Strayegic Budgeting

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Chapter 8



3 Strategy and the Master Budget


Teaching Notes for Cases

8-1: Emerson Electric Company


• Emerson is an $8 billion company. • Its successful strategy is efficient, quality, and low cost production. R&D does not get a great deal of attention from top management.

Planning Process

• Top management sets sales growth and return on total capital targets for the divisions. • Each fiscal year, from November to July, the CEO and several corporate officers meet with the management of each division at a one or two day division planning conference:

▪ Prior to its division planning conference, the division president submits four standard exhibits to top management:

1. Value measurement chart 2. Sales gap chart 3. Sales gap line chart 4. 5-back-by-5-forward P&L

• The division president and appropriate division staff then meet with top management to present a detailed forecast for the coming year based on the result from the division planning conference and conduct a financial review of the current year’s actual performance versus forecast:

▪ Contingency plans for several lower levels of activity also developed to protect profitability at lower sales levels. ▪ However, changes to the division’s forecast are not likely unless significant changes occurred in the environment or in the underlying assumptions. Changes in the forecast must be approved by top management.

• In August, the information generated for and during the division planning conferences and fiscal reviews is consolidated and reviewed at corporate headquarters by top management. • In September, top management presents the corporate and division forecasts for the next year and the strategic pan for the next five years to a conference attended by top…...

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