Additional Questions Strategic Business Leader

CASE THE EVENT

The Event is a sporting event that is held every four years. It attracts competitors from 10 different
countries within the region and is held at a different time from the Olympic Games. The Event is
held in each of the countries within the region in rotation. The next Event is scheduled to take place
in the country of Cocoland for the first time in October 20X9. Cocoland’s currency is C$
The government of Cocoland created Eventco to organise and deliver The Event on time and within
budget. The government provided capital to Eventco for building work to proceed. However the
government does not intend to support The Event beyond the funding it has already provided. This
places a large responsibility on Eventco to ensure that its overall expenditure does not exceed the
revenue it generates from its commercial activities and the government grants it has received.
The following exhibits (1 – 4) provide information relevant to Eventco:
– Exhibit 1: Governance page on The Event’s website
– Exhibit 2: E-mail from director of venues regarding the velodrome project
– Exhibit 3: Transcript of meeting between outgoing and incoming directors of commercial
activities, regarding sponsorship and brand leasing
– Exhibit 4: E-mail regarding Protein Co’s gold sponsorship project
The case requirements are as follows:
1 You are Sally Sinclair, Eventco’s director of Information Systems (IS), with overall
responsibility for the development and management of the IS for the whole of The Event.
A key feature of marketing The Event will be The Event’s website. The previous two
Events both had a dedicated website to advertise and promote The Event and also to sell
tickets and merchandise. However, there were criticisms of these websites. Many
customers complained about the lack of relevant information and the number of errors
which occurred when purchasing tickets online.
You believe that the main weakness of previous Events’ IS was the lack of integration of
the websites with the overall strategy of The Event. Furthermore, the previous Events
organisers did not regard the development of IS as strategically significant to the
successful delivery of The Event.
Required:
Write a report to the board of Eventco which discusses the importance of an
effective IS strategy in order to successfully deliver The Event. (10 marks)

Professional skills marks are available for demonstrating communication skills in

persuading the board of the importance of an effective IS strategy. (2 marks)
(12 marks)

© ACCA. All rights reserved. 1

Strategic Business Leader Additional Questions

2 You are Michael Ballistic, a project management professional. You have been employed by
Eventco to manage the velodrome construction project. Theodore Willis, director of
venues, has called a meeting at which you are to make a presentation.
Required:
(a) Draft three slides, with accompanying notes, which identify the key
challenges you will face in planning and managing the velodrome project
and recommend a range of management control actions to reduce the
potential risks which could endanger the successful delivery of the
project. (8 marks)

Professional skills marks are available for demonstrating commercial acumen

skills in showing awareness of the key challenges and recommending
management control actions. (2 marks)

(b) You are now reviewing the proposals put forward by the two potential suppliers
of the track boards.
Prepare a briefing paper for the director of venues which evaluates the
proposals against the following three project constraints and discusses
the difficulties that you will face in evaluating the installation and on-
going maintenance costs of the track boards quoted by each of the
suppliers.
– Time;
– Quality; and
– Sustainability and locality. (13 marks)

Professional skills marks are available for demonstrating evaluation skills in

assessing the proposals and their related costs. (2 marks)

(25 marks)
3 You are Kimberley Coin, Eventco’s newly-appointed director of commercial activities. You
were recruited to replace Lenny Lightfoot who left Eventco for “personal reasons” after
only a few months in the role. However you did manage to have a transition meeting with
him before he left.

Daniel Berliner, your chief executive, is concerned about the risks associated with
Eventco’s willingness to accept commercial sponsorship and fees for brand leases.

Required:

Write a report to the chief executive which:

(a) Evaluates THREE significant risks to Eventco arising from its dependence
upon commercial sponsorship and brand leasing. (9 marks)

Professional skills marks are available for demonstrating communication skills to

inform of the risks arising from dependence upon sponsorship and brand leasing.
(2 marks)
(b) Recommends strategies that Eventco could adopt to persuade the major
sponsors, who are concerned about the possibility of adverse publicity,
not to withdraw their support for The Event. (12 marks)

Professional skills marks are available for demonstrating commercial acumen

skills when showing insight into possible strategies. (2 marks)
(25 marks)

2 © ACCA. All rights reserved.

Additional Questions Strategic Business Leader

4 You are Bruce Bournville, a corporate governance consultant. You have been appointed by
Cocoland’s minister for sport to review the governance of Eventco.
Required:
Draft a letter to the minister which evaluates the structure, membership and
operation of Eventco’s board. (12 marks)

Professional skills marks are available for demonstrating scepticism skills in questioning
the structure, membership and operation of Eventco’s board. (2 marks)
(14 marks)
5 You are Harry Mulligan, Eventco’s finance director. You have been contacted by Protein
Co, a protein drink supplier, which is considering becoming a gold sponsor for The Event
and thereby being allowed to build and operate a protein drink outlet in a prominent
position in The Event Park during The Event.
At present the board of Protein Co feel they don’t have enough information to make a final
decision and in response you have sent, Susie Squire, one of your finance team on
secondment to Protein Co.
Required:
Draft a business case for the board of Protein Co in which:
(a) Evaluates the key challenges at the conceptual stage of Protein Co’s gold
sponsorship project AND how best to address them. (6 marks)

Professional skills marks are available for demonstrating commercial acumen

skills in showing awareness of the key challenges and how best to address them.
(2 marks)
(b) Advises on the key factors to be considered when deciding whether to
proceed with the gold sponsorship project. (6 marks)

Professional skills marks are available for demonstrating analysis skills when
reflecting on the gold sponsorship project. (2 marks)
(c) Evaluates the two alternative funding methods being considered,
concluding with a recommendation. (6 marks)

Professional skills marks are available for demonstrating evaluation skills in

appraising the alternative funding methods. (2 marks)
(24 marks)

© ACCA. All rights reserved. 3

Strategic Business Leader Additional Questions

Exhibit 1 – Governance page on The Event’s website

Event Co-ordinating Committee (ECC)

The ECC was established to set out the framework within which the individual country organisations
should work in delivering The Event. Membership of the ECC is drawn from all the countries within
the region which take part in The Event.
Mission of the ECC

 To encourage and promote ethical competition in sport;

 To encourage and co-operate with public and private organisations in the preparation for and
staging of The Event;

 To achieve high levels of sustainability for the infrastructure of The Event and the environment
in which it takes place;

 To promote sport and healthy lifestyles amongst young people; and

 To promote The Event’s values of excellence, unity and achievement.

Organisation of The Event within Cocoland
The government of Cocoland created Eventco to organise and deliver The Event. The minister of
sport and the elected mayor of the city in which The Event are being held each own one of the two
shares issued by Eventco. This ownership is vested in their office and will pass to their successor
should they step down. The shares do not carry any formal voting rights, are non-transferrable and
have been issued purely to establish Eventco with a legal identity.
Eventco has a board of directors comprising: chairman, chief executive, directors for finance,
sponsorship, operations, marketing, commercial activities, estates, communications, human
resources, information systems, venues, athletes’ services, a representative from each of the
ministry of sport and the mayor, a sports representative drawn from each of the sporting activities
which will be competed in during The Event and a representative of the ECC.
Eventco’s directors each have one vote. The board attempts to agree all matters by consensus, but
a simple majority of the votes cast at a properly constituted board meeting is sufficient to pass a
resolution.
The board meets on the first Wednesday of every month. It is necessary for two thirds of its
members to be present before any business can be conducted, although it is unusual for any
member to be absent.
The board of Eventco is committed to meeting the mission of the ECC. It has established its own
mission and values as follows:
Mission
“To deliver The Event successfully on time and on budget in accordance with the expectations of our
stakeholders and in accordance with the mission of the ECC.”
Values
“Eventco will work tirelessly towards achieving the mission set out by the ECC. In striving to
achieve the ECC’s mission, Eventco will act fairly and responsibly with all its stakeholders, in
particular its employees and partners, in order to generate trust and transparency.”

4 © ACCA. All rights reserved.

Additional Questions Strategic Business Leader

Exhibit 2 – E-mail regarding the velodrome project

From: Willis, Theodore
Sent: 02 September 20X7 08:27
To: Ballistic, Michael
Subject: Velodrome Project
Dear Michael
As promised here is the background information you requested about the velodrome project that
you will be managing.
The city which is hosting The Event does not currently have a cycling arena. Therefore a cycling
arena, called the velodrome, needs to be built. This facility will be retained after The Event with the
intention that it will be used by the local community and also become a national training centre for
track cycling in Cocoland. The government’s aim is that this will assist in the development of
Cocoland’s future sporting aspirations and increase the level of sports participation for many years
to come.
Project management of the velodrome project
A project team was set up at the start of June 20X7. The aim of the project is to construct a high
quality, world-class velodrome which must be complete by the 31st May 20X9 within a budget of
C$50 million. Construction of the velodrome is due to begin on the 1st December 20X7.

This will be a highly complex project involving many external contractors, including key building
suppliers and contractors, utility suppliers, and track and seating component suppliers. The
successful construction of the Velodrome will rely upon the effective collaboration of a multi-
disciplinary project team made up of Eventco staff and staff members of the external organisations
responsible for the construction project. The project manager has the highly complex job of co-
ordinating the work of team members within a highly flexible project environment and scheduling,
planning and managing the key project activities.

Eventco has set three key targets for the delivery of the Velodrome. These are:

(i) meeting the final deadline of the 31st May 20X9;

(ii) meeting the expected level of quality; and
(iii) not exceeding the budgeted cost.
As project manager you must ensure that these key project targets are planned and controlled
effectively throughout the whole life of the project. Eventco has set a number of targets for
sustainability of the infrastructure of The Event in line with The Event Co-ordinating Committee’s
mission. The government of Cocoland is keen to encourage the use of local staff and suppliers
based in Cocoland wherever it is possible.
Supplier management in the velodrome project

A key decision needs to be made between two potential suppliers of the wooden track boards for the
velodrome. The quality of the material chosen for this critical component of the velodrome is very
important. The timing of delivery of the wooden track boards is critical as they must be installed
within the facility six months before final completion of the Velodrome. The project manager is
aware that the construction of velodromes in other countries has shown that the track boards should
cost (including installation) on average, 5% of the total budget for the velodrome construction.

The two potential suppliers of the track boards are Supplier A and Supplier B. A decision must be
made and an order placed with one of these two suppliers within the next two weeks.

© ACCA. All rights reserved. 5

Strategic Business Leader Additional Questions

Supplier A

 Supplier A is based in Cocoland.

 Supplier A has not undertaken work on this scale before. However, it has a good reputation for
quality in Cocoland. The material it proposes to use will be sourced from the region within
which The Event is being held.

 The price which Supplier A has quoted for only the track boards is C$2 million. The installation
company, used regularly by Supplier A, has stated it will require four weeks from the delivery
date quoted by Supplier A to lay the track at a price of C$125,000 per week.

 Supplier A expects to deliver the track boards to site in the first week of November 20X8.
However, should Supplier A not meet this deadline, then installation would have to be put back
by a further 4 weeks, due to other contract commitments of the installation company.

 Supplier A estimates that the track boards will have a life of 10 years. Supplier A cannot
provide the maintenance required for the track boards after The Event are completed.
Supplier B

 Supplier B provided the track boards on time and of sufficient quality for the Velodrome which
was built for the last Events. The total price quoted by Supplier B is C$3 million.

 Supplier B is based in another region of the world and the wood is sourced from its factory over
1,000 miles away. The wood is shipped to Supplier B, which then undertakes a complex
refining and treatment process. It is then transported, normally by air, to its final destination.
Supplier B invests heavily in re-forestation programmes within the regions from which it
sources its wood.

 Supplier B employs its own installation team and this is included in the price it has quoted.
However, during the last Events, the final cost of the track boards and installation was 4%
higher than Supplier B’s original quoted price. The track boards are guaranteed to be delivered
by the 1st November 20X8 and installed within three weeks. The track boards will have a
guaranteed life of 15 years.

 Supplier B could maintain the track boards it supplies for an annual fee of C$80,000 for 15
years after installation. Supplier B has stated that should it not win the contract it could still
provide maintenance of the track boards supplied by a different supplier but this would cost an
estimated C$120,000 per year for the expected life of the track boards.
I trust you find the above informative.

Best wishes

Theodore Willis
Director of Venues, Eventco

6 © ACCA. All rights reserved.

Additional Questions Strategic Business Leader

Exhibit 3 – Transcript of meeting between outgoing and incoming directors of commercial

activities
Kimberley Coin: Nice to meet you Lenny and thank you for agreeing to meet me before you leave.
Lenny Lightfoot: That’s fine. What can I help you with?
Kimberley Coin: In particular I would like to know about the sponsorship and brand leasing
arrangements you set up whilst working at Eventco.
Lenny Lightfoot: Sure. In July 20X7 Eventco signed a big contract with Foodfast Co, a major fast-
food chain. The contract specifies that Foodfast Co will use The Event logo on all of its packaging
and on all of its advertising throughout Cocoland and the other countries in the region for two
months before The Event and for the duration of The Event itself. Foodfast Co will pay a royalty for
every time that it uses the logo and so Eventco’s revenue from this agreement will be linked to
Foodfast Co’s sales.
Kimberley Coin: That sounds great.
Lenny Lightfoot: It was great until newspapers started running stories about the amount of fat and
salt in Foodfast Co’s products, claiming that The Event should only be connected to healthy
lifestyles. Ridiculous – no doubt even top athletes enjoy an occasional burger!
Kimberley Coin: OK Lenny – any other bad news?
Lenny Lightfoot: Oh yes … Eventco has also been criticised for the design of the clothing that it has
had manufactured as Events merchandise. Some of these clothes are sized for overweight
customers. The newspapers claimed that Eventco believes that many spectators will be overweight
and unhealthy individuals who preferred an evening in front of the television to a more active
lifestyle. Ridiculous – if we only made sizes for slim people the newspapers would say that is
discrimination against bigger people!
Kimberley Coin: I take your point but has there been any adverse reaction to all these newspaper
reports?
Lenny Lightfoot: Oh yes … three of Eventco’s other major sponsors have threatened to withdraw
from their agreement to support The Event. There is a clause in the sponsorship contract that
permits sponsors to be released from their commitment if Eventco’s actions threaten to bring The
Event into disrepute.
Kimberley Coin: I see … well this job is going to be tougher than I expected. So when they say you
left “for personal reasons”?
Lenny Lightfoot: I was fired.
Kimberley Coin: Sorry to hear that
Lenny Lightfoot: Don’t be. I was paid six month’s compensation for loss of office and the very next
day a head-hunter offered me an even better job promoting the Olympics!

© ACCA. All rights reserved. 7

Strategic Business Leader Additional Questions

Exhibit 4 – E-mail regarding Protein Co’s gold sponsorship project

From: Squire, Susie
Sent: 06 September 20X7 11:57
To: Mulligan, Harry
Subject: Protein Co’s gold sponsorship project
Attached: ProteinCo.xls
Dear Harry
Thanks for seconding me to Protein Co. Please find below and attached, the information I have
gathered regarding Protein Co’s potential application to become a gold sponsor.

Best wishes,
Susie Squire
Finance manager, Eventco
Gold Sponsorship Application
Applying to become a gold sponsor would require Protein Co to complete an official application pack,
including full details of how they would support the mission of ECC. In particular, how Protein Co
would:

 Achieve high levels of sustainability for the infrastructure of The Event and the environment in
which they take place;

 Promote sport and healthy lifestyles amongst young people;

 Promote The Event’ values of excellence, unity and achievement.

As part of its application to become a gold sponsor, Protein Co hopes to be able to state that it
would re-use 75% of the materials used in the construction and operation of the outlet. Materials
such as timber and light bulbs would be re-used in other Protein Co outlets after The Event.
Protein Co would promote sport and healthy lifestyles by providing sports coaching in volleyball skills
throughout Cocoland until 20Y1.
Protein Co’s outlet in The Event Park would be staffed by top performing employees from current
outlets. These employees would also be given tickets to attend The Event in their leisure time.
The Event is expected to attract spectators from many countries and Protein Co hopes that
operating an outlet, together with becoming a gold sponsor, would promote its brand name both
within Cocoland and in other countries. Currently, all of Protein Co’s outlets are located within
Cocoland but Protein Co wishes to expand beyond Cocoland.

8 © ACCA. All rights reserved.

Additional Questions Strategic Business Leader

Investment Appraisal
Protein Co’s gold sponsorship project ‐ NPV calculation (in C$000)
Year 20X8 20X9 20Y0 20Y1 20Y2
Operating costs ‐330
Revenue 672
342
Tax at 40% ‐137
Gold sponsorship fee ‐1,000
Tax relief on fee 400
Sports programme ‐60 ‐60 ‐60 ‐60
Tax relief on sports programme 24 24 24 24
Net operating cash flow ‐1,060 306 227 ‐36 24
Construction ‐4,000
Fixtures and fittings ‐500
Equipment ‐748
Residual value 800
Tax impact (year delay) 1,800 ‐21
Cash flow ‐5,560 2,158 206 ‐36 24
DF at 16% (cost of capital) 0.862 0.743 0.641 0.552 0.476
Present value ‐4,793 1,604 132 ‐20 11
Net Present Value ‐3,066

Choice of Funding
Protein Co needs to borrow approximately C$10 million on 31 October 20X8 for a ten year period to
finance this project. Some directors have learned that several companies in Cocoland have
borrowed from local banks in US$ rather than in C$ in order to take advantage of the lower US$
interest rate. Cocoland has successfully pegged the C$ against the US$ in the last three years.
The following two alternative funding structures are therefore being considered, both for a 10 year
term starting 31 October 20X8:

 C$10 million bank borrowing; annual interest rate: 6.0%.

 US$15 million bank borrowing; annual interest rate: 3.0%.

Spot rate US$1 = C$0.65

Forecast US$/C$ spot rates in 11 years’ time using interest rate parity theory:
US$/C$ 0.8914 = 0.65 × (1.06 ÷ 1.03)11
Hence US$15 million would cost C$13.37 million to repay (where 13.37 = 15 × 0.8914).

© ACCA. All rights reserved. 9