Slide 17.
Chapter 17:
Management Control in
Not-for-profit Organizations
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.2
Not-for-profits
Ironically perhaps, the defining difference between
for-profit and not-for-profit organizations does not lie
in how much profit they can generate, but instead
in how it is distributed
A not-for-profit organizations profit cannot be paid
out to the owners or anyone else associated with the
organization
Instead it must be dedicated to the purpose of the
organization
Hence, the major defining characteristic of a not-forprofit organization is the organizations purpose
its mission or goal
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.3
Types of not-for-profits
A not-for-profit is an organization whose primary
purpose is typically to provide some kind of public
service
It includes a large and diverse set of organizations
where the types of services provided vary widely
Charitable, religious, scientific, educational, political
Governmental organizations and their various institutions,
authorities, agencies, and programs
Private organizations operated for public benefit
Museums, hospitals, universities, and schools
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.4
Types of not-for-profits (continued)
Some not-for-profit organizations, such as religious
organizations and charitable foundations, serve
various private benefit purposes
Some, such as cooperatives, and labor, fraternal,
trade and homeowners associations, are operated
for the mutual benefit of their members
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.5
Lack of goal clarity
Goal: provide some kind of public service
Governmental, scientific, educational,
charitable, religious, etc.
Various constituencies enforce sometimes
conflicting goals
Difficult to design MCSs and assess their
effectiveness
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.6
Difficulty to measure performance
The degree of achievement of the overall goal
(provision of quality service to constituencies)
usually cannot be measured accurately in
financial terms
Difficult to use results controls, install responsibility
centers, and compare the performances of subunits
with dissimilar activities
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.7
External scrutiny
Many overseers (donors, government entities,
alumni, etc.) often constituting the not-for-profit
organizations governing body
Extra demands on the MCS (detailed project proposals,
action reports, lengthy and time-consuming planning
and budgeting processes, etc.)
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.8
Legal constraints
Compliance with legal constraints calls for
tight action controls and increases control
costs
The provision of incentives may not be feasible
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012
Slide 17.9
Employee characteristics
Compensation is not always competitive
Impact on employee quality
(cf., personal limitations)
Employees are often highly committed
Control can be achieved through personnel
and cultural controls
Merchant, Management Control Systems PowerPoints on the Web, 3rd edition, Pearson Education Limited 2012