The management of Hess, Inc.,

Flexible budget-

Flexible budget means a budget which may be changed inaccordance with change in plan or strategy.

In the given case the management is thinking to use low qualityof material in production in order to increase its profitability.This action has root cause to increase in net income.

Increase in net income-

• It’s is as subject matter of nature of business, it’s location,it’s competitive position in market and other factors are alsonecessary to focus on net income.
• The businesses must asses it’s current position in order toanalyse the profit of the business. They will need to closely watchthe product process and it’s market behaviour in order to takedecision like use of inferior quality of material in productionprocess.
• The businesses must relook at its value chain which is creatingvalue in the business and producing net income.
• A highest level of strategic decisions and costing decisionmust be taken in order to ensure the maximisation of business netincome.
• In term of strategic management the current market situationmust be analysed to give the effect of giving the customer withinferior quality of product
• There must be cost analysis which is required to be done beforeusing inferior material for production, Bulk order may be raised inorder to have quantity discounts, labor efficiency may be checkedwith the highest level of standards used peers businesses.
• The businesses must analyse all the potential effects oflowering the product quality such as reduce in demand fromcustomers and fame and goodwill may also be reduced.
• This will lead the business into much more problems thanproblem of low net income at current.

Overall the management should analyse all the possible effectsof change in quality of product before taking this decision. Thesedecisions should not be hypothetical but should be based on somerationales.

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