Question: (a) Participation in budget-setting both improves subsequent performance and avoids the problems of biased and manipulated information. Do you agree? (b) Nine independent operating units

(a) Participation in budget-setting both improves subsequent performance and avoids the problems of biased and manipulated information. Do you agree?

(b) Nine independent operating units have the following expections of output and its variability during the coming year:

Unit Expected output Standard deviation ABCDEFGHK 500 100 600 110 700 120

Unit managers each submit estimates of output having a 16% chance of being exceeded. How likely is it that the total output estimate for the company will be met? Assume the distribution of output to be Normal. Corporate management re duces the total estimate, so that it has a 16% chance of being exceeded by reducing each estimate pro rata. How likely is it now that each unit estimate will be met?

What are the implications for the design of budgetary systems?

(c) Aggregation is one potential cause of control loss in large organizations. Identify other potential causes and evaluate the extent to which the multidivisional structure overcomes these problems.

Unit Expected output Standard deviation ABCDEFGHK 500 100 600 110 700 120 800 130 900 140 1000 150 1100 160 1200 170 h 1300 180

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