Lars Östman towards a general theory of financial control

Relationships between horizontal events and financial functions  

 

For function-driven organisations, financial flows must basically be regarded in relation to 

certain aspects of the horizontal process. For pay-driven organisations, on the other hand, 

financial flows are a primary variable in their own right – in principle, surpluses or deficits 

can be regarded as something separate, no matter what is provided in other respects. Activity 

flow and the outcome of the horizontal process can be treated simply as a means to create 

surpluses. Needless to say, this is not necessarily the case. Many principals in the vertical 

process place an emphasis on horizontal events and make a trade-off between different 

interests. 

Every organisation needs a financial function:  the capacity to provide activities with 

financial resources and ways of managing such resources. Relationships between horizontal 

events and financial functions are interdependent. Resources are needed for horizontal 

activities. On the other hand, operations influence inflows, directly or indirectly. A 

decreasing allocation of resources to operations may mean that present or future operations 

deteriorate or become more efficient, which in turn will affect future inflows and outflows, 

negatively or positively from an organisation´s point of view.  

Various forms of uncertainties and risks are involved. Firstly, operational uncertainties 

are important. Variations in horizontal events are possible, including variations in cash in- 

and outflows, the most obvious example being shifts of ordinary commercial income-

generating activities. Secondly, financial uncertainties originate from the financial position 

of the organisation. Possible variations in cash in- and outflows are related to the impact of 

the financial function and to the way in which this function works. To varying degrees, 

organisations are sensitive to possible horizontal variations and events and to possible 

measures taken in the outside financial markets and allocation systems. An organisation may 

have a capacity of its own to take care of financial effects of variations in both these 

respects. Or quite the reverse, their dependence on external markets and allocating systems 

may make them very sensitive to states and changes in these external systems. Thirdly, 

operational and financial uncertainties together are premises of horizontal actions at present 

and for the future.  

Access to financial resources is a necessity for organisations. Conditions for their 

financial functions vary. Many pay-driven organisations may be financially rather 

independent, in the sense that their accumulated financial position is no obstacle to operative 

mobility. In this case, they have a relatively autonomous standing. Other pay-driven 

organisations still have accumulated funds as the basis of their development, but they are 

financially weaker and more vulnerable to variations in financial and allocating systems. For 

a self-sustained organisation, the financial function often means a trade-off between the need 

of organisational development and the financial uncertainties that are inherent in an 

expansive strategy. Function-driven organisations normally have financial dependence in the 

sense that funds are periodically and regularly transmitted from allocating units. Sometimes, 

they are given an essential degree of financial independence. They are, partly or entirely, 

dependent on funds they generate in operations with buyers that are at an arm´s length 

relationship.