How to Identify and Define Capital Solutions
R-pM community users ask questions about identifying enterprise capital, particularly for intangible assets, and defining specific capital solutions. Each question is answered by email, but we summarize common questions in the series of articles on How to Use R-pM. (Note: performance solution and performance structure in Version 1 of R-pM are called capital solution and capital structure in Version 2 of R-pM).
Defining capital solutions is part of learning the business
Start with the definition of the business: “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Identifying and defining capital solutions is part of learning the actual enterprise business. Defining capital solutions is new, since capital solutions utilized by the business have never been identified and managed as a set. R-pM recommends setting up result teams to analyze and define results and performance teams of capital support personnel to analyze and define capital solutions. Defining and organizing capital solutions is part of business organization capital support. it is important to designate a capable business analyst to lead business organization capital, so that expertise is developed, and a specialist can guide others. Designate someone familiar with each capital category to take the lead with business capital, human capital, facility capital, and management capital. Also, use the R-pM Toolkit, which has layouts, guidelines, and the answers to most questions.
Some businesses simply ask managers to define results they produce and solutions they utilize. This can provide a first cut, but managers need explanations and guidance. Performance teams for the whole business or each capital category should analyze, brainstorm, and define the capital solutions to be utilized by the future business, to be explained to and reviewed with management.
Capital solutions definition gets easier as experience is gained. Eventually it becomes the business routine. Remember that you are not identifying and defining capital solutions as an exercise; you are defining and organizing your actual business.
The purpose of capital solutions
Capital solutions are the capital that the enterprise invests money to acquire and develop. Solutions are the capital in its usable form that can produce a specific result. One part of organizing the business was described in an another post “How to Identify and Define Results”. The other part of organizing the business is identifying and defining capital solutions. Capital solutions are utilized in performance to produce specific results. Each result in the business is produced by one or more capital solutions. Each capital solution costs money to develop or operate, so utilization of a solution incurs a cost. Solutions must be utilized effectively in performance to produce a good high-quality result.
Identifying specific capital solutions
Capital solutions may be identified in two ways. Existing known capital can be identified, categorized, and classified. When results are defined, the result can be analyzed to identify the performance solutions that produce the result. In the first stage, identify known solutions with known costs.
Most enterprises have never identified the specific capital utilized in the business. Some capital such as fixed assets and employees are identified with some costs and can be set up as performance solutions. Other capital such as business processes, information systems, data bases, knowledge bases, accounting records, management policies, etc may be identified with some costs. Some specific human capability development may be known to start human capability solutions.
Much capital has likely been developed without definition or costs. Much is labeled as “intangible assets”. Since this capital has no recorded costs, define it as capital to be utilized to produce a result, but without a cost. It is very important to identify all new capital developed as specific solutions and capture the cost of development, starting from a baseline date.
Categorizing capital solutions
Capital solutions are defined within capital category, as business, human, facility, and management capital. The person responsible should define solutions at the level that can produce a specific result within each category. Some solutions are separated among categories, such as information technology solutions. Information systems and business data are business capital. Hardware, systems software, and networks are facility equipment. Financial facilities are facility equipment, cash and current accounts are facility supply, and accounts are facility records.
Classifying capital solutions
Capital solutions within each category are classified as readiness, production, or information capital. Readiness capital provides the business organization unit with human personnel, facility equipment, and management strategy and plans to have the capital needed to be ready to produce set of results the unit is deployed to produce. Readiness capital costs are usually captured at the set result level and allocated to results in the set. Production capital includes the business process used to produce each specific result with the human capability, facility supply, and management tactics consumed or utilized for the specific result. Production capital costs are normally charged directly to result produced. Information capital establishes and updates the business data entities that describe the business and business interactions and controls access to the Business Information Base. Human knowledge, facility records, and management intelligence solutions are related to the business data entity for access when the data entity is accessed. Information capital costs may be captured as operational costs or as development costs information solution by solution. This identifies twelve performance solution types. If there is no solution identifiable within a category and class, set up one generic solution to be utilized as needed for that solution type. As future solutions are developed, add them to the proper solution type.
Organizing capital solutions
Capital solutions are organized by category and class in a capital structure. The best way is to set up accounts for category, class, and solution in a general ledger system or relational database management system. A spreadsheet can be utilized initially to capture data. Use the category and class codes provided in The R-PM Toolkit. Add a unique identifier for each solution. Monolithic information system and business process solutions can be broken down into multiple process solutions to produce specific results.
Describing capital solution details
The R-PM Toolkit provides capital solution identifier formats. These formats provide for a level of detail used to manage capital solutions in practice, as R-pM is implemented and utilized. Do not worry about gathering all solution details to begin with. Provide the solution name, description, and cross reference to an existing identifier to describe the solution uniquely. Capture other details that are available and are important to your enterprise. Establish costing rules as possible for solution. Most solutions are developed and solutions are defined with development costs amortized over the life of the solution as solution worth deteriorates. Human capabilities are developed and amortized over the time utilized. Human personnel solutions include all employed and contracted individuals and charge current remuneration and other operational costs. Facility supply incurs current costs as supplies are consumed. Some details like performance indicators and expectations and solution worth will be added over time, as experience is gained with the solution. Solution worth is assumed as the total development costs when the solution is implemented, but is then assessed as the attributed result value-added over the remaining useful life of the solution.
Using capital solutions to organize the business
It is important to set up capital management result unit responsibility for developing and supporting future performance solutions. Current administration functions are converted to capital management result responsibilities. Performance management responsibility for solutions in development and operation should be defined for each solution type.
Every development project must produce specific capital solutions to produce specific results. New solutions will be developed and implemented as capital management results or capital development project results that then are added to the capital structure, as part of the business routine. All solution development must include full documentation, utilization knowledge, and costs for each solution. Over time a full capital structure will be developed. The full capital structure is maintained as part of the business structure as a business organization solution.
The R-pM Toolkit is continually updated with new material to organize the business for 21st Century Management
The information needed to identify and define capital solutions is provided in the R-pM Toolkit. You should use the Toolkit first to answer questions. Emails from R-pM Toolkit users are encouraged to let us know difficulties in understanding the Toolkit and needed explanations that could not be found in the Toolkit. Toolkit updates and new Toolkit material is continually developed to expand the range and detail in The R-pM Toolkit, your 21st Century Management Manual. Remember the important part of implementing R-pM is to learn your actual business in order to know all capital acquired or developed and utilized, development costs for each solution developed, performance costs in development amortization or current operation, and the value added to each result produced across the business for business success.
