The discovery of vast petroleum reserves in the country of Atlantis has led to massive expenditures on government services. Several years ago, the Minister of Communications had automated the Atlantis post office, but despite the latest equipment, the delivery of mail remained slow and unpredictable. Considerable pressure to improve the mail system was exerted on the Atlantis government by business leaders claiming that it was essential for continued economic growth. A Canadian management consulting firm was commissioned by the Atlantis Minister of Communications to recommend improvements in the mail service. Alex Peach, CMA, was sent to Atlantis to analyze the situation. In his initial self-familiarization with Atlantis, Alex noted many similarities to Canada: size of population, large cities separated by long distances, and remote regions with poor communication systems and small populations. In recent years, since the automation of the post office, deliveries that had previously taken several weeks were now taking several days. Alex reviewed the seven organizational departments and decided to do a preliminary investigation of each. 

The general manager of the post office told Alex that she wondered whether it would be feasible to use a profit-based management control system. Currently, the operating departments are organized as cost centres, except the marketing department, which is a revenue centre. The general manager’s office prepares annual departmental budgets by applying a growth factor to the previous year’s budgets. Alex’s investigation of the seven departments revealed the following information.

1. Transportation Department: The department manager is responsible for the domestic and international movement of bulk mail. He is evaluated on a two-part budget: fixed costs and variable operating costs. The variable portion is based on total weight moved times an average cost factor. The transportation manager complains that his equipment is old and always breaking down. His requests for repairs to the maintenance department are always turned down with the explanation that the equipment needs to be replaced. However, the general manager refuses equipment replacement requests from the transportation department because of a long-standing clash of personalities between the two managers. Another complaint of the transportation department manager is that the sorting department increases transportation costs by sorting at the source post office and shipping small bags of mail to many destinations. He also resents political interference in the awarding of international mail contracts to airlines, usually favouring Atlantis Airlines at higher rates. 

2. Sorting Department: In all postal stations, sorting is performed using modern equipment. Incoming mail is first sorted into three categories: parcels, commercial, and first class. Then the mail is sorted according to final destination. The shift supervisors tend to select commercial mail first since it includes junk mail, which is easily and quickly sorted. The sorting department manager is evaluated on a flexible budget based on the actual number of pieces sorted in the year. The sorting department manager is very dissatisfied with the organization system. Since the sorters are unionized, he feels that he can do very little to improve their productivity. Furthermore, the marketing department encourages high-volume junk mail, which delays the sorting of first-class mail and increases the frequency of equipment breakdowns. 

3. Delivery Department: The department budget is composed of a fixed amount plus a variable cost based on the number of pieces delivered. The manager can best meet the budget in commercial areas, where whole bags are delivered to large clients. In new suburban areas, he favours central customer mail boxes, but customers and the union demand home delivery. 

4. Maintenance Department: In an attempt to keep maintenance costs down, the department is on a fixed budget. There is a tendency by the department manager to recommend replacement of post office equipment rather than incurring the expense of repairing equipment, since the replacement costs are the responsibility of the administration department. 

5. Marketing Department: The department is evaluated as a revenue centre, with a budget based on annual sales increases over the prior year. The manager confided that she encourages expansion in commercial junk mail and home first-class letters. The commercial market is one where promotion has produced tangible results and the home market is growing rapidly with the suburban population explosion. 

6. Administration Department: The general manager is convinced that the only practical way to control administration expenses is by fixed budgets. The department manager complains that his budget is typically exceeded because, with the exception of requests from the transportation department, the general manager seldom refuses requests for capital expenditures. 

7. Personnel Department: This department is also on a fixed budget that it is not allowed to exceed. The manager confided that he often had to lay off some of his own staff for a month or two at the end of each year in order to stay within the budget. Moreover, selection criteria for post office personnel are poorly defined and the manager is often pressured to hire friends and relatives of politicians. 

Required

Analyze the management control system of the Atlantis post office. Recommend, with reasons, possible improvements and discuss anticipated behavioural consequences.