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Marshall School of Business
University of Southern California
Two Budget Targets
Teaching Note
Purpose of Case
The purpose of this case is to motivate a discussion of a real situation where a manager created
two budgets, one with a relatively aggressive performance target which he communicated to his
subordinates and the other with a relatively easy performance target which he communicated to
his superiors.
Suggested Assignment Question
Are Joes actions ethical or unethical? Explain.
Case Analysis
I suggest analyzing the case using the four-step framework described in Chapter 15 of the
textbook.
Determine the facts
These facts should describe who, what, where, when, and how. Among the facts that should be
brought out are:
Joe created two budget targets as described in the purpose of the case section above.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
409
Joe evaluated his subordinates in comparison with the aggressive targets.
Define the ethical issues
Stakeholders: Joe
Joes superiors
Major ethical principles
2. Fairness
4. Virtues (e.g., integrity, honesty)
Ethical issues
An ethical issue can usefully be discussed if someone is hurt or put at risk. Is anyone hurt or put
at risk here? The answer is clearly yes. Still, compensating rights or principles may mean
1. Joes well being (e.g., job security, bonus) vs. corporations right to accurate projections
3. Joes well being vs. stockholders right for maximum returns (challenging targets for
maximum motivation, more accurate projections for decision-making purposes).
This list can be extended, but at least these issues should be identified.
Another way to portray the trade-offs is to list the stakeholders in a column. Then add two
columns to the right, one titled Who benefits? and the other titled Who is harmed? For each
of the decision alternatives, put check marks in one of the right hand columns to show which
stakeholders benefit and which are harmed or put at risk.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
410
Decision alternatives and their probable consequences
1. Joe continues using the two budget targets.
Joe retains position, keeps his stress low, and earns large bonuses.
2. Joe discloses his two-target system to his superiors.
Supervisors agree?
Joe loses right to have the two-target system?
Joe gets sanctioned for duplicity?
It is also useful to discuss what happens if one of Joes subordinates who know about the two-
target system discloses it to Joes superiors. Does Joe get fired immediately? Or praised for
being so creative?
Compare the alternatives with the ethical principles and choose the best
alternative
Take a vote. Insist that everyone make a choice. Examine the rationale for different positions.
Pedagogical Suggestions
Given that this case is so short, it is probably best to conduct the case discussion with the entire
class, rather than taking time to break up into small groups. Elicit the four-step method
responses shown above. At step 4, have the class vote regarding the appropriate conclusion.
