Financial Control Tools and Decision-Making

Primary Financial Control Tool for Managing a Firm’s Operations

The budget stands out as the primary control mechanism employed to manage the affairs of an organization. It avails managers with detailed information needed to determine the best course of action. This is based on its ability to offer estimations on availability of resources, revenues, and costs for a defined period. Consequently, it provides helpful forecasts relative to set financial goals and prevailing operating market conditions (Bierman, Ferrell, & Ferrell, 2016). The budget is a financial plan through which a firm can appropriately project costs and incomes. Consequently, it acts as a benchmark for contrasting actual performance measures from those envisaged in the budget. Any deviations act as information cues for managers to react in manner that comprehensively determines how they occurred, whether they are positive or unwanted outcomes (Bierman et al., 2016). The budget serves as a source point from which managers can identify a workable plan of action as well as enabling them to use it as a standard performance measuring tool. It also avails information relative to how managers can respond to unfavorable business situations.

Financial Controls for a Global Organization

For a global organization, it is more difficult to employ financial control mechanisms such as financial audits, budgetary controls, and analyzing financial statements. In this regard, financial controls are different for international firms because the entities operate in different parts of the globe via subsidiaries. For example, decisions concerning issues like budgets and budgeting controls tend to only highlight the significant differences prevailing in each division (Sageder & Feldbauer-Durstmüller, 2018). According to Dyreng and Markle (2016), designing management control systems is dependent on internal factors at a global organization’s headquarters and amongst subsidiaries as dictated by external attributes like market requirements and culture. These fluctuations or tax regimes provide why global firms have different financial controls. For instance, when determining the incentive structure for managers working in a region, it is imperative that the parent firm measures and rewards their inputs given the challenges and opportunities in financial and economic aspects. Another example is that the financial acumen wielded by large multinational organizations at time comes into play in manipulating the internal market of a region; thus, establishing advantages for taking up unique strategic opportunities.

References

Bierman, L., Ferrell, O. C., & Ferrell, L. (2016). Management: Principles and applications, custom edition. Solon, OH: Academic Media Solutions.

Sageder, M., & Feldbauer-Durstmüller, B. (2018). Management control in multinational companies: a systematic literature review. Review of Managerial Science, 1-44.