The questions in this exercise give you an appreciation for the complexity of budgeting in a large multinational corporation. To answer the questions, you will need to download the Procter & Gamble (P&G) 2005 Annual Report at
www.pg.com/investors/sectionmain.jhtml and briefly refer to “Item 2:
Properties” in P&G’s 2005 10-K at
www.pginvestor.com/phoenix.zhtml?c=104574&p=irol-sec#3673889.
You will also need to briefly refer to Federated Department Stores’ 2004 10-K at www.fds.com/ir/ann.asp.
Although you may not be familiar with Federated Department Stores, you are probably familiar with its flagship brands—Macy’s and Bloomingdale’s. You do not need to print any documents to answer the questions.

Required:
1. What is P&G’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
2. What business risks does P&G face that may threaten its ability to satisfy stockholder expectations?
What are some examples of control activities that the company could use to reduce these risks?
3. What were P&G’s quarterly net sales for the fiscal year ended June 30, 2005? What were Federated Department Stores’ quarterly net sales for 2004? How does P&G’s quarterly sales trend compare to Federated Department Stores’ quarterly sales trend?
Which of the two quarterly sales trends is likely to cause greater cash budgeting concerns? Why?
4. Describe the scope of P&G’s business in three respects—physical facilities, products, and customers. More specifically, how many manufacturing facilities does P&G operate globally? What are P&G’s three Global Business Units (GBUs)? Which of P&G’s 17 “billion dollar brands” are included in each of these GBU’s? How many brands does P&G offer in total and in how many countries do they sell these brands? How many countries does P&G’s Market Development Organization operate in?
5. Describe five uncertainties that complicate P&G’s efforts to accurately forecast its sales and expenses.
6. Although not specifically discussed in P&G’s annual report, how could an Enterprise System as described in Chapter 1 help a globally dispersed, highly complex company such as P&G improve its budgeting process?
7. P&G’s annual report briefly discusses the acquisition of Gillette. It acknowledges that Gillette has some different cultural norms in terms of how it defines accountability and communicates internally. Although not discussed in the annual report, how could differences in two organization’s budgeting practices be responsible for these types of divergent cultural norms?