Lars Östman towards a general theory of financial control

Requirements  

 

For an organisation, requirements can run permanently or temporarily. They may be based 

on needs or potentials outside the absolute levels of legally compelling limits. Defining a 

measure is in itself a form of requirement. Beyond this, a level can be stated. For function-

driven units, concrete and manifest cost requirements will exist parallel to more vague 

requirements of functions and needs. For pay-driven organisations, targets that are based on 

needs can be set at least with an indirect connection to the perspective of a financial 

principal. In some cases, financial markets induce distance between principals and 

organisation. In other cases, financial entities have very close and manifest relations to 

allocating organisations or individuals as direct financial principals. They have to consider 

more or less well-founded and clear declarations from these principals regarding targets for 

rates of return, income or costs. 

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Internal systems  make certain connections between vertical and horizontal processes. 

Essentially, explicit vertical requirements have some relation to what is expressed as 

possible and desirable horizontally. A tangible example is product-costing techniques for 

recognizing resources in the horizontal line and vertical demands. Variable costing methods 

include only costs easily assignable to individual products. They basically exclude common 

capacity costs and they require targets apart from the cost calculation as such. Full costing 

methods include common costs and also include a component for interest on equity capital. 

Further components for opportunity costs may be added, which, however, is not usual in 

systems for continuous evaluations. Target costing can be seen as an advanced form of 

connections between horizontal processes and vertical processes. Cost levels are already 

determined at development stages, so that, later on, both buyers and financial principals will 

possibly be satisfied.