Page 1 - CIMA OCS Workbook May 2019 - Day 1 Tasks

Day 2 Suggested Solutions

CIMA MAY 2019 – OPERATIONAL CASE STUDY

CHAPTER EIGHT

EXERCISE ONE (BUDGETING AND CONTROL)

BRIEFING NOTES – SPONSORSHIP DEAL
The purpose of budgeting

There would be many benefits of setting up and using budgets for the sponsorship team, which
include:

• Planning:
By setting detailed budgets it forces the management team to plan ahead and to take time
out to complete the budget process. It will allow us to look into the long term as well as
focusing on the short term.
For example, it would force us to consider who should attend, what resources are needed for
our “stand” and whether these will be available.
• Control and Evaluation:

The budget gives a benchmark against which to compare the actual results. Variance reports
of the difference between budgeted and actual results can be produced which can be used to
hold staff to account for inefficiencies and overspends. Such reports will also allow us to set
more realistic budgets in the future which could have a knock on impact on whether or not
we want to continue with sponsorship in future expos.

• Coordination:
A more formal budget allows for the different parts of the business to be reconciled to each
other. For example, we may want to design and make new products for the Expo. A formal
plan or budget will allow each department to work together to ensure the items are ready on
time.

• Communication:
Budgets can be used to communicate targets to all staff within the business. Again this is
going to be especially important with the new proposal. We cannot expect staff to work
efficiently if they are unaware of the overall plan.
• Motivation

Budgets can also be used to motivate staff. This issue is discussed in more detail below
Setting up the project as a business unit

The two options available are to set up the project as either a cost centre or a profit centre.
Given that the project involves both costs (e.g. the exhibition stall) and revenues (e.g. from sales
made to retailers at the Expo) that are directly traceable to the sponsorship deal, then it could be
argued that a profit centre is most appropriate.

A key issue is whether the Board expect to generate a significant number of sales leads at the
Expo or whether it really is more about increasing brand awareness, as stated.

If it expected that sales revenue generated at the Expo will not cover the cost of sponsorship,
then the best the project can achieve (if no other revenue is traceable) would be a large loss. For
this reason it could argued that it would be better to view the project as a cost centre.

A better alternative may be to have a profit centre and be careful how targets are set and
communicated.

54 KAPLAN PUBLISHING