2. Course objectives
•Define management control … and give a broad definition of it to …
•understand the different implications of management control for
different organisations and different object of performance…
•know how analyzing your organization to built that suits you…
•practice through different cases to give you enough culture of
management control to make you able to implement it in your
organization
3. How to begin
•Imagine you are head of a company, what ever its size, its shape or its
activities …you have to build a system in order to orientate the conduct of
operations and to asses the results
this system is « management
control »
•From this presentation we could draw some conclusions on management
control :
•First
this system exist in every kind of organisation but not in the
same configuration
•Second
this system won’t be the same in each organisation, it’s
totaly dependent on the organisation composition : its goal, its size, its
culture…
•Third
the configuration of management control system it’s not
stable and could change in terms of the change of the organisation or its
environment
4. An historical perspective
• MCS are frequently mingled with
Management Accountability (Financial
statements and cost calculation).
• This confusion find is explanation in history
5. Historical perspective (1/2)
Tools
Exemple of
Cie
Strategic
goals
Control
levers
1900
Cost accouting
Strandardisation
of production
Cost control
Production
planification
Top down
orientated
1920
Budget
ROI
Adaptation to
various market
and local situation
Respect of profit
objectives
Bottom up
mobilization
1950
Planning programming
Budgeting System
explanation of strategic
objectives and budget
adaptated
Flexible planification
Adaptation means
to strategic
Regular review of
strategy
Controling the
objective (not only
financial focus)
Discussion
between top down
and bottom up
US Government
(Mc Namara)
6. Historical perspective (2/2)
Tools
Exemple of
Cie
Strategic
goals
Control
levers
1980 / 90
ABC / ABM
Target costing
Dashboard
Activation of the
value chain
Service value
added
Adaptation
between process
and value
Activation of
indirect costs
2000
Balanced Score
Card
Enlargement of
the performance
conception
integration of HR
value
Strategic
alignement within
the company
Ccl : An evolution from financial to strategic focus
according to the conditions of performance
7. Definitions
Different definitions
but an ongoing accordance on the
strategic dimension underlying Management Control System
(MCS)
• “Management Control is the process by which managers
influence other members of the organization to implement
the organization’s strategies.” Anthony (1998)
• Management control system are the “processes and systems
that allow for assurance that the strategic choices and actions
are common and have been consistent" (H. Bouquin, 1991)
– « processus et systèmes qui permettent d’avoir l’assurance que les
choix stratégiques et les actions courantes sont et ont été
cohérentes »
8. Management system and strategy : examples of
relationship
Strategic expression
Increase market share
Increase quality of service to
maintain long time relation with
customers
Invest in new assets
Main process
under control
Commercial
Knowledge of
customers
Invest process
Commissioning of
investments
Management control
indicators
Increase rate of turnover and
market share
Profitability of new turnover
Customers satisfaction
Customers loyalty
Stabilisation of turnover
Costs of service activities
Long terme profitability of new
invests
Cash flow
9. Verbatim
From « La place du contrôle de gestion dans la conduite du changement » - Jean Luc Bazet
• "Lorsque le président change, l'organisation change et il y a
obligatoirement une remise en cause du contrôle de gestion puisqu'il est
au centre de l'évolution"
When the president changes, organization changes and there is
necessarily a challenge because of management control is central to the
evolution
•
•
•
"Le contrôle de gestion existe depuis plus de vingt ans dans le Groupe et
son contenu a évolué avec l'organisation »
Management control has existed for over twenty years in the Group
and its content has evolved with the organization
•
•
"Le contrôle de gestion est à la base du management et la direction
manage le Groupe avec cette fonction. Sans une pression forte et une
adhésion globale des dirigeants pour implanter le contrôle de gestion, ça
ne marche pas".
Management control is the basis for the management and direction of
the Group manage with this function. Without strong pressure and a
global membership of leaders to implement management control, it
does not work
10. Case studies
• For this different companies,
– What are the main strategically goals for this companies?
– Which Key Success Factors are necessary to achieve this objectives ?
– Describe the Management Control System implement in this
companies
– How the MCS allows the development of KSF ?
11. What is Management Control System
• A frequent vision figured MCS as a
metric system financial botowm line
oriented
• This is a narrow vision
12. Various dimension of control system
B
r
o
a
d
N
a
r
r
o
w
One’s company system is a mix of this dimensions
13. Example of management control system… outside
cybernetic system
Values
Rewards /
sanction
system
Policies and
procedures
14. Visible and invisible control system
Visible
Measurement
systems : financial
and non financial
Ressources allocation systems :
planning, budget, standards …
Socio-cultural systems : communication,
meeting, value sharing, control by the peer
Invisible
Psychologic systems : incentives and rewards, risks
sensitivity, …
Our subject
15. From financial system to Performance
Measurement System
Financial
performance
Cost control
Profitability mesurement
Budget organization
Cash flow
management
EconomicValue
Added
Strategical
performance
Balanced
scorecard
Process reengineering
(lean management,
6sygma…)
Management by
objectives and reporting
Organizational
performance
17. Management control and organizational topics
First issue :
• Coordinate the organisation between
–
–
–
–
–
Different sub-units
Different levels of decision
Different process
Different goals
Different economic situation
18. Management control and organizational topics
Coordinate the organization : different levels of organizational control
according to Anthony
Strategic level control
Main
goals
Maintain long lasting
performance
Allow the company to
determine the
orientations according
to the market and
operationnal conditions
Users
Senior management
Exemple
of tools
Pluriannual budget
Strategic map
Management level
control
Maintain the
performance within
each business units
and the coordination
between them
Middle management
Annual budget
KPI (key performance
indicators)
Operational level control
Maintain the
performance of day to
day actions
Local management
Standards costs
Technical indicators
19. Exemple of coordination by budget
Business plan : pluriannual financial projection of company’s objectives and actions
(1)
Sales budget (3)
Balance sheet and PnL forecast
(2)
Investment budget (5)
Production program for the year
(4)
Purchasing budget (5)
Overheads budget (5)
Commercial objectives
Production Standards
Investments
20. Organizational position of management control:
an example
• EDF (french electricity purchaser)
Double system / double position
Audit : compliance with
standards (law,
accountability,
administrative
standards…)
Controling control of
financial strategy and
profitability
Tranformation
implementation of new
financial management
system
21. Management control and organizational topics
• Various position of Management Control
Organization
1) A part of the CFO
2) An independant direction
3) Embedded in B.U.
Advantage and desavantage of each position ?
22. Table of advantages and disadvantages of each
position
Position
Main tools
Avantages
Disadvantages
CFO
•Cost accounting
•PnL analyzis
•Cash flow control
•Control of financial
balance within the
organization
•Good quality in
accoutability and
financial information
•Only focused in
financial topics
•Distance with
strategic
management
Management
Control Office
•Dashboard –
Balanced Scorecard
•Connection with
strategy
strategic alignment
within organisation
•Some oppositions
with CFO (clash of
viewes and
legitimity)
•Distance with
operationals
Embedded in B.U.
•Operational
dashbords (flow
maangement)
•Specific B.U’s. PnL
•Good knowledge in
oprerational
questions
•Close to
operational decision
(decision support)
•Narrow vision of
the all companie
strategy
23. Five pictures of Management Controller
•
•
•
•
•
•
Financial information producer
System engineer
Rule keeper
Financial analyst
Internal advisor
Business analyst – business partner
24. Organizational questions : case
• Management Control System as a mean to
coordination in a decentralized organisation
• MCS and organizational control in Leroy Merlin
25. Leroy Merlin – group Adeo
• Leroy Merlin is a French home-improvement and gardening retailer
serving thirteen countries, genuine brand of Group Adeo
• Generally established on the outskirts of major town and cities, Leroy
Merlin stores are large centers (9000 m2 on average) providing self-service
and sales assisted services. Its business is centered around six main
sectors: Do It Yourself, building, gardening, sanitary equipment,
renewable energy, and interior decoration.
• Except Leroy Merlin’s stores the group runs several other brands :
26. Leroy Merlin – groupe Adeo
•
The group knows an important development during the last years. Even in the
period of crizis, the growth didn’t weaken thanks to a good quality of service and
an important international development.
Leroy Merlin is the fourth-largest actor in the world in the do-it-yourself industry, the second-largest in Europe
and the largest in France. For Leroy Merlin, effectively integrating into the local fabric means…
•On-site recruitment,
•Collaboration with local partners, creating central buying offices specific to each country,
•Product selection and accompanying advice tailored to the local inhabitants, homes, and buying practices of
each country, each region, and even each town having a Leroy Merlin store.
http://www.leroymerlin.com
27. Leroy Merlin – groupe Adeo – MCS
organization
• The organization of MCS function in
Leroy Merlin
– General staff position
part of the CFO
• MCS policy and main orientations
• Implementation of the systems
– Regionaly
part of the regional team
• Tools adaptation at the regional
background
• Coordination between regional and
national level
• Regional animation
– Localy
present in each store
• Part of the direction comity
• Securisation of the information
• Day to day animation with the teams
Job opportunity
Missions :
Membre du comité de direction, vous participez
à l'ensemble des décisions stratégiques du
magasin. En proximité avec le directeur du
magasin et les chefs de secteur, vous pilotez
l'élaboration et le suivi des objectifs, budgets et
plans d'investissement du magasin.
- Vous pilotez les différents indicateurs de
gestion (démarque, marge, flux financiers,
gestion des stocks) et de résultat du magasin.
- Vous animez de façon transversale les chefs
de secteur sur ces indicateurs et développez
au sein de Comité de Direction et des équipes
un esprit d'efficacité et de performance.
- Vous managez l'équipe administrative
(comptabilité, balisage,..).
- Vous êtes garant(e) de la sécurité des biens
et des personnes.
28. MSC in Leroy Merlin
Commercial department level
Les composantes du compte d'un rayon
Charges
Produits
Soldes intermédiaires
Chiffre d'affaires TTC
Chiffre d'affaires HT
Main goals :
Steering the
turnover and the
commercial
activity
Marge avant remises
Remises aux clients
Marge sur ventes
Var. prov. carte maison, B.A.
Var. prov. carte maison, B.A.
Remises fournisseurs (DPA)
Remises fournisseurs
RFA
Frais sur achats
Var. prov. report de marge
Var. prov. report de marge
Var. prov. AVS et décotes inv.
Var. prov. AVS et décotes inv.
Var. prov. quantités toxiques
Démarques
Var. prov. quantités toxiques
Résultat financier du stock
Résultat financier du stock
Marge nette
Frais de personnel
Prélèvements sur stock
Vente de présentations
Marge métier
Loses and costs of stocks
Direct expenses
labour
(professional margin)
29. MSC in Leroy Merlin
Store level
postes spécifiques au CE
magasin
Postes communs aux CE
magasin et rayon
Postes spécifiques au CE
magasin
Chiffre d'affaires TTC
Chiffre d'affaires HT
Marge avant remises
Remises aux clients
Marge sur ventes
Var. prov. carte maison, B.A.
Remises fournisseurs
Consolidation of the commercial
performance
RFA
Frais sur achats
Var. prov. report de marge
Var. prov. AVS et décotes inv.
Var. prov. quantités toxiques
Démarques
Résultat financier du stock
Marge nette
Recettes et dépenses des services
Frais de personnel services (hors appuis)
Frais de déplacement
Frais de formation
Publicité
Entretien du bâtiment
Frais de fonctionnement
Frais de matériel (dt prélèvt)
Frais de gestion
Informatique et caisse
Frais de personnel rayons + appuis
Management costs
Prélèvements déstinés aux rayons
Amortissements
Steering the PnL
Marge - frais influençables
Frais non influençables
Résultat opérationnel
Marge métier
30. The organization and the role of Management
Controler in Leroy Merlin
• Global coordination : from the cybernetic control to the organizational and
strategic control
National level
•Definition and implementation
of MC System
•Animation between regions
Exchange on yearly
objectives
Exchange on
performance
statement
•Weekly on monthly, ranking of
the performance (commercial
and financial) of all the stores
Regional level
•Exchange with the stores and department to analyze their
performance
•Steering the financial performance of new invests (opening and
extention of stores)
Store level
Maintaining
the focus on
commercial
performance
Department level
(embeded)
•Commercial action
orientated
•Coordinate the
commercial action of
department
gap with
the commercial budget
•Controling the costs
Maintaining the focus on
commercial and financial
performance
Maintening the challenge
between stores
31. The organization of Management Controler in
Leroy Merlin
System ingineer
Business analyst
Strategic control
National level
Regional level MC
Information producteur
Financial analyst
Internal advisor
Management control
Store level MC
Operational control
Department level
Information producter
Business partner
33. Management control as an economic system
From BU
Commercial
development
Costs center
Invests center
Profit center
Income statement
Financial position
Cash flow statement
Value creation
Balance sheet
Financial structure
To company
And financial investors
34. Management control as an economic system
Tools
Organizational
control
Cash flow
management
Financial ratios
EVA
PnL (income
statement)
Relationship
between operational
and cash acquisition
Cash flow statement
Relationship
between global
equilibrium and
strategy
Coordination between
BU and global
organization
Statement under
control
Relationship
between operational
actions and costs
Management
acounting
Strategical
Focus
PnL
Balance sheet
Global organization
Relationship
between company
and financial
investors
35. Management accounting
• Management accounting differs from financial
accounting in the way it focused in decision
making :
– It’s a formal mechanism for gathering, organising
and communicating informations about an activity
or a production in order to calculate the cost of
this object
36. Disctinction between management and financial
accounting
Management accounting
Financial accounting
Delimitation of
representation
Object of cost allocation :
productions, activities, business
unit, areas…
Corportation (completeness)
Time span of reports
Determinated by management
needs : monthly, quaterly…
(flexible)
Determinated by standards :
generaly one year
Time focus of reports
Historical (calculation of the cost
allocated in the past) or future
(calculation of the cost targeted
for the future)
Historical
37. Disctinction between management and financial
accounting
Management
accounting
Financial accounting
Main users
Organisation managers at
various levels
Outsides parties such as
investors, government…but
also managers
Freedom of choices of
accounting measures
No constraints other than
requiring the benefits of
improved management
decisions to exceed
informations costs
Constrained by financial
reporting standards
Behavioural implications in
selecting accounting
measures
Choice should consider how
measurements and reports
will influence managers daily
behaviour
Choice based on how to
measure and communicate
economic phenomena,
behavioral considerations
are secondary, although
executive compensations
based on reported results
may have behavioral impacts
Introduction to management accounting, Bhimani et al, Pearson, p 3
39. Different systems
• Determinated the system of cost accounting it’s a
managerial act and not only a mater of technic.
• Each method aims to strengthen some specific value
levers
40. Absorption costing
•
Primary goals : a classical method wich leads to
– Separation between direct costs (in direct relation with production
volumes) and indirect ones (not involved in the act of production)
– Allocate direct costs relevant to each sub-units involved in the
production process
– Maintain the relationship between activity level and profit
– Identify and control volumetric indicators relevant to each sub
part of the organisation
Levers of value
Critics and limitations :
Maintaining the relation between costs
and production
Secondary centers (the ones wich are not
directly involved in the production) are not
under control
Focusing on the indicators wich leads to
the growth of costs
Leads to a stiff organisation
A device not in accordance with the rise
of indirect costs (marketing, IT, …)
41. Absorption costing (full costs)
• Diagram of absorption costings
Direct cost drivers
Material
Factory labour
Administrative
labour
Variable and fixed
overhead
Sub units
involved in
production
(principal
centers)
Finished
goods
W. I.P.
Indirect Cost drivers
Sub units not
involved in
production
(secondary
centers)
Incomes
Costs of goods
sold
P.N.L.
42. Example of value-chain function, ressource costs
and cost drivers
Value chain function and
ressource costs
Example of indirect cost drivers Example of direct cost drivers
Research and development
Costs of market survey
Salaries of product and process
engineers
Number of new product proposal
Complexity of proposed products
Design of products, services and processes
Salaries of product and process
engineers
Costs of computer-aided design
equipment used to develop prototype of
product for testing
Number of of engineering hours
Number of distinct part per product
Administrative costs
Financial administration
HR
Budget per service
Number of people
Production
Labour wages
Supervisory salaries
Maintenance wages
Depreciation of plant and machinery,
supplies
Energie costs
Labour hours
Labour hours
Number of mechanic hours
Number of machine hours
Kilowatt hours
Marketing
Advertisements
Salary of marketing personnel, travel
costs…
Number of advertissements
Sales euros
Distribution
Wages of shipping personnel
Transportation costs (eg depreciation
of vehicles and fuel)
Labour hours
Weight of items delivered
Customer services
Salaries of service personnel
Labour hours
Costs of supplies, travel
Number of service calls
Introduction to Management
accounting - Pearson
43. Influences of strategy on accounting systems
Analyse impact of
invest in profitabily
Reckon the exact
costs
•Allocation of costs
from non mature
units
•Analyse the way to
reduce costs
•If choice of invests
during the Market
share increase
periood give the
means for the
developpment
transfert costs to
cows units
•Organise the output
of the units
be
carefull of the
transfert the fixe
costs to other units
44. Example of strategical costs allocation
How allocate Holding fees ?
High
Low cost stategy
of holding fees
low rate
Market dynamic
High quality strategy /
development of the mark
increase the quality, low rate of
holding fees
Maintain the profitability
average rate of holding fees
(mix of market growth
and competitive
pressure)
Cash cows
holding fees
high level of
Low
Low
Profitability
High
45. Target costing and how to improve economic
value
• Target costing
– Identification of market price (level of price accepted by market)
– Analyse of the value chain
activities necessary for value and
costs needed for this activities
– Determine production standards for each activity (level of costs
required) according to market price
Levers of value :
Enhance value chain within companie
Externalisation of activities outside the
value chain
Critics and limitations :
A system leading to downsizing and
(sometime) ununployment
Difficulties to valorize qualititative
activities
A device adapted to industries but hard to
implement in service business
46. Target costing and value chain in luxury business
Intern opérations
Extern opérations
A total transformation of an industry
Third party
Physical flows
Information flows
Textil components
Création
Marketing
Garment assembly
Logistic
wholesale
retail
Consumers
Wholesalers
Quality control
Consumers
Former process directly owned by
industrials
D’après Dominique JACOMET - AUDENCIA - 18 septembre 2012
Current process
internalised
47. ABC / ABM
• Activity based costing / AB
Management
– The modelisation of the process by the identification of each activity
involved
– Produced items are determined by the volumes of activities engaged for
their realisation
– The relationship between the volumes of activity commited and the
production determines the costs drivers.
Levers of value :
Critics and limitations :
Costs calculation by the real volume of
activities involved
A method quite difficult to implement due
to the reorganisation needed
A method that allows deep change in
organisation : transversality, better
flexibility and orientation to qualitative
objectives
Frequent change in costs inductors and
instability in costs calculation
48. Classical absorption costing approach
Administration
VP Finance
and
Management
Budget per
division
Marketing
Global management
Production
Indirect
costs
Sales
Direct
costs
Number of
product
developped
Number of
sales
Number of
production
http://fr.edrawsoft.com/
49. ABC / ABM management
Objectives
Product focused process
Sales
Mkt
Mkt
Market surveys
Customers
observatory
Mkt
Production
Finance
Design and
production
Pricing
planification
Product design
Growth of relative
market share
Customers
satisfaction
Customers focused process
Mkt
Brand
management
Ventes
Sales action
Production
Ventes
Advisory and
implementation
Finance and mngt
Custormers
loyalty
Billing and
accountability
Example of cost drivers for former support function :
Invoices recovery times
50. Direct costing and the relation between costs and
volumes
• This method aims to analyze costs behaviour and cost-volume relationships :
– Two kinds of costs : variable and fixed
If cost driver level increases
Type of cost
Total cost
Cost per unit
Fixed costs
No change for the same
production structure
Change step by step
Decrease
Variable costs
Increase in proportion to
level of production
No change except for price
impact or productivity gains
"Variable costs," which increase directly in proportion to
the level of sales in dollars or units sold. Depending on your
type of business, some examples would be cost of goods sold,
sales commissions, shipping charges, delivery charges, costs of
direct materials or supplies, wages of part-time or temporary
employees and sales or production bonuses.
"Fixed costs," which remain the same regardless of your
level of sales. Depending on your type of business, some
typical examples would be rent, interest on debt, insurance,
plant and equipment expenses, business licenses and salary of
permanent full-time workers.
http://www.bizfilings.com
51. Examples of variable and fixed costs
Beta Sales Company
Contribution Format Income Statement
Labour
costs
For Year Ended December 31, 201X
Sales
$ 462,452
Less Variable Costs:
Cost of Goods Sold
$ 230,934
Sales Commissions
$ 58,852
Delivery Charges
$ 13,984
Total Variable Costs
$ 303,770
Contribution Margin
$ 158,682
Less: Fixed Costs:
Advertising
$ 1,850
Depreciation
$ 13,250
Insurance
$ 5,400
Payroll Taxes
$ 8,200
Rent
$ 9,600
Utilities
$ 17,801
Wages
$ 40,000
Total Fixed Costs
$ 96,101
Net Operating Income
$ 62,581
34%
52. Direct costing
implication
• Contribution margin and break-even point
– By analyzing the variable and fixed costs,
managers can derteminated the level of activity
required to be profitable
– The sum of contribution of each production
(calculated by the variance between the incomes
and the variable cost allocated) must cover up the
global fixed costs
53. Break even point
• The lever of activity for which the variable margin
matches the fixed costs is the break even point
the
volume of activity seted for a profit egal to 0.
Calculation
Two expression of break even point :
Sales – variable expenses – fixed expenses = 0
Per unit
(Unit sales price x number of units) – (unit variable costs x numbers of units) – fixed
expenses = 0
Unit contribution margin x number of units – fixed expenses = 0
Break even point = fixed expenses / unit contribution margin
Global
Rate of contibution margin x Turnover – fixed expenses = 0
Break even point = fixed expenses / rate of contribution margin
55. Case Break even point
Assume that the financial statements for Lillian's Bakery
indicate that the bakery's fixed costs are $49,000, and its
variable costs per unit of production (loaf of raisin coffee
cake) are $.30.
Further assume that its sales revenue is $1.00 per loaf.
Q:
1) Calculate the break even point
2) What commercial strategy Lillian’s Bakery can manage when
the B.E point is reach
56. Break even point and strategical decision
Philips focused on design and marketing
From LUC MATHIEU - Publié le 26 janvier 2006 | L'Usine Nouvelle n° 2994 Design
• By focusing on the outsourcing of assembly and supply components, Philips
has restated results of its consumer electronics. And takes advantage of its
renewed growth to adjust its perimeter.
The origin of this reassessment, the division "Consumer Electronics". Dying
only three years ago, she recorded a growth of 6% (for an operating
margin of 6.7%) over the quarter, while the branches "Lighting" and
"Household" peaked at 1 and 3%. Evidence that the current restructuring is
beginning to bear fruit. Since 2001, the Dutch group has completely
revamped the organization of its subsidiary. With a clear strategy: to
abandon the vertical model for a horizontal structure. In other words, be
confined to the design and marketing of products and hand assembly and
component manufacturing to subcontractors.
Original choices ... to minimize fixed costs
57. Fixed and variable costs evolution
Fixed costs are not so fixe
Variable cost varie much more than expected
Variable costs per unit
Where management controler must control
Various strategies to steer the costs : standardisation, spare decision of investment
from operational action, budget and variance analyse…
58. Examples of control strategy to steer costs – the
case of industrial sector
Control system
Impact
Limits
Standardisation of
production
Control variable costs in
each production
Control fixed cost by
planification of invests
Rigidification of production
and processes
Difficulties if need for
adaptation of the production
Production budget (fixe and
variable costs) and
variance analyse
Freedom inside the budget
(confidence in the
responsability a priori) –
control a posteriori
Ongoing amelioration
Bias because of costs
calculation based on past
situation – could generate
difficulties if needs for
change
Sparing the decision
between operational
actions and invest
The operational actors are
focused on maintaining
variable costs at the
estimated level
Fixed costs are steering at
a different level
Could generate difficulties
in the adaptation of invests
to the level of production
59. From the micro level to the macro level
• Cost accounting leads to a micro vision of
each business unit within the entire
organization
– To steer a company it’s necessary to match micro
to macro level
it means to understand the way
the economic balance are respected
60. The evolution in performance analyse
• Various Business Units
BU 1
By the allowance of cost and
incomes, cost accounting
leads to a control within B.U.
BU 2
BU 3
BU …
The necessity of a global control to mastered the
economic balance of the global company
61. Steering cash flow
• Controling costs and profitability is necessary
for a company. But companies are carried out
to banckruptcy because of lack in cash rather
than in profitability.
• Therefore, steering cash flow is a question of
life
• Much more, establishing relationship between
profitability and cash is a crucial issue.
67. Cash flow and change in behaviour
• With the developpment of financial economy and
the place of lenders in the financement of
corporates, the attention on financial structure and
cash flow issues increased. This lead to deep change
in corporate strategy and control system.
Focus
1980
Turnover
Sales and commercial processes
1990
Ebit -ebitda
Global profit
2000
Roce - Roe + Ebitda
Economic value and financial structure
2009
Free cash flow + Roce +
Ebitda
Cash flow management
68. Economic performance
EBIT or EBITDA: a global vision of economic performance
Statement of Income — Example
(figures in thousands)
Revenue
Sales Revenue
$20,438
Operating Expenses
Cost of goods sold
$7,943
Selling, general and
administrative expenses
$8,172
Depreciation and
amortization
Other expenses
Total operating expenses
Operating income
Non-operating income
Earnings before Interest and
Taxes (EBIT)
Net interest expense/income
Earnings before income taxes
Income taxes
Net Income
$960
$138
$17,213
$3,225
$130
$3,355
$145
$3,210
$1,027
$2,183
EBITDA = EBIT + Depreciation
and Amortization
69. Economic performance
EBIT: a vision of economic global performance
regardless of financial company’s policy and
income tax impact.
EBITDA : by supressing impact of non
calculated expenses EBITDA leads to a
vision of ability to get cash by is own
activity. It’s also an indicator of
economic performance ignoring changes
in working capital.
72. ROCE (Return On Capital Employed)
Capital employed
Fixed assets
Activity /
turnover
Currents assets –
currents liabilities
(operating
working capital)
Net operating
profit after
tax (NOPAT)
ROCE = NOPAT (or EBIT) /
Capital employed
73. Structure of ROCE
NOPAT
Capital employed
Could be shared
NOPAT
TURNOVER
Sales profitability
X
TURNOVER
CAPITAL EMPLOYED
Assets efficiency
74. Analyzing the ROCE and financial strategy
Sales profitability
Profitability strategy
10%
5%
ROCE = 10 %
Volume strategy
2%
1%
1
2
5
10
Assests efficiency
76. Financial performance in a market perspective
• EVA = Net Operating Profit After Tax - (Capital
Invested x WACC)
WACC = ((E/V) * Re) + [((D/V) *
Rd)*(1-T)]
E = Market value of the company's
equity
D = Market value of the company's
debt
V = Total Market Value of the
company (E + D)
Re = Cost of Equity
Rd = Cost of Debt
T= Tax Rate
EVA is a trademark of Stern Stewart & Co
weighted average cost of capital
77. EVA : an example
•
XYZ Consolidated XYZ Consolidated is an example of a manufacturing company operating in
a capital intensive industry. Over five years, revenue grew at a compound annual growth
rate (CAGR) of 9.6%. At the same time, operating earnings expanded at a CAGR of 9.0%. The
company also invested approximately 86¢ in new fixed assets for each $1.00 of incremental
sales.
Year
1
2
3
4
5
EBIT
10 228
5 687
9 359
13 677
14 598
EBITDA
19 979
14 847
18 336
22 887
24 315
Sales Growth
14,4%
-4,9%
8,2%
13,0%
18,9%
Operating Earnings Growth
50,3%
-45,8%
65,8%
49,1%
15,1%
Net Profit Growth
-21,4%
-54,1%
95,6%
56,3%
6,1%
Operating Margin
7,9%
4,5%
6,9%
9,1%
8,8%
Net Profit Margin
4,2%
2,0%
3,7%
5,1%
4,6%
84. From economic steering to strategic management
• Management control doesn’t only focused on
financial topics, but it’s main goal it’s to build
a strategical steering system
• Management control results on strategy, like
strategy resutls on management control
system
85. PSA case
• Giving the performance indicators followed by
PSA steering committee, established the
strategical objectives of this company
86. Global sales 2007
bench mark
(in thousand unity)
+3,0%
+4,1%
-0,7%
+7,9%
+5,5%
+6,5%
+8,0%
-0,2%
+1,9%
+2,1%
+12,9%
+9,2%
+7,1%
+2,0%
92. From the dashboard to strategic objectives
Sales dynamic
Strategic parameters
•Production cost
•Commercial productivity
•Asset efficiency
Operating margin
Operating margin / Turnover
ROCE
Profitability according to competitors
performance
Relative market
share
Turnover
Strategic parameters :
•Market ‘s growth dynamic
•Competitor’s commercial
performance
Strategic parameters
•Financial market atractivity
•Funders return on
investment
•Investement capacity
Cash flow
Free cash flow
Solvency
93. The double alignement of management control
• Building strategic control system
Strategical level alignement
Operational level alignement
Operational
objectives
Strategic
system
Strategic
outcomes
Sub-unit economic
performance
Economic
system
Global
economic
goals
Process ongoing
continuous
improvment
Technical
system
Strategic
competencies
acquisition
94. From strategy to management control : achieve an
ongoing strategic alignement
Intention
Operationnalisation
Company strategic
goals
Alignement
1
Alignement
5
Measurement
Improvement
KPIs
Alignement
3
Alignement
2
Operational
objectives
Processes
improvement
Alignement
4
96. Alignement 1 : from strategical intention to
operationnal objectives
• Building operational objectives
97. Alignement 2 : Key Performance Indicators
What are KPIs
D1 : Key Performance Indicators (KPI) are measurable factors that relate to an
organisation's objectives. For example, if a company wanted to improve customer
retention, and had noticed a high level of complaints about delivery, then
deliveries made on time over a set period of time would be a KPI.
D2 : Key Performance Indicators (KPIs) are quantitative and qualitative measures used
to review an organisation's progress against its goals. These are broken down and
set as targets for achievement by departments and individuals. The achievement
of these targets is reviewed at regular intervals.
• What are not KPIs
All kind of measurable information disconnected from organizationnal’s goals
Information not linked with an assesment device
Indicators non relevant with action or not specific for the users
98. Alignement 2 : Key Performance Indicators
Bauer, K 2004, KPIs - The Metrics that Drive Performance
Management, Information Management and
SourceMedia Inc., Brookfield USA, viewed 8 October 2009,
Objectives
KPIs
Scale value
Presentation
99. Alignement 2 : Key Performance Indicators as a
measurement system
UK gas provider
Scale value through
comparisions
Targets give the
goals to achieve
100. Alignement 2 : Key Performance Indicators as a
measurement system
Performance and
improvement within the
company
101. Alignement 3 : From objectives to process
improvment
101
102. Alignement 3 : Process management
continuous loop
• A continuous improvement
a
105. Alignement 4 and 5 : monitoring the strategic
system
the strategic planification solution
106. Alignement 4 and 5 : Organizing the coordination
through KPIs
Coordinate collective
action
Efficiency
measurement
Managers
Results
Efficacity
measurement
Triangle of the goals
Activities
Means
Economy
measurement
Operationals
Financials
The need for alignement within the different organizational levels
107. MCS et IT strategy
Management control system depends strongly on information and IT
process.
Organizing MCS means structuring information system.
The quality of a good information system to implement MCS :
•The capability to merge different nature of datas coming from
different sources of information
•The capability to represent different levels of information
from
detail to synthesis
•The capability to conduct in deep analysis by crossing several datas
108. MCS et IT strategy
Enterprise Resource Planning system
IS as a global database
109. MCS et IT strategy
Business Intelligence
IS as cognitive system
110. Alignement 4 and 5 : The difficulty of alignement
within organization
•Could your organization improve its performance
if you could somehow better communicate to your
employees what your strategy is?
•Do you have employees whose hard work is
actually running counter to the organization’s
goals because they have a different
understanding of what you are trying to
accomplish?
•Do various departments in your organization
focus on activities within their own silo more than
on how they support the organization’s mission
and vision?
111. A global system : Introduction to balanced
scorecard
The balanced scorecard is a strategic planning and management
system that is used extensively in business and industry, government,
and nonprofit organizations worldwide to align business activities to the
vision and strategy of the organization, improve internal and external
communications, and monitor organization performance against
strategic goals. It was originated by Drs. Robert Kaplan (Harvard
Business School) and David Norton as a performance measurement
framework that added strategic non-financial performance measures to
traditional financial metrics to give managers and executives a more
'balanced' view of organizational performance. ]
112. BSC and strategic system
Integrate the
mesearument
system in
strategical
perspectives
118. Balanced Score Card : cas
•Wich are the main interest for FMC corp
to implement a BSC system ?
•Wich are the limits of such a system ?
•What methodology followed to
implement BSC ?
120. Management control
• Management control is not only a mater of
tools and measure, but has to be seen like a
global system establish link between strategy,
operational processes and economy.
• It fits into a cultural and managerial context
and can’t be separate from.
• It’s a dynamic system in continuous change
wich search a balance between several
tensions wich structure the management and
for that it could activate four levers
123. Relevant bibliographie
For those who are interest on going a step further
• Kaplan and Norton
– The Balanced Scorecard: Measures That Drive Performance, with David P. Norton.
Harvard Business Review, January–February 1992.
– The Balanced Scorecard: Translating Strategy Into Action, with David Norton. Harvard
Business School Press, 1996.
– The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the
New Business Environment, with David P. Norton. Harvard Business School Press, 2000.
– Alignment: Using the Balanced Scorecard to Create Corporate Synergies, with David P.
Norton. Harvard Business School Press, 2006.
• Simons, R.
– Levers of Control: How Managers Use Innovative Control Systems to Drive Strategic
Renewal. Boston: Harvard Business School Press, 1995.
• The art of Management Control : Issues and Practices : under the
coordination of F. Giraud and Oliver Saulpic. Pearson 2011
• Introductin to management accounting : Bhimani and al. Pearson 2011
