What might be some steps a firm could take to encourage managers to supply "truthful" forecasting information?
One of the main reasons why managers are tempted to supply untruthful forecasting information is because it serves the same purpose as a padded budget. If there are shortfalls in the budget or if situations arise where additional funding is needed in certain areas, like labor or materials, above what was needed the previous year, the inflated forecast would already incorporate those possibilities and it would not appear that the manager is over on their forecast. This is a very unethical practice that unfortunately goes on in many companies of all sizes.
There are a few ways that a firm can reduce the chances that forecasts are untruthful. Many companies find that when they analyze forecasting information from each manager over a three or four year period, certain managers continually inaccurately forecast their budgets. If this trend can be noticed, individual counseling ...
The solution discusses what might be some steps a firm could take to encourage managers to supply "truthful" forecasting information?