Page 246 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 13: Management Control of Service Organisation

4. Small size: Professional organizations are relatively small and operate at a single location. Notes
Senior management can personally observe which is going on and personally motivate
employees. Hence, there is less need for a sophisticated management control system with
profit centres and formal performance reports.
5. Marketing: A clear segregation between marketing activities and production activities (as
observed in a manufacturing organisation), does not exist in most professional
organizations. In some cases, professional ethical code limits the amount and character of
overt marketing efforts by professionals. It is, therefore, difficult to assign appropriate
credit to the person responsible for “selling” a new customer.

13.2.2 Management Control Systems

1. Pricing: If the profession is one in which members are accustomed to keeping track of
their time, fees generally are related to professional time spent on the engagement. The
hourly billing rate is based on the grade of the professional plus a loading for overhead
costs and profit. In other professions such as, investment banking, the fee is based on the
monetary size of the security issue. In still others, there is a fixed price for the project.
Prices vary among professionals, they are relatively low for research scientists and
relatively high for accountants and physicians.
2. Profit centers and transfer pricing: Support units such as maintenance, information
processing, transportation, telecommunication, printing and procurement of material
and services, charge consuming units for their services.

Notes The principles for transfer pricing are same as applicable to manufacturing
companies.

3. Strategy planning and budgeting: The strategic plan of a professional organisation consists
primarily of a long range staffing plan rather than a full blown plan for all aspects of the
firms operation.

Notes The budgeting process in professional organisation is similar to manufacturing
organisation.
4. Control of operations: The billed time ratio, which is the ratio of hours billed to total
professional hours available, is watched closely.
The inability to set standards for task performance, the desirability of carrying out work
by teams, the consequent problems of managing a matrix organisation and the behavioural
characteristics of professionals complicate the planning and control of the day-to-day
operations in a professional organisation. When the work is done by project teams, control
is focused on project. A written plan for each project is needed, and timely reports should
be prepared that compare actual performance with planned performance in terms of cost,
schedule and quality as done in management control of projects.
5. Performance measurement and appraisal: Appraisal of the large percentage of
professionals who are within the extremes is much more difficult. For some professions,
e.g. the recommendations of an investment analyst can be compared with actual market
behaviour of the securities; the doctors’ skills can be measured by the success ratio of
operations.

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