(g) Other Profit Plan Control Aspects. Up to this point, we have concerned our-
selves with the financial aspects of profit plans, their determination, currency affects,
and controls. One most important factor in profit planning and controls must be
added: operating statistics. Most plans and subsequent periodic control reports in-
clude a host of operating nonfinancial data. We may need volume assumptions for
each product or line of merchandise. We may have to establish labor hours and ma-
chine usage hours. Other plans may include capacity utilization data. Depending
upon industry and lines of business, operating statistics may tell managements in a
succinct manner what happened and, to some managers, the conversion of these data
into financial elements may be of secondary importance. More generally, operating
details furnish the basis for simple explanations of the variances discussed above,
particularly volume variances.
25.9 SUMMARY. In this chapter, we have discussed some major aspects of capital
budgeting and profit planning in a multinational environment. In both areas, we have
to come to grips with the planning process of the corporation which desires to im-
plement appropriate procedures for, first, establishing and, later, controlling the end
results of the planning process.
Perhaps we can summarize the essential features of multinational budgeting and
controls. There must be a clear-cut organizational structure, from the parent company
at the top to the operating functions of each affiliate at the bottom. There has to be a
strong communications link between the various levels to search out ideas, reach ap-
propriate conclusions, and arrive at capital spending and income levels that straddle
the fine line between the availability of funds and the generation of new cash sources
via the income route. Capital budgets and profit plans must be put together and fully
understood in both the parent company’s currency and that of each affiliate. There
must be adequate reference points to enable all management levels to establish peri-
odic controls; in the capital budgets, major projects or programs should be listed; the
profit plan should display the results of specific volume, price, and expense targets,
to name just a few. For all plans, currency exchange rate assumptions must be agreed
upon among the various management levels.
The types and frequency of control reports depend upon the varied requirements
of the managements involved; the control reports should present data that fulfill the
“need to know” by management.
25 • 22 MULTINATIONAL BUDGETING AND CONTROL SYSTEMS