It seemed a pretty straightforward proposition.
Budgeting for air travel for a Monsanto sales incentive in Hawaii, while bound to be expensive, should have been fairly easy to calculate. Identify key cities from which prospective winners will be flying, get the typical fares, and come up with a group analysis. Simple, right?
For Kathleen Brassil, CMP, manager of the meeting services department for the St. Louis-based developer of plant biotechnology and manufacturer of agricultural chemicals, that simple proposition took an unfortunate turn when air transportation ended up costing double what her travel company had originally quoted.
What happened? According to Brassil, even though qualifiers were presented with the most cost-effective fare option — coach class — corporate policy allows them to fly business class if a trip is long enough, which in this case it was. “Our hope was that travelers would take the less expensive fare,” she says. “But once word got out that was the policy, everyone was booking business, and that increased the costs.”
She has the same incentive scheduled for the same destination this year, and she vows not to make the same mistake twice. “I'm budgeting for first class,” she says. “I won't get burned that way again.”
Planners like Brassil — who heads a staff of eight that plans more than 600 meetings annually — are under increasing pressure not only to plan good meetings, but also to be good financial managers. Yet a budget is a fairly complex contraption, with plenty of moving parts. Planners need to understand which parts — air transportation, guest rooms, meeting space, audiovisual, food and beverage — pose the greatest risk of breaking down, and have a plan to mitigate that risk.
Air transportation is by far the biggest mystery when it comes to budgeting. “It seems like the price can change within five minutes,” says Brassil.
For meetings of any size, planners will go through the group analysis exercise described above: Set the destination, identify key cities from which attendees will be flying, and get the average fare. At this point, says Nathalie Peterson, senior event specialist for Kronos Inc., Chelmsford, Mass., she will come up with a budget and build in a contingency fund — typically 10 percent of the total — to cover possible fare hikes.
Planners also have to take into account that they are often at the mercy of attendees' booking habits. Those who book early help planners keep to their budgets, while procrastinators book closer to the meeting and end up with higher fares. Both Brassil and Peterson rely on their travel companies to track down procrastinators and get them to book before the fares increase.
In some cases, last-minute bookings can't be helped. For instance, Brassil plans one incentive trip with such a short window between the time qualifiers are announced and when the trip takes place that late bookings are pretty much unavoidable.
Todd Zint, CMP, CMM, vice president, marketing communications for NFP Insurance Services in Austin, Texas, says that one way he gets a better sense of how air transportation (as well as lodging) budgets might play out, particularly for larger meetings, is to communicate with convention bureaus in targeted destinations. He finds out what he is up against in terms of scheduled citywide meetings, and by working around those dates, tries to take advantage of lower air demand and compete for low-cost seats.
Facing the Unknown
“Chances are that for every event, one thing is going to come in that you're just not prepared for,” says Peterson, who helps to plan more than 300 meetings annually. “When you think about it, the [internal] client is often the ultimate unknowable when it comes to budgeting. How many know how much it costs to rent an LCD projector?”
Peterson's comment points to a recent event she planned in which AV costs skyrocketed. “The client had all sorts of different requirements from the previous year,” she says. “The general session was more elaborate. They needed on-site technical support.” The final toll was an AV budget triple that of the year before.
A planner's best tool when it comes to budgeting is history. But what about new meetings with no history? “We may know how many people will be invited to the meeting, but we don't know how many will show up. Are spouses invited? If they are, how many are going to show up — 10 percent? 20 percent? It's a real difficult budget to manage.”
Zint says constant communication with the internal client, or meeting owner, is mandatory in a case in which there's no meeting history. “We engage the client at least four times during the process,” he says. Those discussions include a needs assessment; a budget forecast based on that assessment; a meeting to discuss nuts and bolts such as food and beverage; and a final reconciliation meeting.
At that last meeting, says Zint, “we have the opportunity to tell the client where he went over budget, but we also point out where we saved them money.” This helps to produce a more accurate budget the next time.
Bonnie Wallsh, CMP, CMM, chief strategist for Bonnie Wallsh Associates in Charlotte, N.C., says planners are sometimes left in budgeting darkness because their clients haven't completely thought through their meeting objectives. Providing clients with a simple questionnaire about their meetings at the start of the planning process can be useful. She also engages in a little risk management when trying to come up with accurate budgets. “Look at what's going on with the weather,” she points out. “If you have attendees stuck at airports, you've got hotel rooms and meal charges that weren't in your original budget.” Wallsh says there needs to be room in a total budget to cover these emergencies.
A budget is never going to be perfect, she says. “What's important is that the bottom line evens out, so if you run into trouble with room charges, you can always make up for it with food and beverage. And if it ends up that all of your calculations are totally accurate, then you should buy a plane ticket to Las Vegas.”
The Currency Conundrum
Currency exchange rates are definitely a budgetary unknowable.
In February 2006, the euro traded at $1.19. By December, it was up to $1.33. This means that by the end of 2006, a trip to countries using the euro cost American travelers 11 percent more than it would have 11 months earlier. During that same period, the dollar also lost significant value against the British pound sterling.
One way to deal with the currency issue is to use a futures, where a buyer agrees to purchase a specific amount of a specific currency at a fixed price in dollars on a certain date. On that date, the buyer purchases the currency at the agreed-upon price. If the dollar has declined against the currency being purchased, it's a great deal. But if the dollar has gained in value, the futures contract works against you.
That unpredictability is what troubles Todd Zint, vice president, marketing communications, for NFP Insurance Services in Austin, Texas. Zint had a program in Ireland and the U.K. last year. Between 2004, when he first started booking the trip, and when it took place last year, the dollar depreciated by about 8 percent.
Zint built a line-item contingency fund for each item on his budget, with the assumption the dollar would be lower in value by 2006.
One thing that helped, Zint says, is that the hotels he booked “required a tremendous deposit up front.” Since the dollar was stronger in 2004 than when the trip took place in 2006, he was able to save money. With that, and by “reforecasting every 6 months, and building in the line-item contingency, I was under budget on my program, thankfully!”
Tips for Building Accurate Budgets
Build in budget cushions — between 5 percent and 15 percent of the total budget.
Maintain a detailed budget history.
If a budget history isn't available, gather as much information as possible, perhaps with a detailed questionnaire.
Have line items that can be adjusted to make up for budget busters.
Communicate frequently with the client, including a final reconciliation meeting where areas that went over budget are discussed.
Communicate with attendees about the savings of early air booking.