Dear Event Doctor:

We have launched a number of new events in the last two years, and we miscalculated the budget on almost all of them. What should we do at the start of the budgeting process to make sure that, when the event is over, we don’t find ourselves wondering what went wrong?

—Off Base

Dear Off:

There are three primary reasons that event budgets end up being inaccurate: unanticipated expenses, underestimated expenses and overestimated revenues. The best prescription for avoiding unanticipated expenses is to consult the handy appendix in “The Sports Event Management & Marketing Playbook,” second edition, co-authored by the Event Doctor. With that shameless plug out of the way, I will say that the most common mistake that new event organizers make is the under-allocation of a contingency fund.

It is almost certain that your event will encounter expenses that were either underestimated or entirely unanticipated once the event is underway. A contingency fund will not cover inadequate planning or gross misunderstanding of what it takes to make an event happen, but it will provide a safety valve for variations from your expectations. I often recommend that at least 10 percent of the overall budget be set aside for contingencies. The less sure you are of your ability to budget accurately, the higher the contingency should be. Small budgets should also allow for an even greater contingency, since the 10 percent would be based on a smaller number and, as a result, would provide for an even smaller cushion.

Having a contingency allowance is not the same as “miscellaneous expenses.” Budget separately for the latter. The contingency fund is there to take care of expenses you did not expect. It is tempting to shrink a contingency fund when your initial revenue budget does not cover anticipated expenses. Try to resist that urge. If you don’t have enough funds to keep a 10 percent reserve for the unanticipated, then you likely have bigger issues with the planning of the event.

I also tend to underestimate revenues when developing my first-pass budget. It is dangerous to count on sellout or high per capita spending, and you will be incredibly anxious until you hit such aggressive numbers—and you may be looking for work if you don’t. Look at hitting your full gross potential as an opportunity as opposed to the only way you can make a budget feasible. Between the revenue opportunity and the expense contingency, you should have a cushion to withstand shortfalls in your net expectations.

This first appeared in Sports Travel Magazine and appears here courtesy of SCHNEIDER PUBLISHING COMPANY, INC.