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Exam focus – The Games Analysis of pre-seen material for November 2013 and March 2014 Strategic level exams By BPP subject specialists David Halford, Doug Haste and Jonathan Rugg In this article we will outlines the purpose of the pre-seen Strategic level case study before going on to examine some aspects of the current pre-seen case study and how these could be applied to the forthcoming Strategic level exams. Purpose of the pre-seen CIMA does not expect students to spend significant amounts of time researching the industry described in the pre-seen; this can wait until you get to T4 and even there it is of limited value. CIMA’s intention is that by giving you a pre-seen case study, no candidate is put at an advantage or disadvantage by their level of familiarity with the industry involved. All candidates now have time to ensure that they have a basic understanding of the main issues involved in the case study before walking into the exam. The Games In the latest pre-seen is based on a regional (10 country) multi-sport event (‘the Games’) that appears to be similar in size and scope to regional sports events such as the East Asian Games, or the South American Games. Country C is the 10th country (of 10) to host this event since its inception in 1979. The Games are overseen by three powerful stakeholder groups: the GCC (Games Co-ordinating Committee), the Ministry for Sport, and the Mayor of the city which will host the Games. The interests of these stakeholder groups may clash – for example the GCC’s will prioritise non financial aims such as promotion of the sport, the Ministry of Sport is likely to have stronger concerns about financial issues, and the local Mayor will be perhaps more interested in legacy issues. This potential clash could it difficult for GAMESCO (the company organising the Games) to make decisions on issues such as ticket pricing, and the design of facilities such as the athletics stadium and the Games Village. We will now look at the pre-seen from the viewpoint each of the three Strategic level papers in turn. Before reading this analysis, it is important that you have read the pre-seen case study, this can be found at www.cimaglobal.com/strategicpreseen. An F3 perspective At first sight, this is an unusual scenario for F3. • GAMESCO is a not for profit company that will dispose of its assets after the completion of the Games in approximately two years time. • GAMESCO is structured as a company that is limited by guarantee; this is a commonly used organisation structure for not for profit organisations (for example LOCOG, the London Organisation Committee of the Olympic & Paralympic Games had this structure) that is designed to mean that the individuals running the company are not held personally liable for the company’s debts. A company that is limited by guarantee cannot issue shares, although it can borrow money. • Because of its short life-span, GAMESCO will be less concerned with evaluating long- term investments (domestic or overseas), takeovers or raising long-term finance – and this would appear to exclude a fairly major chunk of the F3 syllabus. The F3 issues that would appear to be most obviously relevant for a business like GAMESCO could include: • Forecasting & short-term financing issues, eg. analysis of GAMESCO’s cash flow projections over the next 2 years and an analysis of how to deal with any projected short- falls in funding (or surpluses) • Investment appraisal, eg. analysis of: - alternative designs for proposed new facilities that incorporate estimates of their disposal value in 2 years time - suitable project control techniques • Medium-term financing issues, eg. an evaluation of whether to lease or buy assets. • Valuation of assets, eg. covering the sale of assets such as the Games Village Bear in mind that occasionally the real exam question has introduced a completely new business, which has links with the company in the case study. For example in the May 2013 exam, which was based on a not for profit railway company, the real exam introduced a private company evaluating an investment in setting up facilities for the railway company – and this allowed the examiner to test investment appraisal and financing issues from the perspective of a ‘for profit’ private company. If this approach was used again it would allow the examiner to test a wider variety of issues, for example: • Investment appraisal, eg: - converting the Games Village into apartments - building restaurants in the Games Park - this could include currency issues if the investing company is not based in country C - evaluating a proposal to become a sponsor • Acquisitions: - Eg. valuing a business within country C that could benefit from being awarded contracts by GAMESCO. • Cost of capital calculations: - a cost of capital calculation to support either investment appraisal or business acquisition decision . So, despite the slightly unusual scenario, you are likely to need a firm grasp of all aspects of the F3 syllabus to tackle the compulsory question. A P3 perspective It is often useful to start by considering the range of risks presented in the scenario, and then identify the appropriate controls to mitigate those risks. Whilst detailed research is unnecessary, the 2010 Delhi Commonwealth Games and, to a lesser extent, the 2012 UK Olympic Games offer a wealth of operational mishaps which serve as a checklist of potential pitfalls for the Games. These issues include - collapsing structures, aggressive sponsor protection, ingrained corruption, and security contractor inadequacy (as evidenced by the problems G4S had in supplying adequate manpower to fulfil their contractual obligations). Operational Issues The Games requires a considerable amount of construction work to be completed within a rigid project schedule in order to meet the October 2015 deadline. Construction work is inherently risky, but safeguards can be implemented to improve the health and safety environment. Appropriate protective equipment such as hard hats, protective eyewear and sturdy footwear would seem mandatory. However, the 2010 Delhi Commonwealth Games was criticised for allowing workers to wear open toe sandals on site. Not only does this open up a debate on appropriate controls but also presents the opportunity to discuss ethical considerations of investing in appropriate safety equipment. Any controls recommended need to be reasonable. The 2012 London Olympics was widely criticised for its overzealous protection of corporate sponsors, having legislation passed which prohibited non sponsors from suggesting any association with the Olympics whatsoever. Financial Risk Previous papers have required candidates to identify the reasons for and discuss the management of currency exposure and to demonstrate knowledge of derivatives. The Games generates income from broadcasting fees and various sponsorship arrangements. Candidates may have to deal with future receipts from sponsors in a foreign currency, perhaps requiring the application of a money market hedge or a discussion of currency futures. Students would be advised to have a solid knowledge of these areas. Ticket Sales Ticket sales present a significant opportunity for fraud. Since the majority of sales will occur over the internet the examiner may test knowledge of information operations, with past exam questions requiring candidates to evaluate the effectiveness of technology in identifying and preventing fraud. Organisers of the 2012 Olympics and UK enforcement officers focussed on removing the opportunity for fraud by closing fraudulent websites as they were created, requiring them to work closely with internet service providers, although this was a daunting task since ticket sales occurred globally. Legacy The Games has a clear mandate to ‘achieve high levels of sustainability’, and we are told that ‘much has been made of the huge opportunities for business’ and ‘the many new homes and amenities that will become available’. The Sydney Olympics is widely heralded as having delivered on its legacy promises, however legacy benefits have historically proven notoriously difficult to qualify. Internal audit has a role to play here, with previous questions requiring candidates to recommend an approach to selecting suitable areas to audit and to discuss the tests internal audit could undertake. Since these benefits are likely to be realised over the longer term there may be an opportunity to discuss feed forward control, amongst other management accounting control systems such as budgets, overhead allocation and investment appraisal techniques. Finally, although a good working knowledge of the pre-seen will certainly be an advantage in the P3 exam, candidates should be prepared for the unseen scenario to introduce more specific issues and perhaps change the nature of the situation. An E3 perspective From an E3 perspective the Games pre-seen scenario provides some subtle syllabus hints; though none of these are strong enough to present a clear cut case for inclusion in Section A question of the upcoming exam. Moving through the preseen in chronological order we are told: (1) The Games are two years away. This leaves a 2 year gap between your exam and completion of the delivery phase of the Games. We can add to this the time spent providing the legacy aspects i.e. conversion of athletes village into accommodation. The topic of Environmental Uncertainty is relevant here. You may be asked to consider how the use of models such as forecasting, real options, scenario planning etc may assist GAMESCO with their planning of the Games before, during and after the athletic events. (2) We are given the 5 aspects of the mission of the Games Co-ordinating Committee. You could be asked questions such as ‘explain the value of a mission statement’, or ‘how can a mission be turned into quantifiable objectives’. (3) The Government of C are involved in the Games via the capital contribution made and the shareholding of the Minister of Sport in GAMESCO.

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