Berdnikov V.V., Ph.D. Associate Professor

Financial University Under the Russian Government

Controlling models in commercial organizations: variants and selection criteria.

Ensuring sustainable development of business requires the application of modern methodological tools of its strategic navigation and current coordination. We consider controlling as a such tool in conditions of highly unstable economic environment. Controlling is an integration of modern technologies of data processing and storing as well as a set of business analysis methods. The interest in controlling aroused in Russia as a result of completion of assets consolidation in the privatization of state ownership and the emergence of priorities in increasing efficiency of its management during mass inflow of foreign capital.

Traditional methods and techniques of management analysis aimed at consecutive gradual time and extent changes in goods market lose its applicability.

Traditional dominance of financial capital, the absence of strict standardization in the domain of ethnical norms compliance in relation to business conduct and stable client loyalty is replaced by the priority shift towards:

increasing activity of innovation process, growing importance and role of creation and effective application of intellectual capital;

accurate compliance with ethical and other norms of business conduct organization, the growth of social and ecological responsibility;

intermittent changes in consumers’ priorities, internationalization and erosion of borders of traditional consumers’ groups; decrease in their loyalty;

As a result, early successful budget management model of company development based on financial planning and strict administrative control over actions of subdivisions and strategic business units loses its efficiency. The use of organization standards of internal control systems (COSO, COBIT, SAC, SAS, ISA) in practical activities is aimed at ensuring maximum efficiency and effectiveness of each business transaction, securing reliability and transparency of information received by the owners of business processes and top managers, compliance with established laws and rules. However, the dominating current and preemptive focus in modern systems of internal control directs business towards strict compliance with earlier accepted regulations which do not allow to use to the full extent the development potential opened by rapid market development. The innovation process is confined to the budget development limits and intangible assets, intellectual capital were not regarded as an object of priority investment and main condition for the stable economic growth. Observable market changes support our view on the importance of preemptive decisions making in correcting the business model, elaborating own ones and exploring and copying advanced achievements of other companies, first of all, in the sphere of technology and business organization forms which become driver for companies’ sustainable development.

The philosophy of traditional controlling was based on the following postulates:

activity oriented at plan;

decentralized and personified responsibility;

management indicators expressed in quantifiable form [1, p.23].

In modern conditions the systems of cost calculations based on early established norms oriented at current profitability level are giving their place to the systems of preemptive response to the market challenges with the aim to secure the priority of business activity continuity and achieve the best result. Strategic plans give place to sliding forecasts, multilevel budget structures – to control panels which are taking into account the particularities of management objects’ aims and conditions of their achievement. The responsibility for decisions made shifts from the level of the business process owner to the level of working place owner.

As a result, the information disintegration of subdivisions is replaced by integration processes in the framework of value creation chains which exceed administrative borders of a company. Historical reporting forms give place to the balanced scorecards and control panels which are created in the regimes of “needed” time.

The structure and composition of these controlling analytical tools are defined by the aims and tasks of management as well as by the degree of information management system maturity. The prospective direction of its development is the system of business intelligence which unites the opportunities of non-formalized data bases and innovation tools of economic analysis [2, 3].

Therefore, at the present time, two main models of controlling have emerged and used in Russia: the first model is “administrative” and based on budgeting and formalized variance analysis, the second – “democratic” and based on forecasting (critical success factors, quality analysis of “weak signals” of economic environment, the balanced scorecard, control panels).

The survey conducted among the representatives of business in Moscow region on their adherence to one or another controlling models identified that in service industry (audit and its related services, project and legal services) the preference is given to democratic model whereas administrative model preserves the priority in production sphere and retail.

The survey was conducted in accordance with a set of criteria which include: speed and accuracy of response to changes of economic environment; the ability to ensure the coordination of development of different business activity directions with the aim of synergy achievement; securing the interests of business owners in management decision making; administrative efficiency. Each of the listed criteria was regarded by us as tantamount and maximum amount of points for each criterion equals 10. As a result of processing respondents’ opinions the correlation of priorities in the service industry was 7:3 in favor of democratic system. At the same time in retail and production industry the correlation of priorities was 4:6 and 3:7, respectively, in favor of administrative controlling.

It was also mentioned that the larger the company, the stronger desire of top management for planning and controlling all staff activities.

It was established that the democratic model of controlling is more in demand at the “perinatal” stage of business development. However, already at “juvenile” and “mature” stage the management gives preference to administrative controlling. Moreover, the more competitive market where business entity conducts its operations, the management is more inclined to show interest towards the use of modern instruments of business analysis among which control panels stand out. According to respondents, their application ensures the required flexibility and the possibility of preemptive response to consumers’ preferences changes, actions of other market participants and the costs of funding.

The rejection of democratic model of controlling in favor of administrative one during the period of transition from the “juvenile” stage of business development to the “mature” one is conjugated with the transition from “flat” organizational structure to the hierarchical one. From our point of view, this is harmful to business development as it suppresses the initiative of business processes owners, reduces the adaptability of working places, stimulates financial misuse on the part of managers. The acquired lag effect in management contradicts the paradigm of effective management formulated by Edv. Deming “plan – do – explore – influence”. As a result, business entity and its information and analytical system is more internally focused and assesses inadequately the changes in the external environment and corrects inopportunely the business model.

In conditions of turbulent economic environment only the preemptive business model may guarantee the stability of economic growth. Its implementation implies non-application of administrative controlling model but the use of business analysis tools. We consider the balanced scorecard as the main business analysis tool at the company level , at the business process and working place level – control panel which is a flexible framework consisting of key performance indicators and taking into account success factors and its indicators of conversion in results.

The list of references:

1. The concept of controlling /Accounting management/ Reporting system. Budgeting / Horváth & Partners; Translated from German. – 3 edition/ - Moscow: Alpina Business Boo, 2008.

2. V.V. Berdnikov Business-Intelligence as Perspective Tool of the Efficiency Controlling in Business // Audit and Financial Analysis, 2012, №1

3. V.V. Berdnikov, O.J. Gavel Controlling and process audit in designing competitive business models // Audit and Financial Analysis, 2011, №4