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CS Professional · Strategic Management and Corporate Finance · Business Policy and Formulation of Functional Strategy

Kaveri Pharma Ltd's board approved a policy that all capital projects must clear a minimum hurdle rate, and the CFO later rejects a project that falls below it even though the managing director favours it. The CFO's action best reflects which role of business policy?

The CFO's action shows that business policy sets limits within which managers use discretion, keeping decisions aligned with approved guidelines. The hurdle rate acts as a boundary even when a senior executive prefers a project. The board can still revise the policy later, so it is not permanent.

  1. APolicy sets limits within which discretion is exercised, so decisions remain aligned with approved guidelinesCorrect
  2. BPolicy removes the board's authority to ever revise the hurdle rate
  3. CPolicy applies only to routine clerical matters, not capital decisions
  4. DPolicy is merely a statement of mission with no decision impact

Explanation

The hurdle rate is a boundary on discretion; the CFO applies it to keep decisions aligned with approved guidelines. It does not stop the board from revising the policy later, and policies can cover major decisions. A mission statement, unlike a policy, does not set decision limits.

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