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The budget process can have a significant impact on human behavior in the organization. We cannot separate the mechanics of the process from the people who participate in the process.
The division manager of Alpha Construction Corporation submit capital investment proposal each year for evaluation at the corporate level. Typically, the total pound amount required by the divisional managers far exceeds the company's capital investment budget. Thus each proposal is first ranked by its estimated net present value (NPV) as a primary screening criterion.
Mr. Ragab Sleem, the manager of Alpha's commercial construction, often overstates the projected cash flows associated with his proposals, and thereby inflates their NPVs. He does so because, in his words, "Everybody else is doing it."
a- Assume that all the division managers do overstate cash flow projections in their proposals. What would you do if you were recently promoted to division manager and had to compete for funding under these circumstances.
b- What controls might be implemented to discourage the overstatement of capital budgeting estimates by division manager.
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تاريخ التسجيل : 10/11/2010
نقاط : 2329
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