Automation of the Functions of
Management Accounting and Controlling for
Industrial Enterprises
Alexandra GORBUNOVA, Sergey BOCHKAREV
Perm State Technical University, Komsomolsky Ave. 29, 614990 Perm, Russia
Tel.: +7 342 2128733, Fax: +7 342 2128753, E-mail: goralexandra@inbox.ru
Abstract: The management accounting and controlling are obligatory for enterprises
where managers aim to control activities of the factory and to react to adverse signals in
time and take appropriate actions based on management decisions. This paper considers
the application of information technology in automating management accounting
and controlling. The main purpose of this work is to examine the process of controlling and
its basic functions for an industrial enterprise and to describe the process of automated
preparation of reports which are required for an enterprise in the area of management
accounting. In this paper the automation of management accounting and controlling is
considered with the example of the Perm industrial enterprise JSC Perm Research and
Production Instrument Company (PNPPK).
Keywords: controlling, costs, cost center, database, sustaining activity costs, management
decisions, report, order, cost accounting
1. Introduction
It is very important to organize management correctly in any company or in any enterprise,
regardless of its forms of ownership and its type of activity. Management decisions play an
irreplaceable role in enhancing business performance. They should be based
on reliable, full, current and accurate information. To achieve these purposes the company
should use information technologies, in particular, it should create integrated automated systems.
The example of such systems is the ERP system [4]. Besides, the area of management
accounting and controlling has the primary importance. Managers use cost accounting to support
decision-making to cut a company's costs and improve profitability. Indeed, it is impossible to
reach a correct management decision without an accurate and timely analysis of business
enterprise. Consequently, management accounting automation is a necessary step to increase
enterprise efficiency as a result of timely provision of reliable and complete information
to management personnel, in particular, the CEO, in order to enable them to make management
decisions.
The irreplaceable part of controlling process automation and its important function is the
automated creation of reports for analysis and decision-making. Reports automation entails
enhancements of the effectiveness of management decisions and leads to rise in the
efficiency and optimization of cost-benefit analysis.
2. Objectives
This research considers the process of the operational controlling.
To obtain reliable data and avoid information duplication, the process of controlling is
integrated with other automated processes within the corporate information system SAP R / 3.
That is the module CO is tightly integrated with modules such as PP (Production Planning),
MM (Materials Management), FI (financial accounting), SD (sales).
Controlling can be divided into the following phases: planning, monitoring, reporting,
preparation of recommendations and information distribution. Users of management
accounts information are managers at various levels of the enterprise.
Due to fact that not all functions of our operational controlling are automated, it is proposed
to automate an important function: the preparation of expenditure reporting. The main objective
of this work is to examine the process of controlling and its basic functions for an industrial
enterprise and to describe the process of automated preparation of reports which are
required for an enterprise in the area of management accounting.
3. Methodology
3.1 Information technology in an industrial enterprise
Perm Research and Production Instrument Company has a 50-years experience in
development and production of navigation systems for various applications as well as consumer
goods. Main spheres of Company’s business are: aircraft instrument engineering, marine
navigation, manufacture of optical fiber.
Perm Research and Production Instrument Company is one of Russian enterprises engaged
in development of high tech production processes of the XXI century.
Originally there existed a "patchwork automation" at PNPPK, that is when different business
processes have been automated within the various software tools and functioned in isolation.
Later the company implemented the ERP system SAP R/ 3 to automate the main business
processes integrating them and creating an unified information space and to provide the CALS
technology. It consists of a set of application modules that support various business processes
and are integrated with each other in real time mode. Currently, there are the following modules:
SD (Sales and Distribution), MM (Materials Management), PP (Production Planning), FI
(Finance), CO (Controlling), AM (Asset Management), FM (Funds Management) [6].
In this paper the cost management process or the controlling process are considered.
3.2 Management accounting and controlling
Management accounting is a system of information support for management. The purpose of
management accounting is to help managers in making the right decisions.
Controlling is a comprehensive system that combines the management accounting, planning,
budgeting, and analysis and control of deviations between actual and planned performance,
support for making optimal management decisions. The purpose of controlling is to provide
information support for management decisions with intent to improve their quality.
The functions of controlling in the JSC PNPPK are the following: indicators planning for
areas of activities; planning of implementation and production; collection and distribution of
actual costs; variance analysis; analysis of the company’s activities; development of management
decisions. The planning of indicators include: developing and maintaining up to date
methodologies for planning; scheduling financial performance of the Company (the planning of
pricing, profitability forecasting ); the development plan for the marketing and production for the
year, cost planning, cost estimates development .
3.3 Process of Operative Controlling
Modern management divides the goals of the company into two groups: operational (short
term) and strategic (long-term, prospective). Therefore, controlling allows constant monitoring
of the achievements of both strategic and operational objectives of the company. Therefore,
controlling as a system includes two main aspects: strategic and operational.
Strategic controlling includes the following steps: analysis of operations, forecasting,
financial performance, development of management decisions, monitoring the implementation of
management decisions. Operational controlling includes: planning of operational activities,
collection and distribution of actual costs, variance analysis.
Let’s сonsider the process of cost management, or operative controlling of the process
described in the program BPwin with using the methodology of IDEF0 (Pic. 1) [3].
Pic. 1.
The function «system of operative controlling» is decomposed into 3 blocks (Pic. 2):
сost planning, collection and distribution of actual costs, results accounting and analysis. At the
exit of the first unit planned indicators are formed, which in the course of the planning will be
registered and will be needed for accounting and analysis of the results. At the exit of the second
block the same actual factors will be received.
Pic. 2.
Cost planning is one of the most important processes. In the process plan indicators are
formed, which will be later analyzed and compared with actual figures to calculate the deviation.
The
enterprise
has adopted the
production-order
method
of accounting, so
all
the costs that can be planned on orders are primarily accounted by this way (Pic. 3). Cost Center
Accounting determines where costs are incurred in the organization. To achieve this aim, costs
are assigned to the subareas of the organization where they have the most influence. Overhead
Orders are internal orders used either to monitor overhead costs for a limited period, or overhead
incurred by executing a job, or for the long-term monitoring of specific parts of the overhead.
Calculating the cost estimate can detect errors in the calculations, in which case you must
repeat the process of planning with corrected errors.
Pic. 3.
The process of "collection and distribution of actual costs" consists of the following
processes:
data
collection, recording
and redistribution of
actual costs, calculation of
actual rates, calculation of actual production costs (Pic. 4).
Pic. 4.
Due to fact that not all functions of operational controlling are automated, it is proposed to
automate an important function: the formation of expenditure reporting. Those objects that do
not participate in the automated process are denoted by red line, namely: economists of
production departments (part or all of them can be possibly released from these functions), MS
Excel. By blue - that would be involved: SAP R / 3 - with the help of its instruments reports will
be formed, MS Excel isn’t needed for the preparation of reports, the process will be fully
automated (Pic. 5).
Pic. 5
All operations which performed manually will be replaced with a single automated
procedure "automatic preparation of reports and registers" (Pic. 6).
Pic. 6.
Reports
are
required
for
management
decision-making
in
order
to
deliver data on costs (planned and actual), financial and economic indicators, formed with
the SAP R/ 3. According to reports it can be defined which cost items are the most significant
and take a decision on the reduction of a particular type of costs, also the causes of the excess of
actual costs above the planned can be identified as well as the components of production costs
can be evaluated.
4. Technology Description
Automated system creating a report
For example, let’s consider how to automate report preparation "Structure of general
production costs of the workshops for the period”.
The process of generating reports that need to be automated is implemented as part of the
operational controlling and inseparable from it. It is proposed to automate this process in the
SAP R / 3.
Automated system for the preparation of accounting statements of production expenses is a
system which by means of data stored in the database, obtained during the operational
controlling in the SAP R/ 3 automatically generates and fills the forms statements of cost for
each workshop separately. All data in the report should be placed in the database
tables. Database Oracle is used as a database management system.
Search process, distribution, calculating costs, completion of the report will be automatized.
The automated system should be introduced at the stage of recording and analyzing the results of
operative controlling. The system will be applied in the economic departments and divisions in
the Department of Economics and Controlling.
Aims and objectives of the automated system
The main result obtained from the creation of the company automated system should be
improvement of the effectiveness of management decision-making by increasing the efficiency
of the department of economy and controlling as the main informer for Director-General.
Increased efficiency by achieving the following goals:
 Ensuring the reliability and accuracy by automating the calculations and by using
centralized data repository;
 Providing temporary reduction of costs of the accounting statements formation
Reducing time costs due to:
 Reducing time spent on search of relevant data and on gaining access to them through the
automatic determination of the necessary items of expenditure;
 reducing time required to filling and distributing cost-sharing accounts through automatic
transfer of expenditure data in electronic form of the statement;
Software-system specifications
The system should automatically fill out a report with data from a database and present them
in the required form.
Software and hardware of automation systems provide:
- Preparation of the form of the report;
- Completion of the structure of the report with basic data of production expenses;
- report view as an Excel table;
- editing.
Program algorithm
It required to use data from the ERP SAP R / 3 module CO in order to compile the
report. The logical structure of data is presented as a scheme of interrelated tables (Pic. 7).
rate
work_type
work_type_code (FK)
cost_center_code (FK)
work_type_code
specifikation
period
rate_value
work_type_name
material_master_record
spec_num
material_master_record_code
cost_center
cost_center_code
spec_code
material_master_record_code (FK)
quantity
material_master_record_name
price
cost_center_name
costs
cost_center_code (FK)
costs_code (FK)
calculation
pp_order_num (FK)
sum
period
internal_order_num (FK)
CO_order_num (FK)
internal_order_num
internal_order_name
cost_center_code (FK)
start_work
finish_work
work_type_code (FK)
order_type
cost_element
cost _element_code
cost_element_name
material_master_record_code (FK)
process_list_num (FK)
internal_order
effort
cost_center_code (FK)
spec_num (FK)
cost_sum
work_type_code (FK)
workplace
workplace_code
work_type_code (FK)
cost_center_code (FK)
PP_order
CO_order
CO_order_num
material_master_record_code (FK)
cost_center_code (FK)
CO_order_name
work_type_code (FK)
start_work
finish_work
pp_order_num
process_list_num (FK)
quantity
workshop
spec_num (FK)
start_work
finish_work
pp_order_name
process_list
process_list_num
norma_vremeni
operation
rate
workplace_code (FK)
work_type_code (FK)
material_master_record_code (FK)
Pic. 7.
Main tables are: cost center, cost_element, order, costs (table showing actual and
planned posting on the account).
Each posting to an account that is also a cost element, is assigned either to a cost center or
order. This ensures that at period-end the data is subdivided by cost elements and cost
centers/internal orders for analysis purposes. For postings in external accounting that use a cost
element as the account, you need to use a special account assignment logic. This enables the
system to ensure that data is reconcilable with all the relevant application components. These
rules for the account assignment logic always apply for postings in internal accounting
(Controlling) [5].
Report’s columns are: accumulated, depreciation, materials, purchase component, half-stuff,
tare, spares, inventory, rigging, wage, total sum.
Report’s lines are: depreciation of equipment, Current repair, Overhaul, Operation of
equipment, Heat for technological purposes, water for technological purposes, electric energy for
technological purposes, Operation of equipment, in-plant materials handling, Other costs of
the equipment, Content of management staff, Buildings, structures maintenance, Tests,
experiments, research Invention, Innovation, Labor protection, Quality Costs, Other Production
costs, Supporting materials in the production, Total debit of the 25th account, Cost center of the
20th account, Orders of the 20th account, Total debit of the 20th account, Total cost for the
workshop.
begin
Entry: fiscal
year, Period,
workshop’s
number
a:=0, b:=0
yes
While the account assignment object = the
account assignment object in the line
If account entry is done on the 25th , 20th
accounts and data = entrys fiscal year, period,
workshops number
no
While credit account = account in the column
yes
is it posting from this account?
write into the
workshop’s total
cell value = b
write value into
cell
no
a:=a+cell value
go to the next
column
write into the total
cell in the line value
=a
B:=b+a
go to the next line
end
Pic. 8. Algorithm of filling the report
5. Results
The data will be in the cells at the intersection of rows and columns (Pic. 9).
Pic. 9.
6. Business Benefits
The main results of automation are:
 providing timely information, accuracy and timeliness of information processing;
 possibility of accumulation and analysis on the basis of the information;
 the possibility of reducing the large number of manual operations
 saving staff time economic divisions;
 The planned system will reduce the complexity and number of errors and avoide future costs.
The planned system will provide a solution to the required tasks in terms of management of
the organization: it will provide the solution required tasks for the Department of
Economics and controlling, and as a result increase the efficiency of the enterprise as a
whole by supporting management decision-making.
7. Conclusions
To conclude it should be outlined that in this research paper the problems and methods of
automation the functions of management accounting and controlling for industrial productions
are studied. Automation of report generation - a necessary step to increase enterprise
efficiency through timely provision of personnel and management, in particular the Director
General of reliable information needed to make their management decisions. Decisions will
be made timely and it will help to avoid mistakes and unnecessary additional costs.
References
[1] Bochkarev, S., Petrochenkov, А., Romodin, А. Automation of product lifecycle
management.– Perm: PSTU, 2007
[2] Trusov, А. Design of Control Systems. –Perm: PSTU, 2004
[3] Bochkarev, S., Shmidt, I. Methodology for functional simulation. Part I. IDEF0.– Perm:
PSTU, 2007
[4] Grabot, Bernard; Mayère, Anne; Bazet, Isabelle. ERP Systems and Organisational Change,
Hardcover: A Socio-technical Insight, 2008
[5] SAP cources AC040_4.6. Cost management and Controlling, 2002
[6] Meier, Marco, Sinzig, Werner, Mertens, SAP Strategic Enterprise Management/Business
Analytics Peter2004