The strategic controlling gives information for making decisions at a strategic level. It has mainly a descriptive character, because it mentions the strategic elements that the company has or aims to achieve. Strategic controlling refers to questions such as: Are we on the right market, with the best products? Are we addressing the right target group? Do we manage to create potential, from which we create profit and cash?
The potential represents the capacity of the company to sustain itself and to overcome the difficulties of the business environment. The potential is created within the company by a structure. The structure is given by people, equipment / endowment, management systems, etc., and also by how these elements are combined. It is given by the emplacement of the equipment, production flows, the existing technology in the company, intelligence, etc.
The structure is continuously transforming to adapt to changes in the environment. The changes in the structure are made by people, through creation and innovation processes.
The potential thus created is taken by the operative management and operative controlling.
The operative controlling operates with cash and profit elements. It is mainly realised on a daily and monthly basis. Its main instrument is the costing system. Lately, in German literature, the word “costing” is being replaced by the term „controlling”.
Controlling – how does the controller work?
The controller works through reporting. It is important for the management to know what kind of reports are necessary to obtain the information. The reports delivered by the controller to the manager must contain enough information so that the manager will know what decision to make: yes/no or how much.
Controlling should also include an early warning system (EAS). This is a system that reports to the manager which are the minimum prices to sell or which are the maximum costs that the company can afford. The EAS also provides information regarding the quantity wich must be produced and sold.
We recommend to use a controlling system that includes a reporting system as well as an early warning system. This can even save your company’s life.
This article from a series about controlling and economical mathematics. You can see the first article here.