Ch 22 discussed Budgeting which involves (1) Planning - establishing specific goals, (2) Directing - executing plans to achieve the goals, and (3) Controlling - periodically comparing actual results with the goals and use the feedback to adjust activities in the future.

Case 3  

• Ch 22 discussed Budgeting which involves (1) Planning - establishing specific goals, (2) Directing - executing plans to achieve the goals, and (3) Controlling - periodically comparing actual results with the goals and use the feedback to adjust activities in the future.

Ch 23 discussed Budget Variances- is the difference between the budgeted and the actual amount. The budget variance is favorable when the actual revenue is higher than the budget or when the actual expense is less than the budget.

Complete the Personal Budget which assumes:

• CH 28 (Obj 1 through 3) discusses Creating A Balanced Scorecard

Gunner Company is a startup manufacturing firm looking to build and develop its balanced scorecard. Gunner, the company owner, has told you the following:

Our company was built on the shoulders of our hard-working, diligent employees. I believe that the heart and soul of any company is its employees. If our company is going to succeed, we need competent, passionate, and ethical employees. I also believe in being efficient. I’ve noticed that the companies that find ways to cut production costs and produce their goods faster are the ones that win in this industry.

Gunner has also told you that he is mainly focused on maintaining the customers he has rather than seeking out a lot of new ones. However, he admits that his company’s ultimate objective is increasing the bottom line.

1. List one strategic objective for each performance perspective of the balanced scorecard based on the information Gunner provided.

1. For each strategic objective you came up with in , list at least one Strategic Initiative and Performance metric (that is not given in the text)..

• CH 28 (Obj 3) Motivated Reasoning Bias and Surrogation

Biases like motivated reasoning and surrogation are very prevalent in the business world. Managers are often compensated and evaluated based on performance measures such as production costs and profit margin. Hence, when subjective decisions need to be made regarding joint cost allocation, support department cost allocation, and budgeting, managers are motivated to believe and overvalue evidence that supports their products receiving less cost allocations, more budgeting, and other favorable outcomes.

At the same time, managers will discount any evidence or reasoning that does not produce a favorable outcome for them. This is all part of the bias known as motivated reasoning. It is important to note, as well, that people exhibit the motivated reasoning bias unconsciously. In other words, people commonly overvalue favorable information and discount unfavorable information without realizing it.

Surrogation is another bias that managers frequently unintentionally exhibit. A brief example of this bias is illustrated in the following story:

The management of a restaurant chain seeking to improve customer satisfaction uses online customer reviews as a measure of this strategic objective. To encourage this objective, management offered a generous bonus to all employees at restaurant locations that increase their online customer review rating by one star. After a few months, management noticed the online customer review rating had dramatically increased at one particular location and paid out the increased bonus. Upon further investigation, management discovered that the manager of this location was offering 15% discounts on all purchases to anyone who gave the restaurant a 5-star review.

This story illustrates surrogation bias because, at that particular location, the performance measure was being treated like the strategic objective. While the performance rating improved, it was not reflective of the strategic objective it was meant to measure (customer satisfaction).

1. Provide current day examples of how these biases occur in society / personal lives today.

1. Provide 3 ideas of how you can protect yourself from falling prey to each of these biases.