Basics of Controlling. Origin, meaning, structure and objectives

Texte Universitaire , 2004 , 30 Pages , Note: 1,7

Gestion d'entreprise - Controlle de gestion

This text gives a short summary of controlling. It discusses the origins, significance, essential principles, structure and weaknesses of classical controlling.

From the contents:
Historical development,
Concept of "controlling",
Changes in the business environment,
Necessity of controlling,
The goals, The tasks, The instruments,
Key figures and key figure systems,
Strategic and operational controlling
Structure of controlling,
The controlling system,
The controlling concept,
Weaknesses of classical controlling.

Table of contents

1 Introduction

2 Development of Controlling
2.1 Historical development
2.2 Term "Controlling"

3 Importance of controlling
3.1 Changes in the business environment
3.2 Necessity of controlling

4 Basics of Controlling
4.1 The objectives
4.2 The tasks
4.3 The instruments
4.4 Key figures and key figure systems
4.4.1 Key figures
4.4.2 Key figure systems
4.5 Strategic and operational controlling
4.5.1 Strategic Controlling
4.5.2 Operational Controlling

5 Structure of controlling
5.1 The controlling system
5.2 The controlling concept

6. Weaknesses of classical controlling

Bibliography (incl. further reading)

1 Introduction

This text gives a brief summary of controlling. The origin, the significance, the essential foundations, the structure and the weaknesses of classical controlling are discussed.

2 Development of Controlling

The emergence of controlling will be discussed in more detail in the following on the basis of the historical development and a definition of the term "controlling".

2.1 Historical development

As the historical analysis shows, the first controlling tasks arose as early as the 15th century in the state administrations of England. This body was called a controller with the task of checking records of money and freight traffic.¹

In 1778, the U.S. Congress drafted a legal basis for the use of the controller in the civil service, whose task was to manage the state budget and monitor the use of funds.²

The emergence of institutionalized controlling tasks in today's sense is primarily the result of industrial development in the USA. The first position of controller was created in 1880 by the American railroad company >Atchison, Topeka & Santa Fe Railway System<. At that time, the tasks were predominantly of a financial nature. In 1892, the position of controller was then also created at the company <General Electric Company<.³

The decisive breakthrough for the establishment of controlling offices came only after the world economic crisis in 1923, when attempts were made to stop an economic ruin at an early stage with methods of safe planning and control.⁴

In the forties in America, the controller was already entrusted with the tasks of accounting, auditing, evaluation, tax determination and coordination.⁵ The position of controller, together with the planning, became an instrument with a strongly future-oriented task. From the beginning, the controller was either a member of the management board or directly assigned to it as a staff unit.⁶

In Germany, the controlling idea first prevailed at American subsidiaries in the mid-sixties. Due to changes in the corporate environment and through reorientation in entrepreneurial thinking and acting, controlling has quickly settled and spread to large German companies in order to become an integral part of the company there. Reasons for the late development of controlling in Germany are above all the international isolation before and after the 2nd World War, central line organizations and the lack of competition, which lasted until the seventies.⁷

Today, controlling or the profession of controller can be found in every major company.

2.2 Term "Controlling"

According to today's understanding, the term controlling is derived from the American word >to control<. In practice, the association of >control< with the word >control< is often spontaneously drawn. A look at the management literature, however, reveals that the term, in addition to the usually unloved word control, also means influencing, monitoring, and (with emphasis) steering and controllability.⁸

A French root assigns the term >contrôl< the fact of the >counter register<, which is to mean as much as a counter-calculation with the accounting, in order to ensure their correctness.⁹

However, both facts, that of the control as well as that of the correctness check are inconceivable without planning, control, information supply and in particular the management support.¹⁰

In the literature, there is no uniform definition of the term "controlling". The different ways of looking at things thus also lead to different demarcations and views regarding the goals, the tasks and the dissemination of controlling.¹¹

The following overview lists some definitions:

Abbildung in dieser Leseprobe nicht enthalten

Fig. 1: Definitions of controlling in literature

These various definitions developed can help to clarify the concept of controlling. Despite everything, no clear and established German-language term for controlling or for the profession of controller can be found. For this reason, the term controlling was also adopted in the German language treasure.¹²

In addition, it can be seen from the above-mentioned definitions that controlling and its tasks are present- and future-oriented, in contrast to pure control, which is only past-oriented.¹³

In the sense of a demarcation for this work, the task of controlling or the controller should be understood from the support of the company management in the planning, control, information and control.

3 Importance of controlling

This chapter shows the changes in the corporate environment and the resulting need for controlling in the company.

3.1 Changes in the business environment

For many companies today, it is becoming increasingly difficult to adapt to the changed environmental conditions. The corporate environment shows an increased dynamic i.e. the company is constantly exposed to new situations and problems.¹⁴

Responsible for these changes are mainly:¹⁵

- Stagnating or shrinking demand due to market saturation
- Increased competition
- Globalization of competition
- Scarcity and increase in the price of raw materials
- Development through political framework conditions
- Increase in state intervention and regulation
- Changing lifestyles
- Increased environmental awareness
- Acceleration of technical progress and associated shortening of product life cycles

These changes result in an increasing complexity of tasks and processes for companies and lead to uncertainty in decision-making. For this reason, the need for control and integration of planning and control is growing for companies. The organizational institutionalization of this integrating function is controlling or the controller.¹⁶

3.2 Necessity of controlling

In order to successfully manage a company according to its goals today and to secure it in the short and long term, an efficient, efficient planning, control, control and information system and their coordination forms an important basis. In particular, the environmental changes listed in Chapter 2.2.1 confront companies with profound challenges. In order to be able to meet these challenges, the implementation or reorientation of the controlling or the controlling system is indispensable. Controlling is active as part of the company's management.¹⁷

The following figure shows the environmental influences on companies, the necessary classic controlling tasks and the expansion or supplementation of the classic, number-based system with the help of modern controlling methods and approaches,.B such as the Balanced Scorecard:

Abbildung in dieser Leseprobe nicht enthalten

Fig. 2: Influences and answers of a modern controlling concept¹⁸

4 Basics of Controlling

Controlling consists of a large number of different components that must first be analyzed, defined and structured. These components include: Controlling objectives, controlling tasks, controlling instruments and the division into strategic and operational controlling.

4.1 The objectives

The work of the controller can only be meaningful if the company's goals (overall goals of the company) are explicitly and measurably formulated. Goals describe a desired state that the company tries to achieve.¹⁹

The goals of controlling are then derived from the overall goals of the company and thus serve to improve the overall achievement of goals. The target contents relate primarily to profitability in the form of success, profitability or productivity and liquidity with the aim of ensuring the long-term survival of the company. In general, it is not possible to design controlling goals independently of the underlying overall goals of the company.²⁰

Essentially, the goals of controlling include the support of planning, the coordination of individual sub-areas, as well as the control of economic results.²¹

The following figure is intended to illustrate the connection between controlling and controlling goals within a company:

Abbildung in dieser Leseprobe nicht enthalten

Fig. 3: Controlling and controlling goals in companies²²

4.2 The tasks

The tasks of controlling are derived from the objectives of controlling, which are mentioned in chapter 2.3.1.

The main task of controlling is to support management in planning, controlling and monitoring by providing coordinating information, which consists of information procurement, dissemination, aggregation, presentation and interpretation in a timely, recipient-oriented form. Controlling usually takes over the entire decision preparation for certain measures (e.g. investment projects), whereby it must be ensured that the developed plans are the optimal for the company after weighing up all alternatives and taking into account the entire planning know-how. In addition, controlling also takes control of the decisions made. However, the competence to make decisions remains with the company management. Controlling ensures the achievement of the company's goals and supports in particular the targeted coordination of all measures in order to avoid inefficiencies due to interface problems, if necessary also beyond the operational boundaries. This enables the company's management to adapt to environmental changes through targeted countermeasures and to ensure the successful management of the company. However, it is important that controlling is not only used in the short term in the event of problems, but that it is permanently integrated into the company as a management instrument.²³ /²⁴

In summary, the tasks of controlling are:²⁵

- Draw up, coordinate and implement business plans in order to provide management with appropriate assistance in controlling the Company to give
- Consulting the management
- Reporting, interpretation and evaluation of the results achieved in comparison with the plans and targets established
- Securing assets through internal controls and auditing measures
- Carrying out economic investigations in order to identify external influences in good time and to be able to remedy the situation
- Cooperation in tax matters
- Drafting reports to government agencies

In addition to the conventional controlling tasks mentioned above, the change in the markets also results in new requirements or tasks for controlling, which are indispensable at least for internationally active companies, but are increasingly also affecting the medium-sized economy.

Recent tasks of controlling include:²⁶

- Reporting according to international accounting standards due to affiliations to international corporations
- Search for future success potentials due to changed competitive situation
- Value-oriented controlling, i.e. consistent focus on the long-term success of the company
- Preparation of a business plan for banks, institutional and private investors
- Preparation of shareholder value analyses, i.e. Increase in value for stakeholders such as shareholders, customers, suppliers, competitors, employees, state
- Dealing with changing requirements due to e-commerce and the Internet
- Application of new controlling instruments such as the Balanced Scorecard

In order to be able to successfully implement these tasks, controlling uses various controlling instruments.

4.3 The instruments

The controlling tasks mentioned in point 2.3.2 can only be tackled using specific instruments, measures and techniques. Controlling uses a variety of instruments.

Basically, it proves to be difficult to determine original controlling instruments, since the controlling instruments are individually dependent on the controlling concept, the controlling system, the controlling philosophy and the intensity of participation of the company. Depending on the company, there will be >narrow< (limited to profit and financial planning) or >wide< (strategic/operational planning, control and information) instrument areas for controlling..²⁷

Examples of controlling instruments are key figure systems, integrated information, planning and control systems, cost accounting systems, income statements, profitability and investment planning, etc. To mention or describe all instruments in this work would be too far-reaching. In order to ensure the comprehensibility of the following chapters, only key figures and key figure systems are discussed in more detail in the following.²⁸

4.4 Key figures and key figure systems

Nowadays, business decisions are usually no longer possible without meaningful information acquisition and evaluation. Those who have up-to-date and meaningful decision documents have greater chances of asserting themselves in the competition, as they can analyze, schedule, react and act faster. Key figures or key figure systems support this, as they fulfil the function of an assessment and decision barometer.²⁹

4.4.1 Key figures

With the help of key figures, which belong to the classic instruments of controlling, the necessary information can be provided, weak points can be pointed out and deviations can be signaled.³⁰

Key figures are defined as figures that reflect information about important entrepreneurial facts in a concentrated, quantitatively measurable form. They quickly and concisely show the situation and possible developments of a company.³¹

Every company needs a minimum of key figures in order to be able to recognize relevant relationships in the company itself and in comparison to other companies.³²

In operational practice, there is a large number of key figures of the most diverse origins and significance, whereby monetary key figures relating to the earnings target are naturally in the foreground for the controller.³³

Key figures can be classified in different ways. According to static-methodological aspects, a distinction is made between absolute key figures and ratios, whereby absolute key figures are individual figures or sums (e.g. employees, total costs) and ratios relate the absolute key figures to each other. Usually, in controlling, ratios are usually used instead of absolute numbers.³⁴

Ratios can still be divided into:³⁵

- Breakdown figures: form the ratio of a part to the whole e.g fixed assets to total assets
- Relationship numbers: conceptually arrange different characteristics to each other e.g. Profit to equity
- Index numbers: represent the ratio of similar quantities where a size is equated with 100 e.g. Trends in labour costs

These key figures are used in the practice of controlling in all phases of the planning and control process (target-actual comparison), in time comparison (e.g. personnel costs last year to this year) and in internal comparison (e.g. comparison of costs of different departments).³⁶

4.4.2 Key figure systems

A key figure system is an orderly set of the key figures used in the company, which are related to each other and can thus provide complete information about a fact. The development of key figure systems is a central task of controlling or the controller.³⁷

Key figure systems have the primary task of providing information about internal facts of the company, the situation and development of the market or the position of the company within the market.³⁸

In practice, key figure systems have two manifestations:³⁹

- Ordering systems: summarize key figures for specific groups and identify certain aspects of the company (e.g. to key figures a) of the marketing and b) of human resources).
- Computing systems: are based on the computational decomposition of Key figures and have the hierarchical structure a pyramid.

When constructing a key figure system, the most important question is the question of the top key figure. The top key figure is intended to convey the most economically significant statement of the system in compressed form. For this reason, the result target is often chosen as the top of the pyramid.⁴⁰ Subsequently, further key figures are derived from this size according to formal logic aspects. If you want to have compact key figure systems suitable for a quick overview, the data must still be aggregated, i.e. divided into groups according to certain aspects.⁴¹

Examples of typical key figure systems would be the DuPont system and the ZVEI system as calculation systems and the RL key figure system as the ordering system, which, however, will not be discussed further in this work.⁴²

4.5 Strategic and operational controlling

The environment of the company, as already mentioned several times in the previous chapters, is subject to an ever more rapid change due to economic, technological, socio-cultural and political influences.⁴³

While operational controlling is mainly based on internal sources of information, especially accounting, and in particular on cost and performance accounting, strategic controlling deliberately takes into account external development and influencing factors.⁴⁴

Operational controlling is essentially based on figures and results of the present and past and ignores the future aspect by defining the planning horizon for short- and medium-term goals. The task of strategic controlling is therefore to determine and plan long-term results for the future by interpreting the actual values.⁴⁵

However, operational and strategic controlling do not form a contradiction, but rather represent a mutually complementary concept. Both have formally identical components with the controlling tasks of information, planning, control and control. They both represent their own functional control loop, but are still connected to each other and are oriented towards the overall corporate goals.⁴⁶

The following table shows demarcation features in relation to strategic and operational controlling:

Abbildung in dieser Leseprobe nicht enthalten

Fig. 4: Demarcation of strategic and operational controlling⁴⁷

4.5.1 Strategic Controlling

Strategic controlling serves to permanently secure the company and the future potential for success. The strategies are designed for the entire company and reflect the central wishes of the company management. Strategic controlling is geared exclusively to a long-term time horizon. The objectives of strategic controlling are future opportunities and risks on the markets, the competitive situation and own resources.⁴⁸

The tasks of strategic controlling include:⁴⁹

- Permanent, future-oriented opportunity-risk assessment
- Participation in the strategic mission statement of the company
- Cooperation and advice on the long-term goal
- Cooperation in the development of long-term strategies
- Long-term and sustainable livelihood of the company
- Coordination with strategic planning
- Management of success potentials
- Clarification of the cooperation between operational and strategic controlling
- Analyses of the strengths and weaknesses of the company
- Strategic target-actual comparisons

Examples of strategic controlling would be, for example, the introduction of a new product range or the opening up of new markets in Eastern Europe.

4.5.2 Operational Controlling

The focus of operational controlling is always the fulfillment of the general objectives of success, profitability and liquidity. It ensures optimal handling of day-to-day business and runs as a classic control process. The objectives represent a minimum prerequisite for fulfilling the long-term goals, since future potentials can only be used accordingly if the company does not get into turbulence beforehand due to payment difficulties and generate sufficient profit through the economic use of the production factors.⁵⁰

Basically, operational controlling is mainly understood to mean the short-term one-year budget and its monitoring. The budget is presented in terms of costs and services or expenses and income and, in the financial sector, in terms of expenditure and income. The result is then the short-term income statement, the profit and loss account and the liquidity statement.⁵¹

The tasks of operational controlling include:⁵²

- Cooperation in the target agreement
- Information supply of the individual levels of the company
- Data interpretation
- Planning aids
- Development of a planning manual
- Decision support
- Deviation analyses
- Forecasts and simulation
- Permanent target-actual comparisons
- Development of a reporting system
- Intervene in a controlling way if the objective is endangered

[...]

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¹ cf. Jung, Hans: Controlling, Munich 2003, p. 1

² cf. ibid., p. 1

³ cf. Steinle, Claus/ Bruch, Heike (eds.): Controlling, 3rd edition, Stuttgart 2003, p. 6

⁴ cf. Steinmüller, Peter H. (eds.)/ Hering, Ekbert/ Jórasz, William: Die neue Schule des Controllers, Band 2, Stuttgart 1999, S. 279

⁵ cf. ibid., p. 279 f

⁶ cf. ibid., p. 280

⁷ cf. Steinle, Claus/ Bruch, Heike (eds.): Controlling, loc. cit., p. 7

⁸ cf. ibid., p. 6

⁹ cf. Steinle, Claus/ Bruch, Heike (eds.): Controlling, loc. cit., p. 6

¹⁰ cf. ibid., p. 6

¹¹ cf. Preißler, Peter R.: Controlling: Lehrbuch und Intensivkurs, 12th edition, Landsberg a L. 2000, p. 14

¹² cf. Horváth: Controlling, 8th edition, Munich 2001, p. 25

¹³ cf. Preißler, Peter R.: Controlling, loc. cit., p. 14 f

¹⁴ cf. Peemöller, Volker H.: Controlling, Grundlagen und Einsatzgebiete, 4th edition, Berlin 2002, p. 48

¹⁵ cf. Jung, Hans: Controlling,loc. cit., p. 4

¹⁶ cf. Peemöller, Volker H.: Controlling, loc. cit., p. 48

¹⁷ cf. Jung, Hans: Controlling, loc. cit., p. 5

¹⁸ cf. Baier, Peter: Praxishandbuch Controlling, loc. cit., p. 14

¹⁹ cf. Jung, Hans: Controlling, loc. cit., p. 9

²⁰ cf. Reichmann, Thomas: Controlling mit Kennzahlen und Managementberichten, 6th edition, Munich 2001, p. 3

²¹ cf. ibid., p.3

²² cf. Jung, Hans: Controlling, loc. cit., p. 9

²³ cf. Jung, Hans: Controlling, loc. cit., p. 13

²⁴ cf. Gabler: Wirtschaftslexikon. Paperback cassette with 10 vols., Wiesbaden, 1997, p. 809 f

²⁵ cf. Jung, Hans: Controlling, loc. cit., p. 14

²⁶ cf. Baier, Peter: Praxishandbuch Controlling, loc. cit., p.61ff

²⁷ cf. Steinle, Claus/ Bruch, Heike (eds.): Controlling, loc. cit., p. 29

²⁸ cf. Preißler, Peter R.: Controlling, loc. cit., p. 75

²⁹ cf. ibid., p. 127

³⁰ cf. ibid., p. 127

³¹ cf. Joos-Sachse, Thomas: Controlling, Kostenrechnung und Kostenmanagement, 2nd edition, Wiesbaden 2002, P. 32

³² cf. Preißler, Peter R.: Controlling, loc. cit., p. 127

³³ cf. Horváth: Controlling, loc. cit., p.568 f

³⁴ cf. Joos-Sachse, Thomas: Controlling, loc. cit., p. 281

³⁵ cf. Horváth: Controlling, loc. cit., p.569

³⁶ cf. Preißler, Peter R.: Controlling, loc. cit., p. 128

³⁷ cf. Horváth: Controlling, loc. cit., p.570

³⁸ cf. Reichmann, Thomas: Controlling mit Kennzahlen, loc. cit., p. 25 f

³⁹ cf. ibid., p.570

⁴⁰ cf. ibid., p.570

⁴¹ cf. ibid., p. 25

⁴² cf. Joos-Sachse, Thomas: Controlling, loc. cit., p. 282

⁴³ cf. Peemöller, Volker H.: Controlling, loc. cit., p. 48

⁴⁴ cf. Preißler, Peter R.: Controlling, loc. cit., p. 17

⁴⁵ cf. ibid., p. 17

⁴⁶ cf. Jung, Hans: Controlling, loc. cit., p. 15

⁴⁷ Ibid., p. 15

⁴⁸ cf. Steinmüller, Peter H. (eds.)/ Hering, Ekbert/ Jórasz, William: Die neue Schule des Controller, loc. cit., p. 286

⁴⁹ cf. Preißler, Peter R.: Controlling, loc. cit., p. 20

⁵⁰ cf. Baier, Peter: Praxishandbuch Controlling, loc. cit., p. 445

⁵¹ cf. ibid., p. 445

⁵² cf. Preißler, Peter R.: Controlling, loc. cit., p. 20

• Université: Würzburg-Schweinfurt University of Applied Sciences
• Note: 1,7
• Auteur: Marion Schauder (Auteur)
• Année de publication: 2004
• Pages: 30
• N° de catalogue: V1185566
• ISBN (PDF): 9783346601599
• Langue: anglais
• mots-clé: basics, controlling, origin