Case Study Title DateCourseInstructor Introduction An introduction is used to let the reader know: · The main entity or entities involved · The major question or issue being analyzed Introductions for case studies in this course should be one paragraph in length. Background This is a brief overview of the main problems or questions involved. Historical information can be used as long as it has a direct bearing on the items being analyzed. Provide enough description that a reader that is unfamiliar with the case will understand the context of your analysis. For this course, background information should be two to three paragraphs in length, maximum.Discussion The discussion includes an analysis of each problem or question. The analysis can include: · The problem or question and its impact on the main entities involved. · How the problem or question is linked to the topics we have discussed or read to this point. · How the problem or question is linked to best practices in industry. · A solution or multiple solutions and an evaluation of those solutions. In this course the case studies will have at least one major problem or question. There may be secondary problems or questions but there will be, at most, one or two secondary issues. Use as much space as necessary to provide a rational analysis but if there are more than four or five paragraphs for a given question the analysis needs to be reviewed and made more concise. Conclusion Summarize your solutions and describe how those solutions improve the current situation or resolve the problems in the case. The conclusion should be one to two paragraphs. References All references must be properly cited and referenced using APA format. Refer to the syllabus for tutorials and resources on using APA format. PAGE 2 Week 5: Lesson Budgeting Introduction Budgeting is a very important part of the managerial role of any department manager. A budget helps the department establish the amount of money it will need in order to operate for a fiscal year. By creating a budget, this guarantees that your department will get a piece of the pie for general operating costs, and in some cases, proposed projects. If your budget is approved, you can breathe easy, knowing that you have the money that you need to operate your department for the next year. Traditional organizational budgets & accounting systems are activity-oriented, with expenses gathered and reported by organizational units. IT Budgets represents a large organizational strategic investment for many corporations; hence, it is critical for IT managers, CIO, and CFO to understand what needs to be considered in creating an IT departmental budget. Budgeting is not always an easy process simply because it requires good working knowledge and understanding of the financial aspects of the organization. Depending on the type of organization for which you work, the budget might serve as a profit plan. In other organizations like nonpro ...

1. Case Study Title
DateCourseInstructor
Introduction
An introduction is used to let the reader know:
· The main entity or entities involved
· The major question or issue being analyzed
Introductions for case studies in this course should be one
paragraph in length.
Background

2. This is a brief overview of the main problems or questions
involved. Historical information can be used as long as it has a
direct bearing on the items being analyzed. Provide enough
description that a reader that is unfamiliar with the case will
understand the context of your analysis. For this course,
background information should be two to three paragraphs in
length, maximum.Discussion
The discussion includes an analysis of each problem or
question. The analysis can include:
· The problem or question and its impact on the main entities
involved.
· How the problem or question is linked to the topics we have
discussed or read to this point.
· How the problem or question is linked to best practices in
industry.
· A solution or multiple solutions and an evaluation of those
solutions.
In this course the case studies will have at least one major
problem or question. There may be secondary problems or
questions but there will be, at most, one or two secondary
issues. Use as much space as necessary to provide a rational
analysis but if there are more than four or five paragraphs for a
given question the analysis needs to be reviewed and made more
concise.
Conclusion
Summarize your solutions and describe how those solutions
improve the current situation or resolve the problems in the
case. The conclusion should be one to two paragraphs.
References
All references must be properly cited and referenced using APA
format. Refer to the syllabus for tutorials and resources on
using APA format.
PAGE 2

3. Week 5: Lesson
Budgeting
Introduction
Budgeting is a very important part of the managerial role of any
department manager. A budget helps the department establish
the amount of money it will need in order to operate for a fiscal
year. By creating a budget, this guarantees that your department
will get a piece of the pie for general operating costs, and in
some cases, proposed projects. If your budget is approved, you
can breathe easy, knowing that you have the money that you
need to operate your department for the next year.
Traditional organizational budgets & accounting systems are
activity-oriented, with expenses gathered and reported by
organizational units. IT Budgets represents a large
organizational strategic investment for many corporations;
hence, it is critical for IT managers, CIO, and CFO to
understand what needs to be considered in creating an IT
departmental budget.
Budgeting is not always an easy process simply because it
requires good working knowledge and understanding of the
financial aspects of the organization. Depending on the type of
organization for which you work, the budget might serve as a
profit plan. In other organizations like nonprofits, the budget
might serve as a cost savings plan. According to Engler (1993),
a "budget is a financial plan that sets forth the resources
necessary to carry out activities and meet financial goals for a
future period of time" (p. 394). With that in mind, let's look
more closely at budgeting and why it is important.
Why Budget?
Budgeting allows the company to incorporate the organizational
goals into a more formal plan for the upcoming year. The
budgeting process also means that all departments must work in
concert to create a formalized plan of how money will be spent
in order to reach organizational goals. A budget also holds the

4. department accountable in spending only the money it is
allocated. It's like sending a child to the movies with $20. If the
child wants to see the movie, have popcorn, and have a soda, he
or she may have to forego playing the video games in the lobby
in order to have the popcorn and soda, or else decide to skip the
popcorn to play the game. In either case, the child is only
allocated a certain amount of money, and that's all that he or
she gets. The child must spend within his or her budget.
Companies also use budgets as a way to measure employee
performance. If you have a manager who is consistently going
over budget, there might be performance issues that the
company may not otherwise know about. With a budget, the
company can measure and recognize poor performance.
Typically, there will be a budget committee within an
organization, depending on size. The budget committee will
make the final decision on the allocation of funds to each
department. Of course, department managers play a big role in
creating and preparing the budget since it includes them in the
process and ensures buy-in. Therefore, budgeting is a collective
effort, rather than the responsibility of just one person, or of
upper-level managers. Anyone who is allowed to spend money
should be included in the budgeting process, which could mean
many layers of budgeting. For instance, in an IT department, the
CIO might be the one who is responsible for presenting the
finalized IT budget to the budget committee, but the different
managers within the IT department might have put the budget
together. This collective effort ensures that all costs are
identified.
Budgeting Process Fundamentals
Each company has its own budgeting process, including a
timetable for budget development. However, in general, most
companies create a master budget on a yearly basis and update
it throughout the year. When it is time to develop next year's
budget, there are two major processes used for development:
incremental budgeting (also known as run-rate budgeting) and
zero-based budgeting.

5. Incremental (Run-Rate) Budgeting
Incremental budgeting assumes that next year's operations will
be similar to this year's operations. It uses the current year's
revenues and expenditures as the basis for next year's budget.
Incremental budgeting works well in areas that are well
established, or where the economic environment is not changing
quickly. The normal approach to incremental budgeting is to
compare the current year's actual expense history against the
current year's budget. Then identify the best estimate for total
current year actual expenses, and use this actual expense
estimate as the base for establishing next year's budget.
Zero-Based Budgeting
Zero-based budgeting starts with a clean sheet. In other words,
this year's revenues and expenditures are not used for the basis
of the budget. Instead, assume that each budget item starts with
a zero amount. This forces the manager to justify each and
every budget item.
This budgeting method helps to eliminate carryover of poor
assumptions made during the previous year. It is also useful
when the company is experiencing reduced revenues, or when
the economic environment is changing rapidly. The steps for
this process, as listed in the text (p. 145), are as follows:
1. Separate each department activity into a decision package.
2. Rank these decision packages in terms of their importance.
3. Allocate the proposed budget into the various decision
packages.
4. Submit the decision packages for approval.
FISCAL Annual Budgets
The budgeting process guides each department and the company
in identifying expected revenues and expenses for the coming
year. This helps the company plan its activities over the year.
Even though every effort is made to plan for the coming year,
there are still emergencies or unidentified opportunities that

6. arise. The budget process must include ongoing processes for
handling items that require budgetary funding, but were not
identified during the yearly budget planning sessions.
Annual budgets are also known as fiscal budgets which are
grouped as operating expenses and capital expenses.
Operating Expenses (OPEX)
Operating expense is an expense required for the daily
operations of the business.This type of expenses include
administrative expenses (e.g., salaries and benefits), cost of
utilities, the cost of goods sold, R & D cost,etc.
Capital Expenses (CAPEX)
A Capital expenditure is an investment done by the business,
which benefits to the firm would take more than a year to
materialize. CAPEX budgets are used for identifying and
providing funds for assets used long term. This type of assets
are recorded in the company's balance sheet and it is
depreciated over the total useful life of the asset; Next, a
periodic depreciation is expense is reported in the company's
income statement
Most companies have their own definition of what belongs on
the capital budget, but the majority of the time, the accounting
department is the main resource for determining if an item can
go on the capital budget. The general requirement for placing an
item on a capital budget is a cost threshold and a useful life
threshold. For example, your company may define a capital item
as any item that costs more than $100,000 and has a useful life
of more than one year. Please remember, this is just a guideline
and the accounting or finance department should be consulted
for a detailed definition of a capital item.
Discrepancies between the conceptual vs. practical budgeting
approach are noticeable when referring to IT
Budgeting; therefore, it is important for IT managers to
understanding these differences.
7
IT BUDGET

7. In general, IT managers group their spending into two
categories: operating cost and strategic investments.
IT Budget = Operations Costs + Strategic Investment
IT - Operations Costs
The operating cost includes maintenance cost, support cost, and
overhead expenses. This budget is set apart to manage the IT
department operations for the up-coming year. On average it
represents 76% of the IT budget.
Maintenance cost (i.e., IT operating expenses) includes for
example: storage and network cost
Support cost includes the cost of IT services delivered/sold to
other units, independently of the sourcing mechanism used (i.e.,
in-house, or outsource.)
Overhead expenses include administrative overhead, such as the
cost incurred in accountants or receptionists.
The major components of an IT operations cost include the
following items.
· Hardware—items such as computers, servers, and network
equipment
· Software—items such as applications, databases, operating
systems, and network management
· Personnel—salary and benefits
· Data communications—items such as telephone systems,
WANs, and ISP services
· Other—items such as office expenses, travel, and training
Since the operating budget is concerned with the day-to-day
running of the IT department, it is a very important tool in
managing the IT department. It is one of the major scorecards
used by upper management to grade the IT department. IT
managers must proactively manage the budget and any variances
that occur between the budgeted funds and actual expenditures.
If there are large variances, then the IT manager must quickly
determine the reason for the variance and how to mitigate the
effects of the variance. It is rare that, should a department go
over its operating budget, it is given more money. Furthermore,
if the manager is not good at managing these variances, areas

8. such as training and development are sometimes sacrificed,
which are very important to the IT staff. Variances can not only
affect money, but they can also affect morale.
IT - Strategic Investment
Strategic investments are aligned to the organization's strategic
objectives. These funds represent on average about 24% of the
total IT budget, which is set apart specifically for new
initiatives and technology procurement designed to bring new
business value.
It can include:
· Business improvement initiatives,
· Business enabling Initiatives,
· Business opportunity projects, and
· IT infrastructure
Strategic investments projects can be IT-OPEX or IT-CAPEX
depending on how the organization has defined them.
IT-CAPEX
Most IT projects are handled through the capital budget. Once
projects have been approved through the project justification
process, they are placed on the capital budget. Decisions on
how best to fund the projects are made through the
accounting/finance department. These decisions are made based
on many factors, including the company's balance sheet, lender
agreements, cash on hand, budget forecasts, and financial
performance.
For the most part, capital budgeting is a separate process from
operating budgets, although the same budgeting processes
(incremental or zero-based) are used for both budgets.
IT-OPEX
At its simplest, the operating budget consists of all revenues
and expenditures that are not on the capital budget. The IT
operational budget is used to plan and control the annual
operating costs for the IT department. Items on this budget are

9. those that are required for daily operation and support of the
installed infrastructure, hardware, software, end users, and so
forth.
Remember, any budget is just a plan, which indicates that there
is money to support a certain function; it does not automatically
guarantee that the money is there.
IT - Cost Allocation
Cost allocation is the process of allocation the cost of the
services provided by IT department to other units.
4
Corporate Process
Corporate Processes that influence the IT plans and Budgets
include:
· Establishing of a corporate fiscal policy
· Establishing of strategic goals
· Setting of IT spending levels
The next images summarizes these key corporate processes
IT Processes
The Corporate processes presented earlier in a way dictates the
various IT processes,
For example:
· Establishing Corporate Fiscal Policy → Sets The Fiscal IT
Budget.
· Setting IT Spending Levels → Sets The Functional IT Budget.
· Establishing The Strategic Goals for IT & BU → Determines
the IT Strategic Priority Investments.
The image below summarizes the interrelation that exist
between the corporate processes and IT processes.
Wrapping Things Up
Budgeting is an important part of a manager's job. It helps to
ensure that funds are available for annual operating and capital
costs. These funds might be a profit plan or a plan to save
money. Either way, if the department has a budget plan, it can
ensure that it is working toward the goals of the organization.

10. References
Engler, C. (1993). Managerial accounting. Homewood, IL:
Richard D. Irwin.
McKeen, J., & Smith, H. (2015). IT Strategy: Issues and
Practices (3rd edition). Upper Saddle River, NJ: Pearson
Prentice Hall
Brown, C., DeHayes, D., Hoffer, J., Martin, E., Perkins, W.
(2012). Managing Information Technology (7th Edition). Upper
Saddle River, NJ: Pearson Prentice Hall
Scenario Summary
Scenario
Baxter Manufacturing Company (BMC) is a leader in deep-
drawn stampings. It has been in business since 1978 as a
privately held company. The process for making these
stampings is very involved and complex. BMC developed
methods for efficiently producing large volumes of stampings
while keeping their quality very high. BMC uses state of the art
machines to make the stampings and they make all the tooling
necessary for those machines. In the years since their founding,
many changes have impacted the industry – especially when it
comes to computer networks and software. In the 1980s many of
BMC's customers went to Just In Time manufacturing which
affected BMC production schedules and inventory management.
Automotive customers began asking for Electronic Data
Interchange (EDI) capabilities around 1992. All of this has
affected BMCs Information Technology department. Over the
years, BMC has embraced the use of computers, computer
technology, and software to enhance their competitive
advantage and customer relationships. They have added
CAD/CAM capabilities, a homegrown scheduling spreadsheet,
and financial applications. A Commercial Off the Shelf (COTS)
scheduling package was purchased in 1989 but the
implementation was unsuccessful. Another COTS scheduling
systems was purchased in 1991 but, again, the software did not

11. match the needs of BMC. A new MIS manager, Don Collins,
was hired in 1994 and he led an effort to develop a mini-
computer based system to accept EDI orders from customers and
allow customer service to create shipping schedules, as well as
raw materials tracking, in process inventories, and finished
goods inventories. These internally developed systems were so
successful that the MIS department was flooded with requests
for more systems. Don believes that it will take 2 years to
internally develop the manufacturing software systems BMC
needs to remain competitive. Lou Moore, Vice President of
Manufacturing, thinks a COTS package from Effective
Management Systems, Inc. (EMS) is the answer to BMCs
manufacturing software needs. Specifically, he recommends the
EMS Time Critical Manufacturing package. The software costs
$220,000 up front and yearly maintenance contracts are
available for $55,000 per year. EMS will allow limited
customized changes to the software and the labor for those
changes will be billed at $60 per hour. To deal with all the
requests for new systems and to prioritize projects a steering
committee has been established. The members of the steering
committee are President Kyle Baxter, Controller Lou Wilcox,
Sue Barkley (Vice President for Customer Relations) and Kyle's
sister, and Don Collins. The steering committee is currently
discussing the option of in-house development (make) or
purchasing the EMS system (buy).
Role
Your role is that of Sue Barkley. You will recommend a course
of action to your brother, Kyle, in regards to the new
manufacturing software system. The obvious choices are do
nothing, accept the EMS proposal and start implementation, or
take Don Collins advice and create the system in-house. Are
there others?
Players – View their statements
Kyle Baxter –President –
Statement:

12. Sue, I have discussed the manufacturing software issue with
Lucas and Don. I wanted to find out from Lucas why he feels so
strongly about using EMS. I asked him the following questions:
1. Given that our MIS group is doing a good job developing new
systems why should we purchase an outside system instead of
building one in-house? 2. Why do you think we will be
successful using an outside vendor when we were unsuccessful
on two previous tries? Since Don is convinced we need to do
this in-house I asked him to tell me: 1. His estimate of the time
and cost to develop an in-house system. 2. His major objections
to purchasing a system from EMS. I informed him of Lucas'
view that EMS can install the system in six months at a cost of
$220,000 which is faster and less expensive than his estimates.
Don responded to that and also estimated what it would take to
do a more thorough investigation of EMS proposal. I know you
looked into reusing one of the older systems we installed. I need
to know what became of that effort. How do you think our
customers will view this situation and what do you think is the
best way to proceed?
Lucas Moore - Vice President of Manufacturing
Statement:
We are still using outdated technology for our scheduling. The
industry has passed us by in computer use for manufacturing
and we are in danger of losing our reputation as a world-class
manufacturer. My education and my experience with Don's new
inventory system have convinced me that computer systems can
significantly enhance our efficiency and improve our customer
service. We cannot wait two years for a home grown system that
will probably have to be upgraded before it is completed. I have
had extensive discussions with EMS manufacturing specialists,
read their literature, and seen the proposed systems
demonstrated. I am convinced the system will do everything we
will ever want to do. EMS assures me there will be no problem
integrating their manufacturing system with our financial

13. system and we can be up and running in six months. Purchasing
from EMS provides many benefits including: 1. Six months to
install an advanced system versus two years to develop our own
basic system. 2. The upfront cost for EMS is $220,000 firm
against an estimated $400,000 cost for in-house. 3. We will get
a proven, advanced system instead of a simple, "first try"
system in-house. 4. EMS has advanced programming
capabilities that we do not and they have sold this package to
hundreds of manufacturers. 5. The EMS software has already
undergone several improvement cycles. It may not do things the
way we always do but what makes our way better than hundreds
of other manufacturers using this system? As for the failed
attempts in the past, there are three main differences this time:
1. There was very little ownership of the new system before.
However, I am the champion for the new system and my people
will make it work. 2. Previous vendors attempted to install an
entire system without having inventory data under control. EMS
will install one module at a time according to a proven
schedule. 3. Other systems were installed during times when we
were expediting daily and did not have the time to devote to
making sure the installations were successful. Capacity is not an
issue right now.
Don Collins – MIS MANAGER
Statement:
We can develop our in-house system in two years at a cost of
$420,000. Outside help will cost $220,000 which includes
training for our people and internal cost will be $200,000. As
for the EMS software, it's designed for manufacturing facilities
that have far more complex processes than we do. We would use
a small subset of the program's features. Also, we have very
little experience with computerized production systems. I don't
think Lucas understands the complexity of the system or the
trouble our people will have adapting to it. It will force them
into ways of doing things that they are not familiar with.
Wouldn't it be better to build a system that correlates to where

14. we are on the learning curve and to plan updates as we progress
in our understanding? It's highly likely the system does not
match how we do business. Since it is a pre-packaged system it
may not allow us to make the changes necessary to match our
business processes. Are we willing to change the way we do
business just to fit their software? Our manufacturing facilities
and processes are always changing. Purchasing a package means
the vendor will have to make changes as we change. They may
or may not make the changes we need and they might make
changes we don't want. Finally, we have proven we can
successfully develop systems in-house. We were unsuccessful
twice before with purchased systems; do we want to take that
chance again? The figures Lucas received from EMS are
deceiving. Part of purchasing software from a vendor includes
time and effort to define your needs and then match those needs
to the vendor's software. That process is not included in the
present proposal. I feel we must go through this process before
purchasing any packaged software. Another cost is modifying
your current software to interface with the new package in order
to transfer data. Many purchased systems do not allow the end
user to modify them so then you have to develop programs that
will interface with the two packages. There are also costs
associated with training, data conversion, and changeover. A
good rule of thumb is that the total cost of installing a
purchased package is twice its purchase price which makes the
package cost $440,000. That compares favorably with our
estimate of $420,000. It will take at least a year to evaluate and
install a purchased system. That's less than two years to create
an in-house system but we'll be installing and using components
of our system as we finish them so the time advantage is not
that important. We could undertake the effort to better
understand the EMS proposal. It would take about six months
studying manufacturing to determine what we are doing and
what the new software system would need to do. I think we
would need to take some time after that to explore the many
packages available and get them down to the three or four most

15. suitable. Then we would invite them to submit proposals so we
could evaluate them and pick the best one. Once we have
selected the best proposal we'd have to compare that to our plan
of building the system in-house. The entire process would take
about a year and cost between $50,000 and $90,000.
Sue Barkley – Vice President for Customer Relations
Statement:
We thought about using the system we successfully installed but
the specialized computer we purchased is dead and the software
vendor has gone out of business. I don't think our customers are
concerned with our internal systems as long as we deliver
quality parts on time. We are already interacting with our
customers via EDI so internal systems are our problem, not
theirs. It would be nice to get a system up and running but we
have been doing fine without one for a long time.
Deliverable
Given the scenario, your role and the information provided by
the key players involved, it is time for you to make a decision.
If you are finished reviewing this scenario, close this window
and return to this week's You Decide area, in your course, to
complete the activity for this scenario. You can return and
review this scenario again at any time.
Grading Rubric
Category
Description
Understanding
Demonstrate a strong grasp of the problem at hand. Demonstrate
understanding of how the course concepts apply to the problem.
Analysis
Apply original thought to solving the business problem. Apply
concepts from the course material correctly toward solving the
business problem.
Format

16. Write your answer clearly and succinctly using strong
organization and proper grammar. Use citations and references
correctly.
Total
A quality paper will meet or exceed all of the above
requirements.