MCS Report On Piedmont University
MCS Report On Piedmont University
MCS Report On Piedmont University
Submitted by:
Group L
Gagandeep Singh Dhingra N-22
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Acknowledgement
We would like to show my greatest appreciation to Dr. Monica Singhania who rendered her assistance
and cooperation during the course of study. Without her encouragement and guidance this study would
not have materialized.
We would also like to show our sincere gratitude to Faculty of Management Studies, and its resources
for providing us a platform to understand, analyse and conclude the study on Piedmont University. The
case study focuses on analysis of various departments of Piedmont University as cost centers, revenue
centers etc. and their importance to convert Piedmont University into a profitable venture.
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Table of Contents
1. Acknowledgement .............................................................................................................................2
3. Objective............................................................................................................................................4
7. Recommendations..............................................................................................................................9
II. Do you see other problems with the introduction of profit centres? If so, how
would you deal with them?
IV. Assuming that most of the issues could be resolved to your satisfaction, would
you recommend that the profit centre idea be adopted, or is there an
alternative that you would prefer?
9. References ......................................................................................................................................12
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Objective
To provide insights into management control systems for service organization
To analyse and understand the importance of forming profit centers, expense centers etc and
its relevance to Piedmont University.
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Professor Scott became the president in 1984. At that time 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 by applying the
following:
Raised tuition.
The above did not seem to improve the situation of declining enrolment.
In the present situation of financial control, annual expenditure budgets were allocated from
Deans and Administrators of support departments. Budgets were usually approved with minor
changes with emphasis on monitoring major items and less focus on adhering to ‘other items’.
Overall it can be said that there was a lack of budget discipline.
In 1986, Mr. Malcom who was a Piedmont alumni and partner in local consulting firm,
volunteered to examine the situation and offered the following recommendations:
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
expenditures of their activities.
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He proposed the reorganization of Piedmont University into profit centers. Besides this major proposal
he also offered that deans and administrators should submit budgets for both revenues and expenses.
Majorly he hinted at general shift in responsibilities. He stressed new procedures for:
Rough estimates of 1986 Impact of Proposals is given in the tabular form in the following page.
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Estimates of 1986 Impact of Proposals
Profit Center:
Other:
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Reorganization of university as ‘Profit Centers’ was most important and controversial recommendation
University Council discussed this is detail and in general there was support for of Profit Center. It should
be highlighted that administrators of non-core departments (e.g. Library, Maintenance Dept.) not
included in discussion. There were large areas of disagreement, some of which are highlighted below:
Central Admin Proposed formula unfair to Grad School. Deans did not want responsibility for
Costs allocated costs over which they had no control
Gifts and Too much authority for president; some way of reducing president’s discretionary
Endowments powers sought
Computers Fear that usage fees and computer regulation would discourage computer usage
Library Proposed fees (annual and/or usage fees) would increase paperwork
Cross Registration Complex formula for transferring revenues & expenses between schools
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Recommendations
Based on the proposal of Malcom and analyzing the present situation of Piedmont University, it can be
said that profit centre may not always be a correct approach in finding the solutions of problems in
corporate world. Some of the recommendations are listed below:
1. Based on the situation and the type of organization, there should be a mix responsibility centers.
4. In some situations there should be motivation to increase motivation and creative ideas.
5. In Piedmont University the schools managers to have better control as profit centers.
6. Besides formation of proper responsibility centers other management techniques like balanced
score card, reporting structure & system, transfer pricing and goal congruence to meet strategic
objectives should be used.
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2. Gifts and endowments should be part of Central Admin. The donations should go to
students University may absorb cost as part of administration and schools should have
input into allocation
3. Athletics should be a profit centre. There should be annual fee for users should be
charged. This should be analysed on break-even goal and cost-recovery.
4. Maintenance should function as an expense centre. Schools to have cost based billing
and may seek outside bids.
6. Library should function as expense centre. A fixed annual fees in context of library
should be charged which should be included within tuition fee
2. Do you see other problems with the introduction of profit centres? If so, how would you deal
with them?
There are some complexities involved with introduction of profit centres. The issues and resolution is
listed below:
1. Profit Center approach doesn’t recognize non-monetary factors (e.g. quality of education and
scholarship) The solution is to focus on core values (MBO (Management by Objectives) &
Balanced Scorecard)
2. There might be competing activities between multiple profit centres (Campus Placements,
Cultural events Alumni etc). Solution here is requirement of better coordination needed under
president’s leadership.
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3. Situation when schools are unprofitable? Some schools may never be profitable yet may still be
essential to goals and objectives of university. Profit centre approach not meaningful in this
case, Discretionary expense centre approach would be more appropriate
4. Unanticipated risks (school’s competing for students, staff strikes, student dissatisfaction, faculty
disenchantment, reputation of university). The solution therefore is to have responsibility
centres approach.
Profit should be defined in non-monetary terms with stress on performance measures. For instance
individual schools should be gauged on following:
e. Trends in enrollment
The support functions should be analysed based on historical costs and costs compared to market costs.
In present environment the intent should be to minimize focus on ‘profit’ and focusing on the vision and
goals of Piedmont University. Some of the prime issues are that students already paying more and are
not allowed increasing faculty. Piedmont University should focus on academics and rebuild quasi-
endowment
4. Assuming that most of the issues could be resolved to your satisfaction, would you
recommend that the profit centre idea be adopted, or is there an alternative that you would
prefer?
The prime issues involved with introduction of Profit centre approach is loss of control for top
management, drop in quality of management, issue of friction over the transfer price and common costs
and organizations units’ competition. Therefore Profit centre approach may be called appropriate but
not necessarily ‘profit focus’ approach. “Profit” should be gauged as the achievement of school’s
objectives. However financial management must still be the priority. At the same time common sense
and organizational culture play a vital role. The exact solution therefore is to apply management
techniques like MBO or Balanced Scorecard and enhancement of management capabilities to ensure
achievement of goals.
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References
1. Management control systems: text, cases and readings By Robert Newton Anthony, John
Dearden, Richard F. Vancil
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