Page 128 - DMGT304_EVENT_MANAGEMENT

Unit 5: Financial Management

production. Service industries, without the luxury of inventoriable products, have developed a Notes
number of ways to provide flexibility in fixed costs. Professionals require appointments, and
restaurants take reservations; when the customer flow pattern can be predetermined, excess
personnel can be scheduled only when needed, reducing fixed costs. Airlines may shift low-
demand flight legs to smaller aircraft, using less fuel and fewer attendants. Hotel and
telecommunication managers advertise lower rates on weekends to smooth demand through
slow business periods and avoid times when the high-fixed-cost equipment is underutilized.
Retailers and banks track customer flow patterns by day and by hour to enhance their short-
term scheduling efficiencies. Whatever method is used, the goal of these service industries is the
same as that in manufacturing: reduce fixed costs to lower the break-even point.

5.5.6 Limitations

Break-even analysis is only a supply side (i.e., costs only) analysis, as it tells you nothing
about what sales are actually likely to be for the product at these various prices.
It assumes that fixed costs (FC) are constant. Although this is true in the short run, an
increase in the scale of production is likely to cause fixed costs to rise.

It assumes average variable costs are constant per unit of output, at least in the range of
likely quantities of sales (i.e., linearity).

It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e.,
there is no change in the quantity of goods held in inventory at the beginning of the
period and the quantity of goods held in inventory at the end of the period).
In multi-product companies, it assumes that the relative proportions of each product sold
and produced are constant (i.e., the sales mix is constant).

5.6 Cash Flow for an Event

Capital is needed to set up any business uni, and even more so in the event business, since the
planning phase is often long and the period for capturing revenue is very short,e.g., an event
team may spent a year planning an event during which period cost will be incurred, all of which
have to be paid long before there is an opportunity to recompany money. After having spent a
year planning it is possible that ticket will be sold at the venue and that all venue will be
collected on the one day. This outcome is in contrast to an everyday business in which there is a
more even cash flow.
Monthly expenses and projected revenue need to be entered into a spreadsheet to establish cash
flow can best be managed. A funding crisis just days prior to an event is not rare in this event
industry.

5.7 Financial Control System

All purchases must be approved and usually a requisition form is used for this purpose,meaning
that the manager has the opportunity to approve cost incurred by the employees once goods are
ordered or services provided check must be made that they meet specifications before the bilkls
are paid. Fraud could occur,if an employee had authority to make purchases, to record and
physically handle the goods, and to pay the bills. For that reasons these roles are usually carried
out by different people. In any case the system should have check and balances to make sure that:
Purchases on other expenses are approved
Goods and services meet specifications.

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