Financial control activities constitute a continuous process, since they include various stages or phases that are executed over a fairly long period of time, which usually coincides with the fiscal year.
Although there are different types of control, which give rise to different processes, in general we can distinguish three stages that are quite common in most financial control processes: establishment of standards or indicators , measurement and analysis of deviations and correction of deviations .
Establishment of indicators or standards
The first stage consists of the establishment of a series of measures that are considered adequate for the activity or activities of the company on which the control is executed: it is what is known as indicators or standards .
The adequacy of these indicators is closely linked to the achievement of the objectives set by the company . For example, if the business objective is to achieve a certain profitability, these standards must set the specific costs (production, personnel, infrastructure maintenance, etc.), as well as the appropriate income (sales of goods or services, acquisition of new customers, income average per establishment, etc.) that allow the expected goals to be achieved.
Measurement and analysis of deviations
The second stage of the financial control processes is based on a comparison between the forecasts (objectives) and the results actually obtained .
After the data collection comes their analysis and conclusions . It may happen that the results are adjusted to the objectives set or that there are deviations, both upwards and downwards.
An upward deviation means that the results are better than expected. In this case, you may want to rethink your goals more ambitiously. If, on the other hand, the deviations are negative, that is, they are below the calculations, it will be necessary to implement the appropriate corrective actions.
At this stage, it is very important to determine the specific causes of the deviations , bearing in mind that they may not only be due to poor execution of one or more of the company’s activities, but also to an erroneous or unobjective approach to the possibilities of the organization, resulting totally unattainable with the available means.
Correction of deviations
The true purpose and usefulness of control is not the fact in itself of detecting errors , but correcting them as soon as possible and preventing them from reproducing in the future .
The appropriate corrective measures will depend on the type of cause that originates the deviations, and may be necessary from small adjustments in a very specific area of the company, to comprehensive changes in the production, planning, organization and / or management processes.
