Management control is destined to become increasingly strategic within SMEs, including the smallest ones. Faster market and pricing dynamics require managing and interpreting an ever-increasing amount of business information. In constant change, innovation is a topic that takes on particular relevance. Industry 4.0 is bringing increasingly autonomous machinery and increasingly intelligent software into our business systems. But such innovation is of little use if what could be defined as the culture of data, which is the true essence of management control, needs to take solid roots in the minds of entrepreneurs.
What Is Management Control?
Management control can be defined as an integrated system of planning, programming and internal monitoring of the company. A plan with a particular and essential purpose: to ensure the achievement of corporate objectives. Easy to understand but still hard to imagine. Every company is a magnet that attracts an immense amount of information, both from within and outside. Information with different purposes other than origins. All fundamental.
The importance of all this corporate information is to achieve future goals starting with an in-depth study of what has already happened in the past. Indeed, the previous history of a company allows us to understand its strengths, weaknesses, risks and opportunities. In short: studying the information a company carries allows us to structure a solid and well-directed corporate decision-making process. To achieve this, management control is divided into different phases. These phases can be recognized in four precise and cyclical moments:
Here, the already archived historical data is compared with ideas and projects that still need to exist and with the possible risks that could arise in the course. The goal of the comparison is to shape the company’s goals. This is a fundamental phase in which the entrepreneur shares essential information with his entire team while trying to bring out others that are just as important. Therefore, decisions are based on specific data and no longer solely on instinct.
Phase in which we try to understand if (and how) the corporate objectives are achievable, trying to find the means, resources and tools suitable for their realization, and the most practical way forward for the circumstances.
It concerns the most experimental phase of management control. This is about allocating tools and resources in the budget and defining the timing. Once this is done, we then move on to the execution of the project, always keeping in mind what was foreseen in the first two phases. As if there were an ideal route to follow or, at least, a direction to always keep as a reference. In this phase, the internal communication of the company is decisive.
To increase the effectiveness of management control, the entrepreneur must gradually make an effort to delegate ordinary activities to his collaborators. Management control affects all company areas, not just administrative management. This is why it is necessary to share the preliminary collection and analysis processes daily with the employees involved in the various company areas. The activity of exchanging and coordinating information is absolutely strategic; the entrepreneur must focus his efforts and attention here.
This represents the last phase of the cycle and coincides with the final stage of the project or exercise. In reality, this fourth phase is, from a material point of view, practically parallel to that of implementation. Indeed, it is thanks to monitoring that the project implementation remains consistent with the route traced during planning. However, when is the best time for a small company to structure a management control system?
Here it is good to highlight one aspect: management control is not a lifesaver but a navigation method. This metaphor highlights the idea that travel planning should be done before leaving port and not when you lose your bearings. We must remember that the sooner a company implements its decision-making system, the sooner it will acquire greater control over its future destiny.
Where To Start?
It is particularly suitable reading for entrepreneurs who know little about these issues. For my part, I want to share with you some simple and brief tips useful for a very first approach:
- Get used to being in close contact with numbers;
- reclassifies the financial statements of previous years and tries to extrapolate from them crucial information such as the GOP and the leading indices ;
- archives each reclassified balance sheet;
- Learn to compare the present with the past and, based on the comparison, plan your future budgets;
- Periodically monitor, better if quarterly, the corporate results and then compare them with what you had imagined.