How management control helps the enterprise

Fluctuations in market conditions, increasingly complex business environment, new regulations and changes to internal processes require the company to have a variety of targeted data, clear and accurate to make stronger decisions, timely and effective – in a word, better decisions.

For these reasons, in recent years many companies, even small or medium-sized, have approached, with the aim of observing and analytically interpreting internal phenomena, the issues of management control, a field deeply connected and integrated with most business dynamics.

The Dalla Libera Studio in Padua is developing a service, aimed at Smes, that is able to connect and integrate company data (exploiting existing databases)in combination with professional support to enable information to be interpreted correctly and functionally. The aim is to offer management and managers of business areas a useful reading key in the formulation of strategic choices but also in the optimization of daily activities.

The most common definition of management control is that of a monitoring system with mixed techniques: accounting, extra-accounting and statistics. It aims to provide information useful to govern the company, to guide decisions so that they are consistent with reality, to account for any deviations from the objectives; in summary we talk about the construction of a dashboard that allows analysis, through indicators and graphs, business performance to evaluate management.

But how in the concrete the control of management helps the enterprise to grow or to improve?

It is necessary that the management control leaves prints and Excel sheets stand alone and adopts advanced tools such as business intelligence able to draw from various archives (data containers) the information necessary to structure interactive dashboards for the user. Today this technology is relatively inexpensive and simple: So if you rely on a consultant expert in management control and business intelligence you can equip the company with this fundamental tool to monitor performance by structuring together dashboard and indicators.

But back to the question: How can growth or improvement come about and be verified by management control?

According to Kaplan and Northon, for a growth-based strategy, it is necessary to invest in often new resources that lead to higher revenues with new markets, new products or acquisitions (M&A). To improve, instead, it is necessary to base the strategy on the optimization of the cost structure of your business model (without sacrificing the minimum expected level of service) and/ or efficiency of the sales mix to obtain maximum profitability from your business.

Now, for both cases, you need:

1. Taking a snapshot: it represents the original starting situation.
2. Build a metric of objective and valid judgment: build indicators able to determine the minimum levels of performance budgeted and offer a storytelling of the facts of management with punctuality and discreet precision.
3. Choose a tool for this monitoring and for calculations: the most modern and reliable is today business intelligence because it evolves spreadsheets making analysis interactive, on time, digital.
4. Monitor facts and performance through a reporting system and company sharing procedures with the centres of responsibility so that you can intervene promptly in case of deviation or that, when making a choice, it is supported by numbers.

When a company takes control of the numbers that management generates, and determines indicators that can produce judgements on the goodness of performance, it actually assumes full control of its own fortunes and there will no longer be areas out of control.

Anyone who approaches management control as a first step should consult the reference professional to build a budget and forecast budget.  This should usually be combined with:

1. a statistical analysis of seasonality over the last 3-5 years;
2. a balance sheet analysis of the economic, capital and financial indicators of the last 3-5 years.

The first is to determine seasonality by indices; the second to validate trends and an average structure of your business model.

In this way, the forecast budget and the budget can be broken down over the year according to seasonal indices and respecting the average business model structure applying only adjustments where necessary (investments, divestments, recruitment, etc.).

In the coming weeks we will be available to anyone who wants to deepen with us a point of view on these issues, or to understand how your company can also benefit from management control.

(Matteo Furlan)