Page 249 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes 13.4.1 Special Characteristics

1. Different social problems: The present healthcare delivery system is unworkable. On the
other hand, the cost per treatment is increasing with the development of new equipment
and new drug. On the other hand, the number of ill persons is increasing.
2. Change in mix of providers: Within the overall increase in healthcare cost, significant
change has occurred in the way in which healthcare is delivered and, hence, in the viability
of certain types of providers. Many services that traditionally were provided in hospitals
on an inpatient basis are not provided in outpatient clinics or in patient’s homes.
Entrepreneurs have entered the industry to provide these new services.
3. Third party payers: About more than 3/4th of the health care is provided by government
and insurance companies, and the balance by individual patients.

Because of increase in hospitals’ costs per patient and entrepreneur entering the field, a
need is felt to install sophisticated cost accounting systems, usually systems are purchased
from an outside software organisation and then adapt to their needs. These systems provide
information on individual patients (similar to job-cost-systems in automobile repair shops)
and they report actual costs compared with standard costs for each Diagnostic Related
Shops (on which insurance company other service providers reimburse costs); costs are
classified by departments and by attending physicians within departments.

This information is in addition to information traditionally collected in hospitals, it focuses
on outputs (patients care) as well as inputs (cost per laboratory test).
4. Professionals: The management control implications of professionals are same as those
discussed earlier. Their primary loyalty is to the profession rather than to the organizations,
department manager typically, is professional whose management function is only part
time, the Chief of Surgery does surgery. Historically, physicians have tended to give little
emphasis on cost control.
5. Importance of Quality Control: The healthcare industry deals with human lives, so the
quality of the service it provides is of paramount importance.

13.4.2 Management Control Process

Subject to the characteristic described above, the management control process in the healthcare
industry is similar to manufacturing organisation. Because of the shift in the product mix and
because of increase in the quantity and cost of new equipment, the strategic planning process in
hospitals is important. The annual budget preparation process is conventional. Huge quantities
of information are available quickly for the control of operating activities.

Did u know? Financial performance is analysed by comparing actual revenues and expenses
with budgets, identifying important variances and taking appropriate actions on them.

13.5 Problems in Creating and Controlling Intra-company Investment
Centres such as Branches of a Bank

13.5.1 General Characteristics

Commercial banks earn income primarily by lending and investing money. The interest on this
money is their revenue. They obtain the money primarily by attracting deposits. The interest

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