Forecasting Issues In Tokyo Olympic Games Homework Answer

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Question :


Tokyo Olympic Games were due to take place at the end of July 2020 but, the International Olympic Committee (IOC) took the decision to delay the Games until July 2021.
Japanese Prime Minister Yoshihide Suga says he will "spare no effort" to ensure a safe and secure Tokyo Olympic Games to show the world that humanity has defeated the COVID-19 pandemic.
His comments come as organisers revealed postponing the Games until 23 July 2021 would cost the Japanese economy an additional 294 billion yen ($3.8 billion).
As the costs for Tokyo keep rising, it may reinforce skepticism about the wisdom of holding the Olympics in the middle of a pandemic. Recent polls show the Japanese public is divided on the issue of the Olympics, and any move to permit fans from abroad to enter despite a vaccine being on the horizon.

Tokyo Olympics will be the most expensive Summer Games on record, with expenditure set to increase further due to the one-year postponement.
A) Discuss the forecasting issues that might explain why this is the norm. Why is it so difficult to accurately budget for the Olympic? What types of items need to be included in the budget? 

B) In your opinion, are the financial losses associated with the Olympic games outweighed by the perceived social benefits?

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Answer :

A. Tokyo Olympic Games were due to take place at the end of July 2020. However, International Olympic Committee (IOC) took the decision to delay the Games until July 2021 in view of the Corona pandemic (The Guardian, 2020). However, this is expected to lead to additional cost of almost $3.8 billion to the Japanese economy. While it may be seen as the triumph of the human spirit, there is scepticism due to not only the additional financial burden but also due to the issues of safety as foreigners will be travelling to the country and virus may spread again (Dietrich, 2009).

Historically, the Olympic Games have been known to have huge cost overruns. It must be noted that IOC itself doesn’t incur any costs for the Olympics, rather the host country does. Some studies indicate overruns in Olympics average almost 172% indicating that budgeted figure more than doubles in actuality. One of the major reasons is the bidding process followed which limits the negotiating power of the host country. Once a country bids, the focus is on spectacle in the event rather than the efficiency of the event plans. The host country is legally bound to not only stick to the event timeline but also the bid details given. Hence, the host country cannot backout from the commitments either. Further, the long-time frame from winning the bid till actual hosting of the games means that the country is open to multiple risks, such as, economic conditions may deteriorate, there may be natural calamities or other kind of unrest that may further put strain on the country (Khraiche & Alakshendra, 2020). 

Apart from the obvious tangible items such as sports equipment, infrastructure, the cost includes security expenses, hosting and accommodation, location cleaning and decorations, etc. 

B. The answer depends on what value is put on to the perceived social costs and from what perspective. The financial losses are huge for the Japanese economy. Apart from the estimated cost of $16.9billion which was estimated in 2019, the losses related to postponement are estimated at $3.8billion. Additionally, since the Olympics have a history of overrunning costs, there is a huge chance that the costs will be even higher than this. Hence, financially, it comes to a burden of more than $21billion. This is huge for any country.

The social benefits from the Olympics include the glory, recognition and reputation of being a host to such a mega event (Khraiche et al., 2020). Additionally, the location, namely Tokyo will get an unseen facelift. The fact that Tokyo incurred additional expenses to postpone the event but did not cancel it due to pandemic fear and anxiety may also add to the reputation of the country. The Japanese culture will get the recognition amongst people from various countries. 

The huge expenditure could have been instead put to better use by utilizing the amount for the country’s citizens through a social welfare program, education programs, health and insurance programs or simply using the money to support economy in a better way, especially during these stressed COVID-19 times.

Hence, it seems that the financial costs outweigh the social benefits.