Managing Risk in Organizations, J. Davidson Frame, Jossey-Bass © 2003
A Guide to the Project Management Body of Knowledge (PMBOK) (5th Edition), Project Management Institute © 2013
Events Plus Inc.
Events Plus Inc. is a company that organizes seminars. Each year, it holds some 120 seminars dealing with business management and public sector management themes.
In order to encourage early enrollments to its seminars, Events Plus offers 20 percent discounts to participants who register for a class up to six weeks in advance of the date of the seminar offering. Because this is an attractive discount, popular classes usually experience heavy levels of sign-ups before the six-week pre-seminar cut-off point. Less popular courses experience weaker levels of sign-ups.
Table 1 shows data collected on 110 seminar offerings that were tracked by Events Plus over the past year and a half. Looking at the data, Events Plus finds that in 22 cases, enrollments were so strong at the six-week marker that they covered all anticipated seminar costs. Typically, these classes resulted in decent profits, although in two cases the class had to be cancelled owing to instructor illness. In 33 cases, enrollments were reasonably good at the six-week marker and covered 70-95 percent of the seminar costs. The seminars usually experience some profit, although on ten occasions classes could not be held owing to insufficient enrollments. In 55 cases, enrollments were weak at the six-week marker, covering less than 70 percent of anticipated seminar costs. Often, these classes did not break even and in a number of cases resulted in substantial losses. On 22 instances, they were cancelled owing to poor enrollments.
Break even at six-week marker? Hold seminar? Overall Probability
Yes, 22 times (20%) Yes, 20 times (91%) 0.18
Yes, 22 times (20%) No, 2 times (9%) 0.02
Almost, 33 times (30%) Yes, 23 times (70%) 0.21
Almost, 33 times (30%) No, 10 times (30%) 0.09
No, 55 times (50%) Yes, 33 times (60%) 0.30
No, 55 times (50%) No, 22 times (40%) 0.20
Events Plus uses the information contained in this table to track enrollment strength course-by-course. That is, decision-makers use this historical data to determine the viability of current seminar offerings. At the six-week pre-course marker, managers review enrollments and classify a seminar according one of three categories: Break even as of today; almost break even as of today; and not-near-to-breaking-even as of today.
1. Create a decision-tree that will help guide us in determining what action to take when we review student enrollments at the six-week, pre-course marker.
2. Senior management is reviewing past attendance at seminars. They want to have an overall understanding of how their seminar marketing efforts are doing. So they ask the following questions, which you should answer:
a. What is the probability that Events Plus will reach the break-even point at the six week marker and ultimately hold the seminar?
b. What is the probability that Events Plus will nearly reach the break-even point at the six-week marker and ultimately hold the seminar?
c. What is the probability that Events Plus will not reach the break-even point at the six-week marker, but winds up holding the seminar nonetheless?
3. Assume the cost of preparing for a typical seminar (including advertising cost) is $32,000 and revenue after preparation cost have been netted out is $20,000. When seminars are cancelled, the preparation costs are lost entirely.
a. If at the six-week marker we find that we have reached a break-even point, what is the expected monetary value associated with deciding to hold the seminar? Does it make good business sense to go ahead and hold the seminar?
b. If at the six week marker we find that we are near to reaching a break-even point, what is the expected monetary value associated with deciding to hold the seminar? Does it make good business sense to go ahead and hold the seminar?
c. If at the six week marker, we find that we clearly have not reached the break-even point, what is the expected monetary value associated with deciding to hold the seminar? Does it make good business sense to go ahead and hold the seminar?
4. When Events Plus begins preparing to offer a seminar, what is the probability that the seminar will actually be held?