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CHAPTER 14

SERVICE ORGANIZATION

Zuni Barokah, M.Com., Ph.D. Magister Manajemen

Fakultas Ekonomika dan Bisnis UGM 2014

General Characteristics

Absence of Inventory Buffer Services cannot be stored => no need much Inventories

Difficulty in Controlling Quality Cannot judge product quality until the service is rendered

Labor Intensive Service companies = labor intensive = cannot reduce labor cost

like manufacturing companies do

Multi-Unit Organization Multi-unit organization provides common basis for analyzing

budget and evaluating performance that not available in the manufacturing companies

Historical Developement

Cost Accounting for manufacturing company gives information about work-in-proces and finished goods inventories for financial statement purpose

Service Company have different impetus to develope cost data (use of product cost and other management accounting data is fairly)

Nowdays service companiess management control systems as well developed as manufacturing companiess

Type 1: Professional Service Organization

Special Characteristics Goals:

Provide adequate compensation to the professionals

Professionals:

Labor is of a special type (independent, work part time on management activity)

Output and Input Management

Input is easy to be measured , but output is not. Revenue measured by quantity of services rendered

Small Size

Marketing

Divided line beetween marketing activities and production activities doesnt exist

Management Control Systems

Pricing

Selling price of work is set in traditional way, e.g : hourly billing rate

Profit Centers and Transfer Pricing Support units charge consuming units for their services. Transfer pricing is

the same as manufacturing companies

Strategic Planning and Budgeting Not as well developed as manufacturing companies, because Professional

organizations dont really need this system

Control of Operations

Much attention on schedulling time of professionals (billed time ratio)

Performance Measurement and Appraisal

Judgement made by superiors, budget analysis

Type 2: Financial Service Organization

Special Characteristics Monetary Assets

Monetary assets are the same among all financial organizations. Quality refers to quality of services rendered and quality of financial instruments other than money (e.g : interest)

Time Period for Transactions

Period can changes purchasing power of money, so performance of structuring the loanm or selling and pricing short or long term product cannot be measured at the time decision made

Risk and Reward

Greater risk = greater reward

Technology

Management Control?

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Type 3: Health Care Organizations

Special Characteristics Difficult Social Problem

Change in Mix of Providers

Third-Parties Payers

Professionals

Importance of Quality Control

Management Control Systems?

Type 3: Health Care Organizations

Management Control Process Strategic planning process is very important

Because of product mix + increase in quantity & cost of new equipment)

Annual budgeting process is conventional

Information are available quickly for control of operating activities

Financial performance is analyzed by comparing actual revenues and expense vs budgeted

Type 4: Nonprofit Organizations

Special Characteristics Absence of the Profit Measure

Contributed Capital: Plant and Endowment

Fund Accounting

Most organizations have (1) General Fund or Operating Fund, (2) Plant Fund and Endowment Fund, (3) Other fund for special purposes

Governance: Governed by boards of trustees

Nonprofit Organizations

Management Control Systems

Product Pricing

Pricing of services at their full cost (Direct Cost + Indirect Cost + allowance for increasing equity)

Strategic Planning and Budget Preparation

Most time-consuming activity because Nonprofit Organization need to allocates limited sources to worthwhile activities.

Operation and Evaluation