The world’s attention will be focused on the 2012 Olympic Games in London in late July as 10.8 million ticket holders, 15,000 athletes and 21,000 media pros gather in the U.K.’s capital. But for Neil Wood, CFO for the committee organizing the London Games, the months ahead represent the culmination of almost a decade’s hard work. Wood’s journey to the 2012 Games started nine years ago, when he worked at Deloitte as an audit partner. “Back in 2003, when it was decided that the bid would go forward, the London Development Authority (LDA) put in £10 million for a part-financed bid and said it wanted to nominate someone as the CFO,” says Wood. “The LDA invited the big accounting firms to put forward a candidate for the role. I was looking for something big and interesting to do, and I was put forward by Deloitte.”
It turned out to be a complicated process, but Wood was appointed CFO of the London 2012 bid, and when the bid was successful in July 2005, Deloitte agreed to extend his temporary posting to the organizing committee, enabling him to stay on as CFO.
Set up in 2005, the London Organizing Committee of the Olympic Games and Paralympic Games (LOCOG) is the private-sector company responsible for staging the games. It sits alongside the Olympic Delivery Authority (ODA), a publicly funded body tasked with setting up the required infrastructure.
“The ODA is largely responsible for building the theater and we are largely responsible for putting on the show,” says Wood. “In reality, of course, it’s a bit more complex than that because when we bid to host the games in London, we did it largely on the basis that there would be a lot of use of existing non-sporting facilities and temporary facilities, because we didn’t want to leave behind a lot of white elephants. So, unusually, LOCOG has a very large build program itself, accounting for 20% to 25% of our total spend.”
Wood says that like most CFOs, his responsibilities fall into two broad categories. “The first is financial control, which is the basic back office, record keeping, production of management accounting information and statutory accounts.
“The second is financial planning, which is probably bigger here in relation to the basic accounting function than in most corporates, because a lot of what we have to do is managing the budget to deliver the project within the resources that we have available to us,” he says. “It’s a massive project, hugely complex, and the biggest challenge is delivering this within budget.”
To achieve this goal, Wood has a large financial planning team embedded into the 15 functional areas of the organization, which include technology, catering, sport, logistics and transport. “Their role is to help us understand the various cost pressures, to assist the functional areas in managing their budget, and really ensure we are on top of the costs of delivering this highly complex project,” he says.
LOCOG’s budget of £2 billion ($3.2 billion) comes from three main sources: local sponsorship, ticketing and a £600 million ($950.6 million) contribution from the International Olympic Committee (IOC) funded by the IOC’s international sponsors and broadcasting rights. LOCOG met its local sponsorship target of £700 million ($1.1 billion) last year, and ticketing is projected to bring in around £600 million. Smaller revenue sources include sponsorships, licensing from the organization’s retail program, asset disposal and interest income.
Raising funds was always going to be a challenge, but that was exacerbated by the economic turbulence of recent years, particularly since LOCOG’s revenue targets were set before the beginning of the financial crisis.
“It’s difficult to tell how things might have been, had the economy been more buoyant,” Wood says. “But we’re incredibly pleased that we hit the target set back in 2005. The commercial team have had to work a lot harder to generate the revenue, and I know some individual sponsorship transactions that have been negotiated have taken a significant amount of time.”
Controlling the organization’s expenditures is a central aspect of Wood’s job. To manage costs, he initiated LOCOG’s procurement program early on in the project. The disadvantage of this approach was that in some cases the organization’s requirements hadn’t been fully established when prices were negotiated with suppliers. Wood says that this was addressed by using a rate-card arrangement, where prices for products and services were agreed upon without necessarily defining the quantities required.
The Olympics might be within spitting distance, but there is still a lot of work to do. The temporary building and provision of technology for various venues has yet to be completed—for example, the construction of a temporary 15,000-seat arena in central London won’t begin until after the Queen’s Diamond Jubilee in June.
Nevertheless, Wood is confident that the risk of scope creep has been avoided and optimistic that the project will not exceed its budget. “I don’t want to count chickens, but I think we will deliver within budget, which is a massive success, given that we have had to operate on incredibly thin contingency margins,” he says.
The last few years have not been without their challenges, however. The high-profile nature of the Olympics has meant that LOCOG operates under the scrutiny of considerable media interest, particularly in recent months. The organization also has many overseers. “Stakeholders include central government, local government, the boroughs, the mayor’s office, the British Olympic Association, the International Olympic Committee, the International Paralympic Committee—so a lot of people are interested in what we’re doing,” says Wood.
Working for an organization with a limited lifespan also presented some unique challenges. For one thing, Wood started out with a blank slate.
“We had no systems, no IT infrastructure, no protocols, no processes,” he recalls. “So one of the first challenges was to put in the IT infrastructure, put in a complex ERP system and build the processes around that. Governance arrangements had to be built, which I largely did with our general counsel, so we established all the delegated authorities and all the processes that we would go through so that there was crystal clarity in the organization as to how things are authorized. Putting that in early has served us very well.”
Despite the temporary nature of the organization, which will cease to exist once the Olympics are over, LOCOG decided to invest in sophisticated financial systems.
“We’ve had to strike a balance between recognizing that we are only around for seven years and understanding that this is a complex project requiring a significant spend,” Wood says. “We’ve erred on the side of building some sophisticated systems early on and getting them in place, recognizing that we would be far too busy in the last 18 months of the project to be changing our IT infrastructure.”
The organization’s rapid expansion represents another significant challenge. Once the bid was won in 2005, LOCOG started with around 20 employees and was comparable to a small family business with a simple accounting system. Today, it has 5,500 employees, and at the height of the games, its workforce will be bolstered by around 100,000 contractors and 70,000 volunteers. LOCOG has evolved into the equivalent of a FTSE 100 organization in terms of size and complexity. “We have an incredibly back-ended project,” Wood says. “In our first year of operation, we spent less than 0.5% of our total budget. In our final year, we will spend over 75% of the total, so there’s a huge amount to deliver and, therefore, keep control of in the last 12 months.”
LOCOG may have ramped up quickly, but once the Olympics are over, it will be wound down even more rapidly—essential if the organization is to preserve any operational surplus it generates. Wood plans to complete the last financial statements in March 2013 and formal liquidation is scheduled to follow three months later. “If this is successful, it will be the fastest liquidation in the history of the games,” he says. “We’ve been working on our dissolution plans for the last 18 months. On Sept. 10, the day after the closing ceremony for the Paralympic Games, most people will leave, other than a small dissolution team.”
This will mark the end of an era for Wood, who was made a Member of the British Empire, a government honor, in 2006 for his work on the Olympic bid. But with a role ready and waiting at Deloitte Consulting, this won’t be too much of a concern for the 47-year-old.
“My plan is to go back to Deloitte, where I came from,” he says. “And hopefully, I’ve learnt some skills over the last nine or 10 years that will be very useful.”
For more profiles of finance chiefs, see 2012 CFOs to Watch.