Lars Östman towards a general theory of financial control

Internal objects, measures and control processes 

 

There are many controlling subjects within a financial unit: often a board at a distance from 

activities, central executives that are closer to activities but still at a distance, and other 

managers and all employees in sub-units. Often, central executives play a key role in the 

design of internal systems: objects, measures and control processes. Board members, beyond 

this, have reason to consider their own information needs. 

 

 

Objects and measures 

 

Entire financial entities and their organisational parts are ordinary objects of financial control 

systems, as well as other objects that cash flows can be related to, such as output delivered, 

capital projects and customers. For organisational units, measures relate to points of time or 

periods – a year, a quarter of a year, a month and so on. Periodical amounts are calculated in 

advance or afterwards. Normally, a system of periodical requirements and reviews is at 

work. Responsibility reports in terms of income and costs are important as a basis for 

vertical control. In addition, control may aim at horizontal processes. Product-costing, 

calculations for customers, sales reports and capital-project computations represent a 

horizontal process. 

Each organisation, at each point of time, has its combination of vertical and horizontal 

control instruments. In  large organisations, structures may be highly complicated. Often, 

hierarchies are built on several important activity dimensions, not just one or two; 

furthermore, parallel horizontal elements are not few in number. A standpoint is needed on 

what dimension to prioritize in explicit systems and control processes.  

Top-level executives normally make design decisions about organisation-wide 

information-handling systems that practically put constraints on each internal information 

user – despite the fact that systems per se have few technological restrictions and that two-

way communication is feasible from this point of view. The early computer-based systems in 

the 1960s and 1970s meant that central specialist functions of an organisation were the 

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providers of reports from systems they had developed. Since then, user involvement has 

been natural and local influence on systems and use has increased dramatically. 

Nevertheless, vertical patterns and the special position of top-level executives have to a large 

extent remained, despite technological opportunities. Technologic changes have even 

improved possibilities of downward control, if that is what is wanted. In addition, the views 

of top-level representatives, especially executives, constitute prerequisites for those below 

who have to decide how to connect to vertical processes upwards.