Origin of Financial Controlling

Many years ago, I had an informal discussion with an older Japanese engineer , who told me this:

“To navigate a company is similar to navigate a car on an unknown road. You need to avoid obstacles to reach your destination on time and with the planed fuel consumption. The engineers are using for this purpose the front window, where the accountants are trying to accomplish the same by looking to the back mirror…”

At that time I worked just a short time as an accounting manager, was in middle of my twenties, therefore I understood the comment from my colleague more like greenhorn teasing, than a serious statement. However as the years passed by, I understood two things. First, the comparison is fairly true. Second, finance has developed a mighty force to answer this challenge. Financial controlling.

Finance controlling is extension of accounting into a new dimension. It is not substitution of accounting, neither it can exist without, or next to it independently. In the same way as engineers have reliance on precise measuring, technical drawings and quality assurance, controllers will trust accounting, financial reporting and compliance with accounting standards. Any controller, who believes he can accomplish the job without accounting, is fool.

Financial controlling combines accounting and operational (non financial) data in order to provide new view on the business. It provides capacity to describe, model and measure all functional areas of the organisation. Modern controlling must have ambition to integrate all management tools into one system (one source of truth). This will help reduce significantly the company response time, to the changes in external environment. In today’s economy this is the main (in specific cases the only) competitive advantage.

Controlling literally moved the finance function from “bean counter” to “business partner”. It can describe complex cost models. It enables precise profitability measurement for specific product or service segment, selected territory or customer. It will support sales organisation to manage the customers and product portfolio. It provides control over material, production cost and facilitates the continuous improvement. Controlling enables profitability analysis over the whole value chain, for complex manufactured products. In the beautiful world of project controlling you go over the whole product life. As controller you “own” the working capital. Efficient use of controlling will support complexity reduction. Eventually Financial Controlling moves from description and analysis of business activities to budgeting and forecasting, where in the final stage it provides modeling, as the missing “front window view” for the company management. After the destination is reached, the result must be verified by accountants. Again.

Therefore here is message to all the engineers out there. “We have accepted the challenge” … and thank you for it!