Participative and Zero Based Budgeting Scenario

Task Pathology Laboratory
Background information
You are Charlie Long, a newly appointed management accountant at The Pathology Laboratory service
of the County Hospital which provides diagnostic services to support the care provided by the County
Hospital, local General Practitioners, other hospitals and healthcare providers.
On your first day, you are given some literature to read about the company. You are drawn to comments
made by the Head of the laboratory, Bill Smith, about the importance of the work done by the Pathology
Laboratory :
"Over 70% of diagnostic and treatment decisions made by doctors are based on medical laboratory test
results. Without our work, doctors would not be able to confirm their diagnosis. Laboratory results give
us the ability to identify diseases in their earliest stages so that we have a better chance of treating
people effectively. The types of tests performed by our highly-trained staff encompass the entire
spectrum of human disease , from routine diagnostic services to clinical laboratories that specializes in
bone marrow transplants .The laboratories provide over four million tests each year, providing doctors
with the information needed for diagnosis and treatment of all kinds of condition. Our vision is to
continually improve the efficiency of the laboratory to ensure the best economic approach to patient
care."
Shortly after reading this, you receive an email from Sally Dunn, MD.
Dear Charlie,
The management team of the County Hospital has decided that the use of the balanced scorecard
should be cascaded down to departmental level. Consequently, departmental managers have been
given the task of designing a balanced scorecard for their departments.
• Can you please recommend an objective and a suitable performance measure for each of the
three non-financial perspectives of a balanced scorecard that the Pathology Laboratory could
use?
Note. In your response, please state three perspectives and then recommend an objective and a
performance measure for each one of your three perspectives.
I wonder if you also could help me with a couple of budgeting control queries that I have.
The budget control system used last year operated as follows: I estimated the demand for the year for
each department. Each department manager then prepared a cost budget based on the demand
estimate for the division.
These budgets were then submitted to me for approval. I then amended them before issuing each
departmental manager with the final budget for the department. I didn't discuss these amendments
with the respective departmental managers.
Actual performance was then measured against the final budgets for each month and each
departmental manager's performance was appraised by asking the departmental manager to explain
the reasons for any variances that occur.
The Corporate manager was asked to explain why her staff costs exceeded the budgeted costs for last
month while the chargeable time was less than budgeted. She is not happy with the budgeting system
stating that 'it focuses on financial performance and ignores the other performance indicators found in
modern performance management systems.
It appears that she is not the only one who is dissatisfied with the current system. As you are new to
your position, I feel I could benefit from some fresh observation
Can you please provide me with some feedback on the present budgeting system and its likely effect on
departmental manager’s motivation.
Please respond to Sally.
Later, you receive an email from Lauren Forde, the Director of Research and Development in County
Hospital.
Dear Charlie,
Sally told me that you are doing a bit of work around the area of budgeting for her. This is an area that I,
as Director of R&D feel really strongly about.
The Research and Development Division is finding it extremely difficult to maintain its current levels of
achievement. The Division is suffering from a lack of funds as a result of the current budgeting system.
We receive an uplift of 5% each year from the previous year's budget. This does not provide the
necessary funds or freedom to be able to keep us on the cutting edge of healthcare technology and
developments. In the past we were considered world leaders in the area of diagnostics. I would like to
see incremental budgeting replaced by zero based budgeting in my division.
I am confident that it will be advantageous, however, the previous management accountant told me
that I would regret pushing for ZBB. I am not sure why exactly.
• Can you please discuss the potential disadvantages of implementing zero based budgeting for the
allocation of funds to the Research and Development Division from my perspective?
Kind regards, Lauren
Please respond to Lauren

Participative and Zero Based Budgeting Scenario

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Task Pathology Laboratory

Please respond to Sally.

Kind regards, Lauren

Please respond to Lauren

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