CHAPTER 8

FINANCIAL
MANAGEMENT AND
EVENT
 Introduction
 Managers at all levels must be able to work with a budget
and ensure control over costs, expenditure, and revenues.

 Financial planning and controls are critical to all event

organizations, especially when most expenditures precede
the bulk of revenue earnings at the event. Accounting and
financial control mechanism are essential, and key
financial statements and evaluations tools are needed.
 Financial management
 Allen et al (2008) – defined as decisions that concern
the sourcing, planning, allocation, monitoring and
evaluation of the money resource.
 Mismanagement of finance can lead to unforeseen
operational risk, such as safety, crowd control and legal
problems.
 Financial management
 Wagen and Carlos (2005) - The first step in the
financial management of an event is to ask the
questions that follow.

1. Is the aim to make a profit?

2. How much will the event cost?
3. What are the revenue sources?
4. How many tickets must be sold to break even?
5. What is the cash-flow situation?
6. What control systems are needed to avoid fraud?
7. How will legal and taxation obligations be met?
Cost-revenue management

 The process of identifying and managing all cost

and revenue centers to ensure the financial health
of the event organization
The goals of cost-revenue management

Secure long-term,
predictable revenue sources
that will meet basic
organizational costs

Focus on revenue–generating
activities Tie program elements to
specific revenue sources such
as sponsorship and grants

Control and reduce cost centers

Get other organizations to

assume responsibility for
financial risks, or at least to
assist with covering any
shortfalls
Principles in cost revenue management
 Events are businesses and should be managed as such
 Event organisations should aim to make profit (i.e surplus
revenue) to ensure financial self-sufficiency ; without surplus
there will be no reserve fund and little possibility of capital
investment for expansion
 Events must establish a comprehensive financial planning and
control systems, including full-cost revenue management ,
budgeting , and standardized accounting and reporting
 What is budget?
Authors Definition
Railey & Tschauner Budget is simply a written
(1993) estimate of anticipate income
and expenditures.
Plan expressed in monetary
Getz (1997)
terms
Allen et al As a quantified statement
(2008) of plans.
 What is budget?
 As a numbered plan - a plan that serves as an essential
instrument of control.

 The budget process includes costing and estimating income

and allocating financial resources.

 An event budget is used to compare actual costs and revenues

with projected costs and revenues.
 What is budget?
 Preparing a budget is part of the initial planning stage.

 A budget includes projected revenue and expenditure from

which an estimate of net profit (or sometimes net loss) from
the proposed event can be ascertained.

 The budget is part of the event proposal

 The budgeting process
• Establish what is the economic environment
1

• Establish budget guidelines to fit objectives,

2 including sub-budgets

• Identify and estimate cost areas and revenue

3 sources

• Prepare a draft budget for committee and

4 sponsor approval

• Evaluate draft budget and prepare final budgets

5 and control ratios

Source: Allen et al, (2008)

 The budget process

 The process begins by establishing the economic

environment of the event.

 The next step is to obtain the guidelines from the client,

sponsors or event committee.

 The third step is to identify, categorize and estimate the

cost areas and revenues resources.

 A draft budget is prepared and submitted for approval to

the controlling committee.

 The final step involves preparation of the budget and the

financial ratios that can indicate deviations from the initial
plan.
Type of budgets
(Railey and Tschauner, 1993

Three type of budgets:

1. The operational budget
2. The equipment budget
3. The capital outlay budget
 Type of budgets

The operational budget

 Has a life span of one fiscal year, some entities operate

on a two-year budget.

 A short term budget

 Cost of salaries, office of supplies, travel, and advertising

are paid from the budget.
 Type of budgets
The equipment budget

 Included in either the operational or the capital outlay

budget depending on the cost and anticipated life span of
the equipment.

 Equipment - any object that has a predetermined

minimum life span and predefined minimum value (more
than $500 and more than 5 years) – e.g. bicycle
ergometers, video and audio equipment, computer etc.

 An intermediate or long term budget.

 Type of budgets

The capital outlay budget

 Intended to enhance existing facilities, either through new

construction or renovation.

 High cost equipment such as automobile may be purchased

from this type of budget.

 Capital outlay budgets – major capital outlay and minor capital

outlay.
Type of budgets (Getz, 1997)

1. Operating budgets - plan for one financial year of

operations

2. Capital budgets - prepared for capital acquisition

3. Cash budget - used to summarise planned cash receipts

and disbursements

*many events managers prepare only operating budget

(Getz,1997)
Principles of effective
budgeting
Principles of effective budgeting

1. The budget must be

based on program
objectives. (SMART)
Principles of effective budgeting

2. The budget needs

to be realistic.
(estimation of
anticipated
expenditures and
income)
Principles of effective budgeting

3. The budget
should be flexible.
(subject to change)
Principles of effective budgeting

4. The budget should

be prepared early.
(allowed adequate
time)
Principles of effective budgeting

5. The budget needs

to be easily
understood.
(tool of communication)
 Financial reporting

 Is a means of highlighting problems and suggesting

solutions.

 A list of guidelines in preparing report:

1. The report should relate directly to the event management

area to which it is addressed.
2. It should not contain extraneous information that can only
obscure its function. Brevity and clarity are key objectives.
3. The figures in the report must be of the same magnitude
and they should be comparable.
4. The report should describe how to take remedial action if
there is a significant problem.
 Event Planning
Planning, budgeting, and
reporting process (Wagen
& Carlos, 2005)
Budget

Expenditure Income
$ $

Cash Flow
Analysis

Profit and Loss Account Balance Sheet

Event Evaluation Report