Ethical Implications of Pricing Decisions:
Description:
This discussion gives you an opportunity to examine a hypothetical budgeting process and analyze how the process is affected by multiple (and often differing) opinions.
Scenario: Forbes & Associates, Inc. uses a participatory budget process in which managers submit budgets for their respective divisions, which are then reviewed by Lee Blackmon, the chief financial officer (CFO). Divisional managers take the task seriously, as salary increases and bonuses are based on how actual performance compares to the budgeted income for each division. Last year, Alan Bennett, the manager of the financial services division of Forbes, had a record-breaking year and received a large salary increase for exceeding the budgeted income of the division by over 60 percent. Lee and Alan are currently negotiating the division’s budget for next year. Whereas Lee believes that the budgeted income for the financial services division should be 10 percent higher than last year’s actual results, Alan argues that last year’s results were extremely unusual and should not be expected to recur. Alan thinks that next year’s budget should be 10 percent higher than last year’s budget rather than 10 percent higher than last year’s actual results. Steve Forbes, the chief executive officer (CEO) of the company, has asked you to look into the issue and provide suggestions to improve the budget process.
In your original discussion posting, please address the following:
• A. Discuss the budgeting process at Forbes & Associates, Inc. Why do you think Lee and Alan are having difficulty agreeing on a budget?
• B. What suggestions do you have with respect to the budgeting process?
• C. How might the process be changed to provide more appropriate incentives for divisional managers like Alan?