile conferences

from New Zealand

• Repeat client for a number of years

• Client backed by private equity firm

• Announced bankruptcy 2 weeks prior to the event with Tom Peters in Sept 2009

• Money collected was supposedto be paying for our fee and marketing expenses locally

• Liquidator called and asked for all proceed to be transferred to the liquidation account. Attendees are not likely to get refund

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Get into groups – spend 10 minutes to discuss

• If you were the PCO, what would you have done assuming that you were able to safeguard against the financial tsunami’s impact on overseas clients. Your

1. Contract?

2. Corporate structure?

3. Money management?

4. Insurance?

5. Is Corporate Governance or CSR relevant?

Economy & Finance

Lecture 3 financial safeguard