Lecture 3 financial safeguard

Event Management
Subject Code: CEM4104

Lecture 3
Financial Safeguard
Developed & Presented by :
Roy Ying, B.Comm., Msc. (Corporate Governance),
BGS, MHKIoD
Note: Pictures used in this
power point file is for academic
Purpose only

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Table of Content
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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
3

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
What
can go wrong
can go wrong
for them?
for them?

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Table of Content
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Procurement policy
Corporate structure
Insurance
CSR
Money management
Contract management
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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
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Procurement policy
Corporate structure
Insurance
CSR
Money management
Contract management
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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

15

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
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•
•
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Procurement policy
Corporate structure
Insurance
CSR
Money management
Contract management
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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
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Procurement policy
Corporate structure
Insurance
CSR
Money management
Contract management
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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’s
requirement
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Table of Content
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Procurement policy
Corporate structure
Insurance
CSR
Money management
Contract management
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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 authorised
and 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 Practice
Client 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 Practice
PCO 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)
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Equipment depreciation
Insurance, utilities
Office and warehouse rent
Salaries for non-project based staff

– Variable costs (examples)
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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
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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 - 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
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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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 longterm 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
Key factor in
the operations

Process is the
schedule

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

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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 supposed
to 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
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1.
2.
3.
4.
5.

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
Contract?
Corporate structure?
Money management?
Insurance?
Is Corporate Governance or CSR relevant?
65

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