Lektion 14 - Control and controllership

Question 1

(!) Describe the function of a controller at different levels

Answer 1

Chief financial officer / CFO

General:

• Positioned within top management team
• Often when being a senior controller

Focus:

• Guide mix of input, TP & output controls to TM
• Prepare financial statement & financial reports
• Prepare tax returns
• Prepare & analyze performance reports & budgets
• Interpret reports for managers
• Analyze whole firms programs & budget proposals
• Consolidate everything into overall annual budget
• Supervise internal audit procedures to ensure validity
• Establish safeguards against theft & fraud
• Develop personnel in controller organization
• Earlier responsible for processing required information for MCS: Today the CIO
• Participate in MCS-education of management personnel

____________

Chief information officer:

General:

• Responsible for processing required MCS- info
• Either reporting to CFO or directly to CEO

Focus:

• Manage staff in IT-department
• Manage & optimize IT-infrastructure
• Help other members of TM-team, employees & LL-managers understand opportunities, risks with digitalization & big data

____________

Financial controller:

• Measure
• Report

____________

Business controller

• Help managers run responsibility centre

Question 2

(!) Describe what is meant by a controller and which responsibilities a controller has

Answer 2

General:

• Helps managers design & use MCS
• Do not specify level in organizational hierarchy
• Both a psychological & economic human being
• Has a strong & powerful role in organizations
• Controller is a staff function
• Important for long-term strategic plans & budgets
• Shareholders benefit from their expertise
• Increase due to digitalization, globalization & big data
• Often act as both consultant & police officer: Support business and enforce rules & regulation
• Best personality traits: Contentious & emotionally stable. Reference to ‘‘The big five’’
• Controller has conservative guardian role to protect organization from individual wrong-doings

___________

Responsibilities:

• Original covered all aspects of MCS
• Design & operate system that collect & report info
• Analyze performance measures for recommendations
• Monitor limitations to spending: Set by CEO
• Control integrity of accounting system
• Safeguard assets from theft & fraud
• May take some operational decisions: E.g. Policies
• Calls attention to items deserving further inquiry
• Measure performance of organization & R-centre
• Makes suggestions to managers about performance improvements & efficiency gains
• Ensure no idle use of assets: Interest of shareholders
• Ensure behavior is in line with legal rules
• Today often including risk management & the complex and pervasive information technology

_____________

Not responsibilities:

• Using the collected & reported information
• Management decisions

Question 3

Describe the different types of controllership

Answer 3

Involved controller:

General:

• Typical labeled as business controller
• Decision support business partner
• Risk of faulty reporting

High priority:

• Business support
• Informal & analytical needs of R-centre managers

Low priority:

• Reporting
• Internal control

Corporate control
- Low

Business support
- High

_____________

Strong controller:

General:

• Flexibility
• Risk of conflict of interest
• Ability to safeguard company assets
• Assure integrity
• Guarantee quality of performance reports
• Support responsibility centre managers

High priority:

• Support business
• Reporting
• Internal control

Corporate control:
- High

Business support:
- High

______________

Independent controller:

General:

• Typical labeled as financial controller
• Organizational conscience
• Risk of limited added value

High priority:

• Reporting
• Internal control
• Assets security
• Report integrity

Low priority:
- Business support

Corporate control
- High

Business support
- Low

______________

Fourth quadrant

General:
- Should be avoided

Corporate control:
- Low

Business support:
- Low

______________

Separate from model:

Combined type:

• Split controllership
• Combination of involved and independent controller

Question 4

Describe what is meant by a responsibility centre controller and its responsibilities

Answer 4

General:

• Controller working for particular division or PC
• Has dual responsibilities

____________

Responsibilities:

Loyalty to CFO & rest of top management team:

• Overall design & operation of the MCS
• Coercive role
• Report about performance & activities

Loyalty to manager of responsibility centre:

• Support managers, employees strategic & operational decision making
• Enabling role

_____________

Risks of dual responsibilities:

General:

• No independence from RC weaken corporate control
• Risk of local pressure: Make it easy for unit manager
• Risk of conflict of interest

Dependencies:

• Involvement in local decision making
• Amount of social pressure
• Personality: Risk of machiavellianism (Personal benefits instead of ethical standards and norms)
• Relationship to CFO: Dotted line or solid line reporting

Question 5

Describe the different kinds of reporting when it comes to relationships between controller and CFO

Answer 5

Dotted line reporting:

General:

• CFO is immediate boss of controller
• Manager of responsibility centre is boss of controller
• CFO has authority in hiring, training, transferring, compensation, promotion & firing

Benefits:

• Entrepreneurship of local controllers
• Enhance decentralized empowerment

Risks:
- Not completely objective reports on budgets and performance to top management

______________

Solid line reporting:

General:

• CFO is boss of controller
• Manager of R-centre is immediate boss of controller
• Direct reporting to CFO

Benefits:

• May benefit training, enhancing professional knowledge & norms, promotion opportunities & individual growth
• Create strong, cultural & professional bond between controllers

Risks:
- Reduce trust: Controller seen as spy from TM

Question 6

(!) Describe the development in controllership and MCS

Answer 6

General:

• Controlling & MCS change slower than other organisation parts
• Companies often prioritize business instead of administrative part of business
• The controller has a personality

Fundamental changes:

• Stakeholder > shareholder perspective
• Horizontal perspective > vertical perspective
• Bottom up > top down
• Decentralization > centralization
• Beyond budgeting & balance scorecard > Budgets
• Enabling role > coercive role
• Organic systems > mechanic systems
• Sociological & psychological models > economic model

Other changes:

• Controllers as more independent thinkers with long-term & wider implications of goals & strategies
• Important financial ethics & sustainability competence
• Increased complexity due to digitalization & big data
• Integrated informations systems has changed the job
• Today hands-off handling information
• Need to show added value to organization & society
• World is changing faster than ever: VUCA: Volatile, uncertain, complex, ambiguous
• Need for flexibility and agility
• New business complexity demands shorter cycles
• Important to understand managers decision making
• Important knowledge of human behavior
• Increased focus on sustainability & CSR
• Proactive directors of change > reactive managers of stability

Important factors nowadays:

• Customer focus > Owner focus
• Intrinsic motivation > Extrinsic reward
• Trust > Monitoring
• Adaptability > Planning

Question 7

Relate this topic to the case of Aluminium container corporation

Answer 7

General:

• Sales forecast: Bottom up
• Each district held responsible for own portion
• Problems between sale & production fixed in the field
• Controller answer questions about managers

Changes:

• Treat plants as EC instead of PC: Controllability
• Maybe introduce transfer pricing between departments
• Let managers speak themselves at meetings