CHAPTER 4

Operating Expense Details: Derivatives

KPI: Overhead Expenses per GSF Rented

Why This KPI Is Useful

This KPI applies particularly to revenue models where most of the earned revenue from services is from in-house business units (utility service, parking, cleaning, and so on). I have read and studied well over 20 annual financial and audited financial reports from major U.S., convention centers and the word “overhead” is absent. This is so because overhead expenses at convention centers are semi-variable. Investopedia explains semi-variable overhead expenses as “the company incurs some portion of the expense no matter what, and the other portion depends on the level of business activity.”¹ Also, convention centers rarely if ever allocate overhead costs internally to revenue producing activities. So, expenses like utilities, insurance, or even office supplies are not assigned to event service departments. The best way to see the effect of semi-variable overhead expenses is to calculate them on the basis of business activity. In this case business activity is GSF Rented.

This KPI explains and enumerates the extent and range overhead expenses vary based on business activity. This metric will assist in exposing irregular increases and patterns of current Overhead Expenses/GSF Rented vs. the average Overhead Expenses/GSF Rented.

Objective

To gain an understanding of overhead costs and how they vary based on business activity.

Managing Unfavorable Conclusions and Inferences

The assumption is that overhead cost may trend at a lower rate of increase than business volume increases. An inordinate increase of overhead expenses per GSF Rented is cause for concern.

How to Calculate and/or Organize Data

Presentation Notes and Formats

Table, bar graph, or both, comparing current and current average YTD, previous YTD, and business plan.

¹ Investopedia. undated. “Overhead.” https://investopedia.com/terms/o/overhead.asp (accessed December 2019).