It is extremely difficult to define what Management Control is in a concise manner without referring to concepts of Strategy, Top Management and Organisation, so articulated and subject to variations; the words organisation, management, system, control taken individually they evoke clear and commonly used concepts, but when they are “put together” it gets complicated. This is why I prefer a different and more “practical” approach.
Managing a company in the best possible way means systematically asking oneself the following three questions:
- Where are we? That is, in what “condition” are we in, what numbers represent our company? Answering this question means collecting the data (numbers) that best represent our company in terms of profitability, assets, finance, production, etc.
- Where do we want to go? That is, what goals do we want to achieve in the short, medium and long term? Setting goals means setting sales forecasts, setting production budgets, setting development plans (investment, research),
- What do we have to do to get there? That is, what actions do we need to take to achieve the goals we have set ourselves? In other words, detail the actions we deem appropriate to achieve what we defined in step 2 and put them into practice.
- Were the choices we made and the actions we took effective and efficient? Checking the effectiveness of our actions means verifying whether the result of our actions “goes in the right direction”; that is, verifying the deviation between the result obtained and the desired result. It is therefore necessary to collect again the data (numbers) that best represent our company from the income, equity and financial points of view. The effectiveness of what we have done will be measured by analysing the deviations between the budgeted and actual figures. The efficiency of what we have done will be measured through production or economic performance indexes (e.g. hourly cost, productivity, incidence of sales, stock rotation, etc.).
Management Control is that “something” that allows us to put this scheme into practice and, therefore, can be defined as follows:
A set of tools and procedures that allow us to establish where we are and give useful guidance on what we need to do to get where we want to go.
Wanting to make an analogy with an object that has now become part of everyday life, Management Control is the company navigator is the tool that allows us to reach the destination we want and to know if we need to make corrections because “some diversions has taken us off course”.
The task of a Management Control expert is:
- understand the needs of managers (those who “drive” the company with day-to-day decisions), i.e. what data they need to make decisions.
- understand the characteristics of the company and implement a data collection system by defining its tools (the such as) and procedures (the who e the when) so that the system provides reliable and timely data while minimising the cost and impact on the organisation (if no “improvement” is required). Returning to the navigator analogy, this phase corresponds to the design and implementation of the GPS satellite system.
- to enable Managers to use the data provided by the system correctly, it must therefore ensure that Managers know the genesis of the numbers. What is the use of knowing that the hourly cost is €23.4 per hour if you do not know which items comprise that number?
- support managers to gain experience in interpreting data and learning how to use the system.
- support the company over time so that the management control system adapts and evolves accordingly.
Article published in the SME Journal