Management control through databases to reduce costs and increase profitability

The management and strategies of companies depend on the technological tools and instruments existing at any given time, in the same way that military strategies depend on the various types of weapons and technological instruments in force. This leads us not only to meditate on the best use that the technological instruments can be made, but also to analyze the situation of a certain company based on the use or not of a certain technology.

If it is about business management, IT Systems plays a fundamental role. It goes without saying that those companies that have fast, fluid information focused on its tactics and strategies will have the ability to make better decisions. In a society and economy with rapid and in some cases convulsed changes in trends, having information in due time and form is vital to carry out the opportune change of course. Organizations operate in a relentless and competitive environment in which they must survive. To avoid failure, survive, and succeed, companies must explore the dimensions of informed management opportunity, product and service differentiation, and increased productivity.

Information is thus the main weapon that will help management, products and services and productivity to penetrate the competitive environment. It must be made clear that quality computers, information technology, and information are not the ends but simply the competitive weapons that support organizations to achieve the goals of successful managers, excellent products and services, and increased productivity.. Whatever the industry, the companies that produce the highest quality information will remain or become the industry's strongest competitors. While those who cannot improve their information will lag behind those who can.

All organizations operate in a competitive and sometimes hostile environment, an environment that certainly demands well-informed managers. Imminent failure is the alternative for those organizations whose managers are misinformed or misinformed. In other words, the great enemy to be overcome by management is uncertainty. Managers must know what to do and how to do it; they must be able to adapt to rapid changes; they must have access to the organization's information, both internal and external; they must get timely warning signs and be able to anticipate threats and risks; they must be able to quickly identify both new opportunities and futile efforts. The size and brute strength of organizations can save them a little more survival time,but not knowing how to adapt to a turbulent environment will soon result in failure and ultimate death, the same fate as that of the dinosaurs.

Having quality information for planning, management and control is essential. The quality of it is given by the accuracy, timeliness and relevance.

Accuracy is more than just knowing that one plus one equals two. It means that the information is free of errors. It means that the information is clear and adequately reflects the meaning of the data on which it is based. Transmits a clear image to the receiver, which may require a presentation in graphical rather than tabular form. Accuracy means that the information is free of trends or deviations.

Providing information to recipients within the necessary time frame is another key attribute of information quality. There is little value in having untimely information to take appropriate corrective action. Opportunity in information simply means that recipients can get it when they need it.

Relevance is the last key attribute of information quality. In simple words, does the information respond specifically to the recipient about the what, why, where, when, who and how?

Managers have always used information to carry out their tasks and provide answers to the above questions. So the issue of management information has nothing new. What is new is the ease with which accurate and up-to-date information can be obtained. The innovation that has made this possible is the computer. Organizations are becoming increasingly aware that information is a resource of strategic importance and that the computer can cultivate that resource.

The Information System (IS) is one more system at the service of the company and its objectives, and for this reason, it is not at all independent of those objectives. The purpose of the same is to provide the necessary information to carry out the responsibilities that the different business functions imply; These business functions are in each case those necessary for the company to achieve its objectives, or, if desired, to follow a specific business strategy. For these reasons, the SI of a company is not independent of its strategy, since it must contribute to putting it into practice, and with such objective it must be planned and designed.

On the other hand, the SI is interdependent with the other component systems of the company's infrastructure. With these systems, the SI forms at each moment a balanced group whose harmony depends not only on the SI.

One of the most positive contributions that Information Systems has brought to computing is the concept of Database (BD), which is why it involves discipline in the organization of a company's data, and also for what it conceptually entails. as a data set organized according to the needs of each case.

Up to this point, the role played by computing in management and decision-making processes has been referred to. Now it is necessary to see what use can be made of this by combining it in a creative and innovative way with the new concepts in force regarding management control, budgetary control, profitability analysis by sector or product, and modern delegation systems.

For this, the first thing we must do is criticize the traditional accounting models, which lack the ability to report on the relative importance of income and expenses, the consumption of inputs in physical units, the repetition of certain expenses to effects of determining its causes or reasons, controlling profitability by area or product, determining productivity levels, and having preventive systems to avoid mismatches in the results budgets.

Having information that tells us how much we lost or stopped winning is of no use to us, since the loss or the smaller gains are a reality. The important thing is to have a system that allows us to form a tactical-operational budget that determines the income and expenses by area, clearly determining responsibilities, and distributing said budget over time, facilitating, on the other hand, its permanent adjustment to face the evolution of the environment. Furthermore, this system must allow not only an optimal use of resources, but also systematically reduce costs per monetary unit of income. Checking in time the areas or machines that have become unprofitable or wasteful is another no less important factor to consider.

The system pursues as a central and permanent objective the rational use of resources. This is often forgotten at favorable times, leading to oversights that sooner or later will have to be painstakingly corrected. One of the major arts in management is the ability to keep costs under control in times of prosperity.

Finally, and making use of one of the most used management tools, the system must allow a Pareto analysis that facilitates clearly distinguishing the vital few from the many trivial ones in terms of both income and expenses, which greatly facilitates both the analysis and the adoption of decisions aimed at improving a more optimal use of resources.

For this, a System has been devised that, operating on a Database (BD), allows not only budgeting, but also the improvement of the Internal Control System via the authorization of expenses against the established budget and the corresponding delegation of authorizations of expenses., which contributes to decentralizing the management of the company, giving managers more time to focus their attention on strategic issues.

This system was put into operation in companies of various sizes and activities, achieving very optimal results, which are described based on the analysis that has been carried out on them.

Criticism of the conventional system

Firstly, there is a notable concentration when authorizing expenses, which brings with it the following drawbacks:

High-ranking officials dedicated to all types of authorizations, which implies a low or very little added value depending on the salary cost they have.The high concentration of concepts to be authorized implies a high use of time, which should be allocated to tactical and strategic objectives of the organization. That same concentration originate important waiting periods. If the decisions are imperative to take them quickly it motivates that the concepts are not properly analyzed. The decision is not adequately informed of the various aspects involved in the expenses or expenses to be authorized.They lack information "on line" on the productivity of the inputs to be purchased or the repeatability of the costs for repair or maintenance. They lack a budget that serves as a basis and against which the authorizations must be imputed.

These are not all minor issues. What is the use of making budgets, or determining authorization levels if, after the end of the financial year, losses appear in the final line of the results table.

As for traditional accounting, it tells us nothing about profitability by product line, or returns by type of inputs (depending on brands, characteristics, among others). Although this could be obtained, it is after large hours of administrative staff work.

Traditional accounting tells us nothing about the relative importance of the different types or concepts of income and expenses, which is why serious errors are often adopted when making decisions, confusing the trivial with the really important and fundamental.

We can conclude that traditional administration systems have a low level of participation and delegation, or what is the same, a high level of concentration when making decisions. This leads to not having staff really focused on strategic issues and wasting resources. This waste of resources is the product of:

High cost of authorizing personnel (cost-benefit ratio) Lack of speed in decision-making Lack of capacity for decision-making (and if you consult with specialized personnel, you do nothing but increase costs) Lack of information about the optimal use of resources.

Providing a powerful solution

Making an innovative and creative use of computer systems, and combining them with the new participatory administration systems, it was possible to create a management and budgeting control system that has the capacity to generate, through its proactive and preventive approaches, the company's capacity to generate profits or at least avoid, in the event of a sudden change in the business environment, losses that put business continuity at risk.

The system starts from a budgeting by areas of responsibility, and expenses concepts, also taking into account the expected income levels.

The concepts to be authorized are made against the authorized budget for each period of time (monthly, biweekly, etc.). In the event that an outflow above the budgeted margins is necessary, this will require the authorization of a superior official. (In the case of sole proprietorships, the system itself will serve to reveal to the owner-administrator the subsequent deviations and risks).

The fact of establishing budgets by areas, allows a delegation of powers, thereby freeing the highest positions in the organization of certain tasks. These authorization levels can be foreseen based on concepts, amounts by periods and amounts by types of expenses.

At the time of authorizing expenses related to repairs or maintenance tasks, there will be the possibility of knowing how much has been spent on the same concept in a given area and how often (something that the traditional means of accounting information do not provide).

As the economic activity of the environment evolves, and that of the company itself (increase in the number of branches, addition of new products and services, etc.), the budget is adapted to reflect these changes, with which it is a question of guaranteeing the result. expected end.

Repair and maintenance expenses. Its repetition. Causes and reasons.

Among the causes or reasons that motivate more frequent than due in repetitive expenses in terms of repairs and maintenance we can mention the following:

Acquisition of poor quality supplies or spare parts Theft or fraud (Ex: lamps, locks, faucets in a building, such as a shopping mall, a hotel, or a bank building) Bad repairs Misuse of machinery and equipment Failure to correct fundamental reasons Equipment on stage unproductiveness

The frequency of repairs or maintenance detected by the system, allow us to find out about the real reasons for this, which is directly related to the method of the Six Questions (or Why?) Which is used by modern systems. of TQM and Continuous Improvement. One of the great advantages offered by the analysis of why in sequence is that it allows us to differentiate the "symptoms" of the real problem.

Discovering the real causes that originate the frequency of repairs or maintenance would allow us to generate the forms intended for their correction and / or prevention, such as:

Training in the best use of equipment, machines, facilities and tools Training in repair and maintenance tasks Control policies Productivity analysis by machine and equipment Training in problem solving techniques for repairs Implementation of the 5 S

Income-expense ratio

A good way to understand this application is by allocating income and expenses to transportation equipment. In a transport company with “n” trucks, the system would clearly establish not only the benefits that each of them generates, but also profitability, which is not the same as seeing the overall results in the results table. Detecting the drop in profitability of a unit in time allows decisions to be made aimed at improving not only the profitability of said unit, but also that of the whole. It should be said that although the unit is not a revenue center, still the fact that an increase in costs is detected in a unit, both in terms of maintenance or repair and operating expenses (fuel, energy, tires, etc.).) may be clearly showing a drop in the productive capacity of the equipment or machine due to wear and tear or structural problems.

Paretian analysis

Through the optimal use of the computer system, it is intended to have fast and accurate information that allows us to identify with sufficient clarity those concepts both on the income side and on the expenditure side that have greater specific weight. In this way, the analyzes, decisions and actions to be undertaken will be applied to those items or items that produce the greatest impact on the final results. It also allows having a clear idea that items are the main generators of income, and those that cause the most significant expenses.

In this way, we could determine no less than six levels of Pareto analysis based on the general total, such as the totals by area or sector, or based on the total per account, among others.

Bargaining power

Having in the database the total purchases by type of input, by supplier, by input and supplier and by line of inputs, allows to have firm bases for negotiating prices with suppliers, an aspect that also contributes to the decrease of costs.

Input yield levels

Having information not only in monetary terms, but also in quantitative terms allows the quantities produced to be related to the quantity of inputs used for this purpose, thus determining the levels of performance depending on the suppliers, brands, and types of inputs. This contributes to better control of operating efficiency levels.

Indices and averages

The system provides for the ability to establish relationships between income and expenditures, both in physical and monetary amounts, as well as the calculation of moving averages, which allows monitoring trend changes as objectives are met.

Results of its implementation

From the study carried out for a total of 18 companies of various sizes and types of activity, the following results were observed:

Time since laying	REDUCTION OF COSTS PER UNIT OF INCOME	REDUCTION
in action	5 companies	7 companies	4 companies	2 companies	AVERAGE
At 3 months	5.00%	12.80%	20.00%	25.00%	15.70%
At 6 months	15.00%	21.00%	30.00%	32.80%	24.70%
At 12 months	19.30%	32.50%	35.00%	38.75%	32.81%

It can be seen that in most cases it begins with a sharp reduction in costs as a result of the existing hidden costs, which when made visible allow rapid corrections, then although costs continue to decrease, they do so to a lesser extent.

We have of these averages, a cost reduction per unit of income, after the 12-month period has elapsed, of a minimum of 19.30% and a maximum of 38.75%; being the general average of the order of 32.81%, with a mode of 31.50% and a median of 32.05%.

Conditions for system success

The software itself is only a tool, which without the support of management, without training in analysis, and without sufficient discipline will not allow achieving the objectives of its implementation.

Nor will satisfactory results be achieved if delegation, participation is not carried out and it is arranged that different levels of the organization access information for control and decision-making.

A culture change is necessary to take advantage of these systems, for which the fundamental thing is to be aware of the opportunities offered by modern computer technology, as well as the opportunities to reduce costs and improve performance in companies with high costs. hidden and high degrees of unproductiveness.

conclusion

Thus, combining modern Database softwares with new techniques and administrative management tools, systems for budgeting and control of expenses can be built, which allows for significant increases in profitability, as well as having appropriate means to timely decision making.

Achieving accurate, timely and relevant information is the watchword of the moment, without having information that meets these conditions, the company drifts, like the navigator who is not allowed by the clouds to see the stars for their orientation.

Quick and accurate information that concentrates on key and relevant data allows the company's management to conduct both operational and tactical actions that not only enable it to achieve its strategic objectives, but also outperform the competition in the fight for market share.

Bibliography

Burch and Grudnitski - Information Systems Design - Limusa - 1999 Andreu - Ricart and Valor - Strategy and Information Systems - McGraw Hill - 1991 McLeod, Raymond - Management Information Systems - Pearson - 2000Hope, Tony and Hope, Jeremy - Transforming the account of Results - Pious - 1997Karlöf, Bengt - Practice of Strategy - Gránica - 1993