extenuating circumstances Ralph manages an in-house engineering team that provides consulting serviees for a variety of product design, manufacturing, and application probiems. The unit requesting this service usually reaches an agreement with Ralph on the estimated hours required to deal with the request, and the requesting unit is subsequently allocated a cost of actual hours priced at 85 per hour. Unusual requests that subsequently result in significantly more or less hours are renegotiated by the parties; this renegotiation is rare, and has not been a source of friction. Ralph is evaluated on the basis of service, internaI revenue (at the noted 85 per hour rate), and cost.

During a recent performance appraisal, it was noted various units in the organization are pleased with the engineering group and regard it as one of the organization' s strengths. The one sensitive point in the evaluation is a cost overrun.

Ralph' s budget is largely fixed, as a policy of retaining the engineers has long been honored. When excess demands are placed on the group, Ralph subcontracts with one or two of the local consulting firms. During this period, Ralph's total demand did not warrant any subcontracting, yet the bulk of the 224,000 budget overrun is caused by subcontracting. Ralph, in a slightly defensive manner, explains that the industrial products group brought in two rush orders that required immediate attention. It was impossible to meet the other parts of the schedule without subcontracting some work. The industrial products group confirmed the story, to the point of acknowledging the quiek tumaround in Ralph's group was essential fortheir landing the business.

Should Ralph be held responsible for the subcontracting cost in this instance?

What about the products group that demanded the rush work?

AppendixLO1