1. Welcome to Our Presentation
on
Management control system in
Service organization and Multi-
national organization

2. Management control system in
Service organization

3. Service Organization:
In general, service organizations refer to those organizations that
produce and market intangible services. For several reasons,
management control in service industries is somewhat different
from management control in manufacturing companies, which
produce and market tangible goods.
Features of management control in service organization:
Absence of inventory buffer
Difficulty in controlling quality
Labor intensive
Multi-unit organizations

4. Professional service organizations:
Research and development organizations, law firms,
accounting firms, health care organizations, engineering firms,
architectural firms, consulting firms, advertising agencies,
symphony and other arts organizations, and sports
organizations are examples of organizations whose products
are professional services.
Special characteristics:
Goals
Professionals
Output and input measurement
Small size
marketing

5. Management control systems in
professional service organizations:
Pricing
Profit centers and transfer pricing
Strategic planning and budgeting
Control of operations
Performance measurement and apprisal

6. Financial service organizations:
Financial service organizations include commercial bank and
thrift institutions, insurance companies, and securities firms.
These companies are in business primarily to manage money.
some act as intermediaries; that is, they obtain money from
depositors and lend it to individuals or companies.
Special characteristics:
Monetary assets
Time period for transactions
Risk and reward
Technology

7. Healthcare Organizations
Healthcare organizations consist of hospitals, clinics, and
similar physicians’ organizations and medical laboratories,
among others.
Special characteristics :
 Difficult social problem.
 Change in mix of providers.
 Third-party payers.
 Professionals.
 Management control process.

8. Management Control System in
Healthcare Organizations
The strategic planning process in hospitals is important
because of the shift in the product mix, increase in the quantity
and cost of new equipment. The annual budget preparation
process is conventional. Huge quantities of information are
available for the control of operating activities. Financial
performance is analyzed by comparing actual revenues and
expenses with budgets.

9. Non Profit Organizations
A non profit organization is an organization that can not
distribute assets or income to, or for the benefit of, its
members, officers, or directors. The organizations can
compensate its employees, including officers and members
for service rendered and for goods supplied. a non profit
organization needs to earn a modest profit to provide funds
for working capital.

10. Management Control System of Non
Profit Organizations :
 Product pricing
Many non profit organizations give inadequate attention
to their pricing policies. Pricing of services to their full
cost is desirable.
 Strategic planning and budget preparation
In non profit organizations, strategic planning is a more
important and more time consuming process than in the
typical business.
 Operations and evaluations
In most non profit organizations, there is no way of
knowing what the optimum operating costs are

11. Management Control in
Multinational Organizations

12. Management Control Systems In
Multinational Organizations
Management control problems and practices in multinational
organizations are based on foreign operations and domestic
operation. Most of the practices for controlling foreign operations
are similar to those for controlling domestic operations. The
planning and control processes i.e strategic planning, budget
preparation, operating, variance analysis and reporting ,
performance evaluation and management compensation generally
are applicable to multinational organizations. Somehow, the
management control tools are to be tailored to the context of a
specific situation prevailing in a multinational organization.

13. Problems of Global Organizations
Cultural differences
Transfer Pricing
Exchange rates

14. Cultural Differences
One of the important contextual variables that influence
management control within a multinational enterprise is cultural
differences across countries. By definitions, a multinational
organization operates in multiple countries and therefore has to
contend with cultural differences as head office coordinates and
controls its subsidiaries.
4 Dimensions of Cultural Differences
Power Distance
Individualism/Collectivism
Uncertainty Avoidance
Masculinity/Femininity

15. Transfer Pricing
Transfer pricing for goods services and technologies represents
one of the major difference between management control of
domestic and of management control of foreign operations,
factors like taxation, government regulations, tariffs, foreign
exchange controls, funds accumulation, and joint ventures are
considered important in arriving ate the transfer price.
Factors of Transfer Pricing
Taxation
Government Regulations
Tariffs
Foreign Exchange Controls
Funds Accumulation
Joint ventures

16. Transfer Pricing Methods
Comparable uncontrolled price method
Price paid in uncontrolled sales or adjustments
Resale price method
transfer price= applicable resale price-
appropriate markup+/-adjustments
Cost-plus method
cost+ appropriate markup+/-Adjustment

17. Exchange rates
An exchange rate is the price of one currency in terms of
another currency. The cash flows of a multinational
enterprise{MNE) are denominated in several currencies,
and the value of each currency related to the value of
dollar is different at different times. These variations
complicate the problem of measuring the performance
of subsidiaries and subsidiary managers.

18. Different Types of Exchange rate
exposure
Translation Exposure
Changes in assets, earnings & liabilities
Translation Exposure
Receivable, payable, debts & interest payment
Economic Exposure
Operating or comparative exposure, Changes in
cash flow

19. Choice of Metric in Performance
Evaluation
There are basically three possibilities for choice of
metric in setting and tracking budgets:
The exchange rates prevailing at the time of budgets
are set(the initial exchange rate)
The exchange rates projected at the time budgets are
set(the projected exchange rate),or
The actual exchange rates prevailing at the time
budgets are tracked(“ending” exchange rate).

20. Management Consideration in Designing
Performance Evaluation Systems of MNE
 Should Subsidiary manager be held responsible for impact of
exchange rates on the bottom line?
Should home currency or the local one be used for evaluation.
If so, starting rate, projected rate or end rate be used?
should different types of impact be distinguished? If so, how?
Should these variations be used to evaluate performance of the
subsidiary?

21. Control System Design Issues
Subsidiary managers should not be held responsible for
translation effects.
Transaction effects are best handled through centralized
coordination of the MNE’s overall hedging needs.
The subsidiary manager should be held responsible for
the dependence effects of exchange rates resulting from
economic exposure.
Evaluation of the subsidiary as a basis for a decision to
locate operations in a country or to relocate operations
from a country should reflect the consequences of
translation transaction, and economic exposures.