Why we cannot manage cost, value, worth, and return
20th century enterprise management cannot capture and report essential business management information
20th century enterprise 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 essential business data and report actual financial and non-financial business management information.
20th century enterprise 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 worth is usually mislabeled as “asset value” today. One of the causes or the current economic crisis is the failure to define and manage “asset value” or capital worth. 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. Return on investments are estimates of increased sales or revenues from the overall investment, rather than the measured value created by the utilization of the specific capital items in the investment.
21st century business management defines and manages capital, performance, and results
Now we have the means to capture, report, and manage cost, value, worth, and return. 21st century business management organizes the actual business and clears away structures laid over the business. The business is “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. The entities that make up the business in capital solution investments, performance of the solutions, and results produced by performance are defined and managed consistently to capture actual business data. 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 is provided to management.
21st century business management captures accurate data on costs, value, worth, and return
Business management 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 capital solution to produce a specific result. Costs show the portion of capital worth decline and operation costs incurred by the solution to produce each specific result. Costs must be captured against the result produced and the capital 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 of all solutions utilized
- Worth is an attribute of each capital solution included in total capital. Worth is the attributed portion of the value of each result to be produced by the solution over the remaining useful life of the solution. The solution worth covers the remaining investment costs to be amortized plus the attributed portion of a positive or negative result value-added. 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 capital solutions
- Return on investment is a function of the result value attributed from utilization of each implemented capital solution. Each capital solution has an acquisition and development cost, that provides the investment cost and beginning investment balance to be amortized as solution performance costs. The solution is developed to produce specific results. Results produced absorb performance costs incurred by the solution and have a positive or negative value-added in the result value in excess of total performance costs. The performance costs absorbed plus the attributed result value-added to date in the utilization of the solution to produce all results provide the return on investment to date, which continues to build as the solution is utilized over an investment payback period.
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.
Business management provides one set of accurate and complete business management information
Business management eliminates structures laid over the business and uses one current and one strategic business structure for all management organization, planning, direction, control, and reporting. 21st century business management provides consistent definitions, conventions, and standards. 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 capital solutions to develop, improve, deploy, or retire.
New 21st century business management methods manage the business precisely using complete and accurate costs, result value-added along result chains and across the business to maximize profits, continually updated capital worth to foresee potential problems, and the detailed return on all capital items invested in the business to maximize capital utilization and minimize the need for new investments.
Result-performance Management (R-pM) provides the method to organize the business and utilize human and other capital, where needed to produce results
The source of knowledge for corporations to organize and manage their business is Result-performance Management (R-pM). R-pM shows how to organize results to be produced and then how to deploy and implement capital solutions where needed to produce results. Once the business is organized the business can be managed directly, without the need to lay enterprise organization and management structures over the 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 20th 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 21st century management conventions, definitions, and standards. Management consultants who base 21st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual business. R-pM and business management are supported at result-performance-management.com.
The Solution to the Economic Crisis is explained in free downloads
Three free white papers explain the dead-end 20th century management problems, such as the failure to plan, account for, and manage the actual business, that caused the economic crisis, the way to eliminate the problems, and a government program to address the crisis by stimulating the economy, solving the problems, building a structure for financial and economic management, and organizing local businesses to flourish in the eventual recovery.
- How to Eliminate Problems that caused the Economic Crisis explains the major unsolvable 20th century management problems and the solution to eliminate the problems
- Business management; the only Solution to the Economic Crisis explains how to plan and manage the business to capture business data and provide management the information needed for actual business, corporation, industry, and economic management
- A Government Business Management Program to Answer the Economic Crisis outlines a government program to encourage business management, stimulate the economy, restore confidence, organize businesses to flourish in the recovery, and manage economic cycles to prevent future crisis
These three white paper downloads are available to R-pM Community Members at Result-performance Management.com. There is no cost or obligation to join the R-pM Community. Join by entering your email address and personal password. Your email address is protected and used only for download problems, product updates, and occasional R-pM Member news and white papers.
