Controlling 17.09.24

Question 1

What is controlling?

Answer 1

Controlling supports and enhances the work of the management of any business entity

Question 2

What is macro economics?

Answer 2

we look at macroeconomic issues from a helicopter top town view (bird’s eye perspective), such as money and currency issues, the capital and labour markets, economic or socio-economic policies and regulatory concerns.

Question 3

What is micro economics?

Answer 3

In the subject of Micro Economics we look at microeconomic issues of only one market, such as demand for grains in South Sudan or any smaller place on earth, we look on one market, such as the market for dairy products in Chile, the structure of this market, the ownership structure of the participants

Question 4

Starting a (micro or medium) business in the United States of America. Main steps:

Answer 4

1 Conduct market research
2 Write your business plan
3 Fund your business
4 Pick your business location
5 Choose a business legal structure
6 Choose your business name
7 Register your business
8 Get federal and state tax IDs
9 Apply for licenses and permits
10 Open a business bank account

Question 5

Types of Financial Statements: balance sheet

Answer 5

Every business owns items of economic value called assets. Most assets are tangible assets, but there are also intangible assets. Startups (new businesses) will have assets such as inventory, cash, equipment, or machinery - all of them tangible - and, in some cases, intangible assets like patents, rights or trademarks. The new business’s assets also include things like accounts receivable, land, transportation, or marketing assets, such as an E-mail list.

As the assets are financed with either your (the owners or shareholders money) money or by other persons (liabilities, loans, mortgages, bank loans etc.) the balance sheet equation for assets always reads like this:

Assets = Stockholder/Shareholder Equity + Liabilities

Question 6

What is liability?

Answer 6

Any debt that a business owes is a liability. It costs the business money over time and always decreases the value of the business.

Любой долг, который должен бизнес, является обязательством. Он со временем обходится бизнесу в деньги и всегда снижает его стоимость.

Question 7

In case you have invested your own money in a business, you have given a…

Answer 7

…a shareholder loan. A shareholder loan is a debt that the business owes you, the shareholder (“co-owner”).

…заем акционера. Заем акционера — это долг, который бизнес должен вам, акционеру («со-владельцу»).

Question 8

What is Stockholder (or shareholder) equity? акционерный капитал

Answer 8

The value of the business after all liabilities have been settled (paid), so the balance sheet equation to calculate our shareholder’s equity is:

Stockholder’s equity = Total assets - Total liabilities

Стоимость бизнеса после погашения всех обязательств (долгов), поэтому уравнение баланса для расчета акционерного капитала выглядит следующим образом:

Акционерный капитал = Общие активы - Общие обязательства.

Question 9

A balance should be…

Answer 9

…always be balanced (in every second of the lifetime of business!).

A balance sheet would be imbalanced when our assets (left side of the balance sheet) would not equal the right side of the balance sheet (our total liabilities plus equity).

Whenever a balance sheet is imbalanced, it means a mistake was made in its calculation or when business transactions were not correctly recorded on the T-accounts.

Question 10

What is inventory?

Answer 10

Writing down (listing) all assets and liabilities of a business in a certain structure (containing all assets, the owner’s equity and all liabilities).

Assets, such as… Landed property (real estate) (with or without buildings on them), buildings (for the administration, for production, for storing products etc.), Inventory for the offices and Equipment (for production or for the sales department (packaging)), Raw Materials
Work-in-progress (half or nearly finished products, such as a future 5-year-old a- ged whiskey after 4 years in the barrel, or blue cheese still in
the process of maturing), Finished goods (fully packaged and ready for sale) Accounts receivable, Cash (banknotes and coins or cash equivalents, cheques), Bank accounts, Intangible assets.

Liabilities, such as Long-term debts (such as mortgages for financing houses), Long-term bank loans, Accounts payable, Accrued taxes or deferred taxes (due to be paid next month or year), Accrued social insurance liabilities

Question 11

Examples of Equity capital (Примеры акционерного капитала)

Answer 11

–> Shareholders / Stockholders equity
–> Profit not yet distributed (this years’ profit before distribution to the shareholders)
–> Deliberately retained Earnings (to build up reserves)

–> Акционерный капитал
–> Нераспределенная прибыль (прибыль за текущий год до распределения между акционерами)
–> Целенаправленно удержанная прибыль (для создания резервов)

Question 12

What is fixed assets?

Answer 12

(or non-current) Assets with a long life
for the production of goods and services of our company etc. Condensed from a usually very long term inventory (landed pro- perty, buildings in several types, maturing barrels, desks, desk lamps, auto busses, cars, trucks and notebooks)

Question 13

What is current assets?

Answer 13

Assets with a short life in the business (usually just passing through production process and usually leaving the company in the end) Raw materials and other supplies, e.g. Diesel
Others stocks (beer glasses, coasters (beermats), plates, ashtrays Capital-in-progress, i. e. semi-finished goods (in production) Finished products (Goods packed and ready for sale)
Accounts receivable
Liquid assets (cash or Euros, Dollars, Pesos, Rands or Yuans on bank accounts)

Question 14

Long Term liabilities

Answer 14

mortgages, Bank loans

Question 15

Short Term liabilities

Answer 15

–> Accounts payable
–> Accounts payable to the state (financial liabilities, social insurance liabilities, taxes or Radio & TV-fees (“GEZ-Gebuehren (fees, in reality a kind of tax)” for the Ger- man broadcasting system)

Question 16

What is equity?

Answer 16

Capital given by the owners and increased by profits or decreased by
losses in the long run

Stocks/shares
Retained earnings (for future investments, not to be distributed to the owners/shareholders!)
Profit (this years’ profit not yet distributed to the shareholders or other type of owners)

Question 17

Structure of a balance sheet and what is it

Answer 17

A balance sheet is a financial document that lists a company’s assets, liabilities and stockholder equity showing what a business is worth on a special day (end of the business year, which must not necessarily correspond to the calendar year)

Total Assets (all assets that belong to our firm) = Liabilities (external persons money) + Equity (our own money/capital)

or

Total assets - Liabilities = Equity

Question 18

Profit & Loss Account
and Profit & Loss Statement

Answer 18

–> The profit and loss ACCOUNT is used for our (interior) purposes
–> the Profit & Loss STATEMENT is written as an official financial document for the public, for all our stakeholders and any other person interested in our financial situation

Question 19

Which of the following examples are likely to become sunk costs? - Advertising? Variable costs? Research? Advertising and Variable costs? Advertising and Research?

Answer 19

Advertising and Research

Question 20

Sunk costs are definitely:
A) The cost of producing an additional unit of output.
B) Costs that do not change with changes in output.
C) Costs which are forever lost after it has been paid.
D) A variable cost divided by the number of units of output.

Answer 20

Sunk costs refer to costs that have already been incurred and cannot be recovered, regardless of future decisions. They are “forever lost” once paid, and should not influence future economic decisions or actions because they are irretrievable.

C) Costs which are forever lost after it has been paid.

Question 21

Sunk costs should factor into decisions that are made
A) True
B) False
C) Only when the costs are above 50 000 EUR
D) Only when the costs have occurred during the past year

Answer 21

B) False

Sunk costs should not factor into decisions that are made because they are costs that have already been incurred and cannot be recovered. Decision-making should be based on relevant costs and benefits that will occur in the future, not on past expenditures that cannot be changed. Sunk costs are considered irrelevant to the decision-making process

Question 22

Sunk costs are:
A) Barriers to enter a market
B) Barriers to exit the market
C) Important decision-making factors
D) A and B

Answer 22

D) A and B

Sunk costs can act as both barriers to enter a market and barriers to exit a market:

Barriers to Enter a Market: High sunk costs, such as those associated with initial research and development, advertising, or specialized equipment, can deter new competitors from entering a market because these costs cannot be recovered if the venture fails.

Barriers to Exit the Market: Sunk costs can also be barriers to exit because businesses may be reluctant to leave a market where they have already invested heavily in assets that cannot be sold or repurposed, leading to a psychological or financial commitment to continue operating despite unfavorable conditions.

Question 23

Distinguish between operational and strategic characteristics of controlling and outline the differences of those “mindsets” of controlling by comparing at least 6 typical characteristics, such as typical controlling instruments and their application in management practice.

Answer 23

In essence, operational controlling ensures the business runs efficiently in the short term, while strategic controlling ensures the business is on the right path to achieve its long-term vision. Both are critical for overall business success but require different approaches, tools, and mindsets.

Detailed Comparison:

1) Time Horizon:

• Operational Controlling deals with short-term periods, usually focusing on the current fiscal year and the immediate future (daily, weekly, or monthly).
• Strategic Controlling looks at the long-term, often encompassing periods of 3-5 years or more, to align with the organization’s overall strategic goals.

2) Focus:

• Operational Controlling is concerned with optimizing current processes, improving efficiency, and managing costs effectively in the present.
• Strategic Controlling focuses on maintaining and enhancing the company’s competitive position, ensuring that current operations align with future goals.

3) Goals:

• Operational Controlling aims at meeting short-term performance targets such as sales quotas, production efficiency, or adherence to budget constraints.
• Strategic Controlling targets the achievement of strategic objectives such as market expansion, innovation, and sustainable growth.

4) Controlling Instruments:

• Operational Controlling uses tools like budgeting, variance analysis, cost control systems, and benchmarking to monitor performance and guide corrective actions.
• Strategic Controlling utilizes instruments like SWOT analysis, balanced scorecard, strategic planning, and scenario analysis to evaluate strategic directions and ensure long-term alignment with the company’s vision.

5) Application in Management:

• Operational Controlling is applied in daily management by monitoring processes, ensuring adherence to budgets, and taking corrective actions when deviations occur.
• Strategic Controlling is applied in guiding the company’s overall direction, evaluating strategic options, and ensuring that all levels of the organization work towards common long-term goals.

6) Decision-Making:

• Operational Controlling is more reactive, addressing problems as they arise and making adjustments to maintain smooth operations.
• Strategic Controlling is more proactive, focusing on anticipating future challenges and opportunities, and shaping the company’s strategic responses accordingly.

Question 24

Give a brief overview covering the tasks and core-elements of modern Controlling in any given type of modern company or government agency.

Answer 24

1) Tasks of Modern Controlling:

• Planning: Assisting in setting objectives and developing plans to achieve them. This includes budgeting, forecasting, and scenario analysis to prepare for various future possibilities.
• Monitoring and Reporting: Tracking performance against plans using key performance indicators (KPIs), financial reports, and dashboards. This task ensures that managers have timely and accurate information to make decisions.
• Analysis: Conducting variance analysis, cost analysis, and profitability analysis to understand performance deviations, identify inefficiencies, and suggest improvements.
• Coordination: Ensuring alignment between different departments or units by coordinating planning, reporting, and decision-making processes across the organization.
• Risk Management: Identifying, assessing, and mitigating risks that could impact the achievement of objectives. This includes financial risks, operational risks, and external threats.
• Advisory Role: Acting as a business partner to management by providing insights and recommendations to improve performance, optimize processes, and support strategic decision-making.

2) Core Elements of Modern

• Controlling:
  Data Management and Analytics: Utilizing data collection, analysis, and visualization tools to provide actionable insights. Advanced analytics, including predictive and prescriptive analytics, play a critical role in modern controlling.
• Performance Measurement Systems: Implementing systems like balanced scorecards or dashboards that track financial and non-financial metrics, helping organizations stay on track with their strategic and operational goals.
• Integrated Planning and Budgeting: Combining strategic, operational, and financial planning into a cohesive process that aligns resources and activities with the organization’s goals.
• Cost Management: Monitoring and controlling costs through tools like activity-based costing, cost benchmarking, and cost-benefit analysis to ensure efficient use of resources.
• Technology and Digitalization: Leveraging modern technologies such as Enterprise Resource Planning (ERP) systems, Business Intelligence (BI) tools, and automation to enhance the efficiency and accuracy of controlling activities.
• Strategic Alignment: Ensuring that all controlling activities support the strategic direction of the organization, integrating operational controls with long-term strategic objectives.

Question 25

Who is controller and what does he do?

Answer 25

The controller is the person in charge for management support in the con- trolling process, whereas controlling is the process of management support and control, performance management and managerial accounting.

Dr. Dr. Albrecht Deyhle, offers a very practical and concise definition:

“The controller ensures that an apparatus exists, to support that a company generates profits and avoid losses

Usually, Controlling consists of
a management support control function and a service function (by providing information (data), advice and relief to the management, so Controllers are often called “Business Partner of the management” and they have the cross-functional task to increase effectiveness of processes across all areas and levels of the company) work.

Question 26

product life-cycle approach

Answer 26

The product life-cycle approach using the Cycle of Creation and the Market Cycle provides a holistic view by integrating product development and market dynamics.

Cycle of creation: search for alternative solutions; evaluation and choice of solution; research and development; production and sale preparation

Market cycle: market launch; market penetration; maturity; market saturation; market degenaration

Question 27

The BCG Matrix, also known as the Market Growth-Market Share Portfolio

Answer 27

The BCG Matrix, also known as the Market Growth-Market Share Portfolio, is a strategic business tool developed by the Boston Consulting Group. It helps companies analyze their product lines or business units to allocate resources and make strategic decisions based on market growth rate and relative market share. The matrix categorizes products or business units into four quadrants, each with specific strategic implications:

1) Stars:

Characteristics: High market growth rate and high relative market share.

Strategy: Stars are leaders in fast-growing markets. They generate significant revenue but also require substantial investment to maintain their position and support growth. The goal is to turn Stars into Cash Cows as the market matures.

2) Cash Cows:

Characteristics: Low market growth rate and high relative market share.
Strategy: Cash Cows are mature, well-established products with a dominant position in a slow-growing market. They generate more cash than needed to sustain their market position, making them key sources of funding for other units. The strategy is to maintain and maximize profits while investing minimal resources.

3) Question Marks

Characteristics: High market growth rate and low relative market share.
Strategy: Question Marks have potential due to their presence in growing markets but lack a strong position. They require significant investment to increase market share. The decision is whether to invest heavily to turn them into Stars or divest if the prospects are weak.

4) Dogs:

Characteristics: Low market growth rate and low relative market share.
Strategy: Dogs have weak positions in low-growth markets and generate low or negative cash flows. They are typically candidates for divestiture or discontinuation unless they serve a strategic purpose.

Question 28

4-field matrix, originally developed by George Stanley Odiorne

Answer 28

1) Work Horses are very company-loyal, work tirelessly and incessantly, but they have only (yet) little potential for (further) development.

2) Stars are the highly motivated staff, who will have their proven performance processing power and a recognizable potential to serve the company for a long time. Adequate motivations or incentives are most important (bonuses, increases in salary and incentives of any kind, such as a motor car paid by the company), particularly during times of growth or at least in periods with a growth strategy.

3) Problem Employees, for example, young university graduates with a first (bachelor) degree.

4) Dead Woods can be recognized by low energy or “power” and low motivation for exploiting or improving their own potential.