Company Controlling (EAI/Springer Innovations in Communication and Computing) 3031131525, 9783031131523

Table of contents :
Preface
Contents
Chapter 1: Controlling of Company: Basic Concepts and Definitions
1.1 Genesis of Controlling
1.1.1 Definition of the Concept of Controlling in the Anglo-American Language Field
1.1.2 Definition of the Concept of Controlling in the German Language Field
1.1.3 Definition of the Concept of Controlling in Slovakia
1.2 Definitions of Controlling
1.2.1 Levels of Controlling
1.2.2 Controlling Concepts
1.3 Company as a Place of Controlling
1.4 Company Management
1.4.1 Company Management and Its Equilibrium
1.5 Control Processes in the Company as Part of the Controlling
1.5.1 Nature and Importance of Control in the Company
Chapter 2: Tasks and Functions of Controlling
2.1 Basic Functions of Controlling in the Company
2.1.1 Functioning of Controlling in the Company
Chapter 3: Dimensions of the Implementation of Controlling in the Company
3.1 Division of Controlling
3.1.1 Strategic Controlling
3.1.2 Operational Controlling
3.2 Controlling Objectives
3.3 Position of Controlling in the Organizational Structure of the Company
3.4 Process Controlling
3.4.1 Business Processes
Chapter 4: Cost Controlling in the Company
4.1 Cost Controlling and Its Position in the Company
4.1.1 Cost Controlling as a Part of In-Company Controlling
4.2 Company Costs
4.2.1 Classification of Controlling Costs
4.3 Cost Calculation Methods
4.4 Process Calculations
4.4.1 Activity-Based Costing (ABC)
4.4.1.1 Process Calculation Using the ABC Method
4.5 Basic Indicators of the Company’s Cost-Level Evaluation
4.6 Impact of Cost Controlling on Company Management
4.6.1 Interrelationships Between Cost Controlling Tools
4.6.2 Nonfinancial Indicators for Measuring the Performance of the Company: Balanced Scorecard
Chapter 5: Controllers and Their Position in the Company
5.1 Definition of the Concept of a Controller in a Company
5.1.1 Controlling as a Staff Department
5.1.2 Controlling as a Line Department
5.1.3 Controlling as a Cross-Sectional Function
5.1.4 External Controlling
5.2 Controller Profile
5.3 Controller and Controlling
Chapter 6: Controlling in Practice
6.1 Implementation of Controlling
6.2 Academic Controlling
6.2.1 Academic Strategic Controlling and Its Functionality
6.2.2 The Process of Creating Goals
6.3 Information System in the Controlling Process
6.3.1 Implementation of Controlling at Public University: SAP
6.3.2 Sofia
Correction to: Company Controlling
Conclusion
Further Reading
Index

Citation preview

EAI/Springer Innovations in Communication and Computing

Annamaria Behúnová Lucia Knapcikova Marcel Behún

Company Controlling

EAI/Springer Innovations in Communication and Computing Series Editor Imrich Chlamtac, European Alliance for Innovation Ghent, Belgium

The impact of information technologies is creating a new world yet not fully understood. The extent and speed of economic, life style and social changes already perceived in everyday life is hard to estimate without understanding the technological driving forces behind it. This series presents contributed volumes featuring the latest research and development in the various information engineering technologies that play a key role in this process. The range of topics, focusing primarily on communications and computing engineering include, but are not limited to, wireless networks; mobile communication; design and learning; gaming; interaction; e-health and pervasive healthcare; energy management; smart grids; internet of things; cognitive radio networks; computation; cloud computing; ubiquitous connectivity, and in mode general smart living, smart cities, Internet of Things and more. The series publishes a combination of expanded papers selected from hosted and sponsored European Alliance for Innovation (EAI) conferences that present cutting edge, global research as well as provide new perspectives on traditional related engineering fields. This content, complemented with open calls for contribution of book titles and individual chapters, together maintain Springer’s and EAI’s high standards of academic excellence. The audience for the books consists of researchers, industry professionals, advanced level students as well as practitioners in related fields of activity include information and communication specialists, security experts, economists, urban planners, doctors, and in general representatives in all those walks of life affected ad contributing to the information revolution. Indexing: This series is indexed in Scopus, Ei Compendex, and zbMATH. About EAI - EAI is a grassroots member organization initiated through cooperation between businesses, public, private and government organizations to address the global challenges of Europe’s future competitiveness and link the European Research community with its counterparts around the globe. EAI reaches out to hundreds of thousands of individual subscribers on all continents and collaborates with an institutional member base including Fortune 500 companies, government organizations, and educational institutions, provide a free research and innovation platform. Through its open free membership model EAI promotes a new research and innovation culture based on collaboration, connectivity and recognition of excellence by community.

Annamaria Behúnová • Lucia Knapcikova Marcel Behún

Company Controlling

Annamaria Behúnová Technical University of Košice Faculty of Mining, Ecology, Process Control and Geotechnology, Institut of Earth Resources Košice, Slovak Republic

Lucia Knapcikova Technical University of Košice Faculty of Manufacturing Technologies with a seat in Prešov, Department of Industrial Engineering and Informatics Prešov, Slovak Republic

Marcel Behún Technical University of Košice Faculty of Mining, Ecology, Process Control and Geotechnology, Institut of Earth Resources Košice, Slovak Republic

ISSN 2522-8595     ISSN 2522-8609 (electronic) EAI/Springer Innovations in Communication and Computing ISBN 978-3-031-13152-3    ISBN 978-3-031-13153-0 (eBook) https://doi.org/10.1007/978-3-031-13153-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2023, Corrected Publication 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

The book deals with the study and implementation of controlling in the company. By applying controlling, companies will gain more accurate information for decisions that will move them in the right direction. The publication is dedicated to everyone who wants to learn more in the field of controlling.

Preface

The dynamics of business environment, the complexity of tasks that management must solve, and size of a company impact implementation of controlling in the company. Controlling can be implemented in a company as a philosophy of corporate governance, or it can be institutionalized in the organizational structure of corporate governance as a department, or controlling tasks can be entrusted to existing departments, or a company can use the services of an external agency. The goal of corporate governance is a vital company capable of internally managing changeoriented to the outside. It presupposes the ability to adapt and progress. To fulfil this management task, managers need an extensive integrative complement to controlling management. Controlling complements and integrates management in both the conceptual, functional, and institutional terms and the personnel sense. The controlling philosophy and controlling infrastructure are pillars of management complement. With their help, it will be possible to get under control the complexity of business management. The formation of controlling in manufacturing companies strongly depends on the type of production. Controlling must monitor several strategic and operational control variables. Controlling places certain minimum demands on the management philosophy. Management corresponding to the requirements of controlling is goal oriented, determined by planning and control. The complexity of controlling implementation depends on whether it is the initial introduction of controlling or the expansion of tasks and improvement of control tools. The book is organized into six main chapters analyzing company controlling. It is dedicated to everyone who wants to learn more in the field of controlling or is interested in this area. Košice, Slovak Republic Prešov, Slovak Republic Košice, Slovak Republic

Annamaria Behúnová Lucia Knapcikova Marcel Behún

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Who controls the past controls the future. Who controls the present controls the past. (George Orwell)

Contents

1

 Controlling of Company: Basic Concepts and Definitions��������������������   1 1.1 Genesis of Controlling������������������������������������������������������������������������   1 1.1.1 Definition of the Concept of Controlling in the Anglo-­American Language Field����������������������������������   2 1.1.2 Definition of the Concept of Controlling in the German Language Field������������������������������������������������   2 1.1.3 Definition of the Concept of Controlling in Slovakia ������������   3 1.2 Definitions of Controlling ������������������������������������������������������������������   4 1.2.1 Levels of Controlling��������������������������������������������������������������   6 1.2.2 Controlling Concepts��������������������������������������������������������������   7 1.3 Company as a Place of Controlling����������������������������������������������������   7 1.4 Company Management ����������������������������������������������������������������������   9 1.4.1 Company Management and Its Equilibrium ��������������������������   9 1.5 Control Processes in the Company as Part of the Controlling������������  11 1.5.1 Nature and Importance of Control in the Company����������������  11

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 Tasks and Functions of Controlling���������������������������������������������������������  13 2.1 Basic Functions of Controlling in the Company��������������������������������  13 2.1.1 Functioning of Controlling in the Company��������������������������  16

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Dimensions of the Implementation of Controlling in the Company������������������������������������������������������������������������������������������  17 3.1 Division of Controlling ����������������������������������������������������������������������  17 3.1.1 Strategic Controlling��������������������������������������������������������������  17 3.1.2 Operational Controlling����������������������������������������������������������  20 3.2 Controlling Objectives������������������������������������������������������������������������  20 3.3 Position of Controlling in the Organizational Structure of the Company����������������������������������������������������������������������������������  22 3.4 Process Controlling����������������������������������������������������������������������������  23 3.4.1 Business Processes������������������������������������������������������������������  24

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Contents

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 Cost Controlling in the Company������������������������������������������������������������  27 4.1 Cost Controlling and Its Position in the Company ����������������������������  27 4.1.1 Cost Controlling as a Part of In-Company Controlling����������  29 4.2 Company Costs ����������������������������������������������������������������������������������  29 4.2.1 Classification of Controlling Costs ����������������������������������������  30 4.3 Cost Calculation Methods������������������������������������������������������������������  34 4.4 Process Calculations ��������������������������������������������������������������������������  37 4.4.1 Activity-Based Costing (ABC) ����������������������������������������������  38 4.5 Basic Indicators of the Company’s Cost-Level Evaluation����������������  43 4.6 Impact of Cost Controlling on Company Management����������������������  44 4.6.1 Interrelationships Between Cost Controlling Tools����������������  44 4.6.2 Nonfinancial Indicators for Measuring the Performance of the Company: Balanced Scorecard ��������  45

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 Controllers and Their Position in the Company ������������������������������������  49 5.1 Definition of the Concept of a Controller in a Company��������������������  49 5.1.1 Controlling as a Staff Department������������������������������������������  49 5.1.2 Controlling as a Line Department������������������������������������������  50 5.1.3 Controlling as a Cross-Sectional Function ����������������������������  51 5.1.4 External Controlling���������������������������������������������������������������  51 5.2 Controller Profile��������������������������������������������������������������������������������  52 5.3 Controller and Controlling������������������������������������������������������������������  53

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Controlling in Practice������������������������������������������������������������������������������  55 6.1 Implementation of Controlling ����������������������������������������������������������  55 6.2 Academic Controlling������������������������������������������������������������������������  59 6.2.1 Academic Strategic Controlling and Its Functionality������������  60 6.2.2 The Process of Creating Goals������������������������������������������������  62 6.3 Information System in the Controlling Process����������������������������������  63 6.3.1 Implementation of Controlling at Public University: SAP ����������������������������������������������������������������������������������������  65 6.3.2 Sofia����������������������������������������������������������������������������������������  73

Correction to: Company Controlling������������������������������������������������������������  C1 Conclusion����������������������������������������������������������������������������������������������������������  77 Further Reading������������������������������������������������������������������������������������������������  79 Index��������������������������������������������������������������������������������������������������������������������  81

The original version of the book has been revised. A correction to this book can be found at https://doi.org/10.1007/978-3-031-13153-0_7

Chapter 1

Controlling of Company: Basic Concepts and Definitions

Part of the management of the company, whether domestic or foreign, is operational management, a control related to the management of human, material, financial and other resources. One of the most important tasks in the functioning of the company is played by its strategy and objectives. Today we can present a comprehensive management tool, expanding access to analysis and rationalization of plan control in order to fulfill the company’s strategies. It is one of the effective methods of a thriving company, controlling. Controlling is a system of rules that helps achieve a company’s goals, prevents “surprises,” and can provide a timely warning about a danger that requires appropriate action. The following chapters will be devoted to controlling in the field of company management.

1.1 Genesis of Controlling Controlling as a system of rules originated more than 100 years ago in American business practice, originally as a designation for a specific type of planning and control in the field of accounting and finance. Subsequently, it was extended to other business activities. It was later also used in Europe, most in the 1950s in Germany.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Behúnová et al., Company Controlling, EAI/Springer Innovations in Communication and Computing, https://doi.org/10.1007/978-3-031-13153-0_1

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1  Controlling of Company: Basic Concepts and Definitions

1.1.1 Definition of the Concept of Controlling in the Anglo-­American Language Field The beginnings of controlling in the Anglo-American language region date back to the late nineteenth century in American manufacturing and transport companies. The original workload of controllers focused on financial management. The second milestone in the history of controlling is the year 1892, which is associated with the American industrial company General Electric Company, which was the first in its field to establish a position—controller. The introduction of controlling on a larger scale occurred only with the advent of the economic crisis, which increased the requirements for cost management and business planning. The first official summary of controller’s tasks with its special functions was published by the Controller’s Institute of America, founded in 1931 and was renamed the Financial Executives Institute in 1962. The development of controlling in the 1980s is characterized by linking cost accounting to management accounting. New instruments and approaches, which are still in use today, have started to be developed. These are process-oriented management accounting and controlling. This includes the ABC—Activity Based Costing method, as well as the creation of calculations in terms of target costs within the Target Costing concept.

1.1.2 Definition of the Concept of Controlling in the German Language Field Controlling expanded into German-speaking countries thanks to US subsidiaries after World War II. The biggest boom was recorded in the 1960s and the 1970s, at a time of stagnation in industry and consumer markets. Pressure was being exerted on the economy and efficiency in cost management. In the 1980s and 1990s, controlling was defined in two theories as follows: • The first theory—the so-called coordination system approach theory is based on the company’s system analysis. The representatives of this theory are Eschenbach, Hahn, Küpper, and others. • The second theory deals mainly with relations and conflicts between participants and the resulting activity in the management of the company. The representatives of this theory are Ewert, Pfaff, and Wagenhofer. Currently, in German literature, controlling is considered a separate theoretical discipline within the corporate economy, which is based on a systemic approach. The systemic approach is understood as a way of theoretical and practical thinking about the solution to the problem, which is characterized by a purposeful view of a person’s object of interest.

1.1  Genesis of Controlling

3

1.1.3 Definition of the Concept of Controlling in Slovakia The term controlling was not used in our country until 1990 as a result of the new political and economic system. The company Baťa a.s. Zlín was one of the companies in which the basics of cost accounting were created; these subsequently became the information base of controlling. During the first republic, it was among the world’s top not only thanks to the production of competitively successful products but also thanks to the established production and economic system of business management. The aim of the controlling was to use it in a new approach to efficient cost management when it is based on both the Anglo-American concept (i.e., controlling = management accounting) and the German definition, where the coordination concept of the management subsystem prevails. The period of crisis has created the need for changes in the implementation of the tasks of controlling. Until the crisis, controlling performed tasks mainly in the field of operational management of the company. The range of tasks performed by controlling can be defined as follows: • Participation in the development and control of the implementation of business plans. • Detection of deviations of the results obtained from those planned. • Finding the causes of the deviations and presenting corrective actions. • Drawing up reports, analyses, and comments on the results achieved. • Participation in the development of company directives, in particular for accounting, calculation, and budgeting. • Implementation of “new” calculation and budgeting methods. Controlling in times of overcoming the effects of the economic and debt crisis cannot function in a business as it did before the crisis. The scope, importance, and substance of some of the tasks of controlling change as necessary: • Strengthen strategic planning and introduce into the reporting system in addition to financial indicators for measuring the performance of the company also nonfinancial indicators (so-called “Balanced Scorecard”—more in Sect. 4.6.2 in Chap. 4). • Continue to implement and improve calculation and budgeting methods contributing to the growth of the economy and efficiency of business activities. Controlling was established in the management system mainly by large companies or medium-sized companies with foreign equity participation. In a crisis period, there was a need to improve the development of controlling in companies, organizations that have institutionalized controlling. Companies that do not have the control implemented face the task of its construction. The need for controlling to support management in overcoming the effects of the economic crisis stems in particular from the need for managers to make quick and operational decisions on the basis of relevant information on the development of the company’s surroundings as well as on the processes taking place within the industrial plant.

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1  Controlling of Company: Basic Concepts and Definitions

It is advisable to do the construction of controlling, whether it’s introducing or improving, as a project, because it is a new issue in the company requiring a comprehensive solution. These are time-limited tasks of a certain duration, and their solution requires the cooperation of employees from different business departments. The complexity and detail of the preparation of the project depend on whether it is the initial introduction or the improvement and replenishment of controlling.

1.2 Definitions of Controlling Nowadays, there are several known definitions of controlling, which speak of an active approach to future-oriented management of the company, taking into account the processes in the company and their impact on the economic system of the company. • Controlling is a system of strategic and operational methods and tools of company management. • Controlling links the management of individual areas to a comprehensive, unified company management system. • Controlling is a tool that ensures all relevant information for the management of the company. Academic literature, as well as many economists, provide a wide range of definitions of controlling. They include simple, comprehensive, concise, factual, but also abstract definitions, while control approaches are in principle possible in several respects: • A system of interconnected principles, resolutions, techniques, and methods serving in-company management to achieve the objectives set. • An integrated subsystem of planning, management, control, and incorporation of the information received intended to support and make good decision-making. • The process of realization of objectives through planning. • Required status compared to the real status. František Freiberg states in the publication Financial Controlling (“Finančný controlling”): “Controlling is understood only as control, i.e., the final phase of the management system, is just another “noble” name for standard control of business activities. Such a concept is often typical of company practice but does not constitute any change in the company management system. Control in its first sense—in the meaning of management, control—can be described as innovative. Controlling here refers to a specific concept of corporate management, based on a comprehensive information and organizational link between the planning and control process. The control thus conceived shall be based on: • the application of control tools, methods and techniques of analysis, • on the system creation of controlling information systems,

1.2  Definitions of Controlling

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• on system communication between organizational units, • change attitudes and way of thinking.” Another expert on controlling H.J.  Vollmuth in Controlling—A New Tool of Management (Controlling—nový nástroj řízení) characterizes controlling showing its differences from management: “Controlling is a management tool that goes beyond the functional framework of the current management and is intended to support the management of the company and the directors in their decision-making. However, such management of the enterprise presupposes that a planning methodology is available in the company, based on the objective set by the management of the company and other managers. The inspection shall be determined by the method of comparing the plan and the facts of the deviation in the regular reports from each area of the company. Consequently, on the basis of the deviations thus identified, the management of the company is to take corrective measures so that the company’s objectives are ultimately attained. This means that there is a constant feedback process going on in the company.” A. Foltýnová and Ľ. Kalafutová also point to the function of controlling in the company for efficiency of management in the publication In-Company Control (“Vnútropodnikový controlling”), which states: “In general, corporate controlling is characterized as a system whose purpose is to improve the management of the company on the basis of objective records and evaluation of all economic events in the company. It is therefore an effective work with information, with their collection, sorting, processing, and distribution. Controlling is to prepare this information for the resolution of planning, decision-making, implementation and controlling tasks.” It is clear from those definitions that controlling serves to maintain the desired situation in the company, as if it were a project that ensures at regular intervals that the plan is compared with reality in order to determine what interventions need to be carried out in a given area. These interventions can achieve or maintain the desirable situation. Controlling encroaches on many areas of the life of the company, namely, • Specific activity or production; it assesses which are profitable and in which it will be invested effectively. • Continuous development of profitability or loss-making, specifying the causes, production markets, sites and workplaces, and the number of workers needed. • Budgets, calculations, and cost structures of a company, defining how they evolve, why and how much they constitute fixed costs and variable costs, and how to use this knowledge in cost regulation, pricing, and other areas. • Reasons for the deviations of the results obtained from the planned, due to a change in, e.g., overheads costs and changes in the cost structure. • Phenomena that escape control, related to the conditions of implementation of the plan and standards of operation and economics of the company. • Transformation of the business strategy, and its security and implementation into concrete measures.

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1.2.1 Levels of Controlling The first (basic) level of controlling is linked to accounting, and its mission is to record the achieved real state. At this basic stage, it is important that accounting accurately records all information and data necessary for management, thus clarifying and facilitating the decision-making process through reliably processed reports. Financial accounting is focused on the past. The quality of accounting is necessarily related to controlling, not only financial accounting, but also in-company accounting. Financial accounting at annual intervals shows how the assets and capital of the company have changed, i.e., how the company fulfills its objectives. However, financial accounting alone is not enough for effective management. Therefore, the task of creating decision-oriented reporting from accounting has come to the fore. Controlling is focused on the future, accounting for the past and present; therefore, it provides it with incentives and information for future management. The transition from accounting to controlling marked a significant change in the direction of economic thinking (Fig. 1.1). The second level is aimed at comparing and monitoring deviations from the plan from the adopted objectives of the company. Unlike control, controlling not only records the detected deviations but also evaluates and suggests changes and improvements. Here the often mentioned role of controlling, the so-called role of the “navigator,” is manifested. The third level of controlling is aimed at supporting company management, with all-round management control through planning, control, evaluation, and correcting information. This circuit closes the controlling processes. It is a well-­ functioning information system that becomes an essential part of controlling. It also concludes a kind of controlling aimed at managing the organization. Controlling at this stage is inapplicable without a quality information system of the company.

Fig. 1.1  Degrees of controlling and their connection with the management

1.3  Company as a Place of Controlling

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1.2.2 Controlling Concepts Within the framework of controlling, four types of concepts have been developed in theory and practice: • Focused on management accounting: Takes into account the information objective that can be achieved through management accounting. It is about providing information relating to management accounting. Such controlling concepts may be identified as partly information oriented. The aim of this concept of controlling is to orient management accounting to the future and centralize it. • Information oriented: Controlling is also based on management accounting, expresses the information objective of controlling, but adds to this the business goal as an extended information background. Controlling is understood to support company management with information but is also understood as collecting, modifying, and coordinating information for the purpose and its use in company management. • Oriented to the management system: Controlling is understood here as a subsystem of company management. These approaches seek to develop the original functions of controlling, but also to define controlling over company management. The concept thus established is one of the most mature and comprehensive variants of controlling. It includes both information and coordination functions. This concept of controlling is divided into control and planning-oriented approaches and coordination-oriented approaches. • Practitioners’ approach to controlling: Controlling is considered to be goal-­ oriented company management tool. The role of the controller lies in a certain type of “navigator” service in order to make a profit (direct objectives = profit, indirect objectives = correspond to whether the company is on the right track, whether it is achieving growth, development, and ultimately profit).

1.3 Company as a Place of Controlling Company is defined as a productive social system, and it is a real product of people. It is composed of people, and its purpose is to bring performances to the human society. The basic characteristics of the business system with regard to controlling include the following (Fig. 1.2): • Socio-technical system: It represents people, means of substance, and elements that are purposefully focused on the production of performances, and their cooperation occurs. • Links between the elements are present, and they take the form of communication and production structures; the company is not only the result of scientific (formal) but also unscientific (informal) links. • Open and comprehensive system creates dependence on the surroundings; the autonomy of the company’s actions is limited. • Dynamic and probability-based, flexible, can respond to changes from the surroundings and from within the company.

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1  Controlling of Company: Basic Concepts and Definitions

Fig. 1.2  Controlling and its place in the company

• Focused on objective: Objective is sought, and the objectives are redefined. • Economically self-sufficient so that a company can exist; it must be profitable in order to at least cover its costs. • Multifunctional: Company is an entity where there are more interests and thus creates values for claimant groups. • Living social system: All processes, changes, and responses to external and internal influences are learning processes for this system. It is capable of learning. Distribution of the business system: • The planning–implementation system—by the use of goods and persons, it includes all primary subsystems of the company (production, marketing, purchase, and research and development). • Control system—this includes secondary subsystems: –– –– –– ––

Value system. Planning and control system. Information system. Organization system.

• Personnel management system.

1.4  Company Management

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1.4 Company Management Company management means the sum of the functions to be fulfilled in a company in such a way that the enterprise is able to exist independently. Existence is defined as, i.e., maintaining a balance in several areas that are related, interacting with the surroundings of the company.

1.4.1 Company Management and Its Equilibrium Under the company management, we understand the processes in which management is carried out. We understand these processes as a process of decision-making and enforcement of the will of company management. Management means to • Identify in a timely manner those developmental trends that threaten or limit the existence of a company. • Signal the need for changes at different levels of the company. • Use preventive remedies on a continuous basis. In the management of a company, • There is constant regulation. • Regulation means comparing two variables—plan and reality, one of which is influenced by adapting to the other. • Company can be understood as a network of interconnected regulatory circuits. There are four basic quantities that serve company management: 1. New potential opportunities for economic success—the company must search for them. 2. Existing potential opportunities for economic success. 3. Economic outturn (profit). 4. Cash flow. The current situation in business practice speaks of confronting businesses with various causes of structural changes in the global economy. Slovak companies were mainly influenced by Europe’s political integration, deregulation vs. business regulation, reduction of trade barriers (sectors sensitive to work are vulnerable) vs. increase in protectionism (policy seeks to take care of its producers), economic development of developing countries—especially the Far East (China, India, etc.), the phenomenon of saturation in several important consumer and investment markets, ever-accelerating technical progress (accelerating innovations, products quickly obsolete, bigger investments, etc.), and, last but not least, the extensive economic, information, and technical interconnection of market operators (e.g., electronic interconnection). The main objective of all management approaches is to ensure the long-term existence of the company, i.e., vitality.

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1  Controlling of Company: Basic Concepts and Definitions

In order to deal with functional aid to the company management, it is necessary to focus mainly on all the elements of the company, which, however, bring only a small range of management aid; therefore, controlling is created. Controlling is created as • Integrating the concept of controlling. • Supplement for the management of a vital company. • Including integrated assistance managed on the basis of functions and institutions of controlling. The concept of controlling contains all the basic considerations about the purpose, method of function of the controlling, and the interaction with other systems of operation of the company. From the point of view of company management, it is necessary to maintain a balance in the company (Fig. 1.3). In general, we divide the balance in the company into the following: • Financial-economic balance: Contains a requirement where the long-term requirements of equity holders for certain payment of dividends, profits, etc., must be considered.

Fig. 1.3  The position of controlling in the company

1.5  Control Processes in the Company as Part of the Controlling

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• Goods-economic balance: Both company and management should create conditions to meet customers’ expectations and requirements. • Personal-economic balance: People, the creation of working conditions, the content of work, and the determination of who contributed to the performance; only in this way will we be able to meet the expectations of co-workers, society, and legislators. • Information-economic balance: Meets the requirements that the objective need for information coincides with the receipt of information determined by external conditions.

1.5 Control Processes in the Company as Part of the Controlling In a company, a principle applies that, once objectives have been set, it is important to formulate tasks, organize, coordinate, and motivate employees’ efforts. However, this is not possible without monitoring, verifying, and checking the compliance of processes and their results with the objectives and intended objectives.

1.5.1 Nature and Importance of Control in the Company In company management, control is an integral part of specific processes of both strategic and operational management. In general, control activities relate to the assessment of the state of the business, with the subsequent finding whether we did something that we should have done or whether we did it as we should have done. In managerial practice, control is related to what and how it should have been done, also what should have been achieved, in particular in terms of the following: • • • • •

Content and purpose (whether what is to be fulfilled is fulfilled). Time (for how long, when). Manner (by what processes and procedures). Quality (what quality). Costs (how efficient).

The main mission of the inspection is to detect deviations in a timely and economical way. Deviations arise in a controlled process and characterize the difference between the intention (plan) and its implementation, their analysis, and the adoption of the necessary measures. Control is a process of verification, comparison, analysis, and regulation (Table 1.1). Control can be understood in the following ways: • In strategic sense: Evaluation of the starting points in the development of the strategy may lead to a change of strategy.

1  Controlling of Company: Basic Concepts and Definitions

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Table 1.1  The difference between control and controlling in a company Control Orientation to the past Detects errors Suggests correcting errors Looking for culprits Proposes to remedy the damage Suggests the method of sanction Proposes personnel and organizational changes Transmit the information obtained to the management of the undertaking or to the law enforcement authorities

Controlling Future orientation Coordinates Performs supervision Advises Methodically guides Proposes solutions and means Informs about the experiences of others Inspires Warns

Fig. 1.4  The relationship between control and controlling

• In tactical sense: Responds to a specific situation in a defined competitive environment. • In operational sense: Monitoring of regular activities in the transformation process (Fig. 1.4). The control must fulfill three essential functions, namely, • Monitoring function: The control obtains information about realized, actual data and quantities. • Assessment function: Must assess actual data according to agreed objectives; support of desirable behavior of entities. • Prevention function: supports performance just because it exists. Control is therefore a constant collection of information on how successful management is. The control also ascertains how the plan is fulfilled. It does not only cover the outcome of the implementation of the plan, but it is already relevant in its preparation and during its implementation.

Chapter 2

Tasks and Functions of Controlling

Controlling contains control functions (as mentioned in the previous chapter), but only in addition to other important functions. It fulfills its role of control by comparing planned and actual values.

2.1 Basic Functions of Controlling in the Company In the case of defining the basic functions of controlling in the company, or organization, controlling focuses on the past. The functionally cross-sectional nature of controlling as a management tool supports decision-making and management processes. For the controlling to be of high quality, the company is focused on the implementation of a cooperative management style and assumes a functional planning and information system (Fig. 2.1). • Information Function of Controlling This function is listed together with the analytical function. It is not only based on the specific collection of information and its registration, i.e., quantitative security of information, but also analyzes them all and qualitatively prepares them for the management of the organization. It is necessary not only to select information for management but also to transform it into its own company management information system. • Analytical Function It is closely related to the information function, as it is an active process of processing data into information.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Behúnová et al., Company Controlling, EAI/Springer Innovations in Communication and Computing, https://doi.org/10.1007/978-3-031-13153-0_2

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2  Tasks and Functions of Controlling

Fig. 2.1  Controlling functions in the company

• Coordination Function of Controlling It is one of the most important management tasks based on the synchronization and alignment of the different components of management. In controlling, we are talking about secondary coordination, where the controlling coordinates the sub-­ management systems and has two stages. The first stage is coordination in the creation of management subsystems and their structures. The second stage is cooperative within pre-existing management subsystems. It is intended to optimize the individual management subsystems so that these subsystems communicate and cooperate seamlessly. • Control Function of Controlling A third stage of control is added. The first stage ensures the detection of actual comparisons with the planned values of the controlled data, and the second stage analyzes the causes and deviations by means of a control. With the help of the third stage, negative deviations are eliminated. Controlling here allows to prepare draft measures, adjust the objective set, or intervene before the end of the time stage in the ongoing processes in the company. • Innovative Function of Controlling This function is gaining an increasingly powerful position in a company since the competitive advantage of a company capable of long-term existence is characterized by knowledge and innovation. It is necessary for a company in the field of adaptation and innovation (modernization of the company) since these processes constitute the cornerstone of the existence of the company. Innovation means not only an objective novelty but also a subjective novelty. We can also understand innovation function as a distribution of collected information to managers in the form of reports, tables, or reports. The purpose of controlling is therefore to pursue the objectives of the innovation process, to analyze and manage the preliminary decisions, which are always valid in nature, and which may, for example, entail incurred costs that cannot be eliminated or speed up the decision-making process, or to re-restore an innovation process that has been suspended or slowed down unjustifiably. Under innovation, we can imagine constant adaptation to both external and internal influences.

2.1  Basic Functions of Controlling in the Company

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• Advisory Function of Controlling The advisory function has an intersection with several of the above functions; as it is a separate analysis of the problem, it gives the concept of a solution and subsequent help with the solution itself. The above functions of controlling are among the basic functions of controlling. Additional controlling functions include the following: • • • •

Stabilization function—helps maintain the stability of the company. Motivational function—an effort to achieve objectives that are rewarded. Methodological function—develops methodological guidelines and plans. Planning function—monitors deviations from the set and achieved objectives (Fig. 2.2).

The tasks of controlling should be defined in such a way as to lead to the achievement of the company’s objectives. The role of controlling and its content depends on many aspects, such as the size of the company, its organizational structure, or management style. The basic tasks of controlling include the following: • Supporting the planning and setting of the company’s objectives • It includes the care and management of the planned system, counseling, formal control, monitoring of deadlines, and assessment of planned tasks. • Continuous detection and processing of information to support decision-making • Some have their own information systems, which are often not interconnected in management and decision-making. • Support of controls with emphasis on analysis of deviations • Both internal and external control require a control system of the planning system. • Processing of information into reports and translations for management purposes • Participation of stakeholders in the selection and preparation of managers

Fig. 2.2  The function of controlling and the course of controlling in the company

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2  Tasks and Functions of Controlling

2.1.1 Functioning of Controlling in the Company Controlling can only be functional if it is oriented to the objectives of the company. The controller does not set the objectives themselves, their management of the company determines them, but they help in the formulation and especially in their fulfillment. In general, controlling functions are divided into three basic areas: • A description of all activities taking place in the company. • The development of internal rules and the control of compliance with them. • Financial controlling. A description of all activities in a company means an activity that is tasked with describing (auditing) the current status of the organization’s activities. It includes activities from selecting suppliers and purchasing inputs, through processing in the production process, to selling and securing payment. It should include at least a basic algorithm with alternative procedure options in different situations. The task is to identify so-called narrow (weak) places that are not treated with a certain regulation, or which create potential problems (wrong decisions). These can cost the company not only considerable funds but also loss of time, customers, market position, or reputation. The discovery of weaknesses is logically followed by the creation of internal regulations and the control of their compliance. The creation of instructions on how to behave in a particular situation is only the result of analyses of the real status. It is particularly important to check back compliance with the proposed model and to modify it according to real and specific needs. Each of the separate regulations and directives must form a harmonious and logical whole in which it is easy to navigate. It is these two functions that usually cause problems for executive managers. Noncompliance with the established rules is an everyday occurrence in the lives of many companies. The worst thing is noncompliance with internal rules on how to carry out the main activities of the company, which ensure its basic economic and production activities. The biggest deficiencies are usually manifested in the initial evaluation of the client, security and guarantees of trade, resolution of critical situations, and compliance with internal regulations on trade restrictions (delivery of only a certain quantity under certain conditions, compliance with the maturity of invoices, correct signing of contracts). The focus of financial controlling is the control of development and prediction of basic indicators of financial analysis. Furthermore, these are pricing and financial calculations related to planning, control, and recording of the implementation of the plan, the follow-up of reports for higher levels of management, and modeling the emergence of various situations with possible impacts on the company’s management.

Chapter 3

Dimensions of the Implementation of Controlling in the Company

Every company in a market economy is focused on the future. Achieving the company’s future objectives will make controlling more effective. The use of controlling in this area brings benefits to each business unit in the form of an enterprise management tool.

3.1 Division of Controlling There are several classifications of controlling in the academic literature, and the most important criteria are shown in Fig. 3.1. The introduction of controlling in the company (Fig. 3.2) is carried out for various reasons and from a different time point of view. The controlling shall be divided in terms of time into the following: • Long-term (strategic). • Short-term (operational).

3.1.1 Strategic Controlling Strategic control is a systematic identification, investigation, and observation of future options and risks. In the area of the strategic role of controlling, the following are important: • Analysis of strengths and weaknesses. • Developing the strategic objectives of the company.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Behúnová et al., Company Controlling, EAI/Springer Innovations in Communication and Computing, https://doi.org/10.1007/978-3-031-13153-0_3

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3  Dimensions of the Implementation of Controlling in the Company

Fig. 3.1  Division of corporate controlling

• Offering a strategic philosophy of the company and taking measures for management according to deviations. Strategic controlling information tools: • Analytical tools: potential analysis and portfolio analysis of the product lifecycle, competitive analysis, and analysis of strengths and weaknesses. • Forecasting methods: qualitative and quantitative methods. In the past, controlling mainly fulfilled tasks in the operational field of management. The global economic crisis requires owners and top managers to be more focused on making strategic decisions instead of addressing operational company management tasks. For this reason, in the period of crisis development, controlling as support for corporate management must increasingly focus on strategic issues and the provision of quality and timely information for strategic decision-making. Businesses are aware of the growing role of controllers as strategic advisers, as they attach more emphasis to information about the business environment and its development prospects than they did before the crisis. In order to manage successfully, a company must have a well-developed business strategy. This is key to ensuring that managers are able to seize strategic opportunities to build a sustainable competitiveness of the business. A business strategy is successful and effective only if it supports the achievement of the main objective—increasing the market value of the company or, where appropriate, in profit-oriented companies (Table 3.1).

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3.1  Division of Controlling

Fig. 3.2  Division of controlling in terms of time Table 3.1  Dimensions of controlling in the company Two dimensions of controlling Strategic controlling Global view of the company Evaluation of the complex activity of the company External orientation (market) Long-term horizon preference

Operational controlling Partial view of the company Evaluation of individual areas of enterprise activity Internal orientation Short-term horizon preference

This objective can be achieved if the interests of other stakeholders (investors, customers, employees, suppliers, creditors, and companies) are taken into account in the development of the business strategy. The mission of controlling in the area of strategic planning is to help formulate the vision and long-term objectives of interest groups in an industrial company, to support the development of a business strategy by preparing information on the development of the external and internal environment of the company, and to verify the implementation of the business strategy. Thus, controlling contributes to knowing the wrong development in the planning and implementation process of the business strategy. It is important for a company to provide early warning information on deviations from planned developments, especially in times of economic instability.

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3  Dimensions of the Implementation of Controlling in the Company

In the area of strategic planning, it is important that the controlling focuses in particular on the following: • Coordinating tasks, i.e., aligning individual functional strategies (marketing, production, financial, personnel, etc.) with the business strategy. • Ensuring the application of support methods to strategic planning, enabling a strategic analysis of the external and internal environment of the company. • Regular monitoring of planning procedures and their follow-up. Controlling in the strategic area of company management is characterized by its focus on the distant future. Its task is to ensure that measures are taken today to ensure the existence and competitiveness of the company in the future. In order to support the adoption of strategic decisions by managers, controlling must focus on systematically monitoring future opportunities and threats.

3.1.2 Operational Controlling It is oriented on the present; the aspect of the future is given by the planning horizon, limited to short-term and medium-term results and their evaluation. Opportunities and threats are transformed into costs and revenues as representatives of the immediate results of business activities. The essence of operational controlling is to form a profit management system that needs the necessary information to enable the comparison of plan and reality to allow management countermeasures to be applied in a shorter period (month) in order to meet the annual plan. Cost controlling, also understood as in-company controlling in a narrower sense, is focused on cost management in an industrial company. Financial controlling is focused on the management of cash flows mainly externally of the company. Its main task is to ensure the liquidity of the company. Investment controlling includes a complex of activities taking place in the preparatory and implementation phases of investment decisions as well as in the exploitation phase of investments. It is dependent on both cost and cash flow information (Fig. 3.3).

3.2 Controlling Objectives The functionality of the controlling is associated with meeting the set objectives of the company. The controller’s job is to achieve the objectives and update them to increase the company’s potential. The objectives of the controlling are the basis and reason for building a system of controlling and controlling functions. The effective and apt objectives of introducing controlling in a company shall include the following:

3.2  Controlling Objectives

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Fig. 3.3  Corporate operational controlling system

• • • • •

Content. Value formulation. Objective promoter. Time horizon. Budget (resources).

To ensure the functioning of the company, we know three objectives of controlling: 1. Anticipation and adaptation capabilities: Information relates to current changes in the surroundings (adaptation) and future changes in the surroundings (anticipation). Controlling engages in the management process in addition to information activity, which together ensures the ability to anticipate and adapt. 2. Ensuring the ability of the reaction: Ensuring the contribution of controlling of the reaction lies in the introduction of an information system, but above all in the control system. It continuously shows executive workers the relationship between actual and planned developments for targeted corrections of internal and external faults (corrections of internal and external deviations). 3. Ensuring the ability to coordinate: The task of controlling is to guarantee coordination in the management system. Coordination takes place in individual company systems such as the planning system, value system, control system, information system, organization system, and personnel system.

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3  Dimensions of the Implementation of Controlling in the Company

The aim of ensuring the ability to coordinate in controlling is to synchronize and unify subsystems, while the corporate culture must be consistent with efforts after permanent flexibility, adaptation, and decentralized coordination. Intermediated–derived controlling objectives can be defined as follows: • Business management coordinates the ideas of its customers, superiors, etc. • Supporting management in the preparation of a balancing strategy to ensure that the objective is adequately achieved. The requirements of all the company’s coalition partners are taken into account here.

3.3 Position of Controlling in the Organizational Structure of the Company The position of controlling in a company depends on the understanding of its role in management. It should be stressed that controllers should not replace executive managers (planners, analysts, etc.) (Tables 3.2, 3.3, and 3.4). Controlling prepares quality information for decision-making. Defining the position of controlling in the organizational structure of a company is a very important area. From the point of view of the organization structure, it is necessary to pay particular attention to independence within the framework of the principles of controlling. This requirement is very easy to meet as long as the controller is at the first or second hierarchical level. We will look in more detail at the definitions of the competencies of the controller in Chap. 5. At a lower hierarchical level, the controller in the company must • Carry out their objective and independent tasks. • Create regular contact in the business hierarchy, despite its relatively low position. • Have immediate access to the company management. • Perform the leading functions assigned to them. As can be found from the overview of the advantages and disadvantages of decentralized controlling, the efficiency of the operation of the company depends on the correct setting of the organization structure of the company and on the causal

Table 3.2  Strengths and weaknesses of the controlling implementation in the company Decentralized controlling is subordinated to central controlling Potential benefits Potential shortcomings Good cooperation and good flow of information The relevant business area feels its controller between central and decentralized controlling as a foreign body Lean organization of controlling Decentralized controlling is more centrally Ensuring the uniformity of the controlling oriented and has little support for the unit system

3.4  Process Controlling

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Table 3.3  Decentralized controlling is subordinate to the head of a particular business area Decentralized controlling is subordinate to the head of a particular business area Potential benefits Potential shortcomings Decentralized controlling is understood The central controller cannot intervene vigorously and by the “relevant business area” as its must proceed either through personal influence or controller through competence It is accepted The controller of the relevant business area can only It has access to all sources of be delegated to the administrator of the relevant information of the relevant business area business area Table 3.4  Dotted-line principle Dotted-line principle (combined) Potential benefits Advantages are combined without any disadvantages

Potential shortcomings The double subordination of a decentralized controller can lead to significant conflicts Either management or the line does not accept controllers There is no objectivity or neutrality

interconnection of all efficiency components. The degree of decentralization affects the efficiency of the company secondarily.

3.4 Process Controlling The goal of process controlling is mainly to increase management efficiency and transparency of business processes, as well as to remove duplications and unnecessary and inefficient activities, to set competencies and responsibilities in processes, to make processes faster, to measure and manage process performance, to reduce process costs and personnel costs, to ensure efficient and clear corporate governance and risk management, and to significantly improve relationships with suppliers and customers. To increase added value or the ability to create added value, the process structure of the company is optimized before implementing a new or reconfiguring a changed existing information system, etc. Managing a business means managing its processes, especially controlling the costs of those processes. Optimal process costs create a precondition for achieving optimal company profit. The following reasons are most common for the introduction of process controlling: • Transparency of costs and activities. • Measurement of unit costs of processes. • Reasonable reduction, resp. cost optimization.

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3  Dimensions of the Implementation of Controlling in the Company

Process management and process controlling are among the more demanding management tools. Only a few companies in Slovakia use them effectively. However, in the current turbulent market environment, they can improve the financial result and especially support the company’s long-term success.

3.4.1 Business Processes Business processes must, in principle, be linked to business strategy. This interconnection needs to be extended by elements of the organizational structure and the technical and program infrastructure of information technologies. The enterprise architecture created in this way makes it possible to systematically document all processes and systems used in its conditions. An internal or external customer defines the process with their output requirements in terms of range, quantity, time, quality, and cost. Process analyses are relevant, especially in the following cases: • The company has problems with its performance—it needs to simplify and streamline processes. • The company has a cumbersome organizational structure, does not meet deadlines, and is inflexible. • The company has existential problems and needs radical restructuring. • The company is changing its strategy and needs to adapt its processes to it. The project of analysis and improvement of processes must be the responsibility of the company members of the top management. It must be following the corporate strategy (Table 3.5).

Table 3.5  Analysis and improvement of processes in the company Strategy

Analysis Analysis of goals

Processes

Process analysis

Methods

Method analysis

Information system

Analysis of the existing information system

Staff/ personnel

Personnel analysis

Solution concept Business strategy and project goals Concept of new processes Concept of the new organization Methods definition Tasks definition Information definition Requirements definition Qualification requirements

Implementation Linking the project with the company’s strategy Organizational changes

Implementation of new methods Changes in the information system Changes in corporate culture

3.4  Process Controlling

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1. The first phase of the project begins with strategic visions, SWOT analysis, elaboration of the company’s strategy, and definition of project objectives. 2. In the next stage, the processes are analyzed and optimized according to the following procedure: • Selection of main processes. • Process analysis—process documentation, assignment of costs to processes (ABC), defining the requirements of internal and external customers for the process. • Evaluation of processes—problems and their causes, benchmarking. • Selection and assignment of priorities to processes—selection of processes with the highest priority for controlling according to the degree of their development (complete restructuring, optimization, minor adjustments) and their impact on the company’s financial results. • Change of processes—temporary measures and their implementation in teams, new variants of processes, and action plans. 3. To implement the proposed changes, it is necessary to introduce certain methods and tools into the company, such as. • • • •

Project management. Change teams. New reporting system. New controlling—added value, flow, cover contributions, EVA, ROI, ROE, etc. • New motivation system. • Management by objectives, BSC, etc. These methods must be implemented in the company (employee training) and interconnected. 4. Analysis of the information system is a necessary condition for the correct implementation of changes. These are mainly the following tasks: • • • • •

Analysis of the existing information system in the company. Analysis of sources and recipients of information. Circulation and processing of documents. Analysis of information flows. Defining weak points in the information system and proposing requests for changes.

5. The whole process of changes planned above and its implementation depends mainly on the company’s people who will implement it. This section analyzes people’s attitudes to change. Their level of qualification for planned changes defines a catalog of measures to ensure new qualification

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3  Dimensions of the Implementation of Controlling in the Company

requirements and prepares a new retraining and motivation system. The result of the process analysis is a process map. It is possible to model various alternatives of the new organizational structure, which should copy the processes in the company. Process analysis aims to maximally adapt business processes to customer requirements, eliminate everything unnecessary from business processes, and maximize the added value in business processes.

Chapter 4

Cost Controlling in the Company

Costs are an important criterion in the evaluation processes of a company’s efficiency and are an important decision-making tool. In terms of the overall distribution of costs, their occurrence can be attributed to every organizational unit of the company, every process, every activity, every employee, etc.

4.1 Cost Controlling and Its Position in the Company Cost controlling is a systematic approach to cost management in the company. It monitors the occurrence of costs at individual centers of the company, in various business activities, and monitors costs through accounting and through integrated systems. It analyzes costs, plans and manages the company’s costs, and controls their creation and impact on the company’s financial results and economic efficiency. Cost controlling also pursues the basic strategic goal of the company— achieving profit and prosperity of the company through maximum economy, i.e., economy and efficiency of cost management and achieving economic efficiency in the form of profit. Given these facts, it can be stated that the importance of cost controlling in practice is constantly growing and its benefits for practice are visible. Cost controlling (CC) is a system focused on monitoring and evaluating the company’s costs, detecting shortcomings in their calculation, budgeting, analysis, and evaluation. A tool that allows to reduce cost items and look for possible cost savings options at all business levels, in all business processes. Cost controlling is an essential part of managerial accounting because it intervenes in the field of cost accounting, calculations, budgets, and tax accounting, and ultimately its outputs are reflected in the financial management of the company. In the company, cost controlling is located at the tactical and operational level of management, and its results are applied in the area of strategic controlling of the company (Fig. 4.1). © The Author(s), under exclusive license to Springer Nature Switzerland AG 2023 A. Behúnová et al., Company Controlling, EAI/Springer Innovations in Communication and Computing, https://doi.org/10.1007/978-3-031-13153-0_4

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4  Cost Controlling in the Company

Fig. 4.1  Implementation of cost controlling in the company

In the pyramid of modern trends in managerial accounting of the company are individual approaches or methods located at the appropriate management levels, i.e., from the strategic level of management to the operational level of management. Their importance is company-wide, and we can apply them at every level of management, while cost controlling can be applied at both tactical and operational levels of management. We can approach these methods from different perspectives and different business activities because their benefits are not only in the field of cost optimization, but above all they are also tied to the technical, technological, personnel, environmental, social, and material sides of the production process. Cost controlling intervenes in the process of optimizing business costs and solves issues of cost-effectiveness.

4.2  Company Costs

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Cost controlling requires a thorough analysis of data that intervenes in several areas of managerial accounting and management systems of the company. In order to ensure a synergistic effect between individual databases, it is necessary to know what cost controlling should include and monitor.

4.1.1 Cost Controlling as a Part of In-Company Controlling Cost controlling is a part of in-company controlling, and its main task is to increase the transparency of cost creation in all areas of business activities. Its other tasks are to improve planning, to make decisions based on appropriate information about costs and capacity utilization of the company, and to constantly improve the company’s cost and calculation system. • This system allows the company to assign time and costs to business processes and apply modern cost planning methods. • It also allows the company to build a process view of cost tracking. It defines specific procedures for assigning costs to a defined process (reengineering project), and it is therefore important that the links between cost centers, organizational units, and business processes are defined. • Based on defined links, to promote the principles of causality when assigning costs from cost centers to processes and outputs, the ABC method is used. Cost controlling can be defined as a practical tool for managing the company’s economy using a precisely defined system that is based on a richly structured margin. It is a separate branch of economic management, which is based on accounting data and is based on cost calculation while optimizing both from the company’s point of view and according to products, market segments, and places of responsibility and the contribution to the payment of fixed costs and profit generation. In addition to discovering hidden places to save costs, it has some other outputs that help address the financial situation of the company and other areas. It is thus a tool for non-accounting processing of accounting information intended for tactical economic decisions in the company.

4.2 Company Costs Cost controlling and performance controlling in the narrower sense monitor and evaluate the transparency of the flow of costs and revenues in the company. It is the transformation of costs from the company level to in-company economic units and customers. Within controlling, understood in this way, we are looking for answers to the following questions:

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• • • • • • • •

4  Cost Controlling in the Company

What costs have been incurred? … cost types, primary, secondary costs. Where did the costs arise? … in individual centers. What were the costs incurred for? … for specific performances. What will cover the costs incurred? … sales, payment allowance.

We understand controlling in a broader sense as a “superstructure” of management, which deals with modelling, planning and budgeting, and analysis and evaluation of deviations and answers questions related to the issue of economic management: • • • • • • • •

How high should the costs be? … necessary cost planning. How high are the costs? … necessary record of actual costs. Why are they so high? … important control and evaluation of deviations. What was the effect of the costs? … efficiency evaluation.

Costs represent the monetary valuation of the consumption of business factors of production incurred by the company for its performance and other special-purpose costs associated with its activities. They arise at the moment of consumption, and they are basically inputs into the corporate transformation process; we also refer to them as input. Costs are often associated with consumption, but not every consumer is a cost. For consumption to be a cost, it must meet the following criteria: • It must express a monetary valuation of the consumption of resources. • It must be spent on the specific performance of the company. • It must be purposefully connected with the activity of the company.

4.2.1 Classification of Controlling Costs The classification of costs is used to assess the level of individual cost items and performance costs and to reveal the provisions for their reduction. It is also important in planning and recording costs. We can classify the costs incurred in the company according to several aspects: • By cost types (economic breakdown). • According to the responsibility for their origin.

4.2  Company Costs

• • • •

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According to the relation to the production process (purpose division). According to their dependence on the change in production volume. Calculation costs. According to the decision-making process.

The basic cost types are considered to be the consumption of materials, consumption and use of external works and services, wage and other personnel costs, depreciation of fixed assets, and financial costs. Three basic characteristics are typical for incoming cost elements: • The type of costs incurred are primary in terms of their display (they become the subject of the display immediately upon entering the company). • The external costs (they arise from the consumption of products, works, or services of other entities). • In terms of the possibility of their more detailed breakdown in the company, they are simple (they cannot be distinguished into simpler components). The breakdown of costs by cost element is based on the classification of individual costs into economically homogeneous groups. It is a grouping of costs in terms of individual factors in the production process according to whether they are related to material consumption or labor consumption. This breakdown corresponds to the content of the individual cost accounts according to the company’s chart of accounts, and it is as follows: • • • • • • • • • •

Consumed purchases (material and energy consumption). Services (repairs and maintenance, travel expenses, representation expenses). Personnel costs (wage costs, including legal and other social costs). Taxes and fees (motor vehicle tax, property tax). Other operating costs. Depreciation, provisions, adjustments to operating expenses. Financial costs (interest, exchange rate losses). Reserves and provisions for financial expenses. Extraordinary costs (shortages, damages, creation of reserves). Income taxes.

The cost breakdown is prescribed by calculation formulas and is therefore also referred to as the calculation breakdown. In terms of causal links of costs to outputs, which are precisely specified in terms of volume, type, and quality, and in terms of practical computational technical options for assigning costs to a specific output, two groups of costs can be distinguished: • Direct: Directly related to a specific type of performance. • Indirect: They do not relate to one type of performance and ensure the course business process in a broader context. The essence of the purpose breakdown of costs is that all costs are divided according to their relationship to the production process, i.e., according to what use

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4  Cost Controlling in the Company

the same type of costs can have. The most important groups of decision-making tasks are tasks based on controlling cost-effectiveness. These tasks aim to find out whether the costs are “saved” in the company or exceeded. We also call this cost-­ sharing special-purpose. At the first level, costs are divided into a relatively wide range of different production activities and ancillary service activities. Within them, they are then divided, e.g., according to technological stages, processes, activities, or individual operations. The general principle is to identify the material bearer that gives rise to these costs. From this point of view, we divide the costs into the following categories: • Technological costs (costs directly incurred by the technology of the activity or operation). • Operating and management costs (costs that have been consumed to create, secure, and maintain the conditions for the rational course of the activity). • Unit and overhead costs: This breakdown of costs is the starting point for determining the specific cost task of individual cost components, which is based on the direct relationship to partial or final outputs, operations, etc. The course of production or the method of operation is prepared in advance, and part of the preparation is also the setting of standards. The cost task is determined simply by multiplying the relevant standard by a predetermined or actual number of partial outputs performed. This process is directly related to the unit of partial output, and therefore we refer to these costs as units. Conversely, the amount of operating and management costs and the amount of those parts of technological costs that are related to the technological process as a whole do not increase in direct proportion to the number of outputs but are usually determined on the basis of aggregate limits and standards valid for a certain period of rime or for the overall presupposed volume of outputs. These costs are referred to as overheads. Division of costs according to their dependence on the change in production volume: No costs can exist without a product or service. Therefore, the relationship between costs and production volume is one of the most important. In finding the optimal volume of production, we must know the development of costs and we must also determine the magnitude of the dependence of the change in costs on the change in production volume. The application of this breakdown of costs in managerial accounting no longer aims only to answer questions about the past but also provides information on alternatives for future developments (how costs, revenues, and profits will change if we increase the production volume of a particular product). The basis of this breakdown is the costs: • Variable: They change depending on the volume of outputs. • Fixed: They are independent of the change in production volume; they are fixed and unchangeable. They result from the need to ensure the operation of the company as a whole.

4.2  Company Costs

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We further divide variable costs into the following: • Proportionate: Costs develop as fast as the production volume. • Disproportionate: Costs develop faster than the production volume (over proportionate) or slower than the production volume (under proportionate). An indicator called the response coefficient (Kr) is used to classify costs into one of the cost groups. It expresses the degree of cost variability when changing the volume of output. It is calculated as the ratio of the percentage change in costs (Pzn) and the percentage change in output (Pzv): Kr = Pzn : Pzv



(4.1)

where

= Pzn ( N1: N0 ) .100  − 100

(4.2)



= Pzv ( V1: V0 ) .100  − 100

(4.3)

We calculate this change by comparing costs from two periods (1; 0); i.e., we compile the index and multiply it by the number 100, by which we convert the data to a percentage and then reduce it by 100. We do the same for profits. Breakdown of variable costs: if Kr = 1, it is a proportionate cost. Kr > 1, it is a progressive cost. Kr > 0, Kr