Controllership is often given minimal focus by business managers. It is deemed to be an administrative function and overlooked as a non contributor to business
and an unwanted overhead, and just a formality.
It is the most critical function for implementation of the vision. All efforts to achieve the set goal would come to naught in the absence of an effective control system in
place.
If business were to be a Ferrari with tremendous power and speed, controlling is the steering wheel that ensures there is no deviation from the track and direction.
This is the way to success.
Wanton running and speed will take you nowhere.
How much control has to be exercised is again an art and has to be judiciously planned. Excessive controls could be a deterrent to business, while a very lenient
approach would put the business on a collision course.
Let us now briefly enumerate a few misconceptions and areas where a business manager has to concentrate and exercise judicious controls.
- “My Turnover is increasing, so I must be doing great business.”
Caution: Increase in turnover can also be achieved by selling large volumes, at a price below cost and adding more manpower (overheads) to achieve it. You decide,
if this is profitable business.
• The primary objective of business is earning profits.
• A growth in turnover need not mean the business is profitable.
• Performance should be measured based on the quality of earnings and debts.
- “If my Profit and Loss (P&L) account shows profits why should I do product or project costing?”
Caution: P&L recognizes revenues on accrual basis and not receipt basis. This means your profit as per P&L may still have unrealized profits.
• It is important to track cash profits and liquidity position of the business
• Overheads and taxes are real cash outflows as against credit turnovers that have an element of doubt with respect to realization.
• Costing ensures that all costs (direct and indirect) pertaining to a project or product are identified
• Delay in collecting debts has an impact on the profitability as there is an impact of interest on borrowed funds for the time for the period of delay.
• Choose the most appropriate costing methodology for your business
• Develop and document a clear Business policy
- “Why should I incur cost to ensure quality?”
Caution: Quality is an intangible asset which ensures long term benefits. Do not try to measure it with the current cash outflows
• High quality is very essential ingredient for realizing long term visions.
• The term quality is not restricted to quality of output generated by your business activity. It includes customers, suppliers and employees.
• Set quality standards and service level agreements with all related parties.
- “I have a liquidity crisis very often”
Caution: Business has to create wealth for all parties associated with it. You maybe just are hanging around with the help of borrowed funds.
• Monitor your liquidity ratios
• Evaluate Quality of debts and debtors
• Revisit your business strategies
• Do not evade taking bold decisions
• Develop strict measures for continuing business with defaulting customers and suppliers
- “Why do I need quality, management and financial audits?”
Caution: Audits raise timely alerts on discrepancies that need immediate attention.
• Audit gives an independent opinion on the areas under scrutiny
• Audits can be carried out by competent internal staff members
• It is in your best interest not to influence the audit finding and reports
• Objectively evaluate the critiquing that emerges from this exercise
• Do not assume a defensive approach towards the findings
• Audits ensure continual improvements to process, quality and ultimately enhance profitability
- “How do I know if I currently have a problem?”
Given below is a model general health check questionnaire for evaluation. You could develop similar questionnaires that would be most meaningful for your
organization.
Organization health check-up
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