Why we cannot manage cost, value, worth, and return
20th century management cannot capture and report essential business management information
20th century management lays separate structures over the business for management organization, planning, direction, control, and reporting, such as:
- Organization charts, reporting relationships, and job descriptions for organization
- Strategy, corporate plan, investment, and budget structures for planning
- Work flow, function, project, process, and system structures for direction
- Financial and statistical accounting, activity and project costing, and quality structures for control
- Financial statements, performance management, and strategic enterprise management structures for reporting
Each structure defines inconsistent and conflicting entities like business unit, department, center, function, activity, project, responsibility, etc. The overlaid structures can produce enormous amounts of information producing business and information complexity. But 20th century management cannot capture and report essential business management information.
20th century management does not define the entities that contain cost, value, worth, and return
In order to capture data and report information about an entity, the entity must be defined and recorded. 20th century management attempts to report cost, value, worth, and return without defining the entities that contain cost, value, worth, and return.
Costs are attributed to some known tangible assets and collected against contrived entities like activity, project, and accounts that were not produced by the costs. Numbers for value are produced by certain contrived methods and formulas to lay value chains over the business, without defining and managing the entity that contains value. Worth is defined by arbitrary depreciation formulas for fixed assets, but ignored for human and other capital. Much high-worth capital is labeled as “intangible assets” and not accounted for or managed. Capital development does not identify the precise capital items that are being acquired and developed or the planned utilization of the capital in the business to provide return on investments. Capital development costs are lumped for particular fixed assets or a project and return on investments are estimates of increased sales or revenues.
R-pM organizes the business for 21st Century Management
Now we have the means to capture, report, and manage cost, value, worth, and return. Result-performance Management (R-pM) organizes the actual business for 21st Century Management and phases out structures laid over the business. The business is the utilization of capital in performance to produce value in results. R-pM defines, organizes, and manages the entities that make up the business in capital, performance, and results. R-pM provides one set of complete and accurate management information related to the current and planned strategic business, and the industry and competitive environment of the business.
R-pM defines and manages capital, performance, and results
R-pM manages the business entities that contain costs, value, worth and return:
- Cost is an attribute of performance in the consumption or utilization of capital as a specific performance solution to produce a specific result. Costs show the portion of capital worth and operation costs incurred to produce the result. Costs must be captured against the result produced and the performance solution utilized
- Value is an attribute of an output result produced by the business. Each result has a customer that wants the result or the result should not be produced. Result value is the customer willingness to pay for the result. The total value of results in a chain cannot exceed the value of the final external customer result. Value added is the value of a result produced in excess of total performance costs
- Worth is an attribute of each performance solution included in total capital. Worth is a function of the portion of value added to results by the solution over a payback period at the cost of capital. Capital worth decreases as capital is consumed or worn out and increases as capital is replenished or improved. Worth can be assessed for capital to understand contribution to the worth of the business. Total business worth can be calculated to reconcile the total capital worth of all performance solutions
- Return is a function of the added result value-added from utilization of implemented performance solutions. Each performance solution has an acquisition and development cost, that provides an assumed worth. The solution is developed to produce specific results. Existing results have a positive or negative value-added if the solution is not implemented and all results have a value-added after the solution is implemented over a payback period. The difference is the added result value-added that should return the acquisition and development cost
Each business must analyze capital, performance, and results to produce the precise means to measure and capture data on cost, value, worth, and return that accurately reflects the actual business.
R-pM provides one set of accurate and complete business management information
R-pM eliminates structures laid over the business and uses one current and one strategic business structure for all management organization, planning, direction, control, and reporting. R-pM provides consistent definitions, conventions, and standards for 21st Century Management. All business management information is consistently-defined, data is captured on the complete business, data is accurate against the definitions for the business, and all information reported has specific meaning related to the actual business. Business management decisions boil down to results to add, change, or close and performance solutions to develop, improve, deploy, or retire.
Organize and manage your business with R-pM for the advantages of 21st Century Management
20th century management structures, laid over the business, conflict with the business and create the multitude of unsolvable problems discussed here at the business change forum. The enterprise gains enormous competitive advantages and cost reductions by managing actual business cost, value, worth, and returns. The concepts, guidance, and procedures needed are provided in The R-PM Toolkit, available now at result-performance-management.com.
