Chapter 8 & 9: Planning, Budgeting and Incentives

Question 1

1. Financial responsibility centres
2. Formal management processes
3. Motivational contracts

Answer 1

Financial Results Controls

Question 2

Budgeting involves setting targets which are often used later as standards against which to evaluate performance.

Answer 2

Results Controls (Budgeting & Management Control)

Question 3

Planning and budgeting processes involve formal reviews of plans and include the actions that are felt to be good for the organization to take.

Answer 3

Action Control (B&M Control)

Question 4

Planning and budgeting processes serve to get information needed for decision making to the right managers.

Answer 4

Personnel Controls (B&M Control)

Question 5

Planning and budgeting processes serve to get information needed for decision making to the right managers.

Answer 5

Personnel Controls (B&M Control)

Question 6

Top-Down / Bottom-Up

1. Issuance of guidelines
2. Initial budget proposal
3. Negotiation
4. Approval

Answer 6

The Budget Preparation Process

Question 7

1. To minimize dysfunctional management actions
2. To increase manager’s commitment to budget targets
3. To reduce the cost of organizational interventions
4. To protect against the cost of optimistic revenue projections
5. To create a winning atmosphere and positive attitude

Answer 7

Target Setting

Question 8

• Things employees value (rewards)

- Things employees like to avoid (punishments)

Answer 8

Positive and Negative Incentives

Question 9

• Based on performance in the current year or less (bonuses, commissions)
• Based on the performance measured over periods greater than one year
  1. Accounting performance (EPS, ROE, ROA)
  2. Market-based performance (stock options)

Answer 9

Short- and Long-term Incentive Plan

Question 10

Team-based rewards are often used to implement personnel/cultural controls (group members monitor and sanction each others’ behaviours)

Answer 10

Group Rewards

Question 11

Team-based rewards are often used to implement personnel/cultural controls (group members monitor and sanction each others’ behaviours)

Answer 11

Group Rewards

Question 12

1. Rewards should be valued
2. Rewards should be large enough to have impact
3. Rewards should be understandable
4. Rewards should be timely
5. Rewards should be durable
6. Rewards should be reversible
7. Rewards should be cost efficient

Answer 12

Criteria for Evaluating Reward Systems