CREATING A BUDGET

Your first task is to develop a budget for next years operation of your department. Some relevant information is provided below; also provided is a spreadsheet showing last years budget. Develop two budgets for next year. One should be based on an optimistic scenario (companys revenues grow at or above goals); specifically, the company will grow by 15%, and you need to plan what changes your department will need to make to support this growth. The second budget should be based on a pessimistic scenario (companys revenues below goals); specifically, company revenues will shrink by 15%, and you must plan the changes your department must make given lower revenues. Use the spreadsheets listed under Budget Exercise -Enter your budgets onto the spreadsheets; show relevant percentage changes from last year.

BACKGROUND & SCENARIO

You are the manager of the Management Consulting Department of General Interconglomerate Corporation. The departments mission is to support functions throughout the corporation by providing training, recommendations, and advice on management issues. The department accomplishes this by offering standard training courses to meet special needs of customer groups and by consulting as needed on special issues. Both the training courses and the consulting services are offered on-site at the corporations five offices (Seattle, Denver, Toronto, Rio de Janeiro, and Omaha).

Department staff includes six consultants, one administrative assistant, and you - the manager. In a typical month, each consultant spends about two weeks on the road, traveling to branch offices to either consult or conduct training (split about 50% consulting - 50% training). When not on the road, consultants spend about a third of their time conducting training or consulting at headquarters (split about 75% consulting, 25% training); about half of home-office time is spent writing reports to document consulting advice, and the rest of the time goes toward new course or consulting concepts (including research as well as development). The administrative assistant coordinates communications between customers and consultants, polishing and printing reports for distribution, printing training materials, distributing training schedules, etc.

Department offices are located in corporate headquarters in Omaha. Equipment currently used by the department includes eight pcs networked with "works" type software (word processor, spreadsheet, database, group calendar, e-mail); one of the pcs (assigned to the administrative assistant) has desktop publishing capability, used to create professional-appearing workbooks for trainees in the departments training courses. The administrative assistant requested a $500 software upgrade for increased publishing capability. There is one heavy-duty photocopy machine and a fax. One of your staff members is taking a business class at Bellevue University; she has informed you that she worked on a project with another student who has a notebook-type computer, and she thinks that notebooks could allow consultants to be more efficient on their many trips to branch offices. Notebooks currently cost $1000 per notebook.

CURRENT SITUATION

Department workload has been fairly constant. Lately there has been a steady demand for the consulting and for the training classes offered by the department. Just about every department in the company signed up for the five-course TQM sequence last year. You currently have two consultants working on development of the departments new course, tentatively titled "Competitiveness for the 90s", a 3 course follow-on to the popular TQM training; the first classes in "Competitiveness" will be ready the second month of the fiscal year. Consulting demand this past year has been largely for TQM implementation support. You expect some slacking of this as more departments get into a "maintenance mode" on TQM; you wonder if you should initiate something to assure TQM doesnt fade away. You also wonder whether you should develop new consulting specialties to supplement your standard repertoire: TQM, conflict management, organization structure, dealing with downsizing, and creative problem-solving. You currently measure department quality by surveying (1) all company managers, (2) managers who have recently used the departments services, and (3) your consultants. Responses have averaged (on a 5-point scale) 3.8, 4.0, and 3.5 respectively. Quality numbers have been stable. The one area with an unfavorable trend is a recent users assessment of departments responsiveness (timely response to service requests): Response averages were 3.9 last year, 3.7 six months ago, and 3.5 last month.

GUIDELINES FROM CORPORATE

The comptrollers department has provided some guidelines for all managers to use in developing next years budget. The board of directors told the comptroller they want to see overall revenues increase by 10%. Some of the increased revenue would be directed toward future growth of the company, some would be returned to stockholders, and some will be shared with employees. Specifically, profit-center departments (travel) are to plan to achieve 10% revenue growth, or higher, while holding cost increases to 8%; cost-center departments (office supplies) are to hold their cost increases to less than 5%. Any other capital budget (equipment) items are to be proposed separately from the operating budget. The $500 software upgrades for the administrative assistant and notebook purchase have been approved. In a separate instruction, the human resources department announced that corporate guidelines for next years salary adjustments call for a 4% cost of living increase on the average. However, this depends upon a revenue increase or decrease. Bonus plans havent been announced. Previous bonuses have averaged 4%. HR also indicates that group insurance rates will increase by 7.5%

BUDGET PLANNING FOR MANAGEMENT CONSULTING DEPARTMENT THIS YEAR NEXT YEAR OPTIMISTIC NEXT YEAR PESSIMISTIC 391,800 $450,570 333,030 WAGES S274,000 315,100 232,900 PER CONSULTANT 35,000 ADM. ASST 24,000 MANAGER 40,000 40250.00 27600.00 46000.00 29750.00 20400.00 4000.00 OVERTIME BENEFITS S3,600 4,140.00 ,060.00 $106,200 122,130 90,270 TAXES (3096) INSURANCE 82,200 24,000 94530.00 27600.00 69870.00 20400.00 DEVELOPMENT $8,000 9,200.00 6,800.00 $134,470 48,960.00 8,360.00 24,310.00 36,720.00 6,120.00 $158,200 TRAVEL AIRFARES GROUND TRANSP MEALS LODGING ENTERTAINMENT $57,600 $21,600 28,600 S43,200 S7,200 $181,930 66,240.00 24,840.00 32,890.00 49,680.00 8,280.00 S33,000 OFFICE SUPPLIES QUIPMENT 30,000 53,000 37,950 4,500.00 3,450.00 $28,050 25,500.00 2,550.00 DEPARTMENT TOTAL S583,000 $670,450 495,550 BUDGET PLANNING FOR MANAGEMENT CONSULTING DEPARTMENT THIS YEAR NEXT YEAR OPTIMISTIC NEXT YEAR PESSIMISTIC 391,800 $450,570 333,030 WAGES S274,000 315,100 232,900 PER CONSULTANT 35,000 ADM. ASST 24,000 MANAGER 40,000 40250.00 27600.00 46000.00 29750.00 20400.00 4000.00 OVERTIME BENEFITS S3,600 4,140.00 ,060.00 $106,200 122,130 90,270 TAXES (3096) INSURANCE 82,200 24,000 94530.00 27600.00 69870.00 20400.00 DEVELOPMENT $8,000 9,200.00 6,800.00 $134,470 48,960.00 8,360.00 24,310.00 36,720.00 6,120.00 $158,200 TRAVEL AIRFARES GROUND TRANSP MEALS LODGING ENTERTAINMENT $57,600 $21,600 28,600 S43,200 S7,200 $181,930 66,240.00 24,840.00 32,890.00 49,680.00 8,280.00 S33,000 OFFICE SUPPLIES QUIPMENT 30,000 53,000 37,950 4,500.00 3,450.00 $28,050 25,500.00 2,550.00 DEPARTMENT TOTAL S583,000 $670,450 495,550