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Unit 13: Management Control of Service Organisation

5. During the 1990s, new firms of financial instruments (such as derivatives) designed financial Notes
service firms sometimes resulted in massive losses for the clients.
6. Finally, the corporate scandals during 2002 have created a huge push for investment banks
to spin off their research departments.

13.3.2 Special Characteristics

While the general principles and concepts of management control systems apply, they need to
be adapted to the following special characteristics of financial services industry.

1. Monetary assets: Most of the assets of financial firms are monetary. The current value of
monetary assets is much more easily measured than the value of plant and other physical
assets or patents and other intangible assets. At any time, dollars held by all companies
have the same value, valued at both its face amount and its purchasing power. Financial
assets can be transferred from one owner to another easily and quickly.
2. Time period of transaction: The performance of those involved in bond issue, a mortgage
loan or in selling and giving the insurance policy cannot be measured at the time the
critical decision is made. Control requires that there be a means of continued surveillance
of the soundness of the satisfaction during its life, including periodic audits of all
outstanding loans.
Some transactions are completed quickly based on information obtained instantly or over
a period.

Notes There is a need for a system to report securities held and to assess the risk to the
organisation if prices move against the trader’s securities.

3. Risk and reward: Most business decisions involve a trade-off between risk and reward.
The greater the risk, the greater should be the anticipated reward. In financial services
firms, this trade off is more explicit than in business investment such as, involved in
purchase of a machine or the introduction of a new product.
4. Technology: Technology has revolutionized the financial service industry. Financial service
firms have used information technology as a way to offer innovative services.

Self Assessment

Fill in the blanks:
5. The greater the ……………… the greater should be the anticipated reward.

6. ................................... has removed industry and geographic boundaries.
13.4 Healthcare Organizations

Healthcare organizations consist of hospitals, clinics and similar physicians, organizations,
health maintenance organizations, retirement and nursing homes, home care organizations,
and medical laboratories, among others.

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