Financial controlling in the energy sector in the Republic of Serbia

Controlling represents an important support for company management in achieving the most important goals of the company, such as company strategy, business goals, company identity, employee motivation, cost reduction, and employee engagement. Integrating internal company information with data on external risks enhances the accuracy of forecasting and planning, allowing for better prediction of financial outcomes.

After unstable economic periods, the practice of forecasting and planning based on risk management gains importance. The information flow between the company and external stakeholders increases the quality of business decision-making. In this way, knowledge about financial and strategic planning and risk management is integrated, which leads to positive results for the company (Ittner & Michels, 2017). Risk-based forecasting and planning support the management of earnings projections. One of the most significant problems of the growth and development of a modern company is the reduction of transparency over the entire business, and the decreasing compliance of individual organizational units within the company. It is increasingly difficult to successfully manage a company that has grown in this way. Controlling is a management function without which it is difficult to imagine a modern company. Controlling solves the increasingly present problems of coordination and integration. Managers’ awareness that strategic decisions should be made in the context of risk assessment and application of controlling is increasing. How managers combine strategic risk reporting and performance information is a measure of success in eliminating risk (Cheng et al., 2018). The interaction between strategic risk profiles and the presentation format significantly influences managers’ strategic judgments, particularly when using the Balanced Scorecard framework. To mitigate the shortcomings that affect the company’s profit while at the same time maintaining the advantages that the company has, the importance of the existence of the employees’ awareness of behaviors that affect risks was highlighted. In this way, the theory of risk sharing and organizational culture management is developing (Stulz, 2009). The involvement of employees in making decisions about the company’s risks contributes to the fact that employees behave in accordance with the company’s tendencies toward certain risks. In this way, risks are reduced and control is extended in relation to certain aspects of risk. Relaying on complementarity theory, it was found that there is a complementarity between risk-focused output control and risk-focused information sharing, regardless of the company’s potential risks. The aforementioned strategy has proven to be good for companies that have a high level of risk in business (Posch, 2020). Firms can improve the existing performance measurement system by introducing key indicators for risks that will occur in the future. The interplay between strategic risk profiles and presentation format on managers’ strategic judgments using the balanced scorecard (Mikes & Kaplan, 2015).

In the context of this article, controlling is defined as a comprehensive managerial function that combines planning, monitoring, and coordination of internal processes to support strategic and operational decision-making. As noted by Horváth (2003), controlling acts as the “information and steering subsystem” of management, ensuring that actions align with objectives through the provision of timely, relevant, and structured information. According to Weber (1993), controlling integrates both financial and nonfinancial indicators, facilitating forward-looking control and feedback mechanisms.

The importance of controlling lies in its ability to provide management with real-time insights into organizational performance, enabling the anticipation of risks, optimization of resources, and improvement of planning accuracy. In practice, controlling is implemented through tools such as budgeting, variance analysis, key performance indicators, Balanced Scorecards, and integrated risk management systems. Particularly in complex sectors like energy, controlling ensures alignment between regulatory compliance, market fluctuations, and internal performance metrics.

Employees’ awareness of risks and their impact on the company’s performance can be encouraged through the organization of meetings to identify risks. Kaplan & Mikes (2012) also highlight the importance of organizing workshops focused on risk identification and management. Promoting employee awareness encourages more responsible employee behavior and develops a positive business culture, which enables more successful controlling (Lam, 2014).

During the great economic crisis in the period from 1929 to 1931, there was a need for controllers, in addition to their established tasks in the previous period, to devote more attention to planning tasks. Controlling is becoming increasingly important, as evidenced by the first controlling institution in America, founded in 1931 under the name of the Controllers Institute, later renamed Financial Executive Institute. Today, this controlling institute has around 15,000 members, of which 1,500 are controllers. The importance of controlling is also reflected in the fact that today in the Ministry of Finance in the United States, the highest official title is the title of controller, while in the Ministry of Finance in France, a function called Controller of Engaged Expenditures has been established.

Weber’s definition represents controlling as a specific function within the management system of such companies whose execution system is primarily coordinated by plans. “The function of controlling is coordination. The goal of controlling consists of increasing the effectiveness and efficiency of management, as well as to manage the ability to adapt to changes in the external and internal world of the company” (Weber, 1993).

Controlling, as a function, specifically deals with the collection and analysis of data related to business results, which are presented to management in the form of reports as a basis for decision-making. Therefore, controlling is considered a management function of measuring and correcting individual and organizational performance to ensure compliance between realization and plans. This goal can be achieved by measuring the success of the business, considering the set goals and plans, determining deviations from the set standards and proposing measures to overcome the observed deviations (Weihrich & Koontz, 1994). Measurement should be linked to a higher-level organizational goal to ensure that processes are directed toward that goal and to assess their contribution to that goal. In addition, process measurement should also refer to the evaluation of the performances of the people involved (Jeston & Nelis, 2008).

The needs of modern society are increasing, and seen through the lens of controlling, ubiquitous globalization initiates a more rational consideration of costs. From the outside, it would be said that the responsibility of each manager is personal and implies that he is responsible for business processes at all times. However, it is somewhat different in practice. For instance, during his research, an engineer will look for creative solutions for development and will not immediately think about expenses. On the other hand, the expected reaction of a professional controlling expert is completely opposite. That is why the controller is the one who should remind him of the expenses and give the right economic advice, and for this reason, Dr. Deyhle believes that the controllers are the “economic conscience of the organization” (Deyhle, 2005).

This article focuses on the experience of companies operating in the Republic of Serbia, a non-EU transition economy where controlling practices are still evolving.

By measuring the company’s performance, we find out how efficient and effective we were in business. The basic function of controlling is to signal to the management, with relevant indicators, all deviations from the plan and indicate the causes of deviations, so that the top of the company can redirect its business decisions and adapt them to the new situation. Because of all this, continuous monitoring of business processes and activities is necessary because the controller is like an anchor that provides strong support to the company during management. Also, it is considered that when making decisions, the management has full confidence in the reporting and advice of the controller, its practical action, with the aim of achieving the set business result, and the best possible positioning of the company on the market is not questionable. Therefore, if the ship is not moving on the right path, the controller revises the business strategy and in the earliest stages indicates further optimization.

The purpose of this theoretical framework is to ground the empirical hypotheses in established models and to clarify how controlling practices align with strategic, operational, and risk dimensions. Four core conceptual constructs inform this work:

• COSO integrated framework (COSO, 2013): Widely adopted for internal control systems, this framework emphasizes the importance of risk assessment, monitoring, and information flow. It is relevant for analyzing internal procedures and compliance aspects of financial controlling.

• Balanced Scorecard (Kaplan & Norton, 2005): This model supports linking strategic objectives with performance indicators across financial and nonfinancial dimensions, thereby operationalizing controlling beyond budgeting.

• Complementarity theory (Posch, 2020): Suggests that combining controlling instruments (e.g., budgeting, reporting, risk systems) enhances their effectiveness. It forms the theoretical foundation for analyzing synergistic effects of multiple tools.

• Management control systems theory (Roslender & Hart, 2003; Simons, 1994): Emphasizes the role of formal and informal controls in aligning behavior with strategy. It helps interpret managerial perceptions reported in our study.

In addition to these theoretical underpinnings, research in modern business practice in developed economies emphasizes the growing importance of controlling as a strategic management function, particularly in aligning financial planning with organizational goals and risk environments. For example, Hiebl (2014) show that chief financial officer influence on corporate controlling in Germany significantly enhances strategic alignment. Weber and Schäffer (2000, 2013, 2022) document how digitalization and behavioral considerations are reshaping the controller role in German-speaking countries. In addition, Simons (1994, 2019) and Roslender and Hart (2003) highlight how management control systems are leveraged to create competitive advantage and integrate forward-looking risk controls within Balanced Scorecards.

In the Serbian business context, the term controlling lacks a standardized or widely accepted definition, leading to varied interpretations among practitioners and academics. This study adopts the definition aligned with German-speaking literature (e.g., Horváth, 2003; Weber, 1993), where controlling is viewed as a proactive, information-based support system for managerial decision-making. Given the transitional nature of Serbia’s economy, the interpretation and implementation of controlling vary significantly across companies.

The main problem that companies face in practice, or will face in the future, is that financial accounting is traditionally oriented toward external reporting and external users of business reports, and it is informational set and organized. It is a structured informational system, but it often lacks the capacity to provide specific and actionable insights to support managerial decision-making. Controlling is a process that takes place at the level of the entire organization, in which financial indicators, events in the organization, the efficiency and effectiveness of human resources, the communication system within the organization, i.e., factors influencing from the external and internal environment, are constantly monitored and reported. Regarding controlling, it is often pointed out in the literature that it can thank periods of economic or political crises for its development (Horváth, 2003).

During the business cycle of a company, controlling collects and selects relevant information on the basis of which it forms a report that must be a quality and relevant guideline for management to make timely decisions (Constantinescu et al., 2021).

Company risk management, as an integral part of controlling and decision-making, is not a separate process but is embedded in strategy adoption, planning, and operational activities. For the risk to be acceptable for the achievement of the company’s goals, and the controlling to be effective, threats for individual parts of the organization and for the entire organization have to be analyzed. In the process of identifying risks, after the consent of the administration, the management should work out the risk possibility and, with controlling, communicate the tendency toward critical situations, monitor, and update the risks (Weber & Schäffer, 2008).

In the Serbian business context, the term controlling lacks a standardized or widely accepted definition, leading to varied interpretations among practitioners and academics. This study adopts the definition aligned with German-speaking literature (e.g., Horváth, 2003; Weber, 1993), where controlling is viewed as a proactive, information-based support system for managerial decision-making. Given the transitional nature of Serbia’s economy, the interpretation and implementation of controlling vary significantly across companies. “Controlling is the process of navigating towards economic goals, where management and position definition is carried out by means of timetables and monitoring plans” (Rittenberg & Martens, 2012). The term controlling must not be equated with the term control, because “control” refers only to one aspect of the controlling function. The term ‘controlling must not be confused with ‘control , which refers only to one aspect of the function. In English, ‘to control implies managing, regulating, or directing processes by systematically linking planning, assessment of current conditions, risks, and corrective actions. According to Deyhle, controlling in short means: “calculating, planning and assuring co-workers to cooperate.” The goal of risk management is not the elimination of all risks, but to align strategic risks with the company’s risk tendencies and successfully conduct the controlling process. Understanding and communicating risk appetite. The committee of sponsoring organizations of the treadway commission (COSO) emphasizes that the goal of risk management is not the elimination of all risks but aligning them with the company s risk appetite (COSO, 2013; Deyhle, 2003).

The origin of controlling is linked to the Middle Ages, when controllers appeared in France under the name “contre-rouler” (Saebi et al., 2017). At the end of the eighteenth century, the American Congress passed certain laws regulating the work of controllers in government services (Witt, 2002). The controller had to perceive and balance between the state budget and the use of state funds. In later years, more precisely in 1880, the Atchinson Topeka & Santa Fe Railway Systems transport company was the first private company to establish the position of controller. The tasks of the controller in this company were of a financial nature. In 1892, the General Electric Company was the first industrial company to create the position of controller in its company. Until the twentieth century, controlling penetrated companies more slowly, and from the nineties of the twentieth century, controlling in the United States experienced a great boom. The process of market liberalization changes the regulatory tasks, so that prices set by electricity producers are no longer subject to approval by the regulatory body, and consumers are given the opportunity to choose their electricity suppliers. However, despite liberalization, there remains a need for regulation in the electricity supply sector (Birgen et al., 2024; Tanţău & Regneală, 2014).

Given the fact that energy is one of the most important sectors of developed economies, the European Union has initiated a dynamic process of change in the energy sector through directives for the liberalization of the electricity and natural gas markets (Clodnițchi & Chinie, 2015; Dudau & Nedelcu, 2016).

We will begin by testing hypothesis H1. The inputs we will use are the questions asked in the questionnaire, more precisely, randomly selected five of seven questions (Table 1). In the following, we will create an equal sample of five questions for each of the hypotheses and compare the test results.

• Hypothesis H0: Establishing a controlling system creates a basis for consistent and controlled activities and improvement of the decision-making process.

• Hypothesis H1: Establishing a controlling system does not create a basis for consistent and controlled activities and improvement of the decision-making process.

The T-value (Table 2) of the test ranges from 2.911 to 3.978, which represented in p-values (or two-sided significance value) is less than 0.05. This will be a significant result for any realistic alpha level. The standard alpha level is 0.05, and all p-values are less than 0.05, so we will reject the null hypothesis that claims that the establishment of a controlling system does not create a basis for consistent and controlled activities and improvement of the decision-making process. Therefore, there is no difference between the mean value of our sample and the mean value of the population (in our example between employees in the observed company and employees in the energy sector).

Technically speaking, the result shows that, assuming the null hypothesis is true, any difference we have between mean value of our sample and of the population is unlikely to have arisen purely by chance. The conclusion is that employees in the observed company believe that the establishment of a controlling system creates a basis for consistent and controlled activities and improvement of the decision-making process.

We will continue with testing hypothesis H2 (Table 3).

• Hypothesis H0: The implementation of the risk management function does not cause additional costs, but it also does not promise a potential increase in income and/or a reduction in costs.

• Hypothesis H2: The implementation of the risk management function causes additional costs, but also promises a potential increase in revenue and/or a reduction in costs (Table 4).

The T value (Table 5) of the test ranges from 2.753 to 4.193, which represented in p-values (or two-sided significance value) is less than 0.05, except for question number 11, which is on the borderline of acceptance. The standard alpha level is 0.05, and even four of five p-values are less than 0.05, except for question number 11, which reads: “There is a good synergy in the company: Controlling is responsible for the quality of reporting to management and the comprehensibility of information, and management for the quality of business decision.” Therefore, based on the results of the t-tests, we decide to reject the null hypothesis, which claims that the implementation of the risk management function does not cause additional costs, but also does not promise a potential increase in income and/or a reduction in costs. The understanding of question number 11 among employees is at the limit, they are not sufficiently aware of whether controlling is responsible for the quality of reporting to management and the comprehensibility of information, and whether it provides synergy and creates costs.

As the last hypothesis, we also test the third hypothesis H3 (Table 5).

• Hypothesis H0: It is not possible to define a unique risk management model.

• Hypothesis H3: It is possible to define a unique risk management model.

The t-value (Table 6) of the test ranges from 2.001 to 4.071, which represented in p-values (or two-sided significance value) in most questions is more than 0.05. As the standard alpha level is 0.05, and most p-values are greater than 0.05, and in this case, we will accept the null hypothesis, which claims that it is not possible to define a unique risk management model. The conclusion is that it is not possible to define a unique controlling model in the energy sector due to the heterogeneity of the divisions that make it up.

The results of our hypothesis testing, especially for H1 and H2, are broadly consistent with findings from international research on the implementation of controlling and risk management in transitional and postsocialist economies. For example, Posch (2020) and Hiebl (2014) demonstrated that the presence of a formalized controlling system in Central European enterprises is positively associated with improved decision-making processes and greater transparency in reporting. Our findings – specifically the statistical confirmation of H1 and H2 – mirror these trends, but also reflect certain distinctive features of the Serbian context.

In particular, the high levels of agreement among respondents regarding the benefits of controlling (e.g., clarity of information, support in decision-making, and operational efficiency) indicate that Serbian enterprises have begun to internalize the functional logic of controlling, despite lacking uniform standards and regulatory requirements like those enforced in EU countries. This confirms the original contribution of our study: that controlling is maturing in a less institutionalized environment, adapting pragmatically to the organizational realities of Serbian energy firms.

Regarding H3, the inability to statistically confirm a unique controlling model aligns with findings by Tanţău and Regneală (2014), who observed that regulatory and structural fragmentation in energy markets leads to divergent controlling practices. Similarly, Saebi et al. (2017) suggest that in contexts with low institutional harmonization, organizations tend to adopt hybrid or ad hoc controlling mechanisms, which explains the rejection of H3 in our case.

Therefore, the study highlights a dual trend: on the one hand, Serbian firms recognize the importance of controlling and risk management, but on the other hand, they lack systematic alignment with standardized models such as COSO or ISO 31000. This nuanced dynamic differentiates Serbia from both highly regulated Western markets and from other Western Balkan countries, underscoring the need for context-sensitive controlling strategies. Future research should focus on identifying sector-specific best practices and institutional enablers that would support the formalization and harmonization of controlling in the Serbian energy sector.

Given that this research does not cover all aspects of controlling, further research into controlling in the energy sector in the Republic of Serbia should be focused on finding a unique controlling model, to enable its faster affirmation.

The authors should discuss the results and how they can be interpreted from the perspective of previous studies and of the working hypotheses. The findings and their implications should be discussed in the broadest context possible. Future research directions may also be highlighted.

This study has several limitations that should be acknowledged. First, the research is based on a convenience sample, which refers to a nonprobability sampling method where participants are selected due to their accessibility and willingness to participate, rather than being randomly chosen. While such sampling is practical and cost-effective, it introduces the risk of sampling bias and limits the generalizability of findings to the broader population of the Serbian energy sector (Etikan et al., 2016).

Second, the statistical analysis relies primarily on null hypothesis significance testing using p-values. Although p-values indicate whether observed effects are statistically significant, they do not convey the magnitude or practical relevance of the effect. To improve interpretability in future studies, it is recommended to report effect-size measures such as Cohen’s d, eta squared (η ²), or odds ratios, which provide additional insight into the strength of the relationships under investigation. These measures offer deeper insight into the strength and direction of relationships, thereby enhancing the interpretability and impact of empirical results (Cohen, 2013; Sullivan & Feinn, 2012).

Moreover, future research should consider applying probability sampling methods, such as stratified or cluster sampling, to enhance representativeness. It is also advisable to complement quantitative analysis with qualitative data, such as expert interviews or case studies, to contextualize controlling practices in the energy sector more deeply (Lohr, 2021).

Corporate strategy encompasses all other strategic directions and objectives, while management is tasked with operationalizing it through competitive strategies. Porter’s three generic strategies – cost leadership, differentiation, and focus – have been expanded in modern practice to include additional dimensions such as diversity, cost, time, scope, controlling, and competitive alignment, making controlling an essential component in today’s dynamic environment.

Organizations collect a vast amount of data annually, with a key role of controlling being the selection of accurate, timely, and relevant information for decision-making purposes. When irrelevant data are used, it often results in poor managerial decisions.

The aim of this article is to examine the impact of controlling in the Republic of Serbia based on a survey of 137 respondents. Most participants reported that controlling was effectively implemented in their organizations, enhancing transparency and supporting strategic decision-making.

Key findings include the following:

• Controlling contributes to more efficient decision-making and risk reduction.

• It ensures effective communication with other organizational units.

• Its global relevance is growing, and implementation is essential.

• Risk management is a shared responsibility among all employees.

• Diverse methods are used for risk identification and assessment (e.g., financial report analysis, scenario analysis, SWOT, and probability theory).

• Organizations acknowledge the importance of reacting to global market-related risks and maintain internal communication on strategic risks.

The value of this research lies in highlighting the limitations of traditional management approaches and the necessity of modern controlling systems. In practice, inconsistencies in projections and actual operations can lead to flawed decisions and compromised stakeholder interests. Rapid environmental changes demand efficient information management, and integrated performance measurement, coupled with controlling, can significantly improve competitive management practices.

The findings of this article contribute to both academic discourse and practical applications by identifying controlling gaps and providing benchmarks for policy-makers and decision-makers. The study may serve as a reference for institutions in transition economies seeking to improve financial coordination, transparency, and risk management in the energy sector.