Value New Results needed to Eliminate the Investment Analysis Problem

Investment Analysis is one of the top 10 problems of 20^th century enterprise management

20^th century investment analysis cannot plan the actual return on investments

How does your company analyze strategic investments in capital development? Does your company perform a cost-benefit analysis? Are all the specific investments needed for business success planned? Are the costs of the investment analyzed, itemized, and scheduled? Are the benefits of the investment analyzed, itemized, and scheduled? Is the value to be added to the business planned and set up as goals to menage the return on investment?

For the most part, 20^th century investment management cannot itemize the costs or benefits of investment, particularly investments in management improvement and business change. Costs are project expenditures rather than investments in specifically-identified capital items. Benefits are usually estimates of increases in revenues or reductions in costs.

Identify and value results needed to justify investments and set result goals to manage the return on all investments

21^st century business management manages the economic outputs of the business as specific results and manages the invested capital utilized to produce results as specific capital solutions. The benefits of development investments come from adding value to specific existing or new results. The cost of investments come from developing the capital needed as specific solutions to produce each result. Investments are justified by planned strategic value created by new or improved results that covers the cost of the investment in new or improved solutions to produce the result. The return on investments come from the value added to results over performance costs, in excess of the value added with no development.

Results-driven capital development itemizes specific result value-added benefits, substantiated by result management goals, to plan and develop new capital. The full development costs of each new capital solution implemented are captured to be amortized against results produced over the useful life of the solution. Result goals are managed in operation to create the attributable result value to date that provides the return on investment and the future result value potential that confers capital solution worth.

The Investment Analysis Problem

20^th century enterprise management does not manage results to plan and manage the benefits of investments

20^th century investment management can itemize costs to some degree, and if it is diligent enough, it can itemize some benefits for core business investments that produce certain results that are managed as revenues, sales, products produced, and production capacity built.

But 20^th century management does not identify and manage the specific set of results of increased value to be produced and the specific set of capital solutions that must be developed to produce the results. Obsolete 20^th century management cannot plan the cost of investments in undefined capital solutions and the benefit and return on investments that produce undefined results.

20^th century management does not manage invested capital in operation for a measured return on investments

Many enterprises have a problem in determining the potential for return on investments, since invested capital is not managed for specific utilization to reach specific goals that will produce the return. Much of the investment is in intellectual capital and intangible assets that are not identified or managed. There is no experience or history to provide insights into new results required for business growth, capital investments required to produce each result, and capital utilization that must be managed to produce results to gain future returns. This make it difficult for investors to have confidence in investing in the 20^th century enterprise as discussed in the article “Investing in Corporations that cannot manage their own Investments“.

The 20^th century enterprise often turns investment analysis problem over to consultants, but consultants also lack the needed methods

The common 20^th century approach to the problem is to bring in consultants to manage investments, capital development, and business change. But, the consultants face the same problems that are not solvable by their 20^th century methods. Consultants can help by using 20^th century management methods that have proved beneficial in the past. But, most consultants simply follow rigid 20^th century management methodologies.

The Investment Analysis Solution

Benefits of financial, business, and capital investments and other investment opportunities come from adding value to the specific results, produced by utilizing specific capital solutions that are developed and implemented by the investment. Investment results include interest, dividends, and profits, in addition to other business result values generated by utilization of invested capital.

The enterprise gains experience in managing result value-added in 21^st century business management

The 21^st century enterprise gains experience managing the specific capital solutions implemented from investments and the specific results that are produced by the solutions. With this experience, the enterprise can calculate the future result value-added, if no investment is made. This value-added must be compared with the planned result value-added over the payback period with the investment to determine the added-value-added return.

Specific managers are responsible for planning result value and other professionals for capital development costs

In a managed business, the enterprise integrates business organization and management through one business structure. The enterprise has specific performance managers responsible for each capital solution involved in any investment and specific result managers responsible for the results that must increase in value. Result and performance managers are responsible for the scope of management for the development and operation of specific results and capital solutions.

The result value in customer willingness to pay to receive the result and performance costs in the operation and amortization of each solution are managed to measure the value created in a volume of results produced and the result value-added over performance costs. Result value created and result value added can be attributed back to the capital solutions utilized to measure return on investment to date and to manage remaining future capital solution worth. Investment analysis and planning is substantiated in operations by managing results to reach result goals and generate the actual return on investments.

Result symptoms are the basis of results-driven capital development and investment analysis

Business investments arise from result symptoms (deliveries are late, sales are down, results are rejected, etc). Result symptoms can be alleviated only by adding new results or improving existing results. The value of investment comes from alleviating result symptoms and the cost of the investment comes from providing the qualified capital solutions needed to achieve the results. The investment is justified if the value of alleviating result symptoms, in improved future results produced, exceeds the costs of investments in new capital solutions.

This is obvious in 21^st century business management that utilizes capital in performance to produce value in results and has managers responsible for achieving result value-added goals and other managers responsible for providing cost-effective solutions from every enterprise investment.

Result-performance Management (R-pM) provides the knowledge for actual business and capital management

Result-performance Management (R-pM) is the only source of knowledge and expertise on how to manage the actual business. Forward-looking enterprises are now using R-pM guidance to organize and manage their business to gain breakthrough advantages over competitors burdened by unsolvable 20^th century management problems. Business management is explained and documented in the Business Management Toolkit. The Toolkit provides procedures for actual business management and maintains emerging 21^st century management conventions, definitions, and standards. The Business Management Toolkit guide “How to Manage Projects in the 21^st Century” describes investment analysis and capital development management. Management consultants who base 21^st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual business. Business management knowledge and the Business Management Toolkit are available and supported today at result-performance-management.com.

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This entry was posted on Tuesday, October 20th, 2009 at 01:18 and is filed under:
Forums: Business Change Consultants, Administration and Capital Management, Capital Development Plans and Projects, Business Change Methods, Top Ten 20th Century Problems
Topics: Business Change Methodologies, Conventional Management Methods, Investing in a Changing Enterprise, Investment Management, Project Management
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