What is the role of management control in a company?

Running a business without controlling would be like driving a car without a dashboard: you wouldn't know how fast you were going, whether you had any fuel left, or whether your engine was overheating. 

Management control is essential to ensure that the company is in good health and on track to achieve its strategic objectives.

In this article, we take a look at the role of controlling, to help you understand what's at stake and how to implement it effectively.

 

What is project controlling?

Definition

• Measure, analyze, regulate 

Project management control involves measuring, analyzing and regulating a company's performance and profitability.

 

• A cross-functional activity with a major impact

Often associated with financial control, management control is in fact cross-functional, as it concerns all aspects of the company. Although it takes different forms depending on the size of the organization, in all cases it determines its success. In fact, it steers activities towards achieving strategic objectives.

 

What is the purpose of management control?

• Determining profitability

Management control analyzes activities to identify any discrepancies between forecast and actual, and their causes. Among other things, this provides information on business profitability. 

 

• Identify necessary adjustments

In addition, management control enables us to determine whether objectives can still be met, or whether adjustments need to be made. In this way, it helps to rectify the situation by proposing solutions. 

Management control takes several forms, each responding to different challenges.

 

• Budget controlling to monitor financial performance

This stage of controlling focuses on the development of financial performance. It involves budget planning, which helps establish realistic budgets aligned with the company's long-term strategic objectives. 

 

• Strategic controlling to align costs and objectives 

This dimension complements the first. On the other hand, it pays particular attention to aligning costs with strategic objectives, in order to facilitate decision-making.

 

• Operational management control to improve productivity

From an operational point of view, controlling is all about productivity and, in particular, optimizing resources. For this reason, we need to take stock of which areas are successful and which are more critical. This will help identify potential areas for optimization, leading to productivity gains. 

 

Differentiating between audit and management control 

The management controller, the person in charge of management control, generally has audits as one of his or her first missions .

The two activities are therefore closely linked. However, we differentiate between auditing and management control, as the latter not only offers a vision, but also proposes concrete optimization solutions. Finally, management control focuses on achieving strategic objectives.

 

What are the challenges of management control?

Facilitating decision-making

Controlling is relevant to companies of all sizes: groups, SMEs, start-ups... because it helps guide decision-making. By analyzing results and producing reports for management, it provides material for : 

• Identify risks associated with current management
• Propose corrective solutions
• Recommending a strategy 

 

This reliable, usable data enables management to guide their decision-making and improve their working methods. 

 

Establish processes to maximize financial performance

Management control not only controls, but also serves development. It enables processes to be put in place to improve financial performance.

This involves :

• Implementing monitoring methods 
• Anticipating risks in order to reduce them
• Definition of financial strategies and budget forecasts 
• Implementation of corrective measures 

 

Other activities contribute to improving financial performance, such as detecting budget deviations or reduction of discrepancies between forecasts and actual expenditure.

 

Optimizing productivity

• Optimal allocation of resources

Improving the management of resource planning is another management control challenge. It 

helps to allocate resources optimally, whether human, material or financial.

 

• Maximizing productivity

As with project management, this means limiting underloading and overloading, which would have a direct impact on productivity and therefore profitability.

Thus, resource planning management enables resources to be allocated to guarantee performance. It supports managers in their operational management and executives in their strategic management. 

 

What are the main management control tools?

ERP for data consolidation

An ERP is indispensable for controlling activities. It facilitates business management by centralizing data in one place. 

These data, generally collected in real time as with Stafiz, become accessible and reliable, facilitating reporting tasks.

 

Budget management software for planning

Budget management software is also a key management control tool. They can be used to draw up budget forecasts, as well as to monitor the budget in real time. This type of tool makes it easier to project sales and turnover, and to anticipate and optimize expenses. 

 

Dashboards for data presentation

Dashboards are the most widely used tools in management control. In fact, thanks to data visualization, they present company performance in visual form and in real time, thanks to the various key indicators selected.

Reporting and statistics to share data

Reporting also makes it easier to visualize company performance, like the mission report in Stafiz. This allows you to visualize the difference between planned and actual performance, or to analyze performance by employee and by team. 

 

How do you set up a management control system?

What are the stages in project controlling?

Planning

Setting up a management control system requires defining objectives and asserting a long-term strategy. 

At this stage, you also need to ensure the reliability and efficiency of the existing information system, as well as its capabilities.

The latter must be able to collect information to support the defined strategy. 

Budgeting

Defining the budget is an essential part of management control. This involves : 

• • Identify company resources
  • Understand the constraints of the business and its market
  • Define realistic scenarios based on the company's strengths and weaknesses

You can use budget management tools to help you define your projected budget.

Taking action

Once you've defined your objectives, identified your budget and decided on your strategy, it's time to put each step into action, with the help of an experienced management controller.

The latter needs to know the company and its sector well, so as to have the necessary hindsight to analyze and propose pertinent recommendations.

Follow-up

Monitoring is one of the most important tasks of a management controller. He or she tracks trends and analyzes results, supported by tools such as reporting and dashboards, available in all-in-one solutions such as Stafiz. 

 

Corrective measures

Finally, management control requires the provision and implementation of corrective measures in response to observations. 

Management control takes into account the audit of the existing situation, but above all the action required to rectify the situation and achieve the defined strategic objectives.

 

What are management control methodologies?

Controlling methods are varied and can be combined. We recommend that you use those that are most relevant to your business, and that do not involve major internal reorganization.

 

• Past and projected budget control

Actual and forecast budgets are widely used management control tools. 

This method involves identifying and studying deviations, and making corrections. Projects must deliver the expected results, on time and on budget.

 

⚒️ Recommended tools : Dashboards, budget management software, Excel spreadsheets.

In Stafiz, these budgets are monitored at two levels:

• Project level
• Overall level

At project level, your teams can view this data in consolidated form or over time.

The consolidated view shows the overall gap between planned expenditure (see screen printout below: "production plan") and expenditure incurred or to be incurred to complete the project (on the image: "current situation at completion").

The "timeline" view provides greater precision on variances by identifying when budget overruns would occur and, above all, why they would occur, thus enabling them to be avoided.

• Activity-Based Costing (ABC)

Activity-Based Costing (ABC) involves analyzing costs by activity to determine the profitability of different operations. 

The aim is to identify the activities that consume the most resources in order to adjust 

processes and efficiency.  

⚒️ Recommended tools: specialized ABC and ERP software

Stafiz lets you analyze your business by activity (BU, region...). So you can compare your activities, identify the most and least profitable...

Another angle of analysis is the distribution of sales between different teams and divisions, in order to understand the interest and participation of each team: 

 

• Management by Objectives (MBO)

Management by Objectives (MBO) sets specific objectives and evaluates performance against them. In this way, team efforts are aligned with the company's strategic objectives. 

 

⚒️ Recommended tools: Balanced scorecard and performance management systems, enabling objectives to be visualized against reality.

 

Management by objectives is the cornerstone of Stafiz. 

Various indicators will enable you to measure your performance against objectives. Let's explore two of them: 

 

1. Target achievement rate

The completion rate is a great indicator for understand in a single number whether a fixed-price assignment is profitable or not. It's the ratio:

         amount sold / what I produced(or "how much I should have sold for")

A normal realization rate is 0%. This means that :

• if your current rate is -10%, you are 10% less profitable on this mission than you had hoped.
• if your current rate is 20%, you are 20% more profitable on this assignment than you expected

2. Analysis of sold vs. actual TJMs

This analysis makes it possible to observe project performance through the prism of daily rates:

• if fewer days are worked on a project than planned, the actual daily rate will be higher.
• if you do more days than planned, the daily rate will be lower in the evening.

 

• Controlling by ratios (Financial Ratios)

Financial Ratio Control uses ratios to assess a company's financial health. The aim is to provide clear, measurable performance indicators to facilitate decision-making. 

 

⚒️ Recommended tools : Financial dashboards and ratio analysis tools

 

• Management control using key performance indicators (KPIs)

KPI-based management control involves tracking key performance indicators specific to strategic objectives. This makes it possible to measure the efficiency and effectiveness of operations, with the aim of improving performance.

 

⚒️ Recommended tools : KPI dashboards and other Business Intelligence software

 

• Integrated Performance Management

Integrated Performance Management involves integrating all aspects of performance into a single system. The aim is to provide a clear, global view of performance.

 

⚒️ Recommended tools : integrated ERP systems and other Business Performance Management tools

 

This is what sets Stafiz apart. Integrated business management, which goes beyond management control, includes various aspects: 

• • Operational, with tracking of tasks and phases, and thus of progress towards meeting deadlines
  • Financial: with analysis of variances and financial targets (revenues, costs and margins)
  • Strategic: the consolidated view of this data, particularly financial data, provides both a past and a forward-looking view of the business.

 

• Agile controlling

Agile controlling re-uses agile methods to quickly adjust processes to the needs of change. This requires a high degree of flexibility and fluid collaboration, made possible by continuous measurement. This more dynamic version of controlling is more applicable in the short term. 

The aim is to improve the organization's responsiveness and flexibility in the face of unforeseen events.

 

⚒️ Recommended tools : agile management software, combined with Scrum and Kanban methodologies.

 

What KPIs should management control monitor?

• Cost Variance

By comparing actual costs with budgeted costs, variances can be identified. This makes it possible to monitor budget overruns and take corrective action.

In Stafiz, you have a view of variances in days, and therefore in valuation by project or all projects: 

 

• Actual vs. forecast revenue (Revenue Variance)

Analyzing discrepancies between actual and forecast revenues helps to adjust sales and marketing strategies in line with actual performance.

 

 

• Gross Margin

Gross margin represents the difference between sales and the cost of goods sold. It is expressed as a percentage of sales.

Gross margin is used to assess the gross profitability of products or services.

In Stafiz, the margin view is both granular, by project or over the entire portfolio, and at different levels, after internal, external or overhead costs: 

Past and projected income statement with costs

 

 

• TACE (utilization rate excluding vacations)

The Excluded Holidays Activity Rate calculates the number of days produced out of the number of potentially billable days, i.e. the total number of days minus vacations and RTT days.  

TACE is a relevant indicator for optimizing resources and improving operational efficiency.

With Stafiz, you can monitor your utilization rate with granularity and flexibility, as well as forecast with dedicated reports.

 

You can even zoom inside each rate to understand it in detail.

 

 

• Productivity per Employee (Not written: see mail questions)

 

Description Revenue or profit generated per employee.

Objective Measure workforce efficiency and identify opportunities for improvement.

How to analyse project controlling results?

Compare performance

To be meaningful and interesting, the management control audit must be analyzed. The first step is to compare performance: 

• • • Between actual and forecast
    • For the industry as a whole
    • Compared with past projects

The aim is to observe discrepancies and dig deeper to understand their causes.

 

Study performance criteria

For each project, it is essential to define evaluation criteria. These may vary according to the objectives of the project or the company as a whole. Often, the quality of the deliverable, and compliance with deadlines and costs are used as criteria. 

This indicator provides an overall view and enables analysis of project deadlines.

 

Taking corrective action

• • • Root cause analysis

Also known as Root Cause Analysis - RCA, this method is used to determine the origin of a problem in order to correct its consequences. It involves clearly identifying the problem and gathering information to limit its consequences. This may involve 

through exchanges with the teams, careful observation, or the 5 Whys technique.