Strategic and operational Controlling - Early Recognition of CrisisBy: Stephan Szugat
Assistance in good and in bad times - some enterprises are in a crisis without knowing it. Often it is only noted that something must happen, when customers move away, loans are cancelled, suppliers threaten the business with stop of delivery and when more and more pressure is put on the business. (You find a detailed article about signs of a crisis at www.abenetis.com.)
It doesn't have to come that far. To recognize the development of business crises early, it requires a suitable Controlling. Controlling has to make business finances, processes, costs and dependences clear and contributes thereby to a higher economic viability. A sensibly action, that smaller and medium sized businesses rarely taken. Result: They often react a lot too late to market influences and crises.
As a basis for the Controlling principally serves the accounting of a business. Nevertheless, this has to the result that the Controlling concentrates its work on data from the past. That's why it is necessary to extend the operational Controlling with strategic analyses.
However, also the operational Controlling is able to use data from different areas of a company, which allow to recognize weak spots in business development early. It has to be paid attention to the fact, that data from other company areas have their date of origin before the accounting data. An example for this is Orders in Process. This is not grasped in the accounting. The accounting receives information about an order only when it has been already issued an invoice. Therefore Orders in Process is suitable as an early indicator for the Controlling.
Also other data can offer explanation about the business development. Thus the number of customer contacts, new customers or complaints (within a certain period) is an alternative to find out how the products and services of the business are accepted in the market.
Strategic and operational Controlling differ in their attempts, nevertheless, they are a supplement too each other. Requirement for a good operational Controlling is a strategic Controlling which focus on circumstances like working processes, product innovations due to changed customer needs, personnel development as well as to acquisition of customers and the search for new sources of supply. The regular analysis of strengths and weaknesses of the business belongs to the tasks of the strategic Controlling, too.
However, the operational Controlling concentrates on the day-to-day business and on the most important information about the business development. It has to be paid attention to the fact, that only that much information are collected and are evaluated as really necessary to management a business. This is usually a weak spot of controlling systems in small and medium sized businesses. Often too less or too many data are collected and are evaluated without paying attention to the importance for the business management.
It is possible to manage a business on the basis of up to 30 ratio values, which are calculated weekly. Continuing analyses can be done when it is necessary. This saves a lot of time, especially in small and medium sized businesses in which rarely a Controlling department exists.
To prepare strategic evaluations, needs no big effort or extensive methodical knowledge to reach high expressiveness. At regular intervals prepared strategic analyses give clues for the development of the enterprise and assists to recognize strengths and weaknesses. It is important that the analysis is just the first step, from the analysis measures have to be developed whose implementation has to be observed.
Controlling is important for all enterprises, in good as in difficult times. Good Controlling can preserve an enterprise from suffering damage and in difficult times it helps to find and maintain the right way. A Controlling system that consists of strategic and operational analyses is a useful guidance system. Furthermore the information from these analyses can be used for the preparation and realization of consultant assignments. Thus with insecurity about the actual position of the own enterprise or about the further approaches, an expert can be consulted without the need to carry out basic analyses once again. This leads to higher efficiency and saves the liquidity of the enterprise.
From the above the assumption arises, that a combination of strategic and operational Controlling and occasional short-term consultant assignments will be the optimum to protect the existence of a business.
© copyright Stephan Szugat, 2005
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