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Not-for-Profit Organizations in Hospitality, Tourism, and Events

Learn about the definition and importance of not-for-profit organizations in the hospitality, tourism, and events sectors. Explore management accounting techniques and how the not-for-profit nature influences accounting orientation. Discover the implications for decision-making, cost control, budgeting, pricing, performance analysis, strategic management accounting, and environmental management accounting.

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Not-for-Profit Organizations in Hospitality, Tourism, and Events

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  1. Chapter 19 Not-for-profit Organisations

  2. Objectives After studying this topic you should be able to: Defining not-for-profit organisations; The importance of this sector within hospitality, tourism and events; Management accounting techniques of particular use within these organisations; and How the not-for-profit nature influences accounting orientation and importance.

  3. Defining not-for-profit organisation A not-for-profit organisation is one whose key focus is not on generating profits. Types of Organisation include: charitable organisations and governmental bodies of all shapes and sizes. Just like ‘for profit’ organisations these vary in sizes from a local village based charity to large international charities which are multimillion pound operations. Governmental bodies again can range from local government, to national government to international bodies. This can include police forces, national health services, and social care facilities. The full range of the community, social and voluntary organisations are endless.

  4. International Classification of Non-Profit Organisations (ICNPO) part 1

  5. International Classification of Non-Profit Organisations (ICNPO) part 2

  6. International Classification of Non-Profit Organisations (ICNPO) part 3

  7. Their significance to the hospitality, tourism & events sectors The impact of the not-for-profit sector on the hospitality, tourism and events sector can be separated into two key groups: Not-for-profit organisations working in providing hospitality, tourism and event based services; Not-for-profit organisations that use hospitality, tourism and events organisations, particularly in relation to fund raising opportunities.

  8. Hospitality and the NFP sector Includes: Catering in hospitals, prisons, care homes, schools, universities, museums, ‘meals-on-wheels’, staff canteens Commercial venues running or sponsoring charity events e.g. charity balls

  9. Tourism and the NFP sector Includes: International and national charity challenge event running by tour operators Providing specialist holidays for disadvantaged groups of children, those that are sick or disabled

  10. Events and the NFP sector Includes: Major importance to the events industry, employing many events staff Events range from small local school or sporting events to major international charity events. Examples include: Band Aid (www.bandaid.org.uk) Oxjam (www.oxfam.org.uk/oxjam)

  11. The implications for management accounting approaches (1) Issues of accountability – commercial organisations report to shareholders and lenders, NFP organisations have added scrutiny and public accountability, ensure grants and donated funds are not ‘wasted’ and morally obtained. This makes for being risk adverse and committee involvement in decision making. Cost control and budgeting – Budgeting and strict cost control are essential, this can lead to inflexibility and an inability to quickly respond to change. Often a traditional approach to the use of these techniques.

  12. The implications for management accounting approaches (2) Decision making Goes beyond financial imperatives can be bureaucratic process to eliminate risk which slow down decision making, so alternative ‘emergency response’ mechanisms needed to deal with response to specific crisis situations. Long-term decision can use investment appraisal techniques (ARR, PBP, NPV, or IRR), but the evaluation may not have a financial imperative . Cost-benefit analysis can be useful as it goes beyond pure financial analysis. (see expenditure on a road example)

  13. The implications for management accounting approaches (3) Pricing – This is important to NFP organisations, whether it be selling merchandise to add surplus funds, or ensuring charity event registration fees cover costs. There is also a further consideration of ‘social inclusion’ in pricing, for example a local authority run museum or leisure facility where the price can encourage all groups of society.

  14. The implications for management accounting approaches (4) Performance analysis – quite often this goes beyond financial considerations – often monetary value is just a ‘means to an end’ and not the target – see examples

  15. The implications for management accounting approaches (5) Strategic management Accounting – Given the strategic nature of SMA and its inclusion of non-financial considerations it is well suited for use in NFP situations, with examples of use relating to the balanced scorecard and CSFs in particular. Environmental management accounting – There are two imperatives: Where there is grant, public or charitable funding involved the ‘wasting’ of resources will be under scrutiny, whether it is recycling, minimising fuel usage, or running a ‘paperless’ office to aid the environment. The charity or government organisation may have a specific remit related to people and/or the planet. When this is the case they morally have a duty to run their own organisation by means of ‘best practice’.

  16. Summary Not-for-profit organisations are a major sector of the economy that needs to use management accounting tools to maximise returns and control costs. Public accountability can led to ‘conservative’, low risk taking decision making, that often takes a long time through a committee process. ICNPO identifies the range of not-for-profit sectors that exist, many are in, or work with hospitality, tourism and events organisations. Management accounting in NFP organisations needs to reflect the fact profits are not their ultimate goal; money is a means to an end, not the final output in many cases. Strategic management accounting techniques can be important as they integrate non-financial information and goals.

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