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Management control: the key points to guide the company thanks to Accounting

Farhan Malik

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How to create added value with accounting? First of all it is important that this is transformed into a management control system.

This term means a process aimed at defining measurable objectives and measuring how much reality is (or not) different from the established objectives.

In this way the management of the company will be able to keep costs under control, evaluate the results of the collaborators and realize problems, criticalities or new opportunities to be seized in time.

The management control is essential in all stages of life of the company; nevertheless it assumes even more relevance during those periods of consolidation or stagnation in which it is imperative to put into practice actions that allow one to start (or return) to grow.

For an effective management check, there are at few essential points to keep in mind:

  • The mapping of costs and revenues in the major business lines of the company;
  • The introduction of analytical or industrial accounting ;
  • The adoption of adequate management control and reporting Accounts processes;
  • Support for these processes with appropriate management software;
  • The preparation of monthly, quarterly and annual reports according to the needs of the management and the board of directors;
  • The preparation of an annual / quarterly budget process that serves as a support to the control and management;
  • The definition of key indicators that allow monitoring of the company’s performance (KPI).

Let’s analyze some of these points in more detail.

The importance of analytical accounting

The first rule of management is “What is not measured cannot be managed”. For this reason, to have an effective management control it is necessary to introduce analytical accounting, a tool that aggregates the costs and revenues for each single production process of an SME.

In this way it becomes possible to evaluate the results of the operational management of each individual manager and compare it with similar business processes to verify the possibility of improvement. The mapping of costs and profits also makes it possible to identify possible waste and cut those internal processes that do not bring any useful contribution to the business of the company.

Be informed through company reports

For that purpose, being informed is everything. For this it is necessary to structure a good system of transmission of information from the management to the board of directors and to the general management.

The tool to achieve this is fixed-term corporate reports, which show how costs, revenues and other indices are going. It will thus be possible to make possible additions to resources by increasing the budgets in progress and making the necessary strategic corrections.

In particular, company reports can be:

  • Monthly : they are particularly useful for operational management, as they allow you to check how the management is conducting business;
  • Quarterly or annual: they serve instead to the board of directors to verify the validity of the strategies set and eventually correct them.

Manage an SME through budgets

Knowing the costs and revenues is not in itself sufficient to govern a company. It is also necessary to set the objectives and attribute to each organizational unit the resources necessary to achieve them. This happens through the budget tool, which consists of two parts:

  • The operational part , whose focus is on the expected cost / revenue structure in the period considered;
  • The financial part, which establishes the financial and cash flows necessary to achieve the objectives.

The budgets are established by the board of directors based on the strategic objectives that it has decided to pursue and can be annual or multi-year.

Monitor processes with KPIs

KPIs (key performance indicators), which can be translated into Italian as key performance indicators, are used to monitor a business process by measuring a series of key factors, for example:

  • The productive output of a process (how many pieces an installation produces per hour);
  • The generation of new offers ;
  • The customer conversion ;
  • The gross margin for bid.

To these, there are other factors that must be established from time to time for each company or process.

The KPIs are not always usable and it is good to foresee a margin of error; however, if used in the right way, they allow management a very precise level of measurement and control of internal processes.

The fundamental role of digital and IT Tools

The management control system of an SME cannot disregard the adoption of adequate IT tools and supportsNowadays, numerous software products are available on the market that integrate accounting, reporting, budgets and KPIs into a single product.

The advantage is the high level of integration between top management and managers that is created thanks to the fast sharing of information, with obvious improvements in terms of flexibility, speed of action and simplification of business management.