Assuming the existence of financial controls is at the heart of many accountants’ jobs, what should be the implications of a firm moving from strategic planning to strategic management for:
(a) Budgetary control and performance management
(b) Control over capital expenditure?
Model Answers:
(a) Responsibility centres (budget centres) would take more responsibility for budget setting and might become profit and investment centres instead of just revenue or cost centres. Budgets would cease to be based on targets from a long range plan and instead would become stretch targets to improve managerial performance. Managers would be increasingly incentivised by bonuses based on the financial performance of business units and of the company as a whole. Emphasis on non-financial strategic targets would increase with less emphasis on short term financial targets.
(b) Capital expenditure would be decentralised. There is a danger that capital expenditure would become more subject to the whims of the strategic manager.
