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Unit 13: Management Control of Service Organisation

6. Financial accounting: Accounting standards for state and local government are established Notes
by the government accounting standards.

Task Visit any local hospital and find out how management control system works there.

13.6.3 Management Control Systems

1. Strategic Planning and Budget Preparation: Strategic planning is important in government
organizations, managers.

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Caution Legislations must make difficult decisions about the allocation of resources.
Some of these decisions reflect political pressures, others are the result of sophisticated
analysis especially benefit/cost techniques, which have become increasingly formalized.
The annual budget process is also an important control device in government as it is in
other non-profit organizations.
2. Performance Measurement: Expenses can be measured accurately in government
organizations as in business. Revenue is not a measure of output in government
organizations. Government has developed non-monetary indicators, which can be classified
as (i) results measures, (ii) process measures and (iii) social indicators.
A results measure, also known as outcomes measure, is a measure of output related to the
organizations’ objectives.

Example: Number of students graduating, number of kilometers of roads completed.
These measures do not give exact measure of output; the number of graduates says nothing
about how well the students were educated.
A process measure is related to an activity carried on by the organization.

Example: The number of livestock inspected in a week, number of purchase orders
issued in a day or number of lines entered in the computer in an hour.
These measures are easier to interpret since there is a close casual relationship between
inputs (i.e., costs) and the process measure. Efficiency can be ascertained not the effectiveness
i.e., how far it has achieved organization objectives.
A social indicator is a broad measure of output that reflects the result of the work of the
organization. Since social indicators are affected by external forces they are at best or
rough indication of accomplishments of the organization itself.

Example: Life expectancy is an indication of the effectiveness of the country’s health care
system but it is also affected by standard of living, dietary and smoking habits and other causes.
Social indicators are useful in long-range analyses of strategic problems.

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