Instructor Guide

Supervisors and Managers Training
Budgets and Managing Money

Instructor Guide
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Inc.
Table of Contents
Instructor Guide.............................................................................................................................................1
Agenda: Day One............................................................................................................................................2
Session One: Introduction and Course Overview............................................................................................3

Icebreaker: In This Corner................................................................................................................................5
Session Two: Finance Jeopardy.......................................................................................................................6
Session Three: The Fundamentals of Finance..................................................................................................9
Basic Concepts........................................................................................................................................9
Generally Accepted Accounting Principles..........................................................................................11
Your Role in Company Finances..........................................................................................................12
Break.....................................................................................................................................................13
Getting to Know the Players.................................................................................................................14
Session Four: The Basics of Budgeting..........................................................................................................16
Defining a Budget.................................................................................................................................16
Types of Budgets..................................................................................................................................18
Understanding Where Your Budget Fits In..........................................................................................21
Session Five: Parts of a Budget......................................................................................................................22
Morning Wrap-Up..........................................................................................................................................23
Lunch..............................................................................................................................................................23
Energizer: Auction Antics..............................................................................................................................24
Session Six: The Budgeting Process..............................................................................................................26
Overview...............................................................................................................................................26
Step One: Gather the Budget Package..................................................................................................27
Step Two: Lay the Groundwork...........................................................................................................28
Case Study (Part One)...........................................................................................................................29
Break.....................................................................................................................................................30
Debrief..................................................................................................................................................31
Step Three: Identify Your Goals...........................................................................................................32
Case Study (Part Two)..........................................................................................................................34
Getting it Done......................................................................................................................................35
Steps Five and Six: Planning and Doing...............................................................................................37
Case Study (Part Three)........................................................................................................................39
Debrief..................................................................................................................................................41
Day One Wrap-Up..........................................................................................................................................41
Agenda: Day Two...........................................................................................................................................42
Reconnect: Would You Believe….................................................................................................................43
Session Seven: Budgeting Tips and Tricks....................................................................................................44
Session Eight: Monitoring and Managing Budgets........................................................................................45
Small Group Work................................................................................................................................45
Debrief..................................................................................................................................................46
Session Nine: Crunching the Numbers...........................................................................................................47
Understanding Ratio Analysis..............................................................................................................47
Small Group Exercise...........................................................................................................................53
Debrief..................................................................................................................................................53
Break...............................................................................................................................................................54
Session Ten: Getting Your Budget Approved................................................................................................54
Session Eleven: Comparing Investment Opportunities..................................................................................56
Session Twelve: ISO 9001:2008....................................................................................................................57
What is ISO 9001:2008?.......................................................................................................................57
Small Group Exercise...........................................................................................................................58
Debrief..................................................................................................................................................59
Morning Wrap-Up..........................................................................................................................................60
Lunch..............................................................................................................................................................60
Energizer: Encyclopedia Excitement.............................................................................................................61
Session Thirteen: Directing the Peerless Data Corporation...........................................................................62
Task Explanation..................................................................................................................................62
Decision 1: Office Relocation...............................................................................................................68
Debrief: Decision 1...............................................................................................................................70
Decision 2: Reproduction Backlog.......................................................................................................73
Decision 3: Improving Supervision......................................................................................................78
Decision 4: Job Enrichment..................................................................................................................82
Decision 5: Staff Expansion..................................................................................................................85
Exercise Wrap-Up.................................................................................................................................88
Workshop Wrap-Up.......................................................................................................................................88
Budgets and Managing Money | 1
Instructor Guide
Before the Workshop
Read through the instructor guide. This is intended as a guide and not a bible. Be guided
by your experience, the needs of the participants, and your own common sense, as well as
the information in here. Most of the suggestions and all of the information have been
developed through research and hands-on, classroom experience.
We recommend arriving at least one hour before the start of the session, particularly on
Day One of working with a client. We suggest you shake hands with each participant as
they come into the classroom and introduce yourself to them; it breaks the ice and sets the
type of friendly atmosphere that is conducive to learning.
Many of the flip charts can be prepared ahead of time. The first page should be set up like
this:
 Name of Workshop
 Facilitated by (Your Name)
 Your Organization’s Name
Include in a different color, around the perimeter of the room, the words Courtesy,
Participation, and Confidentiality. You might also want to add the words Exercises, Role
Play, Learning, and Fun.
Materials Required
 Flip chart paper and markers

 Four pieces of flip chart paper, each with one of these words: drama, horror,
action, and comedy
 Masking tape
 Samples of various kinds of budgets and financial statements
 $1,000 in play money for each participant
 $10,000 in play money for the facilitator
 A gavel
 Package of post-it notes
 Several calculators
 One auction worksheet for each participant (found in the Handouts folder)
 One set of Encyclopedia Excitement cards per four participants
 Lots of blank paper for Session Thirteen
 2005-2011, Velsoft Training Materials Inc.

Agenda: Day One
8:30-8:45 Session One: Introduction and Course Overview

8:45-9:00 Icebreaker: In This Corner
9:00-9:30 Session Two: Finance Jeopardy
9:30-10:45 Session Three: The Fundamentals of Finance
10:45-11:30 Session Four: The Basics of Budgeting
11:30-11:45 Session Five: Parts of a Budget
11:45-12:00 Morning Wrap-Up
12:00-1:00 Lunch
1:00-1:30 Energizer: Auction Antics
1:30-4:15 Session Six: The Budgeting Process
4:15-4:30 Day One Wrap-Up

Session One: Introduction and Course Overview
(8:30-9:00)
Introduce yourself. Establish credibility by giving examples of training experience, and

your own experiences with money management, including some war stories if you have
them.
Ask that participants respect confidentiality: what we say in this room stays in this room.
Remind them that it was Mark Twain who said, “If two people have the same opinion,
you don’t need one of them,” so we are at liberty to disagree with one another, and with
the instructor.
However, respect other people’s opinions. We ask that you act courteously, to make sure
we give other people their share of air time, and that we listen when other people are
talking. Finally, we ask that you participate. You get out of a workshop just about what
you put into it, and you will learn as much from sharing with others as you will from the
concepts we bring you.
Give the participants a chance to introduce themselves to you. You will probably want to
know their name, their department, their position title, and how they are involved in
money management.
Address housekeeping items, like breaks (usually 10:15 and 2:15) and noon hour (12 to 1,
go to lunch on their own). Give them info about washrooms, coffee, and cell phones.
Remind the group that this is a safe house, the place where they can learn from their
mistakes in a supportive atmosphere, rather than in the workplace where it can harm their
credibility or their organization.
Course Overview
Ask students to turn to their workbooks and read the introduction with the overall
objectives of the workshop (Session One). Then ask them to identify their own learning
objectives.
Present the agenda (as a handout, electronic presentation, or flip chart) and look at the
topics you plan to cover. Go over these with the group and ask if there is anything there
they didn’t expect to see, or something not there that they had been hoping for.

For topics they don’t see:
 Reassure group if a topic will be covered although it doesn’t appear in the agenda.
 Opt to squeeze in something not covered if there is time, it’s appropriate, and if
everybody is interested.
 For those things they feel are not of interest to the group, you have the option of
touching it briefly and moving on. This doesn’t happen often, but these questions
are your hip pocket needs assessment to make sure participants get what they
expect, if it is possible.
 Generally, topics not within the realm of this program must be dealt with at
another time. Suggest other programs, preferably those of Velsoft, or talk with the
participant at end of day.
Learning Objectives
For managers in today’s business world, it’s essential to have a working knowledge of
finance. We all play a role in our organization’s financial health, whether we realize it or
not. If you don’t have training or a background in finance, you may be at a disadvantage
as you sit around the management table.
Understanding the cycle of finance will help you figure out where you fit into your
company’s financial structure, and how to keep your department out of the red. This two-
day workshop will help you prepare budgets and make decisions with confidence.
Participants should complete Velsoft’s Accounting Skills for New Supervisors course
before this workshop or have equivalent knowledge.
At the conclusion of this workshop, you should be able to:

 Define basic financial terminology
 Prepare a budget of any type or size
 Get your budget approved
 Perform basic ratio analysis
 Make better financial decisions

Icebreaker: In This Corner
(15 minutes)
Activity
Prior to the workshop, print the following topics on one sheet of flip paper each. Post one
sheet in each corner of the room.
 Drama
 Horror
 Action
 Comedy
Then, ask participants to move into the corner that represents their favorite kind of movie.
Once they have formed groups, they should identify three things that they (as a group)
want to get from the workshop.
Debrief
Now, bring the group back together and combine all the objectives gathered onto a flip
chart. What seems to be the conclusion?

Session Two: Finance Jeopardy
(9:00-9:30)
To appreciate the importance of budgets, and their relevance, it is necessary to have a

basic knowledge of how your budget information fits into the organization’s accounting
structure. To start the day, we’ll review some financial terms that get the students
thinking about accounting. To prepare, put the categories and values on the flip chart or
use the slides provided.
Income Balance Words and Accounting Fun Facts

Statement Sheet Phrases Cycle
$100 $100 $100 $100 $100
$200 $200 $200 $200 $200
$300 $300 $300 $300 $300
$400 $400 $400 $400 $400
$500 $500 $500 $500 $500
You should also post a piece of flip chart paper to record scores.
Here are the rules.

 Divide participants into groups of six.
 Pick a number between one and ten. Then, ask each team to also choose a
number. The team that is the closest gets to choose a category and a value first.
 Cross off the categories and values as they are chosen.
 You will read the question for the team. If a team member knows the answer, s/he
should raise their hand. It will be the sole discretion of the facilitator to judge
whose hand was raised first.
 The game progresses just like the Jeopardy game on TV: if someone gets the
answer correct they get to choose the next category as well as the next value of
the question. If they get an answer incorrect, the other teams then get to raise their
hands and attempt to answer the questions.
As the facilitator remind them to phrase their answer in the form of a question. Have fun
with this part of the game, but overall the participants are to become familiar with some
of the terms we have learned so far.

Questions and Answers
Category Value Question Answer
Income $100 Revenue minus expenses equals… What is a net income or loss?
Statement
Balance $100 Assets minus liabilities equals... What is equity?

Sheet
Words and $100 The art of raising, managing, and What is finance?
Phrases making money in business is
called…
Accounting $100 The method of accounting that What is accrual accounting?

Cycle counts income and expenses when
they are due to the business is
called…
Fun Facts $100 All credit cards must be in this shape. What is a rectangle?
(The ISO 7810 standard
defines this!)
Income $200 Bills that the business paid in a What are expenses?
Statement particular period are referred to as…
Balance $200 Expenses that are prepaid go on the What are assets?
Sheet balance sheet under this category.
Words and $200 The chief accountant for the Who is the comptroller or
Phrases company is called… controller?
Accounting $200 The book that all transactions are What is the journal?
Cycle originally recorded in, in
chronological order, is called…
Fun Facts $200 In 2010, the richest person in the Who is Carlos Slim Helú?
world was… (Bill Gates is second by a
small amount.)
Income $300 What the business earned from the What is revenue?
Statement sale of goods and services in a
particular period is referred to as…

Balance $300 Anything that can be converted into What is a current asset?
Sheet cash within one year is referred to
as…
Words and $300 The exercise of recording all the What is bookkeeping?
Phrases transactions that take place in a
business is called…
Accounting $300 The final book of entry, with What is the ledger?
Cycle transactions recorded by account and
according to whether they are a debit
or credit, is called…
Fun Facts $300 The first banks were… What are religious temples?
Income $400 The cost of creating a product is What is the cost of goods
Statement called… sold?
Balance $400 This measurement shows how What is liquidity?

Sheet quickly a company can convert its
assets into cash.
Words and $400 A formal document prepared in a What is a financial

Phrases specific format as outlined by a statement?
governing organization is called…
Accounting $400 A system which records income What is cash accounting?

Cycle when it is received and records
expenses when they are paid is
called…
Fun Facts $400 The dollar sign comes from… What is the abbreviation for
the Spanish peso?
Income $500 Rent paid on time would fall under What are expenses?
Statement what category in an income
statement?
Balance $500 The least liquid current asset is… What is inventory?
Sheet
Words and $500 The assumption that the business will What is the going-concern
Phrases continue to operate is called… principle?

Accounting $500 An entry that is created at the end of What is an adjusting entry?
Cycle the period to match costs and
expenses is called…
Fun Facts $500 The study of currency and the history What is numismatics?
of money is called…
Session Three: The Fundamentals of Finance
(9:30-10:45)
Basic Concepts
(15 minutes)
Recording Financial Transactions
A useful budget is prepared under the same umbrella of guidelines as the company’s
actual financial statements. There must be consistency in the way the numbers are
prepared. As such, it is necessary to understand some key terms.
Bookkeeping is the exercise of recording all the transactions that take place in a
business. Transactions take place between the business and:
 Customers, who buy products and services sold by the business
 Employees, who are paid wages and provided benefits
 Vendors, who sell services, equipment, and supplies to the business
 Government agencies, who collect taxes from the business
 Sources of equity capital (investors or owners who put money in and take it out of
the business)
 Sources of debt capital (banks and lending institutions)
Accounting, on the other hand, is the methodology used to accomplish this goal and to
prepare related statements and reports. Accounting guidelines govern how businesses
record transactions. They also dictate the design of the recordkeeping system that a
business uses and how reports are prepared, based on the information gathered and put
into the system.

This brings us to another question. Often, we hear the terms “financial statements” and
“financial reports” used interchangeably. Is there a difference?
For the purpose of our courses, yes, there is a major difference. A financial report is a
document prepared for internal company use. It can come in many forms and be used for
many purposes. A financial statement is a formal document prepared in a specific
format as outlined by your region’s Generally Accepted Accounting Principles (which we
will discuss in a moment) or another governing organization (such as your tax
legislation).
Types of Costs
There are two parts to a budget: sources of cash and uses of cash. When we think about
uses of cash we can break them down as follows:
Sunk costs
A sunk cost has already been incurred; it just needs to be paid. It is the result of a past
irrevocable decision and is sunk in the sense that it cannot be avoided. As a result, sunk
costs may not impact future decisions.
Recurring costs
Quite simply, recurring costs recur and require a periodic outlay of funds. Material costs,
supplies, heat, and lights are prime examples.

Generally Accepted Accounting Principles
(15 minutes)
Accounting forces people to measure things in a relatively consistent manner. A good

budget is prepared based on consistent rules as well. Accountants refer to the rules in
their rule book as generally accepted accounting principles (GAAP). The objective of
GAAP is to ensure comparability among different companies and overall reliability of
information.
While there can be slight differences between regions, GAAP typically includes the
following principles:
 The matching principle: Earnings and expenses must be booked in the relevant
accounting or budget period when one benefits the other. This is necessary to
properly evaluate results.
 The cost principle: Assets and service, and the resulting liability, are taken into
the accounting records at cost.
 The consistency principle: A company’s accounting procedures need to remain
consistent over time. If they are changed, the reasons for the change and the
financial impact of the change must be documented in detail.
 The objectivity principle: Whenever possible, the amounts used in recording
transactions are based upon objective evidence rather than on subjective
judgments.
 The realization principle: This principle defines revenue as an inflow of assets
(not necessarily cash) in exchange for goods or services. It requires the revenue to
be recognized at the time, but not before it is earned.
Budgeting Terms
A budget is an operating plan that outlines projected revenue and expenses for a
particular period of time.
A projection is a prediction for the future, based on past data, extrapolation, and
summarizing key factors.
Forecasting is the process of putting together several projections to create a projection

for the future. (Think of a weather forecast.)
Extrapolation is the process of applying past data to the future to arrive at a reasonable
projection.

Your Role in Company Finances
(15 minutes)
If you are a sales manager or an advertising manager, you are responsible for influencing
the speed with which your company makes its sales and converts its inventory into cash.
This has an effect on the way your company manages its finances.
If you are a computer programmer or a shipping clerk, you play a role in the process too.
You influence the speed with which information and goods flow into and out of your
company. If information flows faster than normal, costs are reduced. If they move slower,
expenses rise. So this too has an impact on how company finances must be managed.
In fact, there isn’t a single department, division, work unit, or employee who doesn’t
come into contact with a company’s finances. Assets, liabilities, revenues, and expenses
are affected every time an employee is hired, merchandise is moved, or paperwork is
pushed.
What you do matters. Let’s say you are a sales representative for a wholesale bakery,
with $100 million in accounts. It takes some bakeries as long as 30 days to collect their
money. Others get their clients to pay up in about 25 days. If you could convince your
clients to do the same, you could save your company nearly $137,000 a month or $1.64
million a year.
How is that possible? Assume your company invests its money as soon as it comes in.
With a 10% return, the money would earn $27,400 a day for each day it was collected
sooner. And if you could convince customers to pay in 15 days (or up front) you could
save even more.
Now, not all of us are in charge of $100 million dollar accounts. Nevertheless, small
savings can and do add up.
What if you work in the company’s payroll department? According to Reed Business
Information’s 2010 review, the average American company spends between two and
three dollars to process each bi-weekly pay check, whether they do it internally or
outsource it. If you could save $2.50 per employee check, per payday, how much could
you save your company over the course of a year?

Have a chat about the following diagram and how each person’s role is affected by the
person above and the person below them. Ask the class to discuss the blending of roles in
many corporations and how this can be good or bad depending on various situations.
Note that even people at the bottom of the diagram are affected by finances.
Ask the class how they are, as an employee, affected by their company’s finances. Create
a list of on the flip chart, as well as suggestions for changes that they would like to see.
Break
(15 minutes)

Getting to Know the Players
(15 minutes)
Understanding the cycle of finance will help you figure out where you fit into your
company’s financial structure. You will also want to figure out what the key financial
players in your company really do and therefore how you can perform your duties in a
way that makes their job easier
The board of directors usually leads the company’s financial direction. Their vision is
usually carried out by the Chief Executive Officer (CEO).The CFO, or Chief Financial
Officer of a company, is just behind the CEO. Here is a typical representation of a mid-
sized company:

Below the CEO and CFO, there are the measurers and the managers.
Measurers are focused on assessing and planning.

 Controller/comptroller (chief accountant for the company)
 Accountants
 Tax accountants
 Cost accountants
 Internal auditors
 Budget officers
Managers are focused on planning and execution.

 Credit managers
 Inventory managers
 Plant managers
 Capital budgeting staff
 Budget officers
 Sales staff

Session Four: The Basics of Budgeting
(10:45-11:30)
Defining a Budget
(15 minutes)
A business can’t open its doors each day without having some idea of what to expect
(budgeting). And it shouldn’t close its doors without knowing what happened
(accounting). Every business should plan and prepare for its future. One way to do this is
to budget, to plan ahead for future income and expenses.
Budgets provide the baseline of expected performance against which managers measure
actual performance. The actual performance of an organization is provided by accounting
systems that also generate reports to compare expected performance against actual
performance. With this information, managers with budget responsibilities act as
physicians to assess the current financial health of their organization.
If the latest report from the accounting office says sales are too low compared to budget,
the sales manager has to figure out why. If overtime costs are running too high, the
production manager has to figure out why. And if there are too many rejects on the shop
floor, it may be up to the quality control officer to figure out why.
Why should we bother with budgets in this age of change? Sometimes, you go through all
that work and then senior managers make changes that knock your whole budget for a
loop. However, even though planning is difficult, we must plan in order to maintain focus
and prevent wasting resources. A budget is an educated guess that reflects your long-term
plans. Planning is the key characteristic of budgeting.

Discuss: What are some good reasons to be able to budget?

 Developing a detailed financial plan for the period coming up helps establish
financial objectives and identifies exactly what must be done to meet these
objectives.
 Budgeting also encourages a business to articulate its vision, strategy, and goals.
 Budgeting imposes discipline and deadlines on the planning process.
 Budgets can serve as benchmarks against which to measure actual performance
for a business.
 Budgeting forces managers to do better forecasting.
 Budgeting motivates managers and employees by providing useful yardsticks for
evaluating performance and for setting compensation when goals are achieved.
 Budgeting forces the various departments to co-ordinate as a whole.
 Budgeting forces more communication throughout the organization.
The Budget Committee
 Should one department be responsible for the budget?

 Should the budget be handed down from the executives?
 Should the budget for one department interact with another (sales and
production)?
The Budget Period
 How small should a budget period be?

 Should it coincide with the fiscal period?
 Should a long range budget be in place? How accurate are these?

Types of Budgets
(15 minutes)
Depending on the size of your organization, the budgeting process might be quite simple
or alternatively quite complex. Regardless of the size of the organization, you can budget
almost anything in it.
Ask participants about some of the types of budgets that they have seen. Some possible
answers:
 Capital budget: Plan to acquire fixed assets to support the operations of a
business.
 Cash budget: Highlights the flow of cash throughout the year to pinpoint
shortages and excesses.
 Expense budget: Outlines expenses for a particular department.
 Fund budgets: Where an amount of money is allotted to a general item (such as
hospital improvement, for example) by law or executive decision, with no clear
idea on how it will be spent.
 Labor budget: Lists all employees and the salary or wages budgeted for each
position.
 Line-item budget: A list of specific items that will be evaluated one by one.
 Production or manufacturing budget: Takes the sales budget and its estimate of
quantities of units to be sold and translates these figures into the cost of labor,
materials, and other expenses required to produce them.
 Sales budget: Where expenses and sales are plotted out in dollars.
 Variable budget: Where expenses are plotted out as a percentage of sales.
If possible, have some samples of budgets for participants to look at.
Additional information about common types of budgets is provided below.
Sales Budget
The sales budget is an estimate of the total number of products or services that will be
sold in a given period. Total revenues are determined by multiplying the number of units
by the price per unit.
The sales budget is normally the starting position for the budgeting season. The sales
budget normally grows from a reconciliation of business forecasts, capacity estimates,

proposed selling expenses (advertising, sales salaries, etc.) and the quantity of sales
estimated for the period.
The sales budget drives a very important part of the expense budget: the Merchandise
Purchases Budget. This budget would be used in a company that manufactures, builds, or
further processes materials for future sale. This will also spill over into inventory level
budgets, which assists in warehouse capacity planning, plant usage, and labor.
Expense Budget
Expense budgets contain all the different expenses that a department may incur during
the normal course of operations, including travel, training, and office supplies.
Sales expense budgets should be derived almost directly from the sales budget. Overhead
and general costs associated with the sales process can normally be estimated as a
derivative of the sales volume in a variable budget.
General and administrative expenses usually are the responsibility of the office
manager(s) who should base a budget on past history, with a forecast component that
takes into account staff levels, inflation, new technology that may reduce or increase
expenses, and other management policies (such as bonuses and raises).
Production Budget
The production budget takes the sales budget and its estimate of quantities of units to be
sold and translates these figures into the cost of labor, materials, and other expenses
required to produce them. Often, production budgets are based solely on a per unit cost
basis. So if production was to be 10,000 units and the budget was estimated at $1,000,000
in expenses, there would be a unit cost budget of $100/unit.
Manufacturing Budget
A manufacturing budget should include the cost of raw materials, direct labor, and
manufacturing overheads. Many manufacturing firms prepare three sub-budgets that
account for the three items mentioned: raw materials, direct labor, and manufacturing
overhead.
Labor Budget
A labor budget is made up of the number and name of all the various positions in a
company, along with the salary or wages budgeted for each position. Some of the
company’s labor costs may not be captured here, such as direct sales or direct
manufacturing costs.

Overall this is a large budget component because for most companies, labor is a large part
of the overall expenses.
Capital Budget
This is the manager’s plan to acquire fixed assets such as furniture, computers, and office
space, to support the operations of a business. The capital expenditure budget lists
equipment that will be scrapped within the budget period as well as replacement costs
and acquisition prospects.
Plant capacity planning will play a role here. If the existing facilities are insufficient to
handle forecasted capacity then new equipment and/or a plant may need to be acquired.
Cash Budget
Another budget that is normally performed once all of the other budgets are gathered and
assembled is the cash budget. This is very important to highlight the flow of cash
throughout the year to pinpoint when cash requirements may exceed existing cash
resources.
If you find that you will be short on cash at a particular time, work can be performed now
to plan for it. Excess cash forecasts can also be a problem: no one wants excess cash
sitting unused if it could be invested and yield a greater return.

Understanding Where Your Budget Fits In
(15 minutes)
Your budget should flow down from your company’s plan, like this:
Engage participants in a discussion about their budgeting process and how their plans
currently flow and should flow.

Session Five: Parts of a Budget
(11:30-11:45)
Any plan should have five key parts:
Divide participants into pairs. (If participants prefer to keep their budget confidential,
they can perform this activity on their own.) Ask them to identify these parts in the
budget they brought for a pre-assignment. If some parts are missing, how could they be
added?
Make sure to have some sample budgets on hand for those who did not bring a budget
from their organization.

Morning Wrap-Up
(11:45-12:00)
Use the last fifteen minutes of the morning to review and answer questions.
Lunch
(12:00-1:00)

Energizer: Auction Antics
(1:00-1:30)
Activity
Although this exercise requires a bit of preparation, it’s an excellent way to demonstrate
the concept of financial priorities, and it’s fun.
You will need:

 $1,000 in play money for each participant
 $10,000 in play money for the facilitator (who will act as banker)
 One auction worksheet for each participant (found in the Handouts folder)
 A gavel
Note: You may need to adjust the number of items so that the game stays competitive.
Make sure the ratio of items to learners is no higher than 2 to 1.
Pass out the auction sheets and play money to each participant. Ask participants to review
the items on the auction sheet and decide how much they’re willing to spend on each
item. Remind them that items will be auctioned off in increments of $50 and they only
have $1,000 to spend.
Once participants have set their budget, review the rules for the auction.
 Bidding will begin at $100.
 All bids must be made in $50 increments.
 Participants must raise their hands to make bids.
 Participants do not need to stick to their original budgets.
 Once an item has been purchased, the item cannot be returned and the money is
spent.
Start the auction with a bang from your gavel. Introduce each item and briefly describe its
good and bad points. Have fun and use your best auctioneer voice! Ask for a starting bid
of $100 and continue until the highest bid has been reached. Give the owner their change.
When all items have been bought, close the auction and debrief.

Debrief
Now, bring the group back together and discuss:

 How many people abandoned their original budget once bidding started? Why?
 How did the bidding change your perceived value of an item?
 How do the elements of this game relate to real-life financial issues?

Session Six: The Budgeting Process
(1:30-4:15)
Overview
(5 minutes)
The budgeting process typically has six steps.

Step One: Gather the Budget Package
(10 minutes)
If you are in charge of preparing a budget, your organization will usually give you a
budget package.
Discuss what participants receive in their budget package (if they get one). Typically this
contains:
 Company-wide budget and goals
 Description of your department and its goals as laid out in the strategic plan
 Business or performance indicators
 Past financial statements and budgets
 List of accounts and profit and cost centers involved
 Proposed budget, if there is one
 Allocated budget amount, if there is one (Sometimes you are given a pot of
money to budget; at other times you need to determine what you need and then
fight for it!)
 Templates for completing the budget
If you aren’t given this information, then go out and find it!

Step Two: Lay the Groundwork
(15 minutes)
If you dive into the budget package right now, you won’t be able to find your way out!
Before you get into things, outline a few key pieces of information.
Standard of Precision
Find out how precise your budget should be.

 How detailed do you need to be with your numbers – down to the penny or
rounded to thousands of dollars?
 What period of time should you budget for – the month, quarter, year, or beyond?
 What accounts do you need to budget for?
 Are there any special rules or formulas (such as depreciation) that are simplified
for budgeting?
Line of Control
You will need to know what parts of the budget will be monitored and who will control
them. This is a very important part of the plan and hard to get right. VP’s certainly don’t
want to be counting every pencil, but line managers will probably need to report on more
than the year’s final figures.
Preparing for Monitoring
Make sure that you know:

 How will the budget be monitored?
 Will a review and adjustment take place at any point in the year?
 Is there an allocated budget amount given to you, or will you need to make a case
to receive funds?
 What kind of evidence will you need to back up your budget?

Case Study (Part One)
(15 minutes)
Split the class up into teams of four to six. Ask them to take a look at the case study in
their workbook and answer the discussion questions.
Background Information
The Christmas Party at ABC Company always was the event of the year. People were
still talking about the generosity of management well into the following summer. The
company always rented the Windsor Lodge, a private and secluded property equipped
with guest rooms, party rooms, exquisite food, and excellent entertainment for the party.
Employees were provided with guest rooms, babysitting services, transportation, and an
all-expense paid party. In addition, there were Christmas bonuses for everyone handed
out by Santa (who looked suspiciously like the old man himself). About $50,000 was
allotted for the party each year.
Unfortunately, this year the profits of the company have taken a serious drop and the
budget for the party and bonuses has been drastically reduced to $17,500. As a member
of the management entertainment committee it is your job to allocate the available funds
and develop a budget to provide the best party you can with the limited resources. Be
creative!

Budget Template
Expense Last Year’s Expenses Your Budget
Accommodations $6,000
Evening Meals $4,000
Beverages $10,000
Entertainment $2,000
Breakfast Meals $4,000
Transportation Costs $3,600
Sub-total $29,600
Bonuses of $100 x 100 workers $10,000
Bonuses of $500 x 10 managers $5,000
Grand Total $44,600
Discussion Questions
 What standards of precision would apply?

 What will the controls look like?
 What might monitoring and reporting look like?
Break
(15 minutes)

Debrief
(15 minutes)
Now, bring the group back together and discuss the questions.

Step Three: Identify Your Goals
(15 minutes)
You should also write down what high-level goals your budget must have. Some basic
examples: increase sales by 20%, hire two new staff, or increase production by 5%.
SMART
For best results, goals should be SMART!
S = Specific
When we make our goals too general we aren’t able to visualize them, and if we can’t see
them, we have a hard time devoting our efforts toward reaching them. Your goals should
state exactly what you want your budget to accomplish.
M = Measurable
If we can’t measure a goal, we have no idea how close we are getting to reaching it, and
that can be de-motivating. For budget goals, this is easy – you can measure in dollars and
cents.
A = Attainable
Your budget needs to be attainable. If you’re given an unrealistic figure and told to work
with it, you either need to bargain for more money or find a way to make it achievable.
R = Relevant
Goals have to make sense and have some importance, or they will soon be discarded. If
you succeed with this budget, what’s in it for you? If your team succeeds, what’s in it for
them?
T = Timed
Make sure that your budget states what period it is for and breaks down the expenses and
revenue by the acceptable precision level (month, quarter, year, etc.).

PPP
You will also want to make sure that your goals have the three P’s.
Make them Personal.

In most cases, you’ll need your team’s help to achieve your budget. Let your team know
what’s in it for them if the budget is achieved. And, point out some of the fun things in
the budget for them.
Make them Positive.

We can create negative energy by saying what we aren’t going to do, but the effect is
more sustainable when we say what we will do.
Put these goals or targets in writing.

Create a graph and monitor budget progress so that everyone will keep the budget goals
in mind.

Case Study (Part Two)
(15 minutes)
Ask participants to return to their groups from the previous case study. Each group
should set a SMART goal for this special budget.
creative!
Debrief
After about eight minutes, bring the class together and have some groups share their
goals.
Example: We will create a line-item budget by June 1, 2020, that will detail the expenses
for the 2020 Christmas party, within our budget of $17,500.

Getting it Done
(15 minutes)
Step Four: Gathering Your Resources
Next, make sure you have all the information you will need. Make a list of additional
sources of information and people who can help you out if you get stuck. We have
included a basic checklist below. Feel free to customize it and use it for your next budget!
 Item Typical Department
Direct compensation policy, including pay grades,

salary ranges, salary caps, and merit increases
Indirect compensation policy, including benefits,

bonuses, profit sharing, etc.
Promotion policy
Human Resources
Any policies on mandated raises, such as cost-of-
living increases or union agreements
Legislation on mandated government payments

(tax, insurance, etc.)
Organizational chart with head count for your

departments
All relevant financial information (historical for

three to five years plus current year)
Chart of accounts
Accounting policies
Accounting
Capital asset registers
Templates or tools that they use
Organizational chart of cost and profit centers with

your responsibilities clearly marked

 Item Typical Department
All relevant sales information (historical for three to

five years plus current year)
Projected sales for the following year

Marketing and Sales
Information on expected trends, planned
promotions, and other factors that could affect your
budget
Economic forecast for the following year
Strategic plan for the following year
Information on expected trends, planned events,

and other factors that could affect your budget
Fiscal calendar with important events marked Budget Management Team
Complete budget package
Policy on budget completion, reviews, monitoring,

reporting, and management
Additional resources and tips
Goals for your team

Your Supervisor
Their expectations of you
Their goals
Knowledge, ideas, or experience that will help you Your Team
Any relevant financial information
Tip: Update the “Typical Department” section with the actual department in your
company as well as two contact people.

Steps Five and Six: Planning and Doing
(15 minutes)
Step Five: Planning Your Work
Now you can create a detailed plan of what needs to be done, when it is due, and how
you’re going to do it. Make sure you leave enough time to let the budget sit for a few
days and then to do a thorough review.
Here is a template that you can use.
Task Resources Target Date Due Date Complete

Required

Step Six: Do It!
Now that the groundwork is in place, you can start working through the budget package.
(If you don’t have a budget package, you should still have enough information about
what is expected of you to complete the required documents.) Delegate tasks where
appropriate, but make sure you maintain final control over decisions. And, always
double-check the numbers (even your own!).
Where can you get your numbers from?

Where at all possible, gather historical data and extrapolate it. This means analyzing the
data, identifying patterns if they exist, and then applying those lessons to next year’s
budget.
For example, let’s say your office supplies expenses have increased by $500 each year
for the past three years. To arrive at a reasonable budget number, take last year’s
expenses and add $500. Or, let’s say that your marketing budget is always 25% of your
sales revenue. Take the estimated sales revenue and calculate the percentage.
The next best choice is to take relevant historical data and use it in place of actual
historical data. For example, let’s say that you need to budget for a computer upgrade
next year. Your department has never done one, but a department of similar size did
upgrade last year. You can use their information to get a good idea of what your expenses
will look like.
If no exact or relevant historical data exists, your next best choice is an expert’s estimate.
For the computer example, perhaps your IT department or the computer company can let
you know approximately how much the upgrade will cost. Or, find information from
industry averages or even competing companies.
You should always be able to find data and information from one or all of these sources.
You should never put in a number just for the sake of putting something in that line.
That’s a recipe for disaster!

Case Study (Part Three)
(15 minutes)
Ask participants to return to their case study teams and develop a budget.
creative!

Budget Template
Expense Last Year’s Expenses Your Budget
Accommodations $6,000
Evening Meals $4,000
Beverages $10,000
Entertainment $2,000
Breakfast Meals $4,000
Transportation Costs $3,600
Sub-total $29,600
Bonuses of $100 x 100 workers $10,000
Bonuses of $500 x 10 managers $5,000
Grand Total $44,600

Debrief
(15 minutes)
Now, bring the group back together and see what budgets they came up with. Talking
points can include:
 What other information would you have wanted? Some ideas:
 Updated figures for workers and managers
 What kinds of accommodations and meals were provided last year?
(Perhaps we can downgrade and save some money!)
 How did you arrive at this budget?
 What sacrifices did you make?
 What did you learn?
 If you were an employee of the company and had no say in the budget, would this
be acceptable to you?
Day One Wrap-Up
(4:15-4:30)
Take the last 15 minutes for a quick review and to answer any questions the class may
have. You may also want to quickly summarize what will be taking place on day two.

Agenda: Day Two
8:30-8:45 Reconnect: Would You Believe…

8:45-9:00 Session Seven: Budgeting Tips and Tricks
9:00-9:30 Session Eight: Monitoring and Managing Budgets
9:30-10:15 Session Nine: Crunching the Numbers
10:15-10:30 Break
10:30-10:45 Session Ten: Getting Your Budget Approved
10:45-11:00 Session Eleven: Comparing Investment Opportunities
11:00-11:45 Session Twelve: ISO 9001:2008
11:45-12:00 Morning Wrap-Up
12:00-1:00 Lunch
1:00-1:15 Energizer: Encyclopedia Excitement
1:15-4:15 Session Thirteen: Directing the Peerless Data Corporation
4:15-4:30 Workshop Wrap-Up

Reconnect: Would You Believe…
(8:30-8:45)
Activity
This icebreaker is a great way to kick start the training day with some fun, and a way for
participants to get to know each other. Even if participants share a couple of items on the
list it is unlikely that any two would share all of the same things.
Explain that you are going to list a number of unique characteristics. Anyone who meets
that description should step forward.
 Has/had a pet that doesn’t match his/her name (for example, an orange cat named
Shadow or a dog named Garfield)
 Shares a birthday with a major holiday
 Shares a birthday with their child or parent
 Has attended a NASCAR race
 Enjoys mountain climbing
 Has been to the movies in the past four days
 Remembers their great-grandparents
 Has won a contest
 Has appeared on TV or the radio
 Doesn’t drink coffee
 Has been to Las Vegas
 Has been to Australia
 Has never been outside their province or state
 Owns more than four pets
 Has never broken a bone
 Has never climbed a tree
 Never learned how to swim
Debrief
After about five minutes, bring the group back together and get the day started.

Session Seven: Budgeting Tips and Tricks
(8:45-9:00)
Top Ten Excuses for Being Over Budget
1. The accounting reports must be wrong.

2. Didn’t you get my revised budget?
3. How was I supposed to know that it would rain (or insert your own excuse here)
this year?
4. You’re not going to quibble over a measly couple of million dollars, are you?
5. Don’t worry; we’ll make it up next year.
6. My assistant worked up that budget – s/he must have messed up.
7. It’s an investment in our future.
8. (Insert name of another manager here)’s department didn’t come through with the
support that I was promised.
9. We’re doing better than last year!
10. Well, two years out of three isn’t bad, is it?
Up-Front Budget Maneuvers
 Involve key people in your budget planning

 Do some selective padding in case of emergencies
 Tie your budget requests to your organization’s values
 Create more requests than you need and give them up freely
 Shift the time frame
 Be prepared
Not-So-Nice Budget Maneuvers
 Threaten and blackmail your budget competition

 Be a dictator instead of a democrat
 Request things you don’t need just so others don’t get the money
 Inflate last year’s expenses
 Trust no one!

Session Eight: Monitoring and Managing

Budgets
(9:00-9:30)
Small Group Work
(15 minutes)
Divide participants into groups of four to six. Provide them with flip chart paper and
markers. Ask them to discuss how budgets are monitored and managed in their
organization and make a list summarizing the various methods. They should also record
the benefits and disadvantages of each method.

Debrief
(15 minutes)
Bring the group back together and discuss. We have included some talking points below.
There are many ways that budgets can be monitored and managed during the fiscal year,
including:
 Formally adjusting plans quarterly or semi-annually
 Independent cost control by managers responsible for their budgets
 Departmental budget updates on a regular basis
The important part is to establish a budget management plan, clearly communicate it to

everyone, and ensure it is implemented and followed by all managers with a budget. Your
plan should cover the following elements.

Session Nine: Crunching the Numbers
(9:30-10:15)
Understanding Ratio Analysis
(15 minutes)
If you understand simple ratio and proportion analysis, you can get more information and
exercise more control over departmental expenses. You can also use ratios to do final
reality checks over your budgets by comparing your budgeted ratios to actual ratios from
prior periods.
Ratio analysis sounds intimidating but it isn’t. Ratios are simply numbers that let us
compare. For example, if your car gives you 20 miles to a gallon of gas, and the new
SUV you are looking at gives you 10 miles per gallon, you have just done a ratio analysis
to compare the operating costs of the two vehicles.
Ratios measure relationships between particular numbers. By periodically plugging

figures from your company’s two central financial records (the profit and loss statement
and the balance sheet) into certain simple ratio equations, you will be able to track certain
aspects of the business. Ratios also enable you to compare one company against industry
standards.

Sample Balance Sheet
Acme Widgets Inc.

Balance Sheet
For the Month Ended February 28, 2020
Assets Equity
Cash $2,500 Owner’s Capital $5,000
Accounts Receivable 7,500 Cumulative Net Income 3,300
Supplies 1,500 Less Withdrawals and (1,300)

Dividends
Total Assets $11,500 Total Equity $7,000
Liabilities
Accounts Payable $500
Notes Payable 4,000
Total Liabilities $4,500
Additional Facts and Figures

 Gross Sales: $22,000
 Net Sales: $17,000
 Gross Profit: $15,000
 Net Profit: $10,500

Current Ratio
This is possibly the most common ratio used in the business world. It’s usually presented
like any other ratio, with two numbers separated by a colon. This ratio compares assets to
liabilities – in other words, what the company owns vs. what it owes. This can give you a
quick picture of the health of a company.
The formula for current ratio is:
So if we used the numbers from our sample balance sheet, we could calculate that Acme
Widgets Inc. has a current ratio of about 2.6:1.
A current ratio of about 2 is considered adequate for most businesses. If a business has a
relatively unstable cash flow, however, it might be necessary to maintain a current ratio
of more than 2.
Quick Ratio
This ratio is very similar to Current Ratio, except that it removes inventory from the
calculation of assets, on the assumption that inventory is harder to liquidate than other
assets. Anything above 1.5:1 is considered acceptable.
The formula for the quick ratio is:
Debt Ratio
The equation for debt ratio looks like this:
You can then multiply the result by 100 to get a percentage.
Take the business example of Acme Widgets. It has $11,500 in assets and total liabilities
(current pus long-term) of $4,500. So, for this business, the debt ratio is about 39%. This
is a very stable situation – Acme Widgets probably wouldn’t have any trouble borrowing
money from the bank, and its shareholders would probably be comfortable with this
percentage of debt.

Net and Gross Profit Margin
These two ratios measure the amount of money that the business earns as a percentage of
overall revenue.
Gross profit margin takes into account only the cost of making the product or service.
Therefore, its equation looks like this:
The net profit margin shows what the business has earned after selling its products and
paying all expenses – the true bottom line. Its equation is:
The results of both equations are expressed as a percentage.
Return on Sales Ratio
Return on Sales Ratio allows a business to determine how much net profit was derived
from its gross sales. This ratio is very similar to the Net Profit Margin but it factors in all
expenses, including interest.
This ratio provides an indication of whether your expenses are under control and also
whether your business is generating enough income from sales to pay for its costs. The
higher the Return on Sales Ratio, the better for business.
Debt to Net Worth Ratio
Debt to Net Worth Ratio indicates the relationship between a business’ net worth and the
debt which a business carries. It can be calculated with this formula:
It is an indication to banks and other creditors whether a business can handle additional
debt. It is also an indication of business risk, in that a high debt to net worth ratio may
indicate that the business is overly burdened by interest payments and hampered in its
ability to borrow any additional funds which may be necessary. Too low a ratio, however,
may indicate that a business is too conservative and could effectively borrow more

money to generate more profits. A ratio higher than 1 indicates too much debt for net
worth.
Cash Turnover Ratio
Cash Turnover Ratio provides an indication of how often cash flow turns over to finance
your sales. It can be calculated with this formula:
Your working cash is the amount of money which you need daily to operate your
business (pay salaries, utilities, supplies, and inventory). If your cash supply is too tight
this can restrict your ability to meet your current obligations. Generally, your cash
turnover ratio should be between 4 and 7.
Collection Ratio
Collection Ratio provides a clear indication of the average period of time that it takes to
collect your accounts receivable or credit sales. The ratio shows the average number of
days it takes for your business to get paid for credit sales.
Here is the formula:
This figure should be near the point at which you declare an account overdue. Too long a
period means that you are overextending your credit and basically becoming a banker for
your slow-paying customers. The period should be no more than 1.5 times your credit
overdue period.
Investment Turnover
Investment Turnover Ratio indicates the ability of a business to use its assets to generate
sales income. Calculate it with this formula:
The ability to generate greater and greater sales from a stable asset base is a good
indication of business health. If the ratio is going down, this may indicate that the growth
of the business is not being met with a growth in sales that is proportionate to the
investment in assets. In general, the higher the ratio, the stronger the business.

Return on Investment
Return on Investment analysis provides a clear indication of business profitability. It

shows how much profit a business is able to generate in proportion to its net worth.
The formula is:
This figure shows what level of actual return you are getting on the money which you
have invested in your company. You should strive for a healthy return on your business
investment or your business has little chance to grow. Your business should strive for at
least a 12% return to be healthy.

Small Group Exercise
(15 minutes)
Divide participants into trios. Ask them to calculate the current ratio plus three other
ratios of their choice based on the financial information that they brought to the
workshop.
If participants want to keep their information confidential, they can complete this
exercise on their own.
Debrief
(15 minutes)
Bring the group back together and discuss the results. Points for discussion:
 What did the ratios reveal?
 Were they reflective of your company’s true financial picture?
 What other information would have been useful?
Some words of caution when using ratios:

 Take the time to look up industry averages on the Internet. This will give you a
good benchmark to start from.
 If you are comparing two companies, be sure that they are in the same industry.
 Ratios are best used to compare small companies or fairly independent divisions
of large companies.
 Watch out for distorting factors, like unexpected disasters in the company or large
windfalls. If you are unsure, calculate ratios using figures from several different
intervals and compare them.
 Never depend on ratios alone! Gather all the information you can about the
company and use ratios as one piece of the puzzle.

Break
(10:15-10:30)
Session Ten: Getting Your Budget Approved
(10:30-10:45)
At some point, you will have to build a case to support your budget and present it. Or,
you may need to participate in a full-fledged budget review. Engage participants in a
discussion of what happens in their organization.
Building a business case is worth a workshop all on its own, so we won’t have time to go
through the entire process here. (Velsoft’s Writing Reports and Proposals workshop is an
excellent resource if participants want more information.) However, we do have a few
tips to help you create a powerful presentation to get your budget approved.
Know what to expect.
Get as much information about the presentation as you can.

 When and where will it be held?
 Who will be there?
 Who else will be presenting?
 What do they expect? (Handouts, summaries, graphs, etc.)
 What format should your presentation be in? (PowerPoint presentation, speech,
overheads, etc.)
 What do you need to bring? (Tip: Always bring extra copies of handouts.)
Make sure you provide what they expect.
Double-check your budget to make sure it’s in the proper format and that all of the
elements in the budget package are complete. Make sure that you don’t need to complete
anything else for your presentation.

Be prepared.
Your presentation should cover the basic points of your case. However, you should also
have a well-organized notebook or electronic document handy with all the supporting
information. (Another method is to create extra slides in PowerPoint and keep them
hidden unless you need them.) This way, you won’t overwhelm your audience, but you’ll
be prepared for tough questions.
Stay calm.
When presenting, go slowly. Pause frequently and ask for questions. Most people have a
tendency to talk faster when they are nervous, so make a conscious effort to slow your
speech down. If you’re presented with a tough question, take a deep breath and collect
your thoughts. Don’t be afraid to ask for a moment to gather that information – although
it shouldn’t take too long if you have a document already prepared with extra
information. If you don’t have the answer, tell the committee the truth – and let them
know when they can expect the information.
Do a mock presentation.
Find someone that you trust to give you constructive criticism. Do the entire presentation
just the way you will for the budget committee. Ask your judge what things went well
and what things you could improve on. In the end, would they approve your budget?

Session Eleven: Comparing Investment

Opportunities
(10:45-11:00)
Every day, senior management must evaluate investment opportunities (such as an

opportunity to build a new plant or to purchase new equipment). Big decisions require
information, and information is based on planning. This is capital budgeting. Cash is
always sacred so every project requires a thorough analysis to see if it is feasible, and
ultimately profitable to the company.
Payback Period
Generally an investment in new equipment or a new plant will result in a net cash flow
(through a decrease in annual operating costs). The payback period is the time it takes to
recover the initial investment through this net cash flow.
Example:
Cost of machine $16 000
Annual net cash flow $3,500
Over a period of 4.6 years this machine will have paid for itself. This is based on the
budgeted annual operating costs being accurate and shows how important an accurate
budget is. In choosing investment opportunities, a short payback period is desirable. The
shorter period also reduces the risk of premature obsolescence as well as changes in the
business environment that may reduce the usefulness of the purchase.

Session Twelve: ISO 9001:2008
(11:00-11:45)
What is ISO 9001:2008?
(15 minutes)
“Say what you do and do what you say,” is the oft-quoted slogan that epitomizes the ISO
philosophy. Originating in Europe, ISO (International Organization for Standardization)
came across the Atlantic in the late 1980’s and has developed firm roots in North
America. Its goal is to offer international standards for various types of businesses,
including manufacturing and government agencies. Their standards are updated
periodically, so it’s important to make sure that you have the latest information.
A main motivation for engaging in the ISO certification process is to measure up to your
customers’ quality standards and to keep them happy, or at least keep them. ISO
9001:2008 is extremely customer-focused, and that can be justification alone for
committing the energy and the resources to the process.
ISO 9001:2008 is a structured process through which a company can raise the quality of
the products and services that they provide, and then maintain that level. This is the set of
standards that outlines the structure for quality management systems, customer-related
processes, product design and development, purchasing processes, production and service
processes, and continuous improvement.
If your company is ISO certified or plans to become certified, make sure you are familiar
with the standards as they can greatly impact how your budget is prepared and what it
contains.

Small Group Exercise
(15 minutes)
Split the class up into teams. Ask them to take a look at each of the companies in the
workbook and answer the questions for each company.
Company One
Peerless Data Corp. is a service organization. Its main service is providing information on
companies and organizations of every size and type. Each regional office serves as a
center for collecting and processing data. Information is collected from field reporters,
credit agencies, the companies and their customers, and various research sources. All of
this data is then organized and processed and eventually packaged in its own file. Your
office is therefore involved in producing research files as efficiently as possible. Each
office operates as a profit center with the Operations Director making all decisions
independently.
Company Two
Acme Widgets is a manufacturing company. It has seven employees right now, although
it plans to triple that in the next five years. They have one manufacturing plant that
delivers to wholesalers.
Company Three
Super Training has a thousand employees. They deliver computer training worldwide to
Fortune 500 companies. Their business is based on contract work. However, they only
deal with the training departments of the individual companies; they don’t provide the
training themselves.
Questions
 Does ISO 9001:2008 make good sense for this organization?

 Why or why not?
 What benefits might this company see?

Debrief
(15 minutes)
Now, bring the class back together and see what everyone came up with.

Morning Wrap-Up
(11:45-12:00)
Use the last fifteen minutes of the morning to review and answer questions.
Lunch
(12:00-1:00)

Energizer: Encyclopedia Excitement
(1:00-1:15)
Activity
Beforehand, print the Encyclopedia Excitement handout and cut the cards up. Explain to
the group that our objective is to create an encyclopedia of financial terms and issues.
Then, organize the group into teams of four to six people. Next, give one card to each
group. Tell them they have three minutes to come up with as much information about this
topic as possible. Information should be recorded on flip chart. Their answers do not have
to be limited to what has already been covered. After three minutes, have groups
exchange cards.
Debrief
Now, bring the group back together. On a flip chart, record what each team had for each
topic. Here are some additional topics for discussion:
 What did we learn?
 What topics were the most difficult?
 Which were the easiest?

Session Thirteen: Directing the Peerless Data

Corporation
(1:15-4:15)
Task Explanation
(15 minutes)
In essence, preparing a budget comes down to making financial decisions that will affect
all members of the company. This exercise will test the decision-making capacity of the
group.
First, divide the class into groups (maximum five people per group). Then, ask them to
read the background information. While students are reading, draw a scoreboard like the
following on the flip chart.
Team Decision 1 Decision 2 Decision 3 Decision 4 Decision 5 TOTAL

About Decision Making
Your team will be playing the role of a manager who has been challenged to turn an
unprofitable operation into a profitable one. Each decision requires thoughtful analysis of
the information available so that you can evolve and/or evaluate alternatives. Your
objective is to make the best decisions, and your pay-off, naturally, will be in profit
dollars. We will make five decisions one at a time and debrief after each decision. We
have included the answers as a separate handout if you want to provide them to students.
Decision-making is one of the most important measures of your ability as a manager.

Decisions don't just happen. Good decisions require planning and thinking through. They
are an integral part of your job, the price you pay for leadership.
In your workday you deal with two kinds of decisions: the routine and the strategic. In
the first, the conditions of the situation which the solution has to satisfy are known, and
the job is simply to choose between a few obvious alternatives. The routine decision is
often governed by which alternative will accomplish the goal with the minimum effort
and disturbance. Not so for the strategic. Strategic decisions are more complex. They
involve either finding out what the situation is or changing it. The ramifications of
strategic decisions are broader: they can affect productivity, organization, capital
expenditures, and so forth.
Decision-making, in brief, is about selecting a course of action from alternatives. In

actual practice, decision-making should be thought of as a process which includes five
steps:

Define the problem.
Few problems are really clear cut, and usually the symptoms are more apparent than the
causes. Symptoms offer valuable clues to underlying problems, but until you have
identified the real problem, or problems, you're not ready for Step 2.
Gather the facts and data.
Decision-making requires that you gather all the data that might have a bearing on the
problem. For the most part, data will consist of facts, opinions, and assumptions obtained
from observations, records, or other people. If key information is not available, delay
your decision until you get it. In some cases, however, decisions have to be made on the
basis of incomplete knowledge, either because the information is not obtainable or
because it would be too costly to get.
Organize the information.
If you are working with many facts or a mass of data, you'll have to sort out the important
from the trivia, and organize the information so it can be compared and analyzed. As you
study what's available you should look for relationships among the various factors, such
as costs, growth, schedules, and advantages and disadvantages.
Develop options.
This is the guts of the decision-making process: developing as many good options as
possible. Quality and quantity are equally important. It is rare for a problem to have only
one solution, so don't be deceived. The important thing is to keep an open mind, let your
imagination roam freely over the facts you've collected, and jot down the possible
solutions that occur to you.
Analyze the alternatives and make your decision.
With the previous groundwork laid, you are now in a position to compare the alternatives
and determine the best solution. Test the alternatives against specific, good criteria, such
as risk involved, permanency of the remedy, timing, practicability, your objectives, and
so on. Sometimes you can quickly eliminate the unacceptable options and focus on a few
alternatives with fewer shortcomings. Ultimately, you will arrive at the “best” decision.

Background
Congratulations! You have just been promoted to Operations Director and assigned to the
Bigtown office of the Peerless Data Corp. Previous to this move you held a similar
position in a smaller office. You're now ready to move into this more challenging job
with higher pay and increased responsibility. "Challenging" is hardly the word to
describe the Bigtown office. You've been warned that it's a can of worms; the lowest
performing operation of its kind in the country. You've been given a mandate to make
this unit profitable.
Peerless Data Corp. is a service organization. Its main service is providing information on
companies and organizations of every size and type. Each regional office serves as a
center for collecting and processing data. Information is collected from field reporters,
credit agencies, the companies and their customers, and various research sources. All of
this data is then organized and processed and eventually packaged in its own file. Your
office is therefore involved in producing research files as efficiently as possible. Each
office (yours included) operates as a profit center with the Operations Director making all
decisions independently.
You have inherited a staff of ten people. Morale is low, that's obvious. Supervision has
been neglected in the past. The office itself is inadequate and overcrowded. Staff and
equipment are not being used efficiently. As a result of these problems, production is at a
low of 40 files per day (where it should be 60 per day), growth is stagnant, and the office
is operating at a loss.
Your objective is to build annual profits to $100,000 within a year's time. You can only
accomplish this by increasing file production from 40 units per day to 75 per day, while
keeping expenditures at minimum. As a secondary, long-term objective, you should give
adequate consideration to growth, making sure that none of your decisions provide
immediate gains at the expense of future profits.

Company Information
This is general information designed to give you a better grasp of your operation. You
won't use all the information, but you may need to refer to some segments of it during the
game.
The Home Office activates the process by requesting data compilation on a specific
account. When the request is received, the Coordinator sets up a file, directs the
appropriate field office to visit the account and collect local information. (Field Offices
are not under your control.) While the Field Office is completing its assignment, the new
file is forwarded to the Researcher where a search for pertinent data is made in the library
and existing records. Relative information is combined with the input from the field
office; the data is organized, and a variety of calculations, ratings, and adjustments are
made. The file is then passed on to the Reporter, where a formal report is dictated,
summarizing all findings. (The Reporter has two secretaries who transcribe reports.) The
final report and file then go to the Quality Controller for review. The Q.C. verifies
accuracy and completeness, and then forwards everything to the Reproduction Aid. The
RA copies every item in the file (copy goes to home office, original remains here).
Before the original is filed it goes to Data Entry Clerks who transfer data to the
Computer. The Computer stores the information for demand availability. The Expediter
follows files from station to station, controls movement, and fills in when employees are
absent. Here is the list of employees you have inherited, shown by title and salary.
Position Salary
Coordinator $45,600
Researcher $46,000
Adjuster $48,000
Reporter $48,000
Steno 1 $42,000
Steno 2 $43,500
Quality Controller $50,000
Reproduction Aid $42,000
Data Entry Clerk $48,000
Expediter $50,000

Your salary is $75,000.
Peerless Data has established four different salary grades which are reflected in the
figures given above.
Grade Salary Range Description
Grade 1 $40,000 to $45,000 Clerical jobs
Grade 2 $45,001 to $48,000 Staff performing one function
Grade 3 $48,001 to $52,000 Staff performing more than one function
Grade 4 $52,001 and up Supervisor or executive
Employees cannot move from one pay level to another unless they are promoted or a job
is broadened to include more than one function.

Decision 1: Office Relocation
(15 minutes)
You currently occupy 4,000 square feet of office space which is barely adequate for your
staff, files, and operating equipment. There's no doubt that the cramped quarters
contribute to the low level of production. With your present lease about to expire (60
days), you commissioned a local real estate broker to find the four best locations
available, according to guidelines you provided.
You would like to meet your needs for at least three years, preferably five. The normal
rate of business growth is about 20% a year with a commensurate increase in personnel
and space; your office should eventually conform to this pattern. As a rule of thumb, total
space usually allocated is 500 square feet (per employee). Your current lease will revert
to a month-to-month basis at the end of the 60 days. Right now, you pay $6,000 a year;
when your lease expires, your monthly rent will be $700. A recent poll of your
employees indicated that all of them would stay with your company if the move didn't
increase the commute from your present location more than 15 minutes each way.
Below are the four locations recommended by the real estate broker.
Location A
This location offers 9,000 square feet of operating space at an annual rental of $10,000.
The owner requires a five year lease. He will provide required painting and renovation
work at no cost. You like this space because it's adjacent to your present location, so the
staff would not be inconvenienced. The cost of your move to Location A would be
$1,500. This space is available in 30 days, at which time you'll be committed to paying
rent (assuming you decide on this spot).
Location B
This site is on the opposite side of town from your existing office, about eight miles
away, and will take ten extra minutes each way during rush hour traffic. The space
consists of 12,000 square feet. A three year lease is required at $10,000, with an option
for two additional years at $10,500 a year. Location B will be available in 90 days for
you to move in. Refurbishing costs run about $2,000. The move itself will require an
estimated $2,000. Since your present lease will expire before Location B is available, the
owner has offered to pay the extra month's rent at your current location.
Location C
Location C is 6,000 square feet and costs $8,000 per year. It will be available in 60 days.
You can sign any length lease you want, up to ten years. The move here will cost $1,500,

but the landlord has offered to absorb the cost of the move if you sign a five year lease.
You'll have to pay for your own refurbishing, however; a cost of $1,200. This location is
a five minutes’ drive from your present facility.
Location D
This location is a good buy, and close to the airport which is a plus for you. The space
available is 12,000 square feet. You estimate your refurbishing costs at $3,000. Location
D is in reasonable proximity to your present site (about five minutes away). The cost of
the space is $9,500 a year. The owner can only give you a three year lease since the entire
area will be torn down and redeveloped by the city at that time. The cost of the move is
$1,500.
The cost of moving and/or repairs in all cases will be charged against your first year's
lease. Based on the above information, decide which of the office sites is the best move.

Debrief: Decision 1
(15 minutes)
Have each team present their decision and their rationale behind it. Encourage questions
and discussions.
Analysis
Your first step in analyzing the data would be to project your space needs for five years,
similar to this:
Employees Space required

(20% annual growth) (500 square feet per person)
Current 11 5,500
Year 2 13 6,500
Year 3 16 8,000
Year 4 19 9,500
Year 5 23 11,500

Now let’s compare the alternatives, using the major requirements as a basis.
Loc. Size Lease Commute Rent/year Expense Savings First Yr.

(sq. feet) (thousands) Cost
3yrs 5yrs
A 9,000 5 yrs. 0 N/A 10 $1,500 $0 $12,333

(move)
$833
(rent
penalty)
B 12,000 3 yrs. 10 minutes 10 10.5 $2,000 $700 $13,300

(plus (2 yr. (move) (month
option) opt.) $2,000 rent)
(reno)
C 6,000 Any 5 minutes 8 8 $1,200 $0 $9,200

(repairs)
D 12,000 3 yrs. 5 minutes 9.5 N/A $1,500 $0 $14,000

(move)
$3,000
(repairs)
All locations are acceptable from the standpoint of commuting. However, by analyzing
the two breakdowns further, it should be obvious that Location C is not suitable. Even
though it’s the least expensive space, you would outgrow it within a year. Location A can
be eliminated also because you would be committed to a long-term lease (5 years), but
you would have outgrown the space needs. Since you can only stay at D for three years,
you will be paying for space you don’t need.
On the surface, D seems cheaper by $500 per year, but when you figure in the first year
cost the savings disappears.
B D
First year cost $13,300 $14,000
Second year cost $10,000 $9,500
Third year cost $10,000 $9,500
Three year cost $33,300 $33,000

You’ll definitely be forced to move from D at the end of three years, so the $300 savings
will be consumed by the expense and hardship.
Decision
Location B is the best decision because it:

 Meets your staff commutation needs
 Solves your space problem for three and five years
 Gives you more flexibility (can move after three years)
Scoring
If you chose... You get this profit…
A $1,000
B $20,000
C $0
D $10,000

Decision 2: Reproduction Backlog
(15 minutes)
One of the problems you have observed is a consistent back-up, or bottleneck, created by
the reproduction station. Your Reproduction Aid can handle approximately 500 copies
per day, since each one requires about one minute for processing. (It takes about 30
seconds to remove each document from its file, position in copier, return to file, and
about 30 seconds for machine to process the copy.) Each file contains an average of 15
documents (ten of 8 1/2 x 11, and five of 5 x 8). At the current rate of 40 files per day
there is a substantial accumulation of copy work throughout the week; when the operator
is out sick, or the equipment is down, the problem becomes more acute. The cost per
copy on your present copier is 6 cents per page. It's completely paid for and in good
working condition.
You've considered two broad courses of action. One would be to add another
Reproduction Aid at the same pay level as the first. This would expedite the operation,
increasing production 50%, to about 750 copies per day. The other course is to replace
the present equipment with a more sophisticated copier which, hopefully, would enable
you to keep reproduction in concert with the rest of the operation. To pursue this further,
you invited three copy machine manufacturers to demonstrate their hardware. Your notes
follow.
Transfax
Each copy takes 10 seconds of machine time; handling time is cut in half, to 15 seconds.
Cost per copy comes to 4 cents. The Transfax is sold at a price of $1,500 with a year's
free service guarantee. After the first year, a service contract of $250 per year is required.
Reprodata
Makes copy in 5 seconds and cuts handling time to 10 seconds. Machine is leased rather
than sold outright. Three year lease would be $3,000. Cost per copy determined by
monthly volume: first 10,000 copies at 10 cents, next 10,000 at 5 cents, any additional
copies above 20,000 made during month would cost 3 cents each. A service contract is
desirable: it is $500 a year, and would be needed immediately.
Flocopy
This unit works on a different principle than the two previous copiers. It cuts each copy
to size rather than producing everything on 8 1/2 x 11. This paper is stored on an 8 1/2
inch roll and each copy is cut automatically to the exact length of the original. The cost
per copy is therefore based on a per inch basis. Copies that are 8 1/2 inches wide would
be costed at 1/2 cent per inch. For example, an original 8 1/2 x 11 costs 5.5 cents to

reproduce. Flocopy takes 8 seconds for machine processing and 8 seconds for handling
each copy. It sells for $3,600. Service is free as long as manufacturer's paper and supplies
are used.
NOTE: It is the company policy to pay off all office equipment over the first three years
of its life.
On the basis of the above information, what would be your decision?

Debrief: Decision 2
(15 minutes)
Analysis
To properly evaluate your options, you should first project your copy needs for the next
three years. Our projections look like this:
Copies
Files Per day Per Month
Current 40 600 12,00
Goal for this year 75 1,125 22,500
Projected Year 2 90 1,350 27,000

(20% increase)
Projected Year 3 108 1,620 32,400

(20% increase)
Now, let’s compare the alternatives.
Hire Reproduction Aid

This will bring your production capacity up to 750 copies per day. It may eliminate your
problem temporarily, but as you can see from the chart above it will do little for your
long-term needs. You’ll probably be backlogged again by the end of the year, and this
time the problem will be compounded by an additional $42,000 of overhead (the new
person’s salary) and a high reproduction cost of 6 cents per copy.

Purchasing New Copying Equipment
Equipment Expense Copy Expense
Machine Cost Service Total Amortized Copies Copy Cost 20000 30,000
(3 yrs.) cost/yr. /day /mth /mth
Transfax 1,500 500 2,000 667 1,152 0.04/copy 800 1,200
Reprodata 3,000 1,500 4,500 1,500 1,920 10,000@.10 1,500 1,800

10,000@.05
Rest@0.03
Flocopy 3,600 N/A 3,600 1,200 1,800 8.5x11@.055 901 1,350

5x8@.025
Working across from left to right, the chart breaks down the cost of the equipment for
three years and adds service costs to arrive at a total cost. If you divide this cost by three
(the life of the equipment), you then get the amortized cost per year.
The next column shows the copies per day capacity; this is followed by the Cost Copy
column which shows the method used to determine cost per copy. The last two columns
project monthly costs for 20,000 copies per month (which you may reach this year) and
30,000 copies per month (which you’ll probably require in three years).
Your comparison may not look exactly like the above chart, but in order to make an
effective decision, you should structure the data so you can analyze all the essential
elements.

Decision
Based on the above data, this is the decision.
Transfax, even though it is the least expensive to own and operate, must be eliminated
because it has insufficient copy capacity. At a rate of 1,152 copies per day, it will only
relieve your immediate problem.
Both the remaining copiers will provide substantial capacity that will cover your needs
for the projected life of the equipment (three years) and then some. Your final decision,
therefore, boils down to a matter of cost. The Flocopy model not only costs less to own or
lease (by $300 per year); more importantly, you will save over $7,000 in copying costs
per year (at 20,000 copies per month) and over $5,000 per year when you reach 30,000
copies per month.
Based on this analysis, your decision should be Flocopy.
Scoring
Transfax $1,000
Flocopy $20,000
Reprodata $6,000

Decision 3: Improving Supervision
(15 minutes)
One of your pressing problems is inadequate supervision of staff. You'd like to supervise
the day-to-day operation yourself, but you don't have enough time to do it effectively.
Your predecessor tried to operate that way and it obviously didn't work. What your
operation really needs is good quality, full-time supervision. This need will become more
acute, of course, as your staff expands.
There are a number of approaches you can take. One would be to promote Bill Buttons to
Supervisor; he has been functioning as your Expediter. Bill is very familiar with all your
personnel and has a good working knowledge of each job in the shop. Bill has been with
this operation for eight years now and is well liked by everyone. He's sincere, reliable,
and would certainly like to get the raise that goes with the job. (A promotion of this kind
would require a $3,000 raise and a move to Grade 4.) Your evaluation of Bill, after
interviewing him at the time of your take-over, was summarized as follows: "Bill seems
very friendly and cooperative and quite happy with his job. He feels his greatest strengths
are his knowledge of the business and ability to get along with people. He's 49, married
with one child. Doesn't have definite career goals; prefers to remain flexible."
Another option would be to have your home office personnel department provide a
suitable candidate. Since they are constantly evaluating all promotable people, they have
a reservoir of supervisors on hand. At your request, they recently screened out Pat
Hedden who is functioning as an Assistant Supervisor at a large and successful operation
2,000 miles away. Pat is 40, a good family man, and comes well recommended. You met
him a few weeks ago at a meeting and were impressed by his credentials, personality, and
ambition. However, if you opt for Pat as your supervisor you'll have to wait sixty days.
He'll need that much time to wrap up business and personal problems and relocate. You'll
also have to assume half of his $2,000 relocation expense. Since he's already at the
supervisory level (Grade 4) he'll require a raise from $53,000 to $55,000 for the new
assignment.
The third alternative available would be for you to hire locally. There's a chance that you
might find a competitive supervisor available who you could hire away. You're not sure
about this, however, because you don't have too many competitors and none of them
operates exactly the way you do. Chances are you'd have to hire a manager or supervisor
in a related field; there are probably some good ones in the area. The new manager would
require training to become familiar with the nuances of your business. You estimate that
the recruiting, hiring, and training would take 50% of your time for the next three
months. Assuming you can find the right person, the starting salary is $53,000.

Debrief: Decision 3
(15 minutes)
Analysis
Until this point, we have dealt with decisions that have been largely objective in nature.
Not so for this one; while there are certain items that can be quantified, many of the
influencing factors are judgmental.
Our analysis is on the next page.

Alternative Advantages Disadvantages Cost Factors
Bill Buttons  Available  No previous  $3,000 per year (raise)

immediately supervisory  $50,000 (replacement)
 Knows staff experience  Cost of your time to hire
 Knows entire  Questionable desire another Expediter
operation to be supervisor
 Well-liked by staff  May have difficulty
 Sincere and reliable assuming role of
 Can take over leadership w/peers
immediately  Has been associated
w/unsuccessful
operation
 Will have to hire
replacement for Bill
Pat Hedden  Has supervisory  Not available for 60  $1,000 (moving

experience days expenses)
 Familiar with  Not familiar with  $55,000 (salary)
company and staff capabilities and
procedures special problems of
 History of success operation
 No past relationship  Will have to absorb
with staff that would moving costs
inhibit supervision
Hire locally  Fresh approach, no  May be hard to find  $53,000 (salary)

pre-conceived ideas  Will need training,  $9,000 (approximate cost
 Would have significant time of your time)
supervisory investment
experience  High risk (finding
qualified candidate,
low chance of
success)
 Take 3+ months to
get on board and
operating efficiently
In comparing and analyzing the alternatives, it’s essential that you weigh the judgmental
factors heavier than the tangible cost factors. Besides, there isn’t a great difference in cost
when you add in all the items for each case. Initially Bill Buttons might appear to be a
less expensive option, but if you consider the cost of your time to hire his replacement,
the expense may level out with that of the other two options.

Decision
Hiring locally bears the most risk and can be eliminated quickly as a viable decision. It
should be obvious that the disadvantages outweigh the few advantages.
This leaves two alternatives. The main issue should be, “Who can do the most effective
job?” The analysis as we’ve done it points to Pat Hedden. The advantages of selecting Pat
for the job outweigh the advantages for Bill Buttons. In addition, the disadvantages listed
for Pat Hedden could be classified as inconveniences rather than as serious shortcomings
involving risk.
Scoring
Pat Hedden $20,000
Bill Buttons $10,000
Hire locally $2,000

Decision 4: Job Enrichment
(15 minutes)
The morale problem that plagued you when you first took over has improved, but it's far
from being solved. Part of it, no doubt, stems from the specialized and often monotonous
nature of the jobs. You would like to cross-train certain staffers so that instead of
handling a piece of a process, they can get more involved in different activities; this will
provide greater responsibility and sense of achievement. You feel that job enrichment
will also provide substantial production gains. You have now reached a level of 50 files
per day (1,000 per month) and estimate that a successfully implemented job enrichment
program will enable you to reach 60 a day at a gross profit of $15 each. As a result, you
are planning to combine four jobs (Coordinator, Researcher, Adjuster, and Reporter) into
one new position called Programmer. The four programmers would do their own
coordinating, researching, adjusting, and reporting; they would also share the two
secretaries, who will transcribe their reports on an equal-time basis.
In implementing this new program, one of your major problems will be training. A
number of alternatives are available. One would be to have your new supervisor, Pat
Hedden, do it. Pat did a study and came up with the following projections. It will take
him three months of on-the-job training to accomplish the transition; production can be
expected to drop by 10% during this period. After the training phase, he estimates that it
will take three months of adjustment, during which time production will function at
current levels (50 per day). After six months, a permanent increase of 60 files per day
should be achieved.
On the other hand, you can have the home office staff do the training for you. They could
accomplish the training faster since they are running intensive one-day schools
continuously. For example, on Monday of each week they conduct a Coordinator's
school, on Tuesday they cover the Researcher's job, Wednesday is devoted to Adjusters,
and on Thursday they concentrate on the Reporter's function. You could only send one
staffer at a time to the appropriate schools.
During the week you have incomplete staff on hand; you can expect a 25% drop in
productivity. When your four staffers are trained, the production level should rise to
normal in a week, maintain that level for a month, and then gradually improve at a rate of
40 files a month until you reach your objective of 60 files per day.
A third alternative would involve handing off the job to a consulting firm specializing in
job enrichment. Their fee for taking care of the entire job would be $6,000. To
accomplish the task, they plan to make a study of the jobs involved, and then construct a

program that would permit the involved employees to learn on the job. By using their
own personnel as backup during the training period, the consulting firm will guarantee to
maintain the current production level. Their timetable is as follows: one month to make
the study and preparations (they can start immediately), one month to accomplish the
training, and then a 20% increase in production (which will be permanently maintained).
What is your decision?
Debrief: Decision 4
(15 minutes)
Analysis
Pat Hedden
If Pat handles the training, it will take him six months to achieve the desired goal of 60
per day or 1,200 per month. During the first three months, production can be expected to
drop 10% from normal (to 900 per month from 1,000). During the next three months, it
should adjust back to 1,000 per month.
Home Office
You can get all your people trained in three weeks by running them through the school
continuously. This means a 25% drop for this period, giving you a production total for
the three weeks of 562. The following week it will return to normal (250), giving you a
one-month total of 812.The second month after starting you will produce 1,000 files; the
third 1,040; and so on until you eventually reach the magic number of 1,200 in the
seventh month.
Consultant
The consulting firm’s approach would enable you to maintain production at 1,000 for the
first two months after starting the project, with an immediate increase to 1,200 during the
third month.

Let’s compare the figures for the first six months.
Month Pat Hedden Home Office Consultant
1 900 812 1,000
2 900 1,000 1,000
3 900 1,040 1,200
4 1,000 1,080 1,200
5 1,000 1,120 1,200
6 1,000 1,160 1,200
Totals 5,700 6,212 6,800
Decision
It’s apparent from this analysis and comparison that the consultant will get your
production up to the desired level more quickly than the other two methods. This chart
also gives us a way to compare costs for the different choices. The consultant’s fee of
$6,000 is a tangible cost, whereas the other approaches don’t cost anything on the
surface. However, when we compare production for the first six months, we find that the
consulting firm’s approach will produce about 600 files than any other method. If we use
the gross profit figure of $15 per file and multiply it by 600, this gives us an additional
$9,000 in revenue. This is more than enough to cover the consulting fee, so the best
decision would be to have the consulting firm handle the job.
Aside from costs, another factor that would support the consulting firm decision is the
expertise that it would bring the job. In real life, a move of this nature might be difficult
to implement internally and the specialized know-how of the firm may well be an
overriding plus.
Scoring
Pat Hedden $0
Home Office $14,000
Consulting firm $20,000

Decision 5: Staff Expansion
(15 minutes)
You've now achieved a production level of 60 files per day, reaching the company-wide
average of 6 files produced for each employee (excluding supervisors). Your geographic
area of operation is capable of generating 75 accounts (files) per day, however, and you'd
like to step up to this new level as quickly as possible. Since many of your people are
apparently operating at, or near, capacity, you'll have to increase your staff to accomplish
this new performance objective. Your decision concerns the number of people required
and the jobs which the additional staffers will perform. The addition of extra people will
not affect your own personal workload or that of Pat Hedden, your Supervisor.
A recent study of workload/production utilization made by Pat Hedden showed how close
to operating capacity some of the staffers were:
Four Programmers 90% each
Quality Controller 75%
Expediter 80%
Data Entry Clerk 75%
How would you proceed?

Debrief: Decision 5
(15 minutes)
Analysis
In order to raise production to the desired level of 75, you need an increase of 15 files per
day. Let’s view the operation graphically before we proceed. With the job enrichment
program installed, the new organization and production flow looks like this:
As you can see, any increase in production must come from the programmers. Since they
are currently handling 60 files a day (an average of 15 each) and operating at 90% of
capacity, the extra 10% from each, if achieved, would add a total of 6 additional files per
day. (An increase in productivity for each programmer is actually a 1/9 increase: 10%
divided by 90%.)
If you multiple 1/9 by 15 you get 1.7 additional files per programmer, or a combined total
of 6 additional files per day if all four programmers were working at 100% capacity.

Conclusion: another programmer is required. Assuming s/he meets the same quota as
other Programmers, this station will be capable of initiating and processing the 75 files
per day.
The next station is Quality Controller. Operating at 75% capacity and currently handling
60 files, the Quality Controller could conceivably process an added 20 files. His total
capacity is arrived at like this: a 25% increase in capacity, from 75% to 100%, is actually
a 1/3 (25/75) increase in productivity. Therefore, if he can produce 60 at 75%, he can
produce 1/3 more (20) at 100%, for a total capacity of 80 files per day.
In Decision 2, we anticipated the extra workload for the Reproduction Aid, so no problem
there.
The Expediter, at first glance, may seem to be a problem. However, if you analyze his
productivity like we did for the Quality Controller, you’ll see it this way. To move him
from 80% to 100% capacity is a production increase of ¼ (20/80). If he is capable of
expediting 60 files currently, a ¼ increase would raise him 15, to a total of 75. It might be
tight, but he could handle the load.
The Data Entry Clerk is in the same situation as the Quality Controller and can handle up
to 80 per day.
Decision
Something’s missing in our analysis. We hope you discovered it. You don’t have enough
information to make an accurate decision in this case as no data is available for the two
secretaries. If you assumed that they could handle the extra load (or even assumed that
they couldn’t) you made your decision too hastily. We created this situation to reinforce
this point: delay the decision when essential information is lacking.
Scoring
If you chose to add... You get this profit…
One programmer $20,000
One programmer and one expediter $10,000
Any other staffers (by themselves or in $0

addition to the Programmer and/or Expediter)
Regardless of which decision you arrived at, give yourself an extra $5,000 if you
recognized that key information about the two secretaries was missing.

Exercise Wrap-Up
(15 minutes)
Take some time to debrief the exercise as a whole.

 What aspects of the scenarios were realistic? What aspects weren’t?
 What was easy about the decision making process? What was difficult?
 What did you learn from the process?
 What will you take back to the workplace?
You will also want to add up the scores on the scoreboard and see who achieved the
$100,000 in profit.
Workshop Wrap-Up
(4:15-4:30)
Now is the time for questions and answers about the material we’ve covered in the past
two days. You should also ask students to fill out the Personal Action Plan in the
workbook. This is also a good time to pass out certificates.

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Supervisors and Managers Training

Budgets and Managing Money

All rights reserved world-wide under International and Pan-American copyright

Agenda: Day One............................................................................................................................................2

Session One: Introduction and Course Overview............................................................................................3

Before the Workshop

 Flip chart paper and markers

 2005-2011, Velsoft Training Materials Inc.

Agenda: Day One

8:30-8:45 Session One: Introduction and Course Overview

 2005-2011, Velsoft Training Materials Inc.

Session One: Introduction and Course Overview

Introduce yourself. Establish credibility by giving examples of training experience, and

 2005-2011, Velsoft Training Materials Inc.

For topics they don’t see:

At the conclusion of this workshop, you should be able to:

 2005-2011, Velsoft Training Materials Inc.

Icebreaker: In This Corner

 2005-2011, Velsoft Training Materials Inc.

Session Two: Finance Jeopardy

To appreciate the importance of budgets, and their relevance, it is necessary to have a

Income Balance Words and Accounting Fun Facts

$100 $100 $100 $100 $100

$200 $200 $200 $200 $200

$300 $300 $300 $300 $300

$400 $400 $400 $400 $400

$500 $500 $500 $500 $500

Here are the rules.

 2005-2011, Velsoft Training Materials Inc.

Questions and Answers

Category Value Question Answer

Balance $100 Assets minus liabilities equals... What is equity?

Accounting $100 The method of accounting that What is accrual accounting?

 2005-2011, Velsoft Training Materials Inc.

Category Value Question Answer

Balance $400 This measurement shows how What is liquidity?

Words and $400 A formal document prepared in a What is a financial

Accounting $400 A system which records income What is cash accounting?

 2005-2011, Velsoft Training Materials Inc.

Category Value Question Answer

Session Three: The Fundamentals of Finance

Recording Financial Transactions

 2005-2011, Velsoft Training Materials Inc.

 2005-2011, Velsoft Training Materials Inc.

Generally Accepted Accounting Principles

Accounting forces people to measure things in a relatively consistent manner. A good

Forecasting is the process of putting together several projections to create a projection

 2005-2011, Velsoft Training Materials Inc.

Your Role in Company Finances

 2005-2011, Velsoft Training Materials Inc.

 2005-2011, Velsoft Training Materials Inc.

Getting to Know the Players

 2005-2011, Velsoft Training Materials Inc.

Measurers are focused on assessing and planning.

Managers are focused on planning and execution.

 2005-2011, Velsoft Training Materials Inc.

Session Four: The Basics of Budgeting