Question 2 (20 marks) Read the scenario below and answer the questions that follow: OD's short-term insurance division is using budgetary control during 2020. The senior manager estimated the demand for the year for each of the division's four product lines: home content insurance, building insurance, car insurance and funeral policies. A separate manager is responsible for each of the product lines. Each product manager then prepared a cost budget, based on the senior manager's demand estimate for the division, and submitted to the senior manager for her approval. She then amended them, as she thought appropriate, before issuing each product manager with the final budget for the division. She did not discuss these amendments with the respective product managers. Actual performance is then measured against the final budgets for each month and each product manager's performance is appraised by asking the manager to explain the reasons for any variances that occur. The building insurance manager has been asked to explain why her staff costs exceeded the budgeted costs for last month while the chargeable time was less than budgeted. This is her response: "My own original estimate of staff costs was higher than the final budgeted costs shown on my product performance report. In my own cost budget, I allowed for time to be spent developing new services for the division's building insurance clients and improving the clients' access to their own policy files. This would improve the quality of our services to clients and therefore increase client satisfaction. The trouble with our present system is that it focuses on financial performance and ignores the other performance indicators found in modern performance management systems." Required: 2.1 Discuss the present budgeting system and its likely effect on product manager motivation. (10) 2.2 Budgets have a number of different purposes: planning; responsibility; integration and coordination; motivation; evaluation and control. Explain how the combination of purposes below could conflict with each other: Planning; motivation Planning; evaluation and control Evaluation and control; motivation. (10) Question 2 (20 marks) Read the scenario below and answer the questions that follow: OD's short-term insurance division is using budgetary control during 2020. The senior manager estimated the demand for the year for each of the division's four product lines: home content insurance, building insurance, car insurance and funeral policies. A separate manager is responsible for each of the product lines. Each product manager then prepared a cost budget, based on the senior manager's demand estimate for the division, and submitted to the senior manager for her approval. She then amended them, as she thought appropriate, before issuing each product manager with the final budget for the division. She did not discuss these amendments with the respective product managers. Actual performance is then measured against the final budgets for each month and each product manager's performance is appraised by asking the manager to explain the reasons for any variances that occur. The building insurance manager has been asked to explain why her staff costs exceeded the budgeted costs for last month while the chargeable time was less than budgeted. This is her response: "My own original estimate of staff costs was higher than the final budgeted costs shown on my product performance report. In my own cost budget, I allowed for time to be spent developing new services for the division's building insurance clients and improving the clients' access to their own policy files. This would improve the quality of our services to clients and therefore increase client satisfaction. The trouble with our present system is that it focuses on financial performance and ignores the other performance indicators found in modern performance management systems." Required: 2.1 Discuss the present budgeting system and its likely effect on product manager motivation. (10) 2.2 Budgets have a number of different purposes: planning; responsibility; integration and coordination; motivation; evaluation and control. Explain how the combination of purposes below could conflict with each other: Planning; motivation Planning; evaluation and control Evaluation and control; motivation
