The present work aims to characterize the Management Control Systems based on the strategic management of organizations.
It establishes a set of elements of analysis that justify the need to focus the control systems based on the Strategy and Structure of the organization, and to grant the information system, elements of quantitative and qualitative analysis, financial and non-financial elements, all summarized in the so-called formal and non-formal factors of control.
It also means the importance of the existence of an efficient and effective information feeding and feedback system, for making decisions generated from the systemic and strategic management control system, through the Dashboards.
Control systems for the strategic management of organizations.
Any management system, no matter how different its characteristics or social function, is composed of a set of complex functions in its formation and operation. For Newman (1968, p. 21.): "Direction has been defined as the guide, conduction and control of the efforts of a group of individuals towards a common goal."
The work of any manager can be divided into the following functions:
- Plan: determine what to do. Decisions that include clarifying objectives, establishing policies, setting programs and campaigns, determining specific methods and procedures, and setting day-to-day forecasts. Organize: group the activities necessary to develop the plans in directive units and define the relationships between executives and employees in such operating units. Coordinate resources: obtain, for use in the organization, executive personnel, capital, credit and other elements necessary to carry out the programs. Lead: emit It includes the vital point of assigning the programs to those responsible for carrying them out and also the daily relations between the superior and his subordinates. Control: monitor whether the practical results conform as closely as possible to the programs. It involves standards, knowing the motivation of staff to meet these standards, comparing current results with standards, and taking corrective action when reality deviates from forecast. (Newman, 1968).
Whenever a management process is present, these functions must be implicit, although the subdivision that is presented has a purely analytical and methodological character, since they all occur simultaneously in a given period of time, and without abiding. to this predetermined order in which it is presented. At present, this subdivision is made up only of planning, organization, direction and control, since it is considered that in any of the rest, coordination is part of them.
What is indisputable is that each of these functions plays a specific role within the management process, complementing each other and forming a system of management relationships. Despite the role of each one, many authors consider the relative importance of planning over the others.
Management Control Systems. Its structure and operation.
From the primitive community, man has raised the need to regulate his actions and resources based on his survival as an individual or organized social group. In any case, there was at first an instinct for conservation and with subsequent bio-psycho-social development, an organizational consciousness that allowed them to manage their resources. Thus arose a process of regulation and definition of activities that guaranteed:
- Be oriented towards a specific idea or need, generally guided by a leader Have food, tools, land and even places for fishing at a certain time of the year Know exactly who or who were responsible for one or another task Detect any lack and the possible causes. To act in the event of a situation that violates what was planned.
This process, which was initially an intuitive activity, was gradually refined and over time evolved into models that would reinforce its rational character and therefore have been deepening and refining its operating mechanisms and forms of execution, until they became systems that, adapted to Specific and particular characteristics have become an elementary part and point of attention of any organization.
With the development of society and production systems influenced by technical scientific development and industrial revolutions, the way of facing objective situations has required a greater depth of analysis and concepts to assume functions or play specific roles and maintain at least one level of competition that allows survival. Derived from this process, ideas and terms arise such as management and everything that it represents.
Management is characterized by a broader vision of the real possibilities of an organization to solve a certain situation or reach a certain goal. It can be assumed, as the "disposition and organization of the resources of an individual or group to obtain the expected results". It could be generalized as a way of aligning efforts and resources to achieve a specific goal.
Management systems have had to be modified to respond to the extraordinary complexity of the organizational systems that have been adopted, as well as the way in which the behavior of the environment has been modifying the way in which it affects organizations.
In order to define, therefore, what has been called "Management Control", it would be essential to merge the above with a whole group of considerations and corresponding analysis on control.
Throughout this development, control has been reinforcing a series of stages that characterize it as a process in which organizations must define information and make it flow and interpret it according to their needs to make decisions.
The classic control process consists of a series of elements that are:
“ Establishment of measurement criteria, both for the actual performance and for what is desired. This happens by setting what the objectives are and quantifying them; for determining the critical areas of the organization's activity related to the actions necessary to achieve the objectives and for the establishment of quantitative criteria for evaluating the actions in such areas and their repercussions on the objectives set
Establishment of the procedures for comparing the results achieved with respect to those desired.
Analysis of the causes of deviations and subsequent proposal of corrective actions. "
The main limitation of this approach to control is that corrective actions will be taken once the deviation has occurred (a posteriori), due to the fact that they are not previously informed and prepared to avoid the possible deviation. It also presents other limitations that make it ineffective in the face of the specific needs of the organization, which require a more detailed analysis, in terms of its relationship with the environment, characteristics of the organization, systemic nature and assessment of qualitative aspects which will be called in hereinafter non-formal control factors.
One of the most important aspects that must characterize control as a process is the fact that it is designed with a systemic approach, so it is of great importance to clarify the concepts associated with it.
It is necessary to begin then with the concept of System, seen this as a set of interrelated elements, depending on an end, that form a single whole and that has new characteristics that are not present in each of the elements that form it..
Each element that makes up a system has a well-defined specific function and the obligation to fulfill it and contribute synergistically to the correct operation and, ultimately, to achieve the determined objective. In an organization, only this will allow it to survive.
We can speak, then, of a Control System, as a set of actions, functions, means and managers that guarantee, through their interaction, to know the situation of an aspect or function of the organization at a given time and make decisions to react to she.
Control systems (Menguzzato and Renau. 1986, p. 245.) must meet a series of requirements for their efficient operation:
- Be understandable.Follow the organization form.Fast.FlexibleEconomic.
Each part of this system must be clearly defined and integrated into a structure that allows it to flow and obtain from each the necessary information for subsequent analysis with a view to influencing the behavior of the organization. Two important factors should be added to the definition provided.
- The control process must have a clear definition of each information center. (Responsibility center) √. You must have well defined what information is necessary and how it will be collected, processed and taken to the management for decision making.
The control system must be supported on the basis of the needs or goals set by the organization. These goals can be assumed as the objectives that the organization has set out to achieve and that ultimately determine its reason for being.
The fact that the control system is defined and guided by the strategic objectives of an organization, gives it an eminently strategic character, since it will be designed to control the behavior of the different parts of the system based on the fulfillment of those objectives and at the same time will provide information for strategic decision making.
Each objective must be duly shaped and adjusted to the characteristics of the environment and the objective and subjective needs of the organization. Monitoring the evolution of the environment makes it possible to react, and readjust if necessary, the way in which these proposed goals will be achieved and even partially or totally rethink them.
Center of responsibility is that area, department and even person who, due to the characteristics of the function that he performs, within the organization has an important weight or participation in the achievement of the objectives.
To achieve this, it is necessary for the Control System to function in such a way that it allows obtaining the necessary information at the right time. It must allow to know what is happening around and based on the chosen paths to reach the future (Strategies), to know the reaction to these external changes. Many times, external changes require internal changes and it is essential to know how and when to change.
“The future cannot be foreseen in the terms in which we have understood it up to now, but it is necessary to invent it. We will never leave what we are, personally and organizationally, if we do not envision, at least as an image, what we want to be and we work and fight for it. " Hence the fundamental importance of planning and the effective determination of strategic objectives.
A control system with a strategic focus must be able to measure the degree of compliance with these objectives.
Therefore, it is necessary to identify a group of quantitative and qualitative indicators that express the level and quality of compliance with each objective.
Below are some of the contributions that have been made to control systems in the organizational world.
According to Gerry Johnson and Kevan Acholes (1997, p. 264.): “… managers often have a very limited vision of what the managerial control of a strategic context consists of.”
Both consider control systems in two broad categories:
- Information and measurement systems: financial systems, indicators, etc., systems that regulate people's behavior.
Other authors establish moments through which any control system must pass.
For Harold Koontz and Heinz Weihroh (1994, p. 128), any control system must go through these three stages:
- "Establishment of standards and critical points. Performance measurement. Correction of deviations."
This rationale is very similar in general to the classical concept of control. Both concepts defend and support the following:
The establishment of standards and critical points allows the management to direct itself directly on indicators that inform it about the situation (a priori or a posteriori) of the organization. Plans make it easy to compare with what has been achieved, but they go against innovation.
At this point, the determination of the objectives that the organization sets for its improvement is included, but the little flexibility in most cases only allows them to survive.
In each microenvironment or organization, there are a number of aspects that are especially important and on which ultimately its competitive position depends. This assessment allows you to have an idea of what and what are the critical points of the organization. Some authors define these aspects as key variables, through which the internal functioning and projection of the organization must be expressed. (See Indicators and Responsibility Centers.)
Based on these indicators, the behavior of the organization's components can be quantitatively measured, which is defined as performance measurement and evaluation.
It is considered that the performance evaluation should be done with a multidimensional approach, and be measured through criteria such as stability, efficiency, effectiveness and value improvement, for which, if normed or planned standards are taken as a reference, they will express the level of Effectiveness and if the competition is taken as a starting point, then they will express the level of competitiveness of the organization. It is not enough to determine the criteria to make a correct performance evaluation, it also requires a harmonious interaction between objectives, strategies, indicators. This allows for qualitative analysis and to do so based on global objectives and local processes to make possible the analysis of the root causes of the level of performance achieved by the organization in general.
After the comparison between the indicators and the real one, the causes of the deviations are analyzed and measures are taken to correct the behavior, which in flexible organizations that are open to change, could even imply reorienting the direction of management.
For Menguzzato and Renau (et. Al., 1984, p. 245.), there is a group of variables that collect all the information necessary to set the expected value and compare it with the output of the system.
- “Essential variables: of great importance in the operation of the system and are linked (or even represent) to the objectives of the system. Action variables: they can be manipulated by another system or by an operator and their mission is to regulate the operation of the system. "
All these ideas are crystallized in control systems designed depending on the organizational culture or the characteristics of the environment, social object or simply its needs.
Management control.
The conditions in which there is currently competition for access to the necessary resources, to reduce expenses and costs, to increase the quality of products and services, and the colossal development of communications and transport, have modified the way of acting and interact of organizations. The management processes have evolved, in the same way, to a superior system.
These and other factors make the classic concept of control just a query item. The current Management Control is an example of this.
At the beginning (1978), Management Control was considered as a series of techniques such as internal control, cost control, internal and external audits, analysis of ratios and balance points, but budgetary control constituted and still for some constitute the fundamental element of management.
The ambiguity of this concept is due to the fact that it has undergone many modifications typical of its evolution, with the aim of providing it with elements that separate it "from its essentially short-term accounting aspect."
Anthony R. (1987, p. 168.) considers it, rightly, "as a process by which managers ensure the obtaining of resources and their effective and efficient use in meeting the objectives of the organization."
Note that in these cases, Management Accounting is just another available control mechanism.
The management control system is designed to help the different decision levels to coordinate actions, in order to achieve the maintenance, performance and evolution objectives, set at different deadlines, specifying that if the accounting data is still important, it is far from having the almost exclusive character that is granted to it in many management control systems.
For Joan Ma. Amat (1992, p. 35.), Management Control is: «… the set of mechanisms that management can use that increase the probability that the behavior of the people who are part of the Organization is consistent with its objectives. " 9
This concept proposes a new dimension of management control, since they not only focus on the accounting and short-term nature of this, but also recognize the existence of other non-financial factors and indicators that influence the process of value creation, either in products or services, and are focused on the basis of the existence of proposed objectives to be achieved.
It incorporates a periodic balance of Weaknesses and Strengths, a comparative and inter-organization analysis, the use of the Scorecard as a control mechanism and information flow.
Another philosophy for improving the management system is aimed at highlighting the interrelationships between human processes and the control system, using non-formal control factors, which have become very important in recent years.
Despite this development, a set of Management Control limitations can still be identified, among which we can mention:
- About what should be the content of a management control system.
- The complexity of the organization and its environment is not reflected in the complexity of the management control system. Control does not establish a relationship between the evaluation of plans and budget and the evaluation of the strategies that may become obsolete since, given the turbulence of the environment, the frame of reference in which the plans and budgets are inscribed is not unalterable.
- Bear in mind that a control focused on short-term results can compromise long-term competitiveness. That it is important to have a double budget (a strategic one and an operational one).
9 Joan Mª Amat. Management control. Barcelona, Ed. Ediciones Gestión 2000 SA, 1992, p. 35.
o That the approach must be anticipatory, due to the turbulence of the environment.
This is how the most recent designs of Management Control processes and systems are characterized by five aspects, which take up the previous control processes because they are derived from them.
The management control process, therefore, starting from the classic definition of control, taking up criteria from other authors and adjusted to the current information management needs and adding non-formal control elements, could be considered in five points:
- Set of control indicators that allow guiding and subsequently evaluating the contribution of each department to the key variables of the organization. Predictive model that allows estimating (a priori) the result of the activity that each person in charge and / or unit is expected to carry out. Objectives linked to indicators and the organization's strategy. Information on the behavior and results of the actions of the different departments. Evaluation of the behavior and results of each person and / or department that allows corrective decision making.
For Amat (1992, p. 35), “depending on the combination of mechanisms that an organization uses to adapt to the environment and facilitate internal control, four types of control systems can be considered: Family (or Clan), Bureaucratic (or formalization of behavior), by Results (or market) and Ad-hoc (or Network). "Many authors tend to associate control by results with management control. The fact that, due to its characteristics, many organizations do not use this system but another does not imply that they do not carry out management control.
The preference for one system or another will be influenced by the size of the organization, the degree of centralization of decisions, the possibility of formalizing the activity, the personal and cultural characteristics of the organization and the behavior and characteristics of the environment.
The greater the centralization, the less the need to use formalized control mechanisms to facilitate the decision process. As the organization grows, it will be necessary to specify the procedures for delegating tasks to lower levels.
As centralization diminishes, the more necessary it will be to have a formalized control system. On the other hand, as the interdependence between organizational units is higher, either through formal or informal mechanisms, the importance and need for a formalized system, and in particular, for management accounting as a control system, is reduced.
The management control process is based, therefore, on control mechanisms related to both quantifiable aspects, derived from a budget or a plan, based on set objectives and on specific control systems such as internal control, quality control, etc..; as well as aspects related to individual and interpersonal behavior. These mechanisms are differentiated and treated as formal mechanisms (strategic planning, organizational structure, management accounting) and non-formal control mechanisms (psychosocial mechanisms that promote self-control and cultural ones that promote identification).
The strategy and structure of the organization as starting points for the operation of strategic control systems for management.
To adapt their internal functioning to the demands of the environment, organizations define their organizational policy in the most convenient way, to take advantage of the opportunities offered by the environment and according to their capabilities and resources, maintain their competitiveness (business strategy) for what which its elements are structured and coordinated in a certain way (organizational structure).
Luis Gaj (1993, p. 18.) offers an appreciation from the point of view of several renowned scholars on the subject of strategy.
Henry Mintzberg defines strategy as: “a way of thinking about the future, integrated into the decision-making process; a formalized and articulating process of the results, a form of programming. "
To this, Snynder and Gluck, add that the strategic task is mainly planning as a way of seeing the whole before seeing its parts.
Igor Ansoff, for his part, explains the strategy in: where, when, how and with whom the company will do its business.
The strategy applies equally to large or small organizations, those for profit or that have a state and budgeted nature.
Another conception places strategy as an instrument for managing organizations, not necessarily a plan, but rather a mature behavior to keep the organization in balance with its environment, knowing and using available resources.
All these ways of seeing the strategy are here separated in order to facilitate the understanding of relevant aspects, however, they can be mixed providing what could be called a conscious posture of situational adaptation to changes in the environment, having a common aspect that is the futurity of current decisions, although it is not synonymous with success, which means that it requires additional ingredients that make it an instrument to avoid failure caused by technological or knowledge obsolescence and environmental inadequacy.
As might be expected, there is a close relationship between strategy and structure, which is produced by an interdependence, since if to implement a strategy successfully it is assumed that the structure must adapt to it, then any existing structure will influence, to a great extent. measure, in the strategy to be designed; In other words, the strategy is a product influenced by the pre-existing structure that in turn generates a new structure.
For all the above, the design of a control system for the management of an organization must be consistent with its strategy and structure, as formal aspects as well as with non-formal aspects that are part of the management process. This will be able to guarantee with a greater probability, that the operation and the results obtained from the decisions taken are related and consistent with the organization's objectives. Hence, the management control systems that are designed must be linked to the formulation of the organization's strategy, to the design of its structure and to the non-formal aspects linked to the management styles and methods that allow adequate decision-making processes. decisions and the identity that is achieved in the organization,assimilating instruments and mechanisms that allow it to overcome the limitations that as a control system does not allow it to fulfill its function with efficiency and effectiveness.
Due to the fact that an effective control system must be designed based on the strategy and structure, the formulation of organizational objectives linked to the strategy is the starting point of the control process.
The type of strategy (leadership, costs, etc.) and structure (centralized or decentralized, functional, etc.) that an organization has determine the characteristics of a control system.
The adaptation of accounting systems to the needs of strategic information can facilitate decision-making by allowing the quantification and selection of the different strategic variants.
The control system must be designed on the basis of the type of strategy to which the organization is oriented.
On the other hand, financial planning must be integrated with the long-term strategy, so that the annual budgets will be a reflection of it and will allow to guide both the action of the responsibility centers and the evaluation of the performance of the different managers.
Links of the control system with the organizational structure.
The definition and clarity of the organizational structure is basic to be able to design the control system. In particular, the degree of formalization and centralization, as well as the type of organizational structure determine the characteristics of the control system.
First, as the uncertainty and complexity of the activity increase, the more difficult it is to formalize through procedures. Thus, more or less direct supervision will be needed, activities will be routine or not, management systems will be little or very formalized, accounting information and its role in the control process will be valued to a greater or lesser extent, etc.
Second, the greater the decentralization, the more costly and difficult it will be to exercise control and the more necessary it will be to have a formalized control system, also adequate to control the specific variables that decentralized management can affect those responsible.
Third, the type of organizational structure will also influence the control system depending on whether the organization adopts a functional, divisional or matrix structure.
Finally, it will be very important to clearly define the decision-making power that is transferred to each person in charge in each center and also that the control system is integrated with the organizational structure so that the indicators are defined based on it and the budgets and the performance evaluations of each center are carried out according to their responsibilities.
Indicators and Responsibility Centers.
The formulation of the strategy and the design of the structure makes it possible to determine specific objectives for each of the different centers of responsibility.
Decentralization involves dividing the organization into different organizational units and giving greater responsibility to the people in charge of managing in each unit. This allows management to delegate day-to-day operations and focus on tasks of a more strategic nature.
From the perspective of control of each organization, it is necessary to identify the characteristics of each center of responsibility (people, functions, hierarchy, responsibilities, degree of decentralization of decisions, relationship with other units, coordination mechanisms) to carry out its control, since it must be carried out according to their degree of responsibility in the decision variables that affect the result and are therefore under their influence.
Responsibility centers from the perspective of control:
- They facilitate communication and negotiation of objectives They clarify the responsibilities of each center in the decision process They stimulate motivation and initiative They facilitate the evaluation of the performance of each person in charge and the identification of problems.
As the responsibility centers are determined and coordinated, indicators can be established that allow:
- Establish the initial objectives of the different units Measure, and subsequently evaluate, the behavior and degree of fulfillment of the activities and responsibilities of each center Design the information system that facilitates decision-making and control Facilitate definition of the objectives by concentrating on it the indicators Measure the contribution of each center to the result Evaluate the performance of each person in charge.
This is done through the identification of the key variables of each center and of the organization as a whole.
As previously stated, the key variables are aspects of decisive importance in the internal and external functioning of any organization. They aim at certain parameters, which are conceived through or based on them and guarantee, in their correct achievement, to keep the internal and external functioning of the organization in balance, so the control process should focus on them. Thus, for example, competition is not a key variable, but the selling price, the service or the quality with which the products are offered are.
"Key variable is understood as those areas or activities that, if carried out well, guarantee the success of a unit and therefore the achievement of its objectives."
The ability to select these critical control points is one of the management skills, since adequate control depends on it. In this connection, managers need to ask themselves questions like these: What will best reflect the goals of my department? What will it show me best when these goals are not met? What will best measure critical deviations? What will tell me who is responsible for any failure? What standards will cost less? For what standards is the information available financially?
The definition of the key variables facilitates the design of the control indicator system and its measurement.
It is very important that these indicators are financial (sales, profit margin, indebtedness, treasury) and non-financial (market share, customer loyalty, initiative, creativity, external image of the organization, etc.) so that they can represent the maximum the characteristics and particularities of the process.
The monitoring of the indicators is usually carried out through a tool known as the Scorecard. (See Dashboards.)
Control systems for strategic, efficient and effective management.
From all that has been raised so far, it can be inferred that the control systems to guarantee a truly efficient and effective management must have a group of characteristics that detach it from its purely accounting and operational nature.
Ma. Isabel González (1999, p. 29.), defines efficiency as a “… simple relationship between the inputs and outputs of a system”; Magnitudes such as productivity are representative from this point of view. Other authors associate efficiency with reaching their objectives by optimizing the use of their inputs. This point of view obliges the former to consider that the output is adjusted to schedule and therefore the organization is at the same time effective.
Menguzzato and Renau (1986, p. 35) associate efficiency to the relationship between assigned resources and results obtained, and effectiveness to the relationship between results obtained and desired results.
If these observations are adjusted to the system, it is necessary to focus on how to achieve efficiency and effectiveness, not in management but in the process of controlling that management itself.
Precisely, in the aspects proposed to overcome the limitations of management control, there will be the way to reach certain levels of effectiveness in the process by having a systemic character, a strategic approach, and not only reaching the formal aspects but also offering significant weight to non- formal aspects of control. That is why the system must propose the use of the different aspects that complete a control system so that it can truly measure the efficiency and effectiveness of management.
The aspects proposed to give the system efficient and effective measurement means of management will be linked to the non-formal aspects of control and scorecards, assuming, as is evident, the prior existence of the formal aspects of control.
Starting from the base of effective objectives, predefined for a certain period and that contemplate a real challenge for the organization, and the proposed paths to reach that planned future, the control system must be based on a defined structure for:
- Grouping under a criterion of similarity in their functions to departments that participate directly in the fundamental activity Group or differentiate other departments that serve as direct support to the fundamental activity Departments or responsibility centers that participate directly in other activities that are contemplated in the global goals. These centers may or may not be part of those of the fundamental activity.
These elements will guarantee a level of decentralization that, as has been described, will need a more formalized control, but this process will depend to a large extent on the degree of formalization that the fundamental activity allows.
Non-formal aspects of control.
By defining individual objectives, hierarchically subsequent phase to the definition of the overall objectives of the organization, the process will be focusing on the control of the individual activity of each department and how it is influencing the overall objectives of the organization. This gives the department the freedom to program its own control system, adapted, of course, to the central system. It is necessary to remember that due to their characteristics, the terms area, center and department are used interchangeably here.
The previous analysis demonstrates the importance of the organizational culture and the integration and motivation of the personnel as non-formal factors of control, for the effectiveness in the process. Management and control systems as well as individual and organizational behavior are largely an expression of the organizational culture and are the result of the interaction within the organization of different people and groups presenting different beliefs, values and expectations..
Another aspect linked to human behavior is related to the incentives that must be associated with a good or bad result. A financial control system can promote behavior contrary to what is desired if it is not adapted to the people who are part of the organization and their needs.
The individual behaviorIt will be related to the characteristics of its design (types of control indicators that are used, types of incentives with which the result is rewarded or sanctioned, characteristics of the information system), the way in which it is implemented (consideration of personal expectations in the new design, management commitment in the new system, performance of those responsible for the implementation with the affected people) or the style with which the system is used (flexibility to carry out planning or evaluation, rigidity to limit the behavior individual to the system, pressure for compliance, participation in the planning and evaluation process, incentives for autonomy). The figure shows the relationship and place of each of these non-formal factors in the process ofmanagement.
Once the control attention points, key variables, critical points, global and particular indicators have been established, it is necessary, in order to efficiently measure the operation of the control system, the use of a tool that is capable of collecting all the information available, rank it, certify it and offer it to management for decision-making.
Currently, there are several tools that, depending on the characteristics of the activity, the organizational structure and the means available to the organization, may be preferred to a greater or lesser extent.
The OVAR method, for example, developed in France in the 1980s, makes it possible to act on the information systems for managing the results of an organization. It allows to focus the essential aspects on which to act. This method is basically concentrated on productive activities that generate profits as a result of their activity and for which their management is intended, but its application can be extended to other sectors of economic life.
A tool that is being widely defended and disseminated in the world of management controls are the Dashboards.
Environment
Outcome
Fig. 1. Place of control systems in the management work of organizations. Source: Joan Amat: Management Control.
The Dashboards.
The Control Panel or Balanced Scorecard or Dashboard is a method of obtaining and classifying information generated by management control systems. It is developed from the grassroots to the highest levels of management. All departments tax the behavior of their indicators on particular dashboards, these go through and adapt to the need for information at the different higher levels until they reach a point (person) in charge of classifying all the information depending on the needs of information from senior management for decision making. The entire process is developed through automated systems that allow information to go through all the points where it needs to be used or enriched.
The purpose will be to focus on a very specific organizational hierarchy. This hierarchy will be the base of what will be analyzed as the Scorecard Pyramid. This pyramid will be made up of a Scorecard for the highest level of responsibility, others immediately below that are closely linked to it and, at the levels of responsibility with less incidence.
The General Directorate or the Board of Directors together with the Functional Directorates, as the most important levels of the hierarchical structure, will have a much more relevant role with respect to the Planning function. On the other hand, with regard to the Control function, it will be carried out mainly from a strategic perspective.
The Execution and Control stages, but in this case with a timeframe not exceeding one year, will be performed by the middle and lower levels of the pyramid. In this case, Functional Directions and Subdirections.
Some of the advantages offered by this tool are:
- Facilitate the decision-making process.Instrument for short and long-term action, with rapid implementation.It includes both quantitative, monetary and non-monetary, as well as qualitative variables.It combines operational and strategic orientations.It provides standardized and systematized information, in a timely manner and with the appropriate periodicity
Two of the main difficulties of this method are that:
- Some preparation is needed in those in charge of entering and processing information. The existence of an automated local network system or the Internet is essential for the transit of information through the different decision levels.
These limitations, once resolved, guarantee that the information reaches the management when it occurs and act immediately in the event of a certain deviation.
This information mechanism (in the short term) also allows obtaining information from the environment and adapting the organization's operation to the changes that have occurred.
The long-term (strategic) Scorecard is largely oriented towards the managerial levels of greater responsibility, marked by the strategy carried out in the organization and above all immersed in the global management developed by the center.
Generally, the Strategic Scorecard allows monitoring the implementation of the various strategies of the organization, following their impact on global results.
It is necessary to highlight three fundamental characteristics of the Management Dashboards:
- The nature of the information collected in it The rapidity of the ascent of the information between the different levels of responsibility The selection of the indicators necessary for decision-making, especially in the least possible number.
The most important thing is to establish a system of signals in the form of a Scorecard that indicates the variation of the truly important magnitudes to be monitored, detect the management deficiencies that are being carried out, or positively, those aspects that are being monitored. they are managing well and that must be reinforced. It is a management aid tool. In itself it is not an objective, but an element that must be oriented towards action.
The Scorecard tends especially towards five basic ideas:
- Constant support in the decision-making process Clarity and efficiency in its design and use Possibility of successive adaptation to the environment Maximum feasibility when taking into account qualitative variables and above all Being an element of constant encouragement at all levels.
Thus, the Organization is forced to adapt to the various situations that arise, and that is why it must adapt the tools that it can count on in Management Accounting, or on the contrary, provide new ones that fit the best possible to the needs and priorities of each moment.
One aspect, which, because it is mentioned last, is not without importance, or rather, is the heart of the Dashboards, it is the Controller or the Management Controller.
The Controller is a "person", who due to his characteristics must be (after management) who best knows and interprets the values and elements of the organization. Its function is to select and rank the information that the management will receive for making management decisions.
The Controller will have access to all the information of the system through the Control Panel and will process it to issue to the management the necessary and sufficient information to provide an adequate and complete diagnosis of the organization's situation at any given time. It must also be the person who best knows the source of obtaining each element of the information.
All these mechanisms guarantee that the control system is at the height of power, with its execution, detect and act accordingly and with sufficient elements of knowledge of the environment, technical aspects of the process, behavior of other indicators and departments, etc. before any deviation produced.
Phases of Management Control.
It is important, in order to carry out a diagnosis of the situation of the Management Control System of an organization, to highlight a group of aspects that define the level or degree of complexity and conformation of the management control systems according to a group of characteristics:
- Quality and reliability in accounting, organizational culture Complexity of the activity, possibility of formalizing the process, characteristics of the environment, type of structure Specialization of the activity and the centers of responsibility, a greater weight in strategic factors such as plans, budgets, projects, etc.
According to Jordan (1997), "Management Control goes through different phases in its application, depending on the characteristics of each organization and the objectives proposed by them."
Phase 0: Initial situation.
General Accounting, produced annually with tax guidance. Delays of six months from the close of the fiscal year. Specific management documents. There is no management accounting.
- Customer orders. Sales figures. Short-term treasury.
Static and informal evaluation systems for results.
Phase 1: Simultaneous actions.
The existing is improved somewhat. Operational accounting.
- Creation of a minimum scorecard based on financial and organization indicators (periodicity: one month). Launch of a more management-oriented Accounting. Obtaining monthly results (semi-annual, quarterly and finally monthly).
This start-up supposes that of an administrative organization of a certain level.
Phase 2: Simultaneous actions.
Creation and implementation of an Analytical Accounting, which implies the identification and formalization of Responsibility Centers as well as the consideration of the Critical Factors of Business Success. Scorecard Enrichment:
- Higher quality accounting data is available Analytical results NON-financial indicators from Responsibility Centers. Moving from static to dynamic tracking.
Phase 3: Implementation of short-term forecasts.
- Annual budgets by months. Annual forecast financial statements.
Integration in the Scorecard of budgets and analysis of deviations. Use of the Dashboard as a deviation detector. More disaggregated budget system.
Phase 4: Simultaneous actions.
- Preparation of a "sliding" strategic plan, essentially financial, by responsibility centers. Integration of the one-year budget into the strategic plan, as the first year of the plan.
Association of the short and medium term in a broader horizon.
Phase 5: Extension of the budget process to two or three years.
The operational plan is extended: less than three years and more than one. There are action plans with their translation into financial terms.
Phase 6: Concordance in time of the following elements:
- Strategic plan greater than 5 years Operational plan greater than 1 year and less than 3 Budget: 1 year.
Monitoring of budget results as a learning process. Integration of results monitoring into the provisional process. Some flexibility in planning dates.
Phase 7: Formal integration.
Formal integration of the results present in the definition of medium and long-term action plans (eventual disappearance of the notion of annual budget). Consolidation of the Responsibility Centers both in the aspect of results (accounting or not) and in that of short-term forecasts.
Phase 8: Delegation of management responsibilities.
Use of an integrated provisional monitoring system under the aspect of delegation of management responsibilities. Change of orientation in the results criteria.
It is necessary to emphasize that not all organizations must be in the highest phase and do not even need to be in the highest level. It all depends on the characteristics of the specific organization.
An organization with a certain degree of centralization, single production, and stable in terms of its market share, small in size and with survival criteria, will not have the same control needs as a highly decentralized, medium or large, with a wide variety in its production and many competitors, great diversity in its structure, a turbulent environment, and with criteria to maximize profits.
This classification has considerable methodological importance, since it allows organizing the analytical work when diagnosing what is the current situation of the management control systems in organizations and establishing what will be the main actions that can be immediately implemented. organizations with the possibility of advancing to higher stages in the execution of the control function with higher levels of efficiency and effectiveness.
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Jorge Pérez Norbona. Vision: Emergence and peculiarities. Economy and Development No. 2 (125). Havana, 1999, p. 93.
Johnson and Scholes. Strategic direction. Madrid, Ed. Prentice Hall, 1997, p. 264.
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Ibid., P. 380.
Menguzzato and Renau. Op. Cit. p. 380.
Idem.
Luis Gaj. Strategic administration. Brasilia, Ed. Ática SA, 1993, p. 18.
Ibid., P. 113.
Ma. Isabel González Bravo. Control of the performance of university departments through indicators. Public Audit ”. No. 16. Feb, 1999. p. 19.
Jordan, Hugues. Phases of evolution of the management control system. DEADE, European Commission. Cuba 1997.
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