Chapter 10 – Strategy and the Master Budget
Reading 10-7: Planning for Uncertainty—Rolling Forecasts
Corporate financial planning expert Steve Player highlights how CPA financial executives can use nimble
rolling forecasts to replace annual budgets.
Discussion Questions
1. According to the article, what are some of the most severe criticisms of conventional budgeting
practices, such as those associated with the master budgeting process illustrated in Chapter 10 of
the text?
If compensation/incentive pay is linked to budgetary performance, it provides incentives for
managers to “low-ball” budgeted performance (i.e., to negotiate the lowest possible target). The
author maintains that this practice, at a minimum, provides disincentives for organizational growth.
2. What is the essence of “rolling forecasts” and according to proponents of using rolling forecasts
how do they improve upon traditional budgeting practice?
Traditional budgets are based on a fixed time period (e.g., one year), which means that as the year
progresses, the planning horizon decreases. Some assert that this very process leads to a perspective and
actions on the part of employees/managers that are not consistent with the long-term interests of the
organization.
Rolling forecasts provide a fixed planning horizon (e.g., five quarters or six quarters): as one time
component (e.g., a quarter) elapses, a new quarter is added to the planning document. In this sense, the
organization uses a “rolling forecast” rather than a fixed-horizon plan associated with a traditional
3. According to the article, what are some common mistakes associated with forecasting systems?
For those familiar with the Beyond Budgeting Roundtable, these alleged errors are well-known. In the
space below, we repeat the major errors, as listed in the present article:
a. Forecasting to the wall (diminishing planning horizon, as the year unfolds), as in Exhibit 3 (see
below)
10-47
Education.
Chapter 10 – Strategy and the Master Budget
c. Demanding forecast accuracy (with reduced incentive to grow or achieve bench-marked
performance)
d. Relying on Excel spreadsheets (consider, for example, cloud-based systems)
10-48
Chapter 10 – Strategy and the Master Budget
Reading 10-8: Scenario Planning—Navigating Through Today’s Uncertain
World
Scenario planning is a way of understanding forces such as demographics, globalization, technological
change and environmental sustainability that will shape the future, and harnessing them to plan for risk.
This article, based on an AICPA-sponsored Management Accounting Guideline, introduces the types of
scenarios you should consider and provides tips for getting started with scenario planning.
Discussion Questions
1. How does this article relate to the topic of budgeting (as presented, for example, in Chapter 10 of
the text)?
By going through the master budgeting process, it should be obvious to students that the end product
of the master budgeting process—a set of pro-forma financial statements—are a function of many
assumptions made by those constructing the budgets. Complicating the budget-preparation process is
the realization that the “past is not a good predictor of the future.” That is, today’s economic
2. What is meant by the term “scenario planning”?
According to the article, “scenario planning” is a tool that can be used to help deal with the
uncertainties associated with volatile markets and unpredictable events. In essence, “planning” is
3. Provide an overview of the basic approach to scenario planning (as illustrated, for example, in
Exhibit 1 of the article).
As noted in the article, scenario planning essentially consists of answering three questions: What could
happen? What would be the impact on our strategies, plans, and budgets? And, how should our
organization respond?
One process that could be used to develop scenario plans is illustrated in Exhibit 1 of the article. The
process consists of X related steps: (1) Define Objective and Scope of the Planning Project; (2) Define
Key External Drivers and Major Internal Variables that Need to be Addressed; (3) Collect and Analyze
As noted in the article, there are four broad types of scenarios that the planning team for the
organization should be considering: (1) Social, (2) Economic, (3) Political, and (4) Technological.
The above processes can be illustrated via a discussion of the ElectriclQ, a software company that
10-49
Education.
different scenarios developed by the company, across two dimensions (public opinion vs. public
policy) are presented in Exhibit 4. Finally, the link between scenario development (Exhibit 4) and
strategy is illustrated in Exhibit 5.
4. Provide a description of the managerial value of the type of information presented in Exhibit 5 of
the article.
Rephrased, the purpose of this question is to get students to think about how scenario planning can be
used for career advancement by CPAs. As indicated in the article, scenario planning enables CPAs to
support the strategic planning process of organizations; it provides a frame of reference for developing
10-50
Education.
Chapter 10 – Strategy and the Master Budget
Reading 10-9: Budgeting for International Operations: Impact on and
Integration with Strategic Planning
Multinational companies contend with an array of external factors, internal considerations, and other
forces that influence budget policies, composition, and control and—on a more general level—their
strategic planning. Budgeting in a global business environment calls for an enhanced level of coordination
and communication because of the variety of powerful components that impact organizational
performance. This article examines how international issues influence the budgeting process of
multinational companies headquartered in the United States that control foreign affiliates and describes
how the output of the budgeting effort impacts and integrates strategic planning.
Discussion Questions
1. According to this article, what are the three major external factors that affect, that is, complicate
the process of preparing, budgets for multinational companies?
As indicated in the introductory paragraph to the article (p. 1), the following three major (external)
factors affect the development of budgets for multinational companies are:
2. The authors of this article present 19 examples of specific planning issues faced by multinational
companies. Provide an overview/short summary of one (1) example from each of the following
three (3) categories in terms of budgetary complexities:
a. Foreign Currency Exchange Rates (i.e., Translation Exposure, Transaction Exposure,
Economic Exposure, Interest Rates, or Inflation)
b. Effects on Specific Budgets (i.e., sales budgets, expense budgets, capital expenditures budgets,
or cash budgeting)
c. Other (Miscellaneous) Considerations (i.e., Transfer Pricing, Inventory Policy Decisions,
Timing Issues, Budget Control)
Details are provided in the article. One possible strategy is to ask students to work in teams and to
assign to student teams specific examples, which the teams would then present in class to the rest of the
10-51
Education.