ch19 - CHAPTER 19 DISCUSSION QUESTIONS 1. Strategic...

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Unformatted text preview: CHAPTER 19 DISCUSSION QUESTIONS 1. Strategic planning is the macro-level, long- range planning of firms in which manage- ment evaluates resources, weaknesses, constraints, and competition and decides how, where, and when to operate. At the strategic planning level, firms decide which products to sell, how to market their products, and how they will respond to de- mands of government and consumer groups, competition, and so on. Capital budgeting is planning for the acquisition of property, plant, and equipment that will help management reach the goals outlined at the strategic planning level. Capital budgeting involves making decisions such as which as- sets to purchase and whether to lease or buy. Operations budgeting, or simply budgeting, is the planning of operations for the coming period. This type of budgeting is usually rather short term. 2. Budgeting offers several advantages. First, it forces an organization to plan explicitly for the future. Second, budgets help communic- ate information within firms, eliminating bottlenecks and assuring the smooth flow of production by coordinating the activities of a business. Third, budgets provide spending, investing, and borrowing authorizations for lower-level managers and employees. Fourth, budgets motivate employees whose rewards are predicated on reaching certain budget levels. Fifth, because an overall budget is broken down into smaller depart- mental budgets, management can make sure that each unit is working for the overall good of the firm. Sixth, budgets provide management with an effective barometer with which to measure the performance of a company and its employees. 3. As noted in Question 2, management uses the operating budget to plan, measure performance, motivate employees, commu- nicate information, and coordinate and au- thorize activities. In addition, a budget allows management to assess whether expecta- tions for the coming period are consistent with long-run goals. For example, manage- ment might feel that projected net income is too low, and so capital expenditures might have to be cut back. 4. The advantages of a top-down budget are: a. Top management, who knows the stra- tegic direction of a firm, makes budget- ing decisions. b. Top management has no special in- terest to protect and so can be object- ive. c. Top management, which involves a relatively small group of people, can make more efficient decisions. The advantages of a bottom-up budget are: a. More people participate in the budgets preparations and, therefore, buy into and support the budget. b. People are better motivated by a budget they help prepare. c. Lower-level managers are closer to cus- tomers and technology and, supposedly, have better information and may make better decisions....
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This note was uploaded on 06/20/2011 for the course ECON 123 taught by Professor Mrews during the Spring '11 term at Korea Advanced Institute of Science and Technology.

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ch19 - CHAPTER 19 DISCUSSION QUESTIONS 1. Strategic...

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