Page 258 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 13: Management Control of Service Organisation

Notes
health care to patients. Since the process of developing operating budgets in relation to
patient volume was a new concept for many medical managers, a considerable amount of
time had to be spent to explain the process.
A monthly cost report was used to determine productivity levels for all non-physician
personnel. Physicians refused to use monthly cot reports to control their behaviour.
Questions
1. How can sound control procedures help improve practices in a non-profit
organization?
2. Discuss the features of the new cost accounting system implemented by Meditech
hospital.

13.7 Summary

 Because of their recent development, management control systems currently found in
service organizations tend to be less advanced than those in manufacturing organizations.

 Because of the difficulty of measuring both the quantity and quality of output, judgments
about both the efficiency and the effectiveness of the performance are more subjective
than is the case when output consists of physical goods, which means that there is more
room for legitimate differences of opinion about performance.

 Professional organizations are labour-intensive and the labour is of a special type. Many
professionals prefer to work independently rather than as a part of a team.
 Financial service organizations include commercial bank and thrift institutions, insurance
companies and securities firms.
 A non-profit organization is one that is chartered to operate in the interests of the society.
It operates free of any obligation to pay income taxes. It is restricted by definition from
participation in equity markets since it has no shareholders.

13.8 Keywords

Budget: The budget can be used as a basis for measuring cost performance and the actual time
taken can be compared with the planned time.
Professional Organizations: Professional organizations are labour-intensive and the labour is
of a special type. Many professionals prefer to work independently rather than as a part of a
team.
Strategic Plan: 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.

13.9 Review Questions

1. Can you describe Management Control Systems in service sector vis-à-vis manufacturing
sector?

2. What are the distinctive characteristics of non-profit institutions as compared to profit
seeking institutions, while designing control systems?
3. What are the issues involved in drafting management control system in a non-profit
organization?

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