1.10 Exercising financial control
This booklet included three different examples where poor performance resulted from inadequate control or control failures, which again is often the result of uncontrolled growth.
Case Study 1
A purchasing officer has budgeted price for the things she can buy but upon a request by a sales manager she bought extra items at a higher price to help the sales manager please the very important customer. In her performance report this got neglected and she was just told that she was above budget. In reality the company still made a good profit on the things she bought.
This is typical for the important balance between subordinates having enough flexibility to respond to customer and superiors having sufficient influence to safeguard the organisation.
Managers are often risk averse to hold their position.
When analysing the accounting in a company look at:
\- How accounting highlights some and downplays other actions and consequences.
\- How accounting reflects, reinforces and initiates hierarchical structures.
\- How accounting operates vertically to help the powerful monitor and assess the less powerful.
You need a good balance between the freedom, creativity and initiative versus preventing the risk margin to break.
Case Study 2
In a factory tight budgets are introduced and if met, made even tighter again which resulted in difficulties between departments that try to meet their budget rather than work together efficiently.
Pay attention to:
\- setting unreachable targets
\- Lack of consultation over targets
\- Punitive treatment of adverse variance
\- holding subordinates responsible for matters that they cannot control
\- assuming co-ordination problems will take care of themselves if departmental targets are met
An organisation chart would describe it at the Blameless on top, followed by several Scapegoats who again have Suckers under them.
The challenge is to manage the interactions to ensure they are as positive as possible.
Case Study 3
This one is about managing a small business.
\- Sometimes credit sales and debtors control is not good enough and a credit worthiness check-up is not done.
\- Not creditworthy with suppliers yet.
\- lack of operating information, no basic criteria or budget what to accept or how to optimally use the machines
\- No cash flow control to help make proper use of overdraft facilities and possible longer term loans
\- Lack of programming of developments or of project planning
\- Lack of strategic plan, something in the mind that guides the way you develop your business over the long term
You need to look at your functions and transactions (Marketing, Production, Payroll, Stock, Debtors, Creditors, R&D, and Distribution) which are your operating information, move from there to task/operating control on to management control and from there to strategy formulation.