The Controlling Concept. Horváth & Partners Management Consultants

      Fig. 1.5:Job description of a controller

      For the following sections it is important to bear in mind the picture of Controlling within the management system of the company. Based on these underlying tasks of controllers – coordinator of planning, control and information supply – we can derive all their fields of activity and consolidate them in a cohesive and meaningful framework.

1.5The “House of Controlling” – Building blocks of an effective controlling system

      Based on the aforementioned definition of Controlling, the controller’s remit covers tasks relating to planning, control and information supply. In the following section, this framework will serve as the basis for deriving the building blocks of a comprehensive and effective Controlling system.

      In order to illustrate both the basic idea and the necessity of Controlling, we will first look at the following classical questions that should be asked in a company (cf. Fig 1.6). If you are able to answer all of these questions with a definitive “yes”, then feel free to put this book back down again, as your Controlling function is top of the line. If not, then perhaps you should read on.

      Fig. 1.6:Eight examples of questions on the necessity and basic concept of Controlling

      Every company has a specific strategy which they pursue by appropriately designing their operative processes and creating a suitable organisational structure. The Controlling system is embedded in this organisation. When it comes to the tasks, organisation and instruments involved, Controlling must form a cohesive entity, and must deliver a complete system. In this sense, a Controlling system comprises all the components necessary for executing each and every aspect of the Controlling function.

      In all, the Controlling system and its components serve management as management utilises the planning system by creating concrete plans, and to do so processes the information extrapolated by controllers from their information network to finalise decision-making.

      For this reason, an effective Controlling system must comprise all components required to guarantee the supply of target-orientated information. This helps management’s decision-making, as management is ultimately responsible for shaping the entire value chain appropriately to suit the changing environment.

How is the “House of Controlling” structured in your company?

      Thus, an effective controlling system must consist of the following elements in order to be able to complete the tasks of a planning and control system and of an information supply system (cf. Fig. 1.7):

      •Block 1: Management Accounting (cf. Chapter 2): First of all, it is vital that corporate management is supplied with the information necessary to objectively prepare for and take the right decisions. Here, the first important step is to determine precisely what information is needed, to gather that information and to present it in an appropriate format. The most important source of information within the information supply system is (internal) management accounting. Management accounting regularly calculates actual values and compares them with target values to gain information about the real degree to which operative targets are being achieved. This comparison of actual values with targets (target-actual comparison) and the analysis of the deviations form the basis for further performance management measures by corporate management. Effective management accounting consists of cost and profit accounting, investment appraisal and financial statements.

      •Block 2: Strategic planning (cf. Chapter 3): Frequently, controlling systems are set up purely with the aim of improving the efficiency of operations. Clarity concerning overall company strategy and the strategy of the individual business areas (divisions) is a prerequisite for this perspective. As the general conditions for the strategic management of companies are characterised by growing dynamism, internationalisation and complexity, aspects of strategic management and strategic planning are becoming increasingly important. The most important support activities for strategic management and strategic planning lie in coordinating and managing the strategy process and in supplying management with the information necessary for decision-making. At the centre of this are preconceived developments which represent both opportunities and risks for the company and thus a “potential for success”. The aim of strategic planning is to ensure the competitiveness and earning power of a company in the long term.

      •Block 3: Operative planning, budgeting and forecasting (cf. Chapter 4): In contrast to strategic planning, during operative planning controllers deal with developments which have already manifested themselves in the present through costs and activities. Budgeting is the transfer of operative plans into numbers and figures. Regular forecasts are created in order to facilitate ongoing monitoring and management of target achievement in the quantified operative plans during the year. A forecast is the projection of planned values throughout the year (e. g. projected annual earnings). This projection forms the basis for deviation analyses and enables the early initiation of reactions and counter-measures.

      •Block 4: Financial planning and performance management (cf. Chapter 5): Alongside securing the earning power and the economic production of goods and services of a company, the second most important factor for securing the viability and thus existence of a company is to ensure its financial strength, i. e. liquidity. To this end, financial planning and performance management is dedicated to ensuring the company’s day-to-day solvency, to securing short- and mid-term financing and to guaranteeing long-term liquidity.

      •Block 5: Management reporting (cf. Chapter 6): In many companies there is an organisational separation between the collection of information (e. g. in management accounting) and the use of that data. For this reason, there must be a transfer of information in the form of a suitable reporting system between the points of information creation and information use. Here it is important that we transfer such information in the form of appropriate key performance indicators (KPIs) as it will support the planning and control work of corporate management. This means that first we must select the most important information, then consolidate it into suitable KPIs, and finally prepare and present it in a suitable form tailored to the needs of individual recipients.

      •Block 6: IT system (cf. Chapter 7): Instruments of data processing and modern IT have become an integral and indispensable part of management reporting for companies today. The use of modern IT both improves the quality of the information supplied and of planning and control and makes the processes involved far easier (e. g. through automated data preparation, IT-based planning models or automated reporting systems). The biggest challenge here is digitisation.

      •Block 7: Organisation (cf. Chapter 8): Generally, Controlling organisation is seen as the combination of the organisational and operational structures in Controlling. When creating the organisational and operational structures, we should ask ourselves the following questions: Which fields of activity should be assigned to a Controlling department? At which level in the company organisation should Controlling activities take place? In which order do Controlling processes take place? How