Olympic budgets usually are very complex and is affected by factors like financing, risks involved in costs, infrastructure & land preparation and various other construction costs. London Olympics 2012 emerged out to be one of the major international multi sport events celebrated in tradition of Olympics Games. It was governed by the International Olympic committee (Hylton and Morpeth, 2012). It proved to be the most expensive summer games since sports related costs were found out to be USD 15 billion. However this does not includes the wider costs required for urban and transport expenditure. As a matter of fact the budget went over by 76% measured via bid to complete. The venues and park costs were largely funded by public money although the games were funded privately. The overall financial structure that provided funds for games to occur has been focussed. The risks which were related to costings and budgets have been pondered upon. The assessment covers also covers methods of controlling costs of project and its overall financial performance. Critical evaluation on various aspects related to finance structure, funding sources, costings is an important point to be focussed. For evaluating all the mentioned parameters findings on the risks associated with the London Olympics 2012 in terms of finance is of utter importance. The budget of the Olympic games in London for the year2012 proved out to be a way more than the estimated value which was USD 4 billion. The reason for this over budgeting needs to be known and what went wrong with the finance structure, has to be found out.
Analyzing financial information
Finance structure of London Olympics 2012
There are two distinct aspects to the financing of London 2012 Olympic games which are discussed below ODA and LOCOG operational budgets that run the game (Davis and Thornley, 2010). The estimated costs or budget for the Olympics were approx 4 to 5 USD billion but the the original one proved out to be 10 USD billion more than it. Cost per athlete proved out to be 1.4 million. The urban and transporting costs are usually more than the sports-related costs but they were not included in the 15 billion USD budget. The mounting games costs were also separately considered. The costs related to building of infrastructure and venues , redevelopment of Olympic park were also separately taken into consideration.
- Construction of infrastructure and venue: USD 5.3 billion
- Funding for elite sport and Paralympic: USD 400 million
- Policies and security: USD 600 million
- Lower Lea Valley regeneration: USD 1.7 billion
- Fund in contingency: USD 2.7 billion
Source of funds and risk management
The over budgeting proved out to be a challenge for Britain. But this case was not for the first time. It had been struggling with it since 1948 Olympics. The government used public funds to transform Olympic park and for providing security. Two thirds of funds arrive from central government, the national lottery contributes 23% and the rest is covered via local authorities. The LOCOG that is London Organising Committee provides a separate amount of about 2 billion pounds for staging of games. Private sectors are responsible for most of it. The IOC is also responsible for funding (Minton, 2012).
The ODA that is Olympic Delivery Authority was given the task of completing venues 12 months before London Olympics and Paralympic games within budget of &.2 billion USD. The risks to achieve these targets were high because of:
- heavily contaminated site
- economic conditions being worsened
- stakeholders were multiple
- world press focus
However, ODA managed to achieve success by:
- Allowing right people for managing risks
- Robust and quality risk analysis
- Control of contingency allocation
- Balance review being healthy
- Providing assurance
- Audit promotion of honest culture of risk awareness
Costing and budgeting of the project
- For building of facilities financial cost was there, which were of use only for short duration during games (Kennelly and Watt, 2012).
- Short term investment is there.
- Opportunity cost: The costing of Olympic village was found out to be up to USD 1 billion. This amount could not be spent over alternative investment schemes such as transport or education in London.
- Credit crunch occurred because of ineffectiveness of private sectors. Government spending already is under strain because of recession and bank bailouts.
- Involvement of tax payers made loss of a part of contingency fund which was USD 2.2 billion.
- The rest of the costings were maintenance of players, transportation and facilities for conduction of games (Harcourt and et.al., 2012).
- Mainly two authorities were responsible for budget that were ODA and LOCOG. But the total budget that is USD 15 billion proved to be a way lot than the estimated one which was USD 4 billion.
As it was observed that the final budget was 15 USD billion which was approximately 10 USD million more than the estimated one. With reference to cost control scenario, one thing is of of uttermost importance and that is successful planning. When the budget is decided, then meeting the aims according to budget is a difficult tasks. Therefore measures should be taken accordingly if budget exceeds. The London Olympics 2012 witnessed huge success but the aims of meeting the objectives of budget were not achieved. An estimation of all the infrastructure related costs should be done keeping in mind the environmental, social and legal factors also. But this was lacking in case of London Olympics. If the authorities had found out that the budget was exceeding then they should have re-purposed the facilities of Olympics. But the Games will stay only in those emerging economies that usually foot the bill (Raco, 2015). Therefore cherishing the merit of cost control should be main aim of Olympics.
Financial Performance of London Olympics 2012
As per the reports of UK trade and Investment Department the Olympics resulted in:
- Additional inward investment of USD 2.5 billion, 58% of this was done outside London.
- Additional sales in accordance with Olympic-related promotions were USD 5.9 billion from Foreign Office and UKTI
- Overseas contracts were high valued, approximately USD 1.5 billion which included designing of venues in various host nations.
Sources of funds and Risk management
Funds can be defined as that reserved money which is used for a specific purpose. At the end of the period, firm is able to generate the sufficient amount of income which is used to stage the Olympics games (Orttung and Zhemukhov, 2014). This means that the company gets the 99 per cent of the total revenue i.e. 2.4 billion pounds. The above fund does not contain the funding from the Government Olympic Executive (GOE) which is around 842 million pounds. This fund from GOE is for some additional or non core purposes.
Olympic Lottery Distribution (OLD) contributes 111 million pounds which is included in lifetime core income. Further, a revenue of 36 million pounds is received by the organization from the Government Olympic Executive for the additional expenses of reconfiguration and relocation of the venues (Giulianotti and et.al., 2015).
In London Olympics, there are different types of risks which are faced by the organization such as geopolitics and security, construction, infrastructure and transport; the politics of accounting and financial risks; sponsorship and licensing; fluctuations in foreign exchange rates; public opinion and reputation.
The major risk which is faced by the company is financial risks. It is an interpretative work to calculate the precise cost for the London Olympics 2012 (Fussey and et.al., 2012). For example, 2 billion pound was the original budget for the Olympics but it is not comprises capital expenditure of government on venues, transport and infrastructure, which is around 10 billion pound. The operating costs of the London Organizing Committee of the Olympic and Paralympic games Ltd (LOCOG) is not included in the capital budget, which is planned to be recover by sponsorship, broadcast revenue and tickets.
Costing and Budgeting of project
Since 1960, the average sports related costs for winter games is 3.1 billion USD and for summer games it is around 5.2 billion USD. During hosting the games, 4 billion pound was the gross cost which is estimated (Golding and et.al., 2014). This gross cost can be achieve by anticipation of 700 million pound from private sector and 3.4 billion pound from the public funding. In march 2007, the announced budget was above 9 billion pounds. There is also an increment of 6 billion in public fund for the Olympic games to compensate the reduction in the funding of private sector.
The preparation of Olympic parks was the biggest expense of the London 2012 which is around 1.822 billion pounds (Elliot and et.al., 2013). It also includes the roads, power lines, sites cleaning and local infrastructure. The costs of the venues was 1.106 billion and the Olympic stadium costs around 428 million pounds. Basketball arena was the least expensive venue i.e. around 4 million only.
To achieve any particular target i.e. to organize the London Olympics games properly, the main factor is to control the costs by various techniques (Jennings and Lodge, 2011). There are different types of techniques by the which cost of the London Olympics can be decrease such as pre planning the budget of the Olympics, by keep tracing the budget of the project at regular period, by managing their time effectively, etc. the company should analyse each and every small or large factor which can directly or indirectly reduces their costs.
The 2012 Olympics of London results shows a decent financial performance of the country. According to the United Kingdom Trade and Investment (UKTI) the Olympics creates extra inward investment of 2.5 billion pound, 58% of the investment is from countries other than London. UKTI and foreign office records some additional sales of 5.9 billion pounds from promotions related to the Olympic (Devine, 2013).
Despite of spending large amount of money on the lavish games, they should also concentrate on the small games and also on some legacy issues. The venue should be repurposed cleverly and quickly, if it is not used for the sports in the future. The government of the UK should complete all the social and political promises aside from the legacy of material. They should improve their fire and safety strategies to face various dangerous situations. The revenues generated by the Olympics should be invested at the properly place for the betterment of the citizens. The organizers should promote the Olympics in those countries where it is not so famous. They should attract the people of other countries by effective advertisement which will directly increase the economy of the London as the people will come from another countries to watch Olympics. The company should include new games in the Olympics which attract more and more audience towards them. They should reduce the cost of the tickets, so a common man is able to buy them. They should not focus only on the profits or benefits of the Olympics, it should be treated as a normal sport game. The country in which Olympics held should focuses on the transportation of the people and also on the basic needs of them. They should increase the number of flights, and also manages the schedule of the flights properly. The company should also reduce the cost of the bidding. There should be proper transparency in the whole transactions of the money. There should not be any type of corruption in the country to organize the Olympic. They should provide the health insurance to every person who is coming from abroad just to watch the games of Olympic.
This report concludes that the London Olympics 2012 was a successful event held by the company. There was a lot of hard work and dedication behind this event. Each and every member of the organizing team plays their role very effectively. Billions of pounds are spent in this event, to make it possible. Funds are collected with the help of public funding and the private sectors. There are lots of risks which are faced by the organizers but one of the major issue is financial risk. The cost of the event is increasing day by day as the scheduled dates are coming nearer. Also, during the preparations of the event, the funds from private sector decreases, therefore the government of UK decides to increase the public funding. The most expensive part of the event is the making of Olympic parks which also includes transportation, roads, power lines, infrastructure, etc. and the least expensive part of the London Olympics was the basketball arena. Also, the costs of the event was exceeding from the pre decided costs or budgets therefore various techniques are adopted by the organizer to reduce the cost. The overall financial performance of the London Olympics was decent as it increases the foreign exchange in the country. Lots of private sector around the world has started investing UK, which indirectly helps in the improvement of the London's economy. This Olympic gives employment to many of the unemployed persons of the country. Overall, the London Olympics 2012 was a great event and it was very beneficial for the United Kingdom.
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