solution - ongko - 1 Ongko Furniture Store Analysis 2...

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Ongko Ongko Furniture Store Furniture Store Analysis Analysis 1
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Financial Analysis The most influential risks of sales forecasts stem from unethical decision-making. The various reasons that lead managers to unethical decision-making and that affect the risks of sales forecasts. First, managers may want to increase resources to become more productive and aid in advanced perquisites or salary. Other organizations may use budgets as employee performance evaluations that cause increased activity in exaggerating company budgets. This form of activity is considered budget padding , where managers either over or under exaggerate their numbers to more easily obtain targeted profit goals. A potential risk from this form of decision-making is that a conflict between upper and lower-level management begins to emerge. This process begins when lower-level management incorporates bias revenue based on submitted fabricated figures. This creates a budget slack , in which upper- level management takes actions to compensate for the bias. The result is a tangled weave of misleading information that eventually deems the budget worthless. Another risk factor is the use of budgets for managerial bonuses. Although such incentives commonly create motivation, better productivity, and increased quality of work, it spurs managers to report fictitious information. Management personnel that are short of reaching their projected sales are more likely to inflate data to obtain rewards. This form of incentive simply creates an incentive to cheat. Managers who fall short of goals can simply inflate their reports to match the target budget. Pressures that are placed on managers to meet percentage criteria too often results in flawed budgets. The outcome is decisions that are based from inaccurate information as they become more focused on meeting the short-term goals, which may conflict with the long-term interest of the company. 2
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Overall, the many risks associated with sales forecast are based from unethical behaviour. Various organizations play a role in creating such behaviours, creating high criteria for meeting targeted goals with promised incentives and perks. Pressures, demands, and offered incentives often become too large, causing the actions of management to report false data
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This note was uploaded on 05/13/2010 for the course MECH 17657 taught by Professor Ravikant during the Spring '10 term at Indian Institute of Technology, Delhi.

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solution - ongko - 1 Ongko Furniture Store Analysis 2...

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