Budgeting: Every Dollar CountsMay 1, 2013

As Optimism Reigns and Conservative Ways Continue By
May 1, 2013

Budgeting: Every Dollar Counts

As Optimism Reigns and Conservative Ways Continue

CIT-2013-05May-Budgeting-400pxAlthough the meeting industry is flourishing again, budgets remain tight in most organizations — and virtually every significant expenditure is under unprecedented scrutiny due to the increasing impact of strategic meetings management programs.

“Budgets are running really very tight,” says Peter Duncan, CMP, senior program manager at independent meeting planning company Meetings & Incentives Inc. (M&I), located in Caledonia, WI. “There used to be a little fluff or a little play in budgets. Now, they have to be as accurate and as tight as possible in terms of every dollar.”

Duncan has been with Meetings & Incentives for 11 years. And he has never before seen a sustained period of time when budgets have been examined as aggressively as they have been since the recession.

And that’s not just a result of the steep economic downturn, he says. “For example, for our pharmaceutical clients, the oversight of their industry is a major factor,” Duncan says. “They want to make sure they are in compliance with the guidelines from things like the PhRMA code. For other companies, it’s just a matter of looking to get the most out of their meeting dollars. And they don’t want to waste money on excess meetings that are not really essential to their business.”

Christine Gorham, CMP, senior associate at Booz Allen Hamilton in Herndon, VA, agrees that in general, budgets are tight. But she also makes the point that there are variations from industry to industry.

“But for the most part, I do think a lot of corporate budgets are flat or have even been reduced,” she says. “And that’s because a lot of organizations are still cautious about what they’re spending. I think more and more companies are optimistic about the economy, but certainly conservative in their approach.

“We’re seeing tighter budgets,” Gorham adds. “And I’m hearing the same thing from my peers in the industry.”

And in a broader sense, the industry has undergone a major change over the last few years. “Gone are the days where you can just keep going back to the same hotel year after year,” Gorham says. “Now more than ever, it’s important (and even mandatory in certain situations) to competitively source to ensure you are getting the best value for what you’re spending.”

Competitive bidding also helps mitigate the fact that the proverbial pendulum has swung back to a strong seller’s market for hotels, which are now out to extract every possible dollar of revenue from a particular meeting in order to recoup the losses they suffered during the recession. “And that is why concessions that were assumed three years ago are very hard to come by today,” Duncan says. “In 2009, you could just pick up the phone and say, ‘I have this piece of business and here’s what I want,’ and they would just say, ‘Yes.’ Now they say, ‘We’ll look at it and see if it’s the right fit for us over those dates and then get back to you.’ ”

The biggest challenge independent planners such as M&I face now, Duncan says, especially in terms of clients they worked with before the recession, “is to bring them up to speed on the new business realities of meetings. They’re not getting as many freebies as they used to get. The objectives, in terms of the things clients want for their meetings, are more expensive. And in order to realize those objectives, you really have to take a partnership approach with hotels and other major vendors. Before the recession, we heard the term ‘partnerships with vendors’ a lot. But it really has become an integral part of the planning process since the recession. And that’s because it’s the only way you can actually maximize your dollars across all of your meetings and vendors.”

The Role of SMM

Although many planners were skeptical before the recession about claims that strategic meetings management would become a widespread discipline that would impact their roles, today they see that it has spread like wildfire through the Fortune 1000 and beyond. And by definition, the emergence of SMM as a corporate best practice designed to help control meeting costs has put downward pressure on budgets.

“SMM is now having much more of an influence on budgets than it ever did before,” Duncan says. “Every dollar is being examined. That has become a huge part of meeting planning and the determination of budgets now. It’s incredible.”

As a result of SMM, procurement and finance departments are getting more and more involved in the meeting budget process, which means more scrutiny of every budget. “We tell our clients to put their budgets together like a procurement person is sitting across the desk from them asking a lot of questions,” Duncan says. “That’s the only way today to get budgets done that you can get approved without any controversy. You have to be able to justify everything.”

Rising Costs

At the same time planners are under pressure to hold the line on their budgets, certain costs such as airfares and food and beverage are skyrocketing.

“I can’t believe how much airfares have gone up,” says Lori Kolker, CMP, president of independent planning company Elle k Associates Inc. in Rockville, MD. “They’re just crazy. You can go to Europe now for less than it costs you to go from New York to San Francisco.”

Gorham is also acutely concerned about rising airfares. “I just booked a flight for a meeting I am attending in Washington state and I couldn’t believe the cost of the fares,” she says. “And I think it’s only going to get worse.”

As a result, Kolker says, she sees a trend toward bifurcation of booking flights from the rest of the meeting planning process, meaning that corporate travel departments or third-party travel management companies are assuming that responsibility based on their unique expertise and experience. “It’s considered a specialized function now,” Kolker says. “And that is really a result of tight budgets and the rising cost of air travel.”

And most companies are not simply absorbing the increased airfares and still spending the same amount on hotel rooms, F&B or offsite venues, Kolker says. “They are cutting back on other things to make sure they stick to their total budget,” she says. “But it’s not just because of the airfares. A lot of companies are still concerned about the state of the economy, and they want to be very careful in terms of what they spend on their meetings.”

Meanwhile, empowered by a robust seller’s market, some hotels — and especially those in high-demand destinations — are raising F&B fees from a traditional 15–18 percent to as high as 22 percent. And pushback is not easy for buyers. “And that’s especially true in the major meeting destinations where there is a lot of demand,” Duncan says. “In those markets, the hotels just say, ‘take it or leave it.’ ”

Still other hotels are creating new fees, such as resort fees, Duncan says. And in other markets, government fees such as bed taxes are on the rise. And all of those add to the duress of budget-minded meeting planners.

At the same time, F&B costs are going up simply because food costs have been rising sharply over the last year or two. And that is just an underlying reality of supply and demand, Duncan says. “That’s why you really have to work closely with your hotel partners on designing your menus in order to get the most for your money,” he says. “You can’t take anything for granted anymore when it comes to costs. And all costs need to be contained.”

Given their myopic focus on tight budgets and rising costs, many meeting hosts simply do not understand how much demand there is for hotel rooms and meeting space now that the economy has largely recovered and the meeting industry has returned to normal.

“Dates are tight,” Duncan says. “Meeting space is tight. And hotels and other major vendors are maximizing the revenue they get from every piece of business.”

That, in turn, means that planners must focus more on truly developing long-term vendor relationships that are based on effectively leveraging their total meeting budgets and not just the budget for a meeting next month. “If you really do think in terms of long-term partnerships with your vendors,” Duncan says, “that kind of attitude really helps make your dollars go a lot further.”

The promise of future business is indeed a critical element in the equation. “A lot of the market today is based on long-term bargaining power,” Duncan says. “But it has to be honest bargaining power and not based on false promises. Once you’ve lost your credibility, it’s very hard to get it back. And credibility is a very important part of the bargaining and budgeting process now. And meeting buyers have to understand that integrity is a very important part of any kind of partnership.”
Many hotels are still smarting from the beatings they took during the depths of the recession, when savvy planners took maximum advantage of their leverage in an unprecedented buyer’s market.

Now, hotels are being equally tough in their negotiations. “In that sense, planners need to understand that times have changed,” Duncan says. “And they also need to understand that open communication with vendors is more important than ever when it comes to budgets and being able to get the things you need at the price you can afford to pay.”

Finding Creative Solutions

Facing conflicting realities such as tight budgets and spiking costs, planners must find new ways to achieve their goals. And one way of doing that is thinking creatively.

“Once we have the meeting objectives nailed down and a proposal out that’s based on an honest, realistic budget, we’ve started working with clients on allocating the dollars into different corporate budgets so that the meeting budget doesn’t have to absorb all of the costs,” Duncan says. “For example, they might have attendees charge their airfare to their corporate credit cards, so that gets charged as a T&E expense and not a meeting expense. That’s one current example of the ways in which some companies are getting a little more creative in the way funding is dispersed.”
Another example is allocating some of the costs for the annual sales meeting or a product launch event to the marketing budget instead of all of it going into the meeting budget. “We’re now seeing more and more clients doing those kinds of things, especially those with small meeting budgets,” Duncan says.

Other companies are looking at new options such as all-inclusive resorts in Jamaica, Mexico or the Dominican Republic for incentive programs, Kolker says. Doing that means being able to deliver a program on a fixed budget without skimping on attendee perks. “The all-inclusives are less expensive than anything else you can do,” Kolker says. “And your attendees are also still getting to live the high life, so it’s a very good solution for a lot of companies.”

Another trend Kolker sees is clients bringing in their own audio-visual equipment and/or personnel. “I’m seeing more and more of that as a way of managing costs,” she says. “And the hotels aren’t really objecting, although sometimes they do charge a fee because you’re doing that. But it’s still often a good way to save some money, because audio-visual for a big meeting is expensive.”

Yet another practical adjustment is being made in F&B options such as liquor. “Some companies now are switching from top-shelf liquors to just premium,” Kolker says. “And that’s another way they’re saving some money without really compromising on the fact that they want to do a quality event for their attendees. And they’re doing the same thing with hors d’oeuvres. And I find that hotels are willing to work with you on those kinds of things, too.”

But perhaps the smartest approach of all, Gorham says, is to carefully analyze past meeting costs in order to maintain effective cost controls in the future.

Booz Allen has developed a proprietary meeting budget calculator based on industry and historical data. “What that does is help the planner who is putting the meeting together understand what the meeting should cost, based on general pricing or from similar meetings we’ve done in the past,” Gorham says. And that leads to a rough budget estimate that can serve as a framework for discussions between meeting hosts and planners. “Defining your budget before planning is essential but also helps avoid unnecessary work, not only for the planner, but for the hotels.”

Looking to the Future

At this point, no one can say with certainty whether the current climate is a passing storm or a permanent change. For his part, Duncan does not believe that meeting budgets will ever return to pre-recession levels.
Kolker is just keeping her fingers crossed. “I pray that budgets will get back to pre-recession levels,” she says. “And even though I hear lots of people talking about ‘budget cuts, budget cuts,’ an awful lot of companies are still dancing around that issue and doing the kinds of meetings they want to be doing. And I don’t think that is ever going to change, especially for major meetings and high-end incentive programs.”

Gorham’s hope is that the importance of face-to-face meetings will never be entirely lost to the cause of cost-cutting. “I’ve been in the meeting industry for 17 years,” she says. “And I believe in the importance of face-to-face meetings. It’s great to have hybrid meetings. But I also think there are companies that have reduced the number of face-to-face meetings and are now seeing the effect it’s had on their business. As a result of that, those companies are now trying to figure out the right balance. We’re certainly at a pivotal moment right now.” C&IT

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