Introduction
The case study presents a situation for the ABC Manufacturing company and discusses the budget for the following year. The senior executive admits to overestimating budgetary expenses by 20%, knowing that the direction will demand a 20% decrease regardless. He also stated that he views a conference in Las Vegas as a personal reward for doing overtime. This paper will discuss the implications for proper budgeting processes, leadership, and control, and ethical issues related to budget inflation.
ABC Manufacturing and Proper Budgeting Process
The basics of proper budgeting assume that all stakeholders are aware of the company’s needs and what needs to be done. A discussion is needed to justify any changes and approve the budget (Rimanoczy, 2020). It appears that senior managers understand how much money is needed to maintain production, whereas the director does not.
Otherwise, demanding a very specific 20% year-over-year decrease would not have become the norm. Finally, budget estimates should be driven by the company’s needs rather than personal, selfish concerns (Rimanoczy, 2020). This is not the case with ABC Manufacturing, which demonstrates deeply ingrained corruption within its ranks.
Budget Cutting and Issues of Leadership and Control
The situation at ABC Manufacturing also demonstrates a leadership crisis. A director is supposed to be the leader for senior managers to look up to (Rimanoczy, 2020). Instead, they see him as an obstacle to the company’s proper functioning. Otherwise, the 20% budget increase maneuver would not have been necessary. In addition, it appears that the system of appreciation and rewards for hard work is either dysfunctional or nonexistent. Senior executives should not feel as though their labor is under-compensated (Rimanoczy, 2020).
The fact that the director remains in the dark about events unfolding in the company he is supposed to be overseeing shows that the command-and-control system has also fallen apart. Senior managers have effectively supplanted it, rerouting all the necessary functions towards themselves. Lacking a system for independent evaluation of company performance, the director is easily manipulated by these people. It could be one of the reasons for his constant demands to cut the budget by 20% – a subconscious reaction to the budget being inflated in the first place.
Ethical Issues Related to Budget Inflation
There are several ethical issues with the senior manager’s actions to secure budget approval. First, overestimating expenditures by 20%, even at a guess that those 20% will be reduced anyway, means doing one’s job poorly. Such estimations lack professionalism and honesty, making the manager a poor fit for his designated role (Rimanoczy, 2020). His desire to include the Vegas trip in the budget is tantamount to theft, as he advocates for using company money for personal expenditures.
Finally, by inflating the budget, the manager risks making the company look less profitable than it actually is. It has the potential to trigger a chain of events in which ABC Manufacturing may have to consider downsizing and layoffs to balance the budget (Rimanoczy, 2020). Whether knowingly or unknowingly, the manager’s actions put everyone at risk.
Conclusions
ABC Manufacturing is having issues with inflated budgets, leadership, and the ethical education of its managers. As a result, there is a disconnect between the company’s director and his senior executives. The situation needs to be addressed before the company feels the long-term effects of over-budgeting and the usage of company revenues to satisfy personal needs.
Reference
Rimanoczy, I. (2020). The sustainability mindset principles: A guide to developing a mindset for a better world. Routledge.