KNOWLEDGE REPOSITORY _
Useful information, hints
We created our knowledge base to provide our visitors with useful information and advice in the following areas of business life.
Definition of Controlling
As with many fields of science, controlling has numerous professional and less formal definitions. Regardless of how it is phrased, these definitions share common points:
- Controlling is a management subsystem.
- It is created to perform coordination and integration tasks.
- Its focus is on aligning costs and revenues, and on monitoring performance and resource usage.
- Its objective is a more efficient operation of the system.
The Controlling Process
Controlling is essentially a continuous activity consisting of four steps.
Step zero is not strictly a controlling task; it about defining the company’s goals. Based on corporate strategy, different departments formulate their objectives for the foreseeable business horizon.
The first real controlling step follows, where the expected, measurable results are defined jointly with the functional areas, along with the methods for measuring them. This is essentially the planning function, which assigns an expected result to every significant task. Although there may be a temptation to set lower targets or revise them downward during the process, this should be avoided, as it does not solve real performance problems. However, there may be justified cases where management adjusts goals downward due to changes in resources or the business environment.
The second step is the measurement and reporting of the company’s operational performance based on the previously defined objectives. Many methods exist, depending on the company and product type. Measurement tools may include performance reports, sales reports, and databases. The controller’s work is greatly supported if business operations are assisted by an administrative or IT system where tasks are recorded. In such systems, controllers work with real-time data, which significantly reduces reaction time.
The third step in the four-step controlling process is the comparison of expected and actual results. This is the “moment of truth,” when departments face their performance for a given period. Analyzing deviations is extremely important, though identifying their causes is often complex. If deviations remain within predefined tolerance levels, no action is required (management by exception).
The fourth and final step is taking corrective or preventive actions when expected and actual results differ. After professional and comprehensive analysis, company management decides on the necessary interventions.
Characteristics of the Controlling Process
Controlling is a continuous, cyclical activity. It helps identify new and recurring problems and their causes, which management must address with appropriate solutions. Controlling is often perceived negatively within companies, as it constantly forces adaptation and change on both the organization and its employees.
Ideally, every employee should feel responsible for controlling tasks. A typical statement such as “there is another problem, but it’s not my responsibility” should not be accepted. The correct mindset is that every employee, regardless of position, is responsible for customers and corporate assets.
Controlling works closely with other corporate functions, as it builds on planning, organization, and management functions.
Areas Measured by Controlling
Initially, controlling focused exclusively on finance, but today it extends beyond the accounting department to the entire company. Typical controlling areas include:
- Time controlling – Measures adherence to deadlines and the timing of processes.
- Materials controlling – Develops measures to improve warehouse and material usage efficiency.
- Cost controlling – Plans and continuously monitors actual and internal accounting costs, as well as virtual costs arising during company operations.
- HR controlling – Performance management, absences, accidents.
- Operational controlling – Examines how efficiently the company produces goods or provides services alongside its processes.