Page 108 - DLIS003_LIBRARY ADMINISTRATION AND MANAGEMENT

Unit 6: Library Finance

6.1.2 Financial Management in Service-oriented and Not-for-profit Notes
Organizations

Information centres are paternalistic, service-oriented and not-for-profit organizations. Financial
management in such organizations is more complex and important than in profit-oriented
organizations. Money management in service-oriented and not-for-profit organizations (NFP)
involves systematic planning, getting funds, judicious spending and meticulous accounting of
funds.
There are certain difficulties in the financial management of service-oriented and not-for profit
organizations. The problem becomes acute if the budgets of such institutions are not planned as
part of the planning of the parent body and if they worry more about accounting than planning.
Among the important characteristics of service-oriented and not-for-profit organizations are
these are normally labour intensive compared to profit-oriented organization, will not have
any inventory of services, will have dominance of professionals and the quality of service
cannot be inspected and measured in advance i.e., before rendering the service.
Further, there appears to be lack of a profit measure in such institutions and the absence of a
profit motive treasure is quite typical to service-oriented and not-for-profit organizations. Profit-
oriented organizations measure their output by the amount of revenue earned based on prices
charged for goods and services sold. For individual profit centres, revenue is measured by
transfer prices. Service-oriented and not-for-profit organizations either should devise similar
monetary measures of output or rely on non-monetary measures. By and large, the output
measurement is a problem in service and NFP institutions.
Generally, there is no single criterion to measure the success of such organizations. Multiple
objectives, lack of a relationship between costs and benefits and difficulties in measuring
performance and comparing performance of different units of the same organization are some
peculiarities of such organizations.
There appears to be no direct relationship between the costs and benefits in service organizations.
There is a clear difficulty in measuring the performance of service-oriented and not-for-profit
organizations. Further, due to dissimilar functions, the organizational units cannot be compared
in service-oriented and not-for-profit organizations.
Market forces play a less significant role in service-oriented and not-for-profit organizations.
Due to lack of shareholders, there appear to be differences in ownership and power. Consequently,
there is a tendency for service-oriented and not-for-profit organizations to be political
organizations.
Historically the cost accounting and other control techniques were developed for manufacturing
(i.e., profit-oriented) companies and hence they have less applicability to service-oriented and
not-for-profit organizations. Further, inadequate management controls have become a tradition
in such institutions. Lastly, most service organizations are relatively small and operate at a
single location.
Information centres have not given adequate attention to output measurement. In the absence of
a monetary output measure, certain non-monetary measures could be employed by service and
NFP organizations. The non-monetary output measures could be classified in many ways. They
can be subjective or objective, discrete or scalar, quantitative or qualitative. Important
non-monetary output measures are:

1. Results measures
2. Process measures
3. Social indicators
4. Inputs as proxy output measures

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