ORGANISATIONS GROUP 2 PRANITA, KARAN, RATIK, TWINKLE ,PRATIK Non-profit Organizations The term “non-profit” tends to have negative connotations because it tells us what these organizations do not do, not what they do. 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. Its sources of funds are derived from contributions, grants, operating surplus and debts instruments of various types. The principal goal of nonprofits is defined by their mission. Non-profit institutions may be classified into two groups: Government organizations and private tax-exempt organizations. Private organizations can be further divided into commercial organisation and charitable groups, the former includes trade unions, trade associations and clubs and the latter includes hospitals, religious groups, research, educational and social service organizations. Management Control Systems in Non-profit Organizations The issues involved in drafting management control system in a non- profit organisation can be discussed in the following heads:
1. The mission of non-profits
2. Stakeholders’ goals 3. Key success factors 4. Performance measures 5. Infrastructure 6. Management style and culture 7. Formal Control Process 8. Communication systems 9. Rewards 10. Informal control process. The mission of Non-profits: Non-profits are organised so as to pursue and accomplish a mission i.e., its purpose. Drucker emphasizes that a mission statement should contain the following three elements: (i) The opportunities that the organization can exploit or needs that it can meet, (ii) The strengths of the organisation (iii) What members of the organisation believe in? Stakeholder’s goal In a non-profit organisation, there often is no dominant stakeholder but a multiplicity of key stakeholders e.g. a school board, a church or a childcare agency has multiple key stakeholders. Boards or Trustees are often major stakeholders because they are the key donors and contributors of time and effort. The board represents a real opportunity for these institutions so long as they focus on achieving the mission of the institution and stay out of operational details. The purpose of the board is to guide and direct the mission of the institution by evaluating major strategies, to select the CEO; they provide and secure funds, to provide outside professional perspective on governance and to make CEO accountable for the accomplishment of the mission. In addition to the board, each non-profit has mission stakeholders to serve: to save the lost, to heal the sick, to protect abused children, to educate children and so on. In addition, there are often external parties who do not participate directly in the affairs of the institution that have a vital interest in the institution, such as, the public in the work of a school district. Many employees and volunteers in a non-profit organisation participate because they believe in the mission of the organisation. But they believe in different aspects of the organisation. Example: Physicians look upon hospitals as a place to provide service for patients and they want beds and other services to be available for the patients, regardless of the cost. They are not concerned about hospital finances and they resist contractual arrangements that interfere with their practises and as a result there is often a conflict between hospital administrators and the physicians employed at the hospital. In formulating stakeholder’s goals, it is necessary to integrate all of the stakeholder’s goals around the missions of the organization. Key success factors: A key success factor for many non-profit institutions is the number of volunteers that it is able to attract and the number of volunteers; it is able to train at various levels of quality. Another crucial variable is fund development, since most rely heavily on the support of the people, especially the volunteers, for contributions to support its paid staff and its programme. Another critical variable is the ability to attract the quantity and quality of board member it needs. Performance measures Performance measures should be established for each critical success factor for each goal. Reports on these performance measures should be prepared and distributed to those responsible for their management. We should attempt to quantify as many measurements as possible. Some are quite easy to quantify. Example: The number of patients attended to by the physician during a specified period of time. Others (example: the quality of care) are not so easy to measure but are nevertheless critical. But even these critical variables that are not easily quantified may have quantitative surrogates. Infrastructure: Non-profits tend to have flatter organizational structures. Organisations tend to be functional and the functions are headed by professionals (e.g. doctors, social workers, ministers, professions). Typical responsibility centres in a child care agency are social work, operations, administration and education. They tend to be cost centres unless revenue is generated, in which case they are either revenue centres or contribution centres. The modern hospital has a dual organisation structure, one for the medical side of the institution and the other for administrative services. The medical side is dominated by physicians and a broad range of technical and support staff. Administrative services include housekeeping, food service, maintenance, billing and accounting. A good deal of autonomy is usually granted to the hospital departments headed by professionals such as: nursing,laboratory, pathology, radiology, surgery and so on. Most of these departments are cost centres where quality of care and overall cost performance is the key performance measures. Many hospitals have created SBUs for identifiable segments of the hospital such as outpatient surgery, obstetrics, pharmacy, emergency room, physical medicine, etc. Which are profit centers and are established for strategic planning and implementation purposes Management style and culture The small and mid-sized ones tend to take on the personality traits of the executive director and if he is a professional, there is a tendency to place primary attention upon his area of interest or training with little regard for management. In case of hospital, dual structure results in an adversarial but co-dependent style. ! Caution To manage the institution effectively, control must be maintained on the medical side of the organisation. A general theme that seems to be pervasive in all departments of hospitals is that they are delivering health care of the highest quality possible. Formal control process: The formal control tool is the budget. The budgeting process is complicated in the absence of clear, quantifiable performance objectives for evaluating programmes. As part of programme evaluation, it is necessary to determine programme costs. Programme costs are usually subdivided into two categories: direct and indirect. In most non-profits, overhead is allocated on the basis of direct labour costs. In case of hospital, control within the medical side is necessary for quality patient care. This is done by using the patient record chart, which is divided into many segments containing progress notes, reports, and requests for all diagnostic and therapeutic procedures performed within each department, there are many levels of control related to the patient care mission to ensure the highest quality care. A hospital is divided into mission centres i.e., the departments that work with patients directly. Example Inpatient care, laboratory radiology. Service centres such as, housekeeping, laundry and medical records provide support to each of the mission centres. In addition, there are other support cost such as supplies, depreciation and insurance that serve both service and mission centers. Programme costing then involves choosing the final cost objective such as cost of care per day or cost associated with a particular diagnostic category. To do this, all direct costs associated with the final costs objective are traced to that cost objective. To allocate in direct cost, the standard practise is to take cost of support pools and allocate them to both service and mission centres based on allocation criteria that had the closest bearing on how the costs were incurred. The service centre costs are allocated to mission centres using allocation base that most nearly reflect the demand for service activities in mission centers. Cost variances are compared to budget can be worked out and analyzed. Communication systems Board members if organized properly can provide a very valuable contribution to the communication systems of the non-profit institution. If their strategic work is organized by committee and each committee meets regularly with the relevant operating committee to add vision and perspective, the board can play a very strong function in furthering the mission of the organisation. In case of hospital, there is plethora of communication mechanisms within both the medical and administrative sides. On the medical side, there is usually a computerized hospital information system that provides up-to-date patient information at nursing stations and contributes to the patient control process. The medical committees are comprised of physicians trying to work out the best course of treatment for a particular patient. These committees begin to alter the physician behaviour to achieve better cost performance while providing the highest quality of care. Rewards: The paid staff as well as volunteer staff is committed to the mission of the organisation, hence financial rewards are not very important. Promotion opportunities are also not frequent. In case of hospital, the primary rewards are derived from the satisfaction received from the fulfillment of the mission to provide high-quality health care. Physicians are well paid but other professionals are paid slightly less than their counterparts in the profit sector. Promotion in hospitals is few, given the flat organisation structure. There is little crossover from the medical side to the administrative side. Informal Control Process Interpersonal relationship: Because of fewer hard measurements, informal communications, networking and politics tend to be important processes for making resource allocation decisions. Informal control process: Medical managements of patients tend to be very adaptable to the progression and resolution of diseases. Management flexibility, on the other hand, has historically been much less demonstrable. Informal rewards: The strong culture of concern and pride in patient care is rewarded with a sense of accomplishment, providing strong information rewards. Many positions provide a fair degree of status within a hospital. Certainly, the physicians and administrators are in positions of high status. Informal communications: Informal communications tend to be very prevalent and natural among peers but more restricted laterally between departments. Government organizations are service organisations and except for business like activities, they are non-profit organizations. Thus, characteristics described above, apply to these organizations. Their business-like activities such as electricity and water utilities operate like their private sector counterparts. Special Characteristics Political influences: In government organizations, decisions result from multiple and often conflicting pressures. Elected officials, to be re-elected, advocate the perceived needs of their consistency even though they may not be in the best interests of society as a whole. These conflicting pressures results in less than optimum decisions. The managers may be prevented from making sound business decisions; they may be required to favour certain suppliers or to hire political supporters. Strict procurement policies and civil service regulations have lessened these pressures to some extent Public information: In a democratic society, the press and public believe that they have a right to know everything about a government organization, because of freedom of information statutes. Some media stories describe exaggerated mismanagement. Therefore, to reduce opportunities for media gossip stories, government managers take steps to limit the amount of sensitive, controversial information that flows through the formal management control system. This lessens the effectiveness of the system. Attitude towards clients: For profit, companies and many non-profit organizations obtain their revenues from clients; hence these organizations welcome actual and potential clients and treat them well. Most government organizations are public supported; they obtain their revenues from the general public. To them, additional clients are a burden, because they create an additional demand on the service capacity resulting in poor services and the surly attitude of the bureaucrats. Managers recognize this and do their best to persuade employees to provide satisfactory services. Red tape The government has promulgated huge and increasing number of rules and regulations. Some of these are necessary; others are reactions to minor misdeeds that become highly publicized. Management compensation Managers and other professionals in government organizations tend to be less compensated than their counterparts in business. Consequently, the best managers do not go into public service. There are exceptions to certain types of scientists and engineers. Hence, there is a problem of rewarding good performance. Financial accounting: Accounting standards for state and local government are established by the government accounting standards. THANK YOU.