Key takeaways
Controlling is usually responsible for seven processes: management reporting, budgeting, forecasting, cost allocation, KPIs, ad hoc analyses, and commentary and recommendations for the management board. The IGC/ICV Controlling Process Model 2.0 describes ten processes, including strategic planning, investment controlling, risk controlling and data management. The more data work a system takes over, the more time controlling has for analysis and advising managers.
The 7 main processes a controlling department is usually responsible for
We wrote this article for readers looking for information on what controlling does. We believe it is an excellent guide for business owners and managers considering setting up a separate controlling function in their company.
The list of controlling processes below is a valuable source of knowledge for controlling staff and managers. They can use it when mapping, describing or optimising the company’s current business processes related to planning, reporting and analysis.
1. Management reporting
Management reporting is a key controlling task, and controlling is involved in it all year round. It is a recurring activity, usually monthly. The controlling team prepares reports for owners, the management board and operational managers, adapting their scope and format to the specific needs of the company and its audiences. The reports mainly cover:
- the company’s financial results, analysed by key business lines or segments,
- sales data (volume, value, margin), broken down by customers, sales representatives, shops, products or projects,
- operating costs, most often presented by cost type and assigned to specific organisational units (cost centres).
The reports prepared by the controlling team are then distributed or shared with stakeholders, depending on their information needs and their role in managing the company.
In many companies, management reporting is closely linked to budgeting and forecasting. Management reports compare actual performance with historical data (e.g. from the previous year or month), budgets and forecasts, which makes it possible to monitor budget execution and analyse variances. This is why management reporting and budgeting are often seen as complementary elements of controlling work.
2. Budgeting
Budgeting, second in our ranking of controlling processes, is an annual practice in most companies. Its purpose is to prepare the company’s annual financial plan. Controlling’s tasks in the budgeting process most often include:
- adapting the budgeting model to the company’s current needs (including updating dictionaries and planning structures, and reviewing the rules and formulas used to calculate specific budget items),
- preparing planning templates to be filled in by managers (people with subject-matter knowledge of a given area of the business),
- supporting managers in working with the planning templates: explaining and advising on how to translate predictions, plans and business assumptions into specific values entered into the budget model,
- coordinating the budgeting process: ensuring the right flow of information between all participants, and setting and monitoring the schedule for preparing the budget,
- consolidating and synthesising data: combining data from the templates of individual managers and areas into an overall company budget that can be presented to the Management Board, the Supervisory Board and the owners,
- taking part in budget reviews and working with all participants to arrive at the final version of the financial plan.
The budgeting process is tailored to each company’s needs, and controlling’s tasks within it can vary significantly from company to company. Controlling’s way of working will differ depending on whether the budget is built from the bottom up (bottom-up) or from the top down (top-down).
The natural consequence of preparing a budget is the need to monitor its execution. This is one of controlling’s more important tasks. Budgeting and monitoring execution are inseparable. When designing the budgeting process, you should consider it in the context of how execution will later be controlled.
3. Forecasting
Forecasting is another business process within controlling’s remit. As with budgeting, controlling’s role is to prepare and coordinate the process. Forecasting is also a planning process in which the main source of information is projections about the future provided by “the business”.
The main difference between forecasting and budgeting is how often the process runs. A company usually prepares its budget once a year. Forecasts, on the other hand, can (and should!) be prepared much more often. In some companies this happens every month or even every week. This is also the source of the main difference in how the process is organised.
Forecasting must place a relatively light burden on the organisation. That is why one of controlling’s most important tasks is continuously optimising the planning process. Effective sales or cost forecasting usually requires the right tools, which automate planning and ensure an efficient flow of information in the process.
4. Cost allocation
Not every company runs a cost allocation process to monitor the full profitability of customers, products or projects. But if a company does, it is almost always controlling that handles it.
Cost allocation is the process of dividing a company’s general expenses among specific cost objects, such as products, projects or customers. Its aim is to approximate the total cost of sales or service related to a given part of the business.
A well-designed and smoothly running cost allocation model answers the managers’ question “where does the company make its profits?” (or where do we lose them through various internal inefficiencies). An effective cost allocation model makes it possible to assign the total cost of using the organisation’s resources to specific objects, which makes financial management and business optimisation easier.
Controlling is the natural owner of the cost allocation process. Controlling takes part in designing the model, choosing allocation keys and setting allocation rules. Usually it is also controlling that maintains the model and prepares the allocations in the following months. In this way, cost allocation overlaps with management reporting: where it is used, the reports prepared by controlling show results after costs have been allocated using the allocation model.
Like forecasting, cost allocation requires specialised tool support. Spreadsheets are often not efficient enough for allocating costs, especially with large data sets or complex business models. In such situations, dedicated software becomes essential.
5. KPIs
Key performance indicators (KPIs) are one of the tools used to monitor performance. KPIs are a concise way of measuring and assessing specific processes, functions or results of a company.
Responsibility for monitoring KPIs may be assigned to controlling. In that scenario, controlling collects and processes the necessary data, calculates KPI values and prepares reports for their audiences. How often KPIs are reported depends on the needs of the business and management. Customarily it is a monthly task, closely linked to preparing management reports.
When KPIs are used as a management support tool, the right presentation of indicator values matters a lot. Management and financial reports are very often presented as tables supplemented only by relevant charts.
KPIs work very well with visualisations such as dashboards, gauges or charts. A KPI dashboard often aims to gather key information about the company’s performance on one page (one screen).
6. Ad hoc analyses
The controlling tasks discussed so far were linked to cyclical, recurring processes. However, controlling does not only deal with processes that follow directly from a fixed reporting or planning schedule. In day-to-day work, controlling often receives last-minute requests: questions or tasks from managers that require specific ad hoc analyses or simulations.
Controlling very often works closely with the management board and senior managers. That is why it is naturally “destined” to look for the answers needed to make important business decisions. These ad hoc analyses and simulations are usually linked to the processes described above: reporting, budgeting, forecasting and cost allocation.
Most questions that reach controlling start with “why” or “what if”. To answer the first kind, controlling usually has to dig deep into the data and look into the details to find the cause of the phenomenon or anomaly the manager is asking about. A “what if” question usually means quickly preparing a new version of the plan: a forecast in which new parameters (prices, volumes, costs, projects) are plugged in according to the questioner’s intent.
These controlling tasks often come with time pressure. The management board and managers expect quick answers to their questions or problems. And very often the effectiveness and quality of controlling’s work is judged by how quickly and how thoroughly it can meet these needs.
7. Preparing commentary, conclusions and recommendations
This item runs through all the processes presented above. It is true that in most companies controlling handles reporting, budgeting, forecasting, cost allocation and data analysis. However, controlling’s role as a business partner should not be limited to processing data or coordinating processes.
If that were the case, such controlling could, in the not-too-distant future, be replaced by robots or artificial intelligence. Controlling should add value to these processes by supplementing raw data with its own commentary, conclusions and recommendations.
It is up to those who influence how controlling works in a company to align processes, tools and employee competencies so that controlling, as a function, can interpret and explain data and information in the context of the real needs and decision-making challenges of owners and managers.
Such work, of course, requires the right competencies from controlling staff, as well as tools that let controllers focus on activities that add value rather than on mechanical processing of data in databases and spreadsheets.
Other processes controlling handles
The list above covers the typical processes that controlling handles. However, it is by no means a closed list, and in many companies the scope of controlling’s tasks and responsibilities includes additional items. Very often these are processes carried out at the interface between controlling and the management board, accounting or other business departments.
That is why, when trying to compile a complete list of controlling tasks, you can also include processes such as:
- strategic planning,
- investment controlling (profitability analysis and control of capital expenditure),
- supporting accounting in setting up provisions,
- taking part in IT system implementations (not only financial planning and analysis (FP&A) tools, but also ERP software, accounting systems and Business Intelligence tools).
What does controlling do? Controlling processes according to IGC/ICV
The controlling tasks presented above describe typical practice in controlling departments. In many respects it is consistent with best practices and expert recommendations. When looking for more information on what controlling does (or should do), it is worth referring to the controlling process model developed jointly by the IGC (International Group of Controlling) and the ICV (Internationaler Controller Verein).
The process model proposed there (Controlling Process Model 2.0) consists of 10 main processes:
- Strategic planning
- Planning, budgeting and forecasting
- Investment controlling
- Cost accounting
- Management reporting
- Business partnering
- Project controlling
- Risk controlling
- Data management
- Further development (of the organisation, processes, tools and systems)
If you would like to explore the topic further, we recommend reading the publication. It is available online in English and as a book translated into Polish.
IT tools in controlling work
In many companies, controlling teams are seen as spreadsheet experts. This is very often true, as Excel is one of the main tools used in controllers’ day-to-day work.
However, controlling work must go beyond spreadsheets. Controlling (if it wants to be seen as a business partner to the management board and managers) should focus on data analysis, simulations and presenting conclusions. That is why tasks related to preparing reports, templates, calculations or allocations should be carried out automatically by tools designed for this purpose.
This is undoubtedly how the future of controlling will take shape. Perhaps, thanks to the ongoing automation and optimisation of controlling processes, the answer to the question of what controlling does in 2030 will include a slightly different selection and order of items than the list prepared here and now.
How does FlexiEPM support controlling processes?
FlexiEPM is a European EPM platform with advanced FP&A, financial reporting and consolidation capabilities. Excel stays the working interface. Data, versions and rules move into one central database. Here is how this works in the seven processes described above:
| Controlling process | What FlexiEPM takes over |
|---|---|
| Management reporting | Monthly financial results, margin analysis and key indicators based on data from the finance and accounting system, with no manual copying between files. |
| Budgeting | Budget templates in Excel for managers. The plan moves through approval statuses, and the approver can return it for correction without sending files around. |
| Forecasting | Budget revisions and forecasts on the same structures as the budget, compared with actuals. |
| Cost allocation | Allocation rules and keys stored in the system, allocation to profit centres, projects, customers or products, and reports showing allocation details. |
| KPIs | Indicators calculated on the same data as financial reports, shown in reports and dashboards. |
| Ad hoc analyses | Plan versions and scenarios that let you quickly check the impact of changes in prices, volumes or costs. |
| Commentary and recommendations | One version of the data for controlling, managers and the management board. The discussion is about conclusions, not about which number is right. |
FlexiEPM has been implemented in more than 60 large organisations and has over 1,000 users. It offers an English and Polish interface, easily localized into other languages. See how INTER Polska runs budgeting and cost allocation in FlexiEPM.
This article is also available in Polish: Czym zajmuje się controlling?
