Financial controlling

From CEOpedia | Management online

Financial controlling is the process of monitoring and analyzing an organization's financial performance in order to make informed decisions and take corrective actions. This typically includes creating budgets, tracking actual performance against those budgets, and identifying variances that need to be addressed. Financial controlling also involves analyzing financial statements and other financial data to identify trends and potential issues, and making recommendations for improvements to financial processes. The goal of financial controlling is to ensure that an organization's financial resources are used effectively and efficiently in order to achieve its strategic goals and objectives.

Objectives of financial controlling

The main objectives of financial controlling are:

  • Planning and budgeting: to ensure that an organization has a clear financial plan in place and that resources are allocated effectively.
  • Monitoring and reporting: to keep track of an organization's financial performance against its plan and to report this information to management and other stakeholders.
  • Decision-making: to provide management with the information and analysis they need to make informed decisions about the direction of the organization.
  • Risk management: to identify and manage potential financial risks that could impact the organization's ability to achieve its objectives.
  • Cost management: to ensure that an organization's resources are used efficiently and effectively and to identify areas where costs can be reduced.
  • Compliance: to ensure that an organization is in compliance with all relevant financial regulations and laws.

Overall, the goal of financial controlling is to provide accurate and timely financial information that can be used to support strategic decision making and optimize the use of financial resources.

Tasks of financial controlling

The tasks of financial controlling can include:

  • Budget preparation: creating and updating financial budgets for different departments and/or business units.
  • Budget monitoring: tracking actual performance against budgeted figures and identifying variances.
  • Financial statement analysis: reviewing financial statements, such as the income statement, balance sheet, and cash flow statement, to identify trends and potential issues.
  • Cost analysis: identifying areas where costs can be reduced and making recommendations for cost savings.
  • Risk management: identifying and assessing potential financial risks and implementing strategies to mitigate them.
  • Compliance: ensuring that the organization is in compliance with all relevant financial regulations and laws.
  • Performance measurement: developing and implementing systems to measure and track the financial performance of the organization.
  • Forecasting: creating financial projections to help management plan for the future.
  • Internal control: implementing internal controls to ensure that financial transactions are accurate, timely and reliable.
  • Reporting: preparing and distributing financial reports to management and other stakeholders.

Financial controlling is a broad field that encompasses many different tasks and responsibilities, with the ultimate goal of providing accurate and timely financial information to support strategic decision making and optimize the use of financial resources.

Roles and responsibilities in financial controlling

Fig.1. The financial controlling activities

The roles and responsibilities in financial controlling can vary depending on the size and structure of an organization. In general, the following positions may be involved in financial controlling:

  • Financial Controller: This is the person in charge of the overall financial controlling function. They are responsible for creating and implementing financial plans and budgets, monitoring financial performance, and providing financial analysis and recommendations to management.
  • Budget Analyst: This person is responsible for creating and monitoring budgets for different departments or business units. They work closely with department managers to understand their financial needs and create budgets that reflect those needs.
  • Financial Analyst: This person is responsible for analyzing financial statements and other financial data to identify trends and potential issues. They also provide financial analysis and recommendations to management.
  • Cost Accountant: This person is responsible for analyzing costs and identifying areas where costs can be reduced. They work closely with department managers to understand the costs of different products or services and make recommendations for cost savings.
  • Risk Manager: This person is responsible for identifying and assessing potential financial risks and implementing strategies to mitigate them. They work closely with other departments, such as legal and compliance, to ensure that the organization is in compliance with all relevant financial regulations and laws.
  • Internal Auditor: This person is responsible for ensuring the accuracy and reliability of financial transactions by reviewing and testing internal controls. They also report any findings to management and make recommendations for improvements.
  • Financial reporting: This person is responsible for preparing and distributing financial reports to management and other stakeholders.

The roles and responsibilities of financial controlling are closely interrelated, with the ultimate goal of providing accurate and timely financial information to support strategic decision making and optimize the use of financial resources.

Applications of financial controlling

Financial controlling is necessary in a company in a variety of situations, including:

  • Strategic planning: Financial controlling is necessary to ensure that an organization's financial resources are used effectively and efficiently in order to achieve its strategic goals and objectives.
  • Business growth: Financial controlling is necessary to monitor the financial impact of business growth and to ensure that the organization has the necessary resources to support it.
  • Mergers and acquisitions: Financial controlling is necessary to evaluate the financial viability of potential mergers and acquisitions and to ensure that they align with the organization's strategic goals.
  • Financial reporting: Financial controlling is necessary to prepare accurate and timely financial reports that provide insight into the organization's financial performance and support decision making.
  • Compliance: Financial controlling is necessary to ensure that the organization is in compliance with all relevant financial regulations and laws, and to minimize the risk of financial penalties or reputational damage.
  • Risk management: Financial controlling is necessary to identify and manage potential financial risks that could impact the organization's ability to achieve its objectives.
  • Cost management: Financial controlling is necessary to ensure that an organization's resources are used efficiently and effectively and to identify areas where costs can be reduced.
  • Performance measurement: Financial controlling is necessary to measure and track the financial performance of the organization and to identify areas for improvement.

Financial controlling is an ongoing process that is necessary to support the financial health and stability of an organization and to ensure that it is able to achieve its goals and objectives.

Financial controlling vs financial planning

Financial controlling and financial planning are closely related but distinct activities within an organization.

Financial planning involves creating a financial plan for the future that outlines how an organization will allocate its resources to achieve its goals and objectives. This includes developing budgets and financial projections, and identifying potential risks and opportunities. It's a proactive process that focuses on forecasting and preparing for the future.

On the other hand, Financial controlling is focused on monitoring and analyzing an organization's actual financial performance against the plan and taking corrective actions when necessary. It's a reactive process that focuses on evaluating past performance and making adjustments to ensure that the organization stays on track to achieve its goals.

In short, financial planning is the process of determining what an organization wants to achieve and how it will achieve it, whereas financial controlling is the process of monitoring and measuring progress towards those goals and taking corrective action as necessary. Both are essential to achieving and maintaining financial health and stability within an organization.

Financial planning, also known as budgeting, is the process of creating a financial plan for the future that outlines how an organization will allocate its resources to achieve its goals and objectives. It is a critical component of financial controlling, as it provides a framework for monitoring and evaluating actual performance against plan.

  • Budgeting for variable costs: Variable costs are costs that vary directly with the size of the planned changes in production and sales. Examples of variable costs include raw materials, direct labor, and shipping costs. When creating a budget for variable costs, it is important to consider the potential impact of changes in production and sales on these costs and to make adjustments accordingly. This can include forecasting changes in demand, estimating the cost of raw materials, and estimating labor and other production costs.
  • Budgeting for fixed costs: Fixed costs are expenses that remain relatively constant, and are not subject to changing with changing sales or production. Examples of fixed costs include rent, salaries, and insurance. When creating a budget for fixed costs, it is important to consider the long-term financial impact of these costs, and to make adjustments as necessary. This can include negotiating better terms with suppliers or vendors, reducing or consolidating expenses, and identifying areas where costs can be reduced.

Budgeting is a critical aspect of financial planning, and it involves forecasting, monitoring and controlling all aspects of the financials in order to achieve the organizational goals and objectives.

One can distinguish several basic budget plans:

  • Sales and expense budget
  • Capital expenditure
  • Loans budget
  • Balances

There are many problems in the areas of financial management associated with:

  • cash required to achieve its objectives,
  • costs that are associated with different ways of financing economic activity,
  • how to reduce the cost of running the organization,
  • the profitability and direction of investment of accumulated capital,
  • way to reconcile the requirements of profitability and liquidity.


Financial controlling — recommended articles
Principles of financial planning — Cash control — Definition of controlling — Capital planning — Master budget — Origins of controlling — Functional budget — Budgetary control — Cost tracking

References

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