Project Seat Riser Case Analysis

The Hong Kong Convention and Exhibition Center is the most prestigious in Hong Kong. The centre hosts international exhibitions, trade shows, concerts, and many other social events and has brought millions of visitors to the site each year. Hall three, one of the many spaces available in the centre has had success booking concerts in the past, and management decided to zero in on this as a project as it looked promising to bring in a substantial amount of revenue. The one characteristic that would make Hall Three even more desirable to both concert organizers as well as concert viewers is an elevated seating design for viewers. Currently, Hall Three has flat-style seating and the elevated seating would be an incredible asset to the promotion of the hall. Given the circumstances, management decided that focusing on international performers during the convention centre's off-season would be the most beneficial. That being said, management has presented three options that need to be further explored to make the project the most successful it can be.

Option 1: Purchase a seat-riser

Option 2: Rent a seat-riser each time it is needed for a concert

Option 3: Rent a seat-riser for the duration of the off-season

The issue is to explore each option and decide which would be the most cost effective for the convention centre, the least risk they would have to acquire, and the most attractive to the concert organizers. As a starting point, calculating the breakeven point for each option will help point in the right direction.

In order to calculate the break even point for each option, the calculations will be based on 8,000 guests and tickets will be priced at $200 each in order to remain competitive with the Coliseum.

Option 1: Purchasing a seat-riser

The purchase cost will be:

HK3,000,000 for the seat riser

+ HK3,000,000 per year for storage

--------------------

HK6,000,000 fixed costs

The income per concert will be:

HK180,000 seat-riser rental (60,000/day x 3 days)

HK921,600 rental (307,200/day x 3 days - includes a 20% discount)

+HK1,600,000 ticket sales per concert

--------------------

HK2,701,600 in sales per concert

2,701,600X = 6,000,000 + 0 (profit is 0 to calculate the breakeven point)

X = 6,000,000/2,701,600

X = 2.22 concerts

From this calculation, it will take 2.22 or 3 concerts to recover all of the costs that went into purchasing a seat-riser.

Option 2: Rent a seat-riser each time it is needed

The costs per concert will be:

HK800,000 for set up and removal of the risers

+ HK90,000 for daily rental fees (30,000/day x 3 days)

--------------------

HK890,000 costs per concert

The