Case+analysis+4

Write a **maximum** 4 pages, single spaced. We have the option of answering separately (1 page or so each) or together.

McCabe forecasted a $300,000 surplus for the coming fiscal year end. Were these controls sufficient to ensure long-term stability at Theatre Calgary? Please provide a rationale for your response, while analyzing the relevant controls. For example, what checks and balances have been (or should be) put in place to ensure sufficient protection of Theatre Calgary’s finances?

Nigel's response. You guys can either add to it, or add your own.

Under McCabe`s leadership, Theatre Calgary is not only in a far better financial position, but also in a far better financial planning position. Theatre Calgary has an excellent system of checks and balances, with a strong employee motivation strategy that breeds success. In addition, going into the year end with a projected $300,000 surplus demonstrates that the strategies have paid off, and suggests that their strategies will continue to be successful. Under the previous leadership, budgeting was largely done by the executive producer, with little input from other members of the board or staff. McCabe, on the other hand, initiated a participatory form of management, in which staff and managers were part of the budgeting process. Under this system, the budget will be far more likely to be accurate, because each member of the management and staff will have a better idea of what to expect in the coming year in their area of expertise. Furthermore, when an employee is involved in the budgeting process, they are far more likely to believe in the goals, and are therefore more motivated to meet them. Plus, the staff can enjoy a year-end bonus if they exceed the surplus target, a further motivational tool. The specifics of the budgeting process also contribute to its accuracy. By creating the budget in steps, based on the information at hand at the time, the budget can be refined until it must be set. The initial estimates are set by top managers who have years of experience, and can predict costs fairly accurately as a result. They break down each play into specifics to generate costs for each production input. This initial phase creates a fairly accurate model of the costs of the play. The next phase of the budgeting process is where input is taken from the managers and staff. The staff give their opinions on sales targets for subscriptions, fundraising, and other profit centers. Estimates are adjusted based on the collective contributions of the employees. This step is very important because staff have a good idea of how much they will be able to sell, and also taking their input ensures that they buy in to projected growth targets. This makes them more likely to believe in the ambitions of the organization, and they will be more motivated to try to reach the targets. The final phase is where the budget is adjusted after most of the costs have been accounted for. The company will hire actors, materials, and will begin building sets. By the time this final adjustment of the budget has been done, ``the only variables are tickets sales`` (p.7). It is clear that this budgeting strategy is effective if costs can be predicted to such a degree of accuracy. The three part budgeting process creates a budget that is not only accurate, but that everyone in the organization feels confident in. This process will help ensure that the final numbers are close to the predictions in any given year. The extent to which the production company solicits feedback is what ensures its lasting success. Theatre Calgary solicits detailed feedback from the audience and staff on an ongoing basis, for everything from the bathrooms to the play itself. By taking this information and using it to make management decisions, the theatre can make sure it is constantly improving, and meeting the needs of its audience. Overall, McCabe has created a system that will ensure the financial stability of the theatre that will last into the future. He has implemented a participatory budgeting process that produces accurate budgets, and a sophisticated system of feedback ensuring the theatre company is meeting the needs of its customers. The budgeting and control systems are clearly enough to ensure the long-term stability of Theatre Calgary.