Question

U IT often can be developed using the activity-based costing concepts explaiheu lll C Service Company Insight San Diego Zoo Budgets and the Exotic Newcastle Disease Exotic Newcastle Disease, one of the most infectious bird diseases in the world, kills so swiftly that many Eric Isselbe/iStockphoto victims die before any symptoms appear. When it broke out in Southern California, it could have spelled disaster for the San Diego Zoo. "We have one of the most valuable collections of birds in the world, if not the most valuable," says Paula Brock, CFO of the Zoological Society of San Diego, which operates the zoo. Bind exhibits were closed to the public for several months (the disease, which is harmless to humans, can be carried on clothes and shoes). The tires of arriving delivery trucks were sanitized, as were the shoes of anyone visiting the zoo's nonpublic areas. Zookeeper uniforms had to be changed and cleaned daily. And ultimately, the zoo, with $150 million in revenues, spent almost half a million dollars on quarantine measures. It worked: No birds got sick. Better yet, the damage to the rest of the zoo's budget was minimized by another protective mea- sure: the monthly budget reforecast. "When we get a hit like this, we still have to find a way to make our bottom line," says Brock. Thanks to a new planning process Brock had introduced a year earlier, the zoo's scientists were able to raise the financial alarm as they redirected resources to ward off the disease. "Because we had timely awareness, she says. "we were able to make adjustmen weather the storm." Source: Tim Reason, "Budgeting in the Real World," CFO Magazine (July 12, 2005), www.efodirect.com/efopublic.nsf/Content Print/ 049482C8FF8AB06883257037004 (accessed July 2005). What is the major benefit of tying a budget to the overall goals of the company? (Go to Wiley PLUS for this answer and additional questions.)

Answer 1

Budgeting is aimed at allocating financial, physical, and human resources to achieve strategic goals. Organizations develop budgets in order to control spending, monitor progress toward organization goals and to predict cash flows and net income.

The primary benefits of the budgeting process and budgetary control include better understanding of strategic goals, coordinated support for those goals, and to facilitate expedient response to competiotion and other threats.

In order to be effective, the process of budgeting must be linked to overall corporate strategy, so that managers and employees have a clearer view of the strategic goals.This in turn, leads to better coordination companywide performance.

Communication plays an important role in establishing the link. Top management must take the lead in developing and communicating strategic goals. But to develop those goals, the management needs relevant information. Organizations that can establish effective channels for communication find it easier to set challenging yet achievable strategic goals.Effective communication also makes the budgeting process faster and less costly.

In the given situation, it is clear that the most important goal of the San Diego Zoo was to protect and conserve its most valuable assets: its collection of birds. Without assets, there cannot be revenues or long term profitability. Therefore, safeguarding the assets of the organization took precedence over earning revenues in the short run. As soon as the news of the disease broke out in Southern California, the CFO efectively communicated the goal to the management and the employees, and all available resources were effectively deployed towards meeting the goal, even though if it meant shutting the zoo temporarily to the public and losing revenues in the short term. But at the end of the day, none of the birds of San Diego Zoo succumbed to the Exotic Newcastle Disease.