1. Under these circumstances, would Justin be wise to pursue a top-down or a bottom-up budgeting approach? Why?

2. What factors are most relevant in terms of creating a budget in this situation?

 

Transcribed Image Text:

Justin Jordan has been named Project Manager of the General Sensor Company's new sensor manufacturing process project. Sensors are extremely price sensitive. General has done a great deal of quantitative work to be able to accurately forecast changes in sales volume rela- tive to changes in pricing. The company president, Guy General, has faith in the sensitivity model that the company uses. He insists that all projects affecting the manufacturing costs of sen- sors be run against the sensitivity model to generate data to calculate the return on investment. The net result is that project managers, like Justin, are under a great deal of pressure to submit realistic budgets so go/no-go project decisions can be made quickly. Guy has canceled several projects that appeared marginal during their feasibility stages and recently fired a project manager for overestimat- ing project costs on a new model sensor. The project was killed early in the design stages, and six months later a competitor introduced a similar sensor that proved to be highly successful. Justin's dilemma is how to construct a budget that accurately reflects the costs of the proposed new process. Justin is an experienced executive and feels comfortable with his ability in estimating costs of projects. However, the recent firing of his colleague has made him a little gun-shy. Only one stage of the four-stage sensor manu- facturing process is being changed. Justin has detailed cost information about the majority of the process. Unfortunately the costs and tasks involved in the new modified process stage are unclear at this point. Justin also believes that the new modifications will cause some minor changes in the other three stages, but these poten- tial changes have not yet been clearly identified. The stage being addressed by the project represents almost 50 nercent of the manufacturing cost Justin Jordan has been named Project Manager of the General Sensor Company's new sensor manufacturing process project. Sensors are extremely price sensitive. General has done a great deal of quantitative work to be able to accurately forecast changes in sales volume rela- tive to changes in pricing. The company president, Guy General, has faith in the sensitivity model that the company uses. He insists that all projects affecting the manufacturing costs of sen- sors be run against the sensitivity model to generate data to calculate the return on investment. The net result is that project managers, like Justin, are under a great deal of pressure to submit realistic budgets so go/no-go project decisions can be made quickly. Guy has canceled several projects that appeared marginal during their feasibility stages and recently fired a project manager for overestimat- ing project costs on a new model sensor. The project was killed early in the design stages, and six months later a competitor introduced a similar sensor that proved to be highly successful. Justin's dilemma is how to construct a budget that accurately reflects the costs of the proposed new process. Justin is an experienced executive and feels comfortable with his ability in estimating costs of projects. However, the recent firing of his colleague has made him a little gun-shy. Only one stage of the four-stage sensor manu- facturing process is being changed. Justin has detailed cost information about the majority of the process. Unfortunately the costs and tasks involved in the new modified process stage are unclear at this point. Justin also believes that the new modifications will cause some minor changes in the other three stages, but these poten- tial changes have not yet been clearly identified. The stage being addressed by the project represents almost 50 nercent of the manufacturing cost

Answer rating: 100% (QA)

ns1 Justin shuld mbine the tdwn rh inluding hsen bttmu ... View the full answer