Chapter 10 – Strategy and the Master Budget
Exhibit 5
Activity Evaluation Matrix
Performance Strategic Non-Strategic
Perform Well Cell 1
Continue
Cell 2
Drop or Create Niche
Perform
Poorly
Cell 3
Improve
Cell 4
Drop
10-31
Education.
Chapter 10 – Strategy and the Master Budget
Exhibit 6
COBAA: Activity Evaluation & Suggestions
Activity
University Performance
Measure Goal
COBAA
Performance Strategic Performance Action Suggested
A1
Disseminate graduation
requirements Units at graduation
124
units 147 Yes Poor
Improve. Get details of AMC’s and Education’s operations and
reorganize in a similar way.
Student Satisfaction Survey 5.5 2.6
A2 Correct graduation checks
% needing intervention at
university level n/a 21%
Short run
yes, long
run no Poor
Continue until the university revises the graduation check
process. Improve. Study how this activity is performed by AMC
and copy in COBAA.
A3
Monitor academic
progress
Average semesters on
probation 1.5 1.5 yes good Continue
A4
Issue readmission
contracts No measure n/a yes Continue
A5 Enroll freshmen Freshman satisfaction survey 6 6 yes good Continue
A6
Review substitution &
waiver requests Chair Satisfaction Score n/a 2.3 no poor
Drop. Duplicate activity. Department chairs do not like what
COBAA is doing.
A7 Develop advising materials
% major/options with advising
materials 100% 100% yes good
Improve. Transfer more items to the Web. Test them with
students so they are user friendly.
Student Satisfaction Survey 5 3.1 marginal
A8 Maintain website No measure; new initiative n/a yes unknown
Improve. Shift advising materials & paths to graduation on the
Web. Create interactive sections where students can plan their
own four- or five-year plan.
A9 Advise students Student Satisfaction Survey 5 2.1 yes poor
Continue. Shift resources here; little activity performed relative
to benchmarks. Analyze AMC & Education operations and
model.
Time to graduation-FTF 5 6.8
A10 Check prerequisites Student Satisfaction Survey n/a 2.1 maybe poor
Continue. Discontinue in long run; computer system should be
reprogrammed. Use student focus group to improve.
A11 Recruit students
% women & other minority
students n/a 67% no good
Drop/ Creative Solution. This activity is done well, transfer
activity to university outreach.
A12 Tutor students Hours provided n/a
39
0 no good
Drop/ Creative Solution. Transfer to the clubs and redeploy the
computers to the lab or a tutoring room.
A13 Arrange career fairs
% Students with jobs in field
at graduation n/a 72% no good
Drop/Creative Solution. Transfer responsibility to the Career
Center.
10-32
Chapter 10 – Strategy and the Master Budget
Exhibit 7
Suggested Strategy Map
COBAA STUDENT RESULTS
ACTIVITIES
UNIVERSITY
ACTIVITIES
10-33
Understand
Graduation
Requirements &
Course
Prerequisites
Higher GPA &
Academic
Progress
Higher
Retention Rate
Lower Advising
Cost per FTE
Reduced Time
to Graduation
Enrolling in
Proper Courses
Understand how to
use computer
registration
Higher
Student
Satisfaction Reduced Units
at Graduation
Disseminate
Advising
Materials
A1 A7 &8
Checking
Prerequisites
A10
Graduation
Checks
A2
Monitor
Academic
Progress
A3 &4
Course
Registration
Training
A5
Advising
Students
A9
Chapter 10 – Strategy and the Master Budget
Exhibit 8
Summary of Action
COBAA Activities
Performance Strategic Non-Strategic
Perform Well A3, A4, A5
Continue
A11, A12, A13
Creative Solution or
Drop
Perform
Poorly
A1,A2*,A7,A8, A9, A10
Improve
A2*, A6
Drop
*Shown in two cells: long run, drop; short run, keep.
10-34
Education.
Chapter 10 – Strategy and the Master Budget
Exhibit 9
COBAA
Proposed Budget for 2008
Item Amount
Chang
e Revised Comment
Manager
$
85,000
$
85,000
Refocus manager to mission relevant
activities
Advisors
342,00
0
342,00
0
85% of manager & 10% of advisors
redeployed by eliminating A6, A11, & A13.
Use time on activities needing
improvement.
Office Staff
73,00
0
16,50
0
56,50
0
Cut 1/2 of part-time hours equal to 1 full-
time equivalent staff person ($33,000 part
time * 1/2)
Equipment & Software
106,40
0
68,09
6
38,30
4
Cut 15 stations used for tutoring; 1 for
headcount reduction; return to physical
plant for redeployment
Reproduction
135,00
0
13,50
0
121,50
0
Remove the amount for A11; ultimately
transfer advising materials to web
Office supplies & phone
69,70
0
6,97
0
62,73
0 Reduce by one headcount
Travel
40,00
0
40,00
0 – Eliminate travel, A11
Hospitality
23,40
0
23,40
0 Eliminate hospitality, A13
$874,50
0
$706,03
4
Per FTE
$
141.05
$
113.88
Budget Reduction
Achieved 19%
Chapter 10 – Strategy and the Master Budget
Exhibit 10
COBAA
Scorecard
Perspective Measures
Financial Advising cost per FTE
Customer Student satisfaction with Advising, retention rate, units at graduation, FTF time to
graduate, semesters to graduate for transfer students
Internal
Processes
FTE/Headcount, % advising problems solved by interactive website, % graduation
checks with deficiencies, % student population on probation contracts, % options with
online requirements and suggested paths to graduation
Learning &
Growth
Advisor retention, student suggestions implemented, manager’s report on causes of
student interactions & Web inquiries, # FAQs added to website based on analysis of
frequent causes for questions
10-36
Education.
Chapter 10 – Strategy and the Master Budget
Teaching Notes for Readings
Reading 10-1: “How to Set Up a Budgeting and Planning System”
This article describes the experience in setting up a formal budgeting system for a medium-sized public
utility holding company that provides natural gas storage and transportation services. The task is not as
easy as it might seem. The budget manager had to review the chart of accounts, account classification and
the reporting system of the firm, consider all the users’ diverse information needs, and update the current
accounting information system.
Discussion Questions:
1. What motivates PFG to install a budgeting and planning system?
The information needs of the firm’s bankers, its board of directors, and its management prompt the
firm to set up a budgeting and planning system. All three were interested in cash flow projections and
2. Why is flexibility very important for PFG’s budgeting system to be effective?
Budgeting for natural gas and propane operations, which are PFG’s main businesses, is difficult
3. What problems that the budget manager at PFG had to resolve before setting up a budgeting system? Do
you find these problems unique to PFG?
Among the problems that the budget manager at PFG had to resolve include:
through mergers and acquisitions.
4. Why the authors suggest that a thorough review of the firm’s chart of accounts, account
classifications, and reporting systems is a must before initiating a budgeting and planning
system?
Once a system has been installed it is difficult to change. In many cases, a firm’s accounting system
did not keep pace with the changes in the company. Expanded product lines and changes in customers
5. Describe budgetary games that people play. What are the reasons for PFG to experience
minimal budgetary gamesmanship?
10-37
Chapter 10 – Strategy and the Master Budget
Budgetary games that people play include padding the budget such as low-balling revenues or
overestimating expenses.
10-38
Education.
Chapter 10 – Strategy and the Master Budget
Reading 10-2: “Strategic Budgeting: A Case Study and Proposed Framework”
This article applies to the budget-preparation process the Critical Chain technique proposed by Eliyahu
Goldratt. All department budgets are reduced by 50%. The savings are grouped in a “Group Budget Buffer.”
Department heads can request additional funds from the buffer but the request would be discussed openly
with other department heads. This reduction method allows costs to be cut where the cuts will not
negatively affect the performance of service departments. At the same time, it identifies areas of “bloat”
where cost reduction can be significant increases communication between departments, lowers overall
spending levels, and assures output integrity.
Discussion Questions:
1. What is the lawnmower method of cost reduction?
This term refers to the process of effecting “across-the-board” cuts in budgetary appropriations when
cost-reductions are mandated. A useful analogy might be to the term “peanut-butter costing approach”
2. What will be the size of a division’s total budgeted amount after 4 years if the division includes
10% slack each year? after 10 years?
As indicated in Table 1c, with an assumed 10% slack built into the budget each year, the indicated
budget for a Research & Development Division at the end of four years contains slack equal in amount
to 112% of the original budget amount (for year 1). When the time horizon is extrapolated to year 10
3. What is the strategic budgeting (SB) model?
This approach to budgeting is borrowed from the “Critical Chain” model for project management
developed by Eliyahu Goldratt in his 1997 book. One way to think of SB is a structure plan to eliminate
unnecessary budgetary slack in service departments of an organization. In essence, the goal is to
4. What are the strengths of strategic budgeting (SB)? The authors of this article propose the following
benefits of using SB:
(1) Ease of Implementation–especially relative to other approaches to budgeting, such as Zero-Base
10-39
Education.
Chapter 10 – Strategy and the Master Budget
(3) Reduced Spending–with traditional approaches to budgeting, managers (having built in slack
into their budgets) are motivated/compelled to “spend the budget” before the end of the period.
10-40
Education.