Vershire Company

Case 2: Vershire Company

I. Point of View

The point of view of a third party consultant who is an expert in business planning and control will be used to avoid any biases for each departments and the company as a whole.

II. Problem Statement

How management could improve its planning and control system to ensure better and more reliable basis for performance evaluation of each departments?

III. Problem Analysis

For their planning process, division forecasts are being prepared at the corporate headquarters using the same assumptions and methods regardless of the size and product lines of each division, and will then forwarded to respective divisions for review. Since sales of each division or product line are affected by different factors, the company’s way of forecasting is not quite effective, and although the forecasts are reasonable and achievable for the company as a whole, it is not true for each division. Thus, it will be a bias measure for their performance.

For their control system, assessment of plant manager’s performance mainly based on profit is not fair because profit is composed of revenue and expenses, and plants have no control on generating revenues which is the responsibility of the sales department. Likewise, it is not an accurate efficiency measure to compare different divisions because they have different product lines.

IV. Decision/Recommendation

To come up with more reliable forecasts, divisional managers should be given the responsibility to have their own detailed forecast since they are the ones in control of the operations of their respective divisions. Head office will then review and approve the forecasts. This way, overall accuracy of forecasts will increase and revisions during reviews will be less and thus planning process will be more efficient.

To have a more effective control, the company should identify its responsibility centers properly in order to have correct measures of evaluation. The plant...