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