2. Faisal Al-Eidan - 1500

3. Hassan Ghura - 1512

4. Qutaibah Al-Khaldei - 1550KMBS - Intake 11, Group 2 1

5. Purpose of presentation To provide insights into management control systems for service organization. KMBS - Intake 11, Group 2 2

6. Scope of the Presentation Case Facts Issues/Questions to Address Relevant Theory Conceptual Framework Case Analysis Solutions/Recommendations Lessons Learned Domestic Dimension KMBS - Intake 11, Group 2 3

7. When Professor Scott became the president in 1984, the university was facing declining enrollment and increasing cost. The deficit resulted from using the principal of quasi-endowment funds. Professor Scott instituted measures to turn the financial situation around: - Raised tuition. - Froze faculty and staff hiring. - Reduced operating cost. KMBS - Intake 11, Group 2 Case Facts 4

9. Recognized the university into a set of profit centers.KMBS - Intake 11, Group 2 Case Facts (Cont.) 5

10. At the time the principal means of financial control was an annual expenditures budget submitted by the dean of each school and other support departments’ heads. Malcom proposed that the deans and other department administrators would be responsible for both revenues and expendituresof their activities. KMBS - Intake 11, Group 2 Case Facts (Cont.) 6

11. Case Facts (Cont.) Issues of Profit Centers Central Administrative Costs. Gifts and Endowment. Athletics. Maintenance. Computer. Library. Cross Registration. KMBS - Intake 11, Group 2 7

12. How should each of the issues described above be resolved? Do you see other problems with the introduction of profit centers? If so, how would you deal with them? What are the alternatives of a profit center approach? Would you recommend that the profit center idea be adopted, rather than alternative? KMBS - Intake 11, Group 2 Issues and Questions to Address 8

13. Relevant Theories Manufacturing Organizations Service Organizations Produce and market tangible goods. Earn revenue in future from stored products. Control quality is high Require low labor. Hard to share information in multi-unit orgs. Produce and market intangible goods. Can’t be stored. Costs are fixed in short run. Hard to match between current capacity with demand. Control quality is low Require intensive Labor. Information can be shared in multi-unit orgs. KMBS - Intake 11, Group 2 9

14. Organizations that cannot distribute assets or income to owners or shareholders. It doesn’t prohibit an organization from earning profit, it prohibits only the distribution of profits. It can compensate its employees for services rendered and for goods supplied. In many industry groups, there are both nonprofit and profit oriented. (e.g. Hospitals and Schools) KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 10

16. It’s necessary goal to have a good financial statement to ensure organization survival.

17. NPO doesn’t have equity section in balance sheet.

18. Endowment assets must be kept separate from operating assets. Thus, NPO has two sets of financial statements.Operating statement. Contributed capital. KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 11

20. NPO is governed by board of trustees:Not paid Less control Need for strong governing to detect the difficulties. KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 12

21. Management Control Systems considerations: Product pricing. Strategic planning and Budget preparation. Operation and Evaluation. KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 13

23. It’s directly related to org. objectives.

24. Peripheral activities should be market-based.

25. Dysfunctional services: Nonprofit Hospital.

26. MCS is effective when prices are established prior to the performance of the service.KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 14

27. Aid to develop new programs. Activity Based Costing (ABC): Indirect cost is now the main concern of cost in many Firms. Therefore, we must assign overhead in proportion to the activities that generate it in the long run to have better cost information. KMBS - Intake 11, Group 2 Analytical Techniques: 15

29. Budget is the most important MCS tool where managers of responsibility centers are required to limit spending close to budget amounts.KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 16

31. MCS is becoming more efficient in response to shrinking sources of funds.KMBS - Intake 11, Group 2 Relevant Theories Nonprofit Organization (NPOS) – (Cont.) 17

33. Performance in these centers is judged by the criteria of efficiency and effectiveness.

34. In profit centers, both revenues and expenses are measured in monetary terms.

35. In setting up a profit center a company devolves decision-making power to those lower levels. KMBS - Intake 11, Group 2 Conceptual Framework 18

36. Increase the speed of decision making. Improve the quality of decisions. Focus greater attention on profitability. Provide a broader measure of management performance. KMBS - Intake 11, Group 2 Advantages of Profit Center 19

37. Loss of control for top management. Quality of management may be reduced. Friction may increase over the transfer price and common costs. Organizations units competition. May impose additional cost for additional management at each profit center. KMBS - Intake 11, Group 2 Difficulties With Profit Centers 20

38. KMBS - Intake 11, Group 2 Case Analysis Central Administration Issues: 21

39. KMBS - Intake 11, Group 2 Case Analysis Gifts And Endowment Issues: 22

40. KMBS - Intake 11, Group 2 Case Analysis Athletics Issues: 23

41. KMBS - Intake 11, Group 2 Case Analysis Maintenance Issues: 24

42. KMBS - Intake 11, Group 2 Case Analysis Computer Issues: 25

43. KMBS - Intake 11, Group 2 Case Analysis Library Issues: 26

44. KMBS - Intake 11, Group 2 Case Analysis Cross Registration Issues: 27

45. Better reporting system. Training for schools managers. Periodic meetings between schools managers and other departments(culture issues, reward system, quality improving) Encouraging goal congruence to overcome competition and high transfer price. KMBS - Intake 11, Group 2 How to Deal With Profit Centers Problems? 28

46. Balance scorecard, behavioral implications: Financial strength. Business process improvement. Customer satisfaction. Organizational learning. Reward structure linked with balance scorecard. KMBS - Intake 11, Group 2 How to Deal With Profit Centers Problems? (Cont.) 29

47. Alternatives of Profit Centers Approach Mix Responsibility Centers Unallocated Cost Expense Centers Central Administration Athletic Computer Library Maint. Undergraduate liberal arts school Law School Business School Graduate liberal arts school Engineering School Theological School KMBS - Intake 11, Group 2 Profit Centers 30

48. We recommend to mix responsibility centers: Improving quality and speed of decisions. Appropriate cost allocation. Increase motivation and creative ideas. Schools managers have better control as profit centers. clear rules for transferring price. KMBS - Intake 11, Group 2 RECOMMENDATIONS 31

49. There are special considerations in MCS for service organizations. The absence of the profit measure is a seriousMCS problem for nonprofit organizations. Performance in profit centers is judged by the criteria of efficiency and effectiveness. Effective MCS should include: Good reporting system. Balance scorecard linked with reward system. Fair transfer price. Goal congruence to meet strategic objectives. KMBS - Intake 11, Group 2 LESSON LEARNED 32

50. Manaber Alnour charity established in 2005 by AwadhAlfadhli. Manaber Alnour is a nonprofit organization interested in religious, education, and social activities. KMBS - Intake 11, Group 2 DOMESTIC DIMENSIONS MANABER ALNOUR CHARITY (MAC) 33

51. Vision: Building a generation that understands the Quran and behaves accordingly. Mission: Dawaa and educational organization that takes care of building a balanced Quranic characteristic through creating an environment that makes the Quran loveable and encourages memorizing it and how to behave accordingly. KMBS - Intake 11, Group 2 DOMESTIC DIMENSIONS MANABER ALNOUR CHARITY (MAC) – (CONT.) 34

52. In 2008, MAC faced financial crises up to the limitation of enrollment and increasing cost. Charity units budgets were cost centers (non revenue generation budget). Charity financial resources are: - Endowment. - Donations. - Tuition fees. KMBS - Intake 11, Group 2 DOMESTIC DIMENSIONS MANABER ALNOUR CHARITY (MAC) – (CONT.) 35

53. MAC President asked for help from consultents to encounter the financial crises in order to save the financial situation. The specialists offered the following recommendations: - Increase the tuition fees. - Increase the fund raising. - Depend more on volunteers. - Recognize the charity into set of profit centers. KMBS - Intake 11, Group 2 DOMESTIC DIMENSIONS MANABER ALNOUR CHARITY (MAC) – (CONT.) 36

55. Training center

56. Computer lab

57. General activities.KMBS - Intake 11, Group 2 DOMESTIC DIMENSIONS MANABER ALNOUR CHARITY (MAC) – (CONT.) 37

59. organized training course and workshops for local communities.38

62. organized summer clubs.39