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Orrin Pharma's management report shows that the R&D division's profit exceeded budget by 12%. Investigation shows the division achieved this by deferring planned trial spending to next year. The board wants its reporting to prevent such short-termism. Which approach would be most effective?

Adding balanced measures such as trial milestones and pipeline progress, plus phasing of spending against plan, exposes deferral of discretionary spending. Profit-only comparisons, even with tighter tolerances or prior-year benchmarks, continue to reward short-term behaviour, and removing R&D from the report would hide the problem.

  1. AReport profit against budget only, with a tighter tolerance of 5%
  2. BAdd balanced measures, such as trial milestones achieved and pipeline progress, alongside financial results, and report spending phasing against planCorrect
  3. CRemove R&D from the management report
  4. DReplace the budget comparison with prior year profit only

Explanation

Short-termism arises when reports focus narrowly on short-term financial results. Pairing profit with non-financial milestones and spending phasing reveals deferral of discretionary spending. A tighter tolerance or prior-year comparison still rewards the same behaviour, and removing R&D hides the issue.

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