Budget management can be a fearful challenge for event planners, particularly as clients tend to dominate negotiations and the figures are firmly inflexible. But once the financial plan is confirmed, the tension really starts to creep in. Complex spreadsheets and a banker’s eye for bottom lines rarely reduce the dread of inadvertently gaining an unwelcome reputation for reckless overspending.
Blowing your budget is an occupational hazard and one that successful event planners pride themselves on avoiding. But, alas, not every cost is controllable – and it’s not until all the guests have departed and the venue cleaned and passed to the next event, that you can revisit that spreadsheet and confirm whether the budget is bust.
The defining feature of event management is that it is a dynamic process requiring opinions and input from several key players. The scope of work can constantly change during each project period, and it’s there that financial vulnerability lies.
“This is often what lets down the budget management process as extra requests are made that simply weren’t originally budgeted for,” says Susan Field, managing director of Hong Kong-based Impact Asia, a PR and events management company. “To overcome this problem, we tend to share line-item budgeting with the client from the outset to be transparent about where money is allocated. We also build in a contingency fund, so that if instances like this occur we can demonstrate what money is still available to play with.”
Setting the allocation of costs is also a key responsibility. Impact Asia recently completed the re-opening of Hong Kong’s Peak Tower for the Peninsula Group, a spectacular event comprising of show talent sourced from across the globe. As always, however, the budget was finite.
“It was our recommendation to focus the budget on the entertainment, lighting and audio,” Field says. “All other items such as the backdrop were very simple and cost-effective because we wanted the talent to speak for itself.”
Counting the costs
A primary cost consideration is the event location. Often, this will be determined by the size of the event and, if a conference or incentive programme, its proximity to the assigned hotel and local attractions. Downtown meetings are expensive – particularly in leading Asian cities where hotel rates are skyrocketing and meeting and incentive calendars getting more crowded – but are mostly unavoidable.
The city centre is where the action is, and where the best event buzz can be created. Timing also plays a role in location cost. While all event planners would love a two-year lead time to negotiate down the venue price, this is rarely realistic, especially for mid- and smaller-size events. And the seasonality of event bookings invariably means that Asia-based event planners are negotiating against the odds in congested markets – and fighting to keep costs manageable.
Securing the most suitable event space is, therefore, one of the few tools available to planners, but it is critical to check a venue contract closely. The financial terms, legal obligations and hidden penalties, as well as the level of insurance cover all impact an event’s profitability.
Overseas events
Hosting an event or incentive programme in a different Asian country usually means dealing with unfamiliar cost calculations – but it needn’t bust your budget, says Craig Walter, director of Unique Meetings & Incentives Australia.
In September 2006, Unique Meetings took 350 corporate client delegates to Shanghai for an annual conference and incentives trip.
“Managing the costs particularly for international events requires detailed operational and fiscal planning,” Walter says. Among the key considerations are currency exchange, cultural and communication differences and potential programme changes.
“Such events require a conservative budget and detailed planning approach,” Walter says. “With our programme in Shanghai, there were some cost issues that mainly arose when our client wished to change the programme from what was initially contracted. As we had secured the right local supplier hotel and DMC, and had excellent working relationships with them, we were able to work through the budget issues and produce an outstanding result at no extra overall cost.”
Budgeting for Asia-based events does require a different financial mindset, says Elizabeth Culkin, vice-president, Meetings, Conventions & Trade Shows for the Alexandria, Virginia-based American Society of Travel Agents (ASTA). During the past two decades, Culkin has managed several ASTA travel conventions in Asia for 1,500 or more delegates. In 2004, ASTA brought its annual World Travel Congress to Hong Kong, and chose Jeju Island in South Korea for its March 2007 International Destination Expo.
“The most significant budgeting difference is, we acknowledge that our attendance will be less when we go to Asia than stay in the US, due to the cost for the attendees, and also the longer time our members will be away from the office. So we automatically factor this in,” Culkin says.
The second critical cost issue is customs and freight.
“We have to make sure all exhibitors know what procedures are involved in getting their exhibit goods into the country.” While this is true for other show locations, Culkin says, “Customs in some Asian countries has proven to be more difficult than in Europe or the United States.”
This point is supported by Susan Field of Impact Asia, which hosts an increasing volume of events in mainland China, particularly Shanghai. “The biggest challenge we have faced?working in Shanghai was?on one occasion getting imported goods out of customs,” Field says.
Another event planner found this issue to be a cost catastrophe. Its consignment of delegate gifts was ordered through an overseas supplier.
Although the gifts were originally made in China, re-importing them into the country was held up for several days at Chinese customs.
Consequently, the gifts had to be individually couriered to each delegate after they had returned home, sending the contingency budget skyward.
Spotting Hidden Costs
As every businessperson knows, the devil is in the detail. For event planners, this means rigorous cross-checking of small print to avoid those infamous ‘hidden costs’ which, when they reveal themselves, tend to burn through the page.
Global best practice is to ensure that all supplier contracts are provided in writing, are clearly stated and enforceable. However, in China, for example, written contracts can still cause problems, as contract law remains hard to uphold.
Frequent cross checking of supplier costs, and the translation and affirming of all receipts is as essential as ensuring that they are provided in the first place. Discrepancies must be addressed and a solution reached, immediately. Time is money and delaying this process due to other pressing concerns could mean kissing away a valuable cash margin.
“Hidden costs can sneak into the process particularly when suppliers have not been contracted correctly and if there is a change to the event or programme requirements,” says Craig Walter. The best way to manage this is to use a detailed request for proposal (RFP) in the buying phase.
“Consider adding a statement like ‘Please ensure your quotation includes all local taxes, charges and costs that may be applicable for our group. No additional costs or charges will be accepted thereafter’,” Walter says.
As well as protecting against hidden budget-busters, issuing an RFP can also lead to a reduction in potential costs, says ASTA’s Culkin. “I always get three bids on the bigger dollar projects. One year we saved over US$75,000, because we decided to bid out a project after many years of using the same company,” Culkin says. “In this particular case, one of the bidding companies really wanted the business, so they gave us an unbelievable price.”
Once suppliers are selected, planners should ask for, and scrutinise, a copy of the standard supplier contract with all terms and conditions included. This enables you to spot and control potential hidden extras, such as additional labour charges for events that run after midnight or are held on a public holiday. “Cleaning and power charges may not be in the general quote, but can appear in the contract,” Walter says.
Golden rules
The budgeting golden rule is to record every estimate and receipt in order to keep costs visible. Cost-responsible planners also report regularly to clients using clear, detailed line-by-line costings.
Sometimes, they also like to work on an open book policy, says Walter. “That is, we agree on a set percentage mark-up on each third-party supplier secured for the operation of the group.”
The cost benefit of long-standing supplier relationships can be critical, particularly in high-cost labour economies, such as Australia.
“Your dollar spent will travel further if you bundle your requirements with trusted operators that can profit a little on a lot of items. Splitting the requirements over many suppliers will not normally save the budget,” Walter says.
Agreeing the budget far in advance can also pre-empt a potential cost crunch, says Paulette Crowder, managing director of Sydney-based Encore, which delivers incentives, conferences and events in Australia, New Zealand and Fiji.
“Budgets can be set a good way out, in some cases for 18 months. Generally, the budget forms part of the sales goals, so the more that is achieved, the better the resulting experience. Perceived value is very important,” Crowder says.
No matter what lead time is available, careful cost control is essential. “Clients look to their DMCs to manage the budget as agreed,” Crowder says. “Additional billing often does come into the scene later on. A marginal amount is generally acceptable, but, of course, the client must sign off on it prior to committing.”
In January, she completed an incentive programme for the Asia-Pacific division of a US IT company. “There were lots of nationalities, which meant careful food selection and activities. Cost-wise, the hotel selection made it difficult to manage the production costs, as some of the theming was hindered by the low ballroom ceilings and strange shapes of meeting rooms,” Crowder says. “These little things mean you have to improvise and add stuff, but you must also justify the extra costs by adding value elsewhere.”
10 WAYS TO KEEP OUT OF THE RED
1. Confirm the contract. Lock in all potential cost elements in supplier contracts. Even if a group doesn’t plan to play golf, lock in the resort’s best golf rate just in case. You’ll pay the full retail price if organised after the contract signing.
2. Allocate a fall-back fund. Be prepared that estimates do differ from actual receipts, so always keep a contingency fund?for unforeseen costs.
3. Always secure sign-off. Clients expect DMCs to manage the agreed budget. Additional billing may be unavoidable. A marginal amount is generally accepted, but clients must be made aware and sign-off before you commit the cash.
4. Monitor rising costs. Hotel and food and beverage rates are rising fast.
5. Consult previous history. Cost differences will arise, particularly for audiovisual equipment hire, food and delegate transport. For annual events, check on the numbers from previous gatherings for a guiding budget of overall costs.
6. Apply attendance realism. Never “over-guarantee” your attendance. Always project a lower number and raise it if necessary close to your event. This prevents over-committing cash to an event that may be smaller than planned.
7. Spread the bids. Always get three bids for big projects. Tendering in this way can force bidding companies who really wanted your business to offer significant discounts.
8. Watch the weather. Bad weather can cancel outdoor events. Alternative indoor arrangements at short notice will have a high cost.
9. Avoid importing materials. It’s easier to purchase items locally instead of paying freight charges and seeing them sit in customs.
10. Create a remote office. Consider purchasing some office equipment like printers and paper. It’s often cheaper to buy the printer than pay venue rental charges.
