Archive for the 'Administration and Capital Management' forum

Rule No. 5 of the ten rules of 21^st century business management is Operate to optimize operations, result value-added, and the profit result. This rule requires that the capital solutions utilized to produce each result are optimized to be cost-effective and produce a high value-quality result, so that all business operations are optimized.

21^st century business management organizes the performance producing each result

Business operations cannot be optimized unless the business is organized in order to manage the specific performance that produces a specific result. The 21^st century business is organized using Result-performance Management (R-pM) knowledge and procedures, so the business can be optimized, by ensuring that capital solutions are deployed or implemented to produce the proper results and are integrated to employ the most cost-effective performance to produce the highest value-quality result.

21^st century business management organizes capital investments as specific solutions

21^st century business management organizes the capital the enterprise invests in as specific capital solutions that are implemented to be utilized to produce one or more specific results. This allows the enterprise to capture the cost of developing or improving the capital and to assess the:

• Cost of consumption of the capital in operations
• Performance costs generated as solution worth declines over the solution life
• Effectiveness of the capital to produce a high-quality result
• Capacity of the capital to produce a volume of results
• Uncertainty of the performance of the capital and the risk of a poor result
• Return provided on the investment in the capital from the share of result value added to date
• Level of performance of the capital against expectations
• Worth of the capital assessed from result values to be produced over the remaining life

Capital solutions are categorized as business, human, facility, or management capital so that a performance manager with specific capabilities can be responsible for providing qualified solutions. Within each category, solutions are classified as one of three classes; as readiness solutions to prepare an organization responsible for a set of results, as production solutions to be used or consumed in producing each actual result, and as information solutions to support or document results. Capital solutions are integrated by capital class for utilization to produce a result.

21^st century business management organizes the outputs from business performance as specific results

21^st century business management organizes the inputs incorporated and outputs produced by the enterprise as results. [more...]

20^th century management does not maintain accurate financial and non-financial records on the business

Records are tangible information capital to record and document the actual business. Records are the predominate information capital in 20^th century management. But, 20^th century management does not manage enterprise records as capital. Most records are maintained by an individual or organization unit. There is no defined responsibility for maintaining records on the business. 20^th century accounting maintains partial financial records against a contrived chart of accounts. Some corporations have a secretarial function to maintain corporate and shareholder records. Each enterprise has to develop its own procedures to see that important records are kept. Many important business records like proposals, designs, quotations, and documentation are maintained ad-hoc by a department or individual or simply get lost in the passage of time.

Financial accounting is often confused with business record-keeping

An earlier article in The Business Change Forum says that “Accounting is one of the top ten problems of 20^th century management”. [more...].

Administration is one of the top ten 20^th century management problems

As explained in other articles in the Business Change Forum, administration is one of the top ten problems of 20^th century enterprise management used today. Enterprises have large sums invested in the capital that is utilized in performance, but most do not even know the extent of this capital. There is no manageable organization of capital as specific capital items of worth to be managed and utilized to create value in the business. Much high-worth capital is labeled as “intangible assets”. Capital that is known is administered, rather managed for investment, development, and utilization in operations. Many capital items requiring very different inherent capabilities and skills to support properly are mixed together in artificial categories like information technology and financial management.

Conventional administrative performance does not manage capital

Capital is created day in and day out without being recognized as something of worth that should be managed and made available to improve performance. Enterprises may have an assets register and think of managing capital as utilization of assets. Many think that managing capital means assigning it to a responsibility center, which actually removes capital from management for the benefit of the enterprise. Typical responsibility center managers do not take responsibility for managing capital and are unable to manage capital that they share with other responsibility centers.< [more...].

20^th century enterprise management cannot capture and report essential business management information

20^th 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 20^th century management cannot capture essential business data and report actual financial and non-financial business management information.

20^th 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. 20^th 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. [more...].

20^th century management lays a contrived Chart of Accounts over the business

20^th century management used by all enterprises today cannot account for the actual business, since the business is not organized or managed. Instead, an arbitrary Chart of Accounts is contrived and laid over the business. The Chart of Accounts is, by definition, an inaccurate substitute for the business and often contains distortions introduced by management or accounting to meet their own agenda. The chart of accounts is designed to record accrued and actual cash receipts and disbursements and the arbitrary worth of known assets less the worth of known liabilities.

20^th century accounting does not keep accurate and complete records on the actual business as needed for good management and governance:

• Facility records, including accounts, are not managed as capital of worth to be maintained to provide capital solutions needed to produce business results
• Accounting records only a part of the business cycle from the point that cash is received until cash is spent, but does record from the point that cash is spent until cash is received
• Accounting may include statistical accounting within the chart of accounts, but tends to resist keeping full financial records or non-financial records, so that other business records must be kept by other organizations or individuals or fall through the cracks
• Much capital that incurs expenditures or costs against the actual business is not defined as an asset or is labeled as “intangible assets” producing inaccurate net worth and unknown costs
• Important business data on the value of economic output results from the business, the costs incurred to produce the results, the result value-added, and the worth of capital utilized to produce the value-added is not captured or reported
• Accounting is separate from the business rather than being part or every business decision made, both in making the decision and in recording the decision made
• 20^th century accountants are given a narrow education and taught to follow proscribed principles, rather than being prepared to understand and record the actual business and provide information solutions needed for actual business management
• Accountants have a conflict between many masters, the dictates of accounting, the dictates of external auditors, or the dictates of management that pays their salary
• Contrived 20^th century accounting principles are valid only because they are “generally-accepted” rather than fundamentally-valid principles that accurately record the actual business
• Accounting does not view it role as maintaining accurate records of the actual business as information capital and providing accurate and timely information from records as solutions for good corporate management and governance

The limitations of accounting and the information provided by accounting for management and governance is one of the serious unsolvable problems of 20^th century management.

21^st Century Management records and manages the actual business

Rule No. 4 of the 10 rules of 21^st Century Management: Keep accurate financial and non-financial records on the full business cycle in operations and development. The business is defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. In order to plan, budget, account for, manage, report, or govern the business, all investments in specific capital solutions, all economic economic output results produced, and each capital solution utilized in performance to produce a specific result must be managed. [more...].

We have been indoctrinated to accept contrived 20^th century enterprise management as the way that things are done

All existing business methods, all business school teachings, all new business and management solutions, and all management books produced today propagate contrived 20^th century enterprise management, which manages the enterprise by laying organization, account, process, activity, and other management structures over the business. Here at the Business Change Forum we have hundreds of articles that explain the fatal flaws and fundamental unsolvable problems with obsolete and outdated 20^th century enterprise management. We explain the alternative for natural 21^st century business management to manage the business directly as one business structure.

Even with all their flaws, 20^th century business organization and management structures are generally-accepted. People do not want to think and analyze to solve problems; they want a ready-made proscribed solution based on familiar methods. But since 20^th century management is a very costly and flawed way to manage, all we do is propagate bad management, high costs, and unsolvable problems.

Problems are unsolvable, when our mind is closed to solutions

The biggest obstacle to solving business management problems is not finding the solution, but opening our minds so that we can see the solution. Even if the solution is right in front of us and should be obvious, we are blinded by a mind that is closed to the solution. Many experts and analysts are looking for a solution to prevent future economic crisis. The obvious solution, manage the business, cannot be seen. [more...].

Investors have lost trillions of dollars and more trillions are committed to attempt to clean up the economic crisis

We see the intervention by governments in the US and around the world to address the symptoms of the fundamental problems in 20^th century management. We see trillions of dollars of losses in stock markets and businesses worldwide, and more trillions being spent to buy low-worth capital asset solutions, unfreeze credit, and restore confidence in obsolete enterprise management.

While the distortions and risks created to replace fixed mortgage asset solutions with leveraged security solutions sparked the crisis, there are underlying problems in the basic management methods utilized by all the enterprises involved that prevent them from capturing actual business data and generating direct business management information.

In addition, we see little effort to understand and eliminate the underlying unsolvable business management problems that cause this and other recurring crises, particularly on the part of business owners and shareholders who have the most to gain or lose, professional bodies who establish business management principles and standards, and governments who are responsible for economic management. Most corporate executives will not try to identify their real problems and improve their management, unless put under pressure from their shareholders or their government.

The current financial and management crisis is caused by failure to organize and manage the business

The fundamental unsolvable problems are present in all banks, financial institutions, and other enterprises because the enterprise is managed by structures laid over the business. The actual business in “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results” is never managed.  The three components of the business in business results produced, capital solutions invested in the business, and performance of the business in the utilization of a solution to produce a result are not defined as data sets. Therefore, actual business data concerning results produced, capital utilized, and performance employed cannot be captured. Enterprises today are unable to measure or manage the following important capital measures, performance indicators, and result metrics that describe the actual business:

• Investment costs incurred in the acquisition and development of specific capital solutions, be they solutions implemented to produce business revenue results or financial facility solutions utilized to produce direct income and growth results
• Actual capital solution worth in the potential to contribute to future result value creation
• Actual performance costs that amortize investments as solution worth declines in the consumption and utilization of capital or in reduction in solution disposal worth
• Added solution investment costs and potentially added-worth in solution improvement and replenishment
• Economic output result value created from the utilization of capital in performance
• Value added in result value greater or less than performance costs for all solutions utilized to produce a volume of full or partial results
• Result value-added across result chains within the final result value-added, to identify and rectify low-value results and ineffective solutions
• The return on solution investments in attributable contribution to result value-added to date
• The changing ongoing solution worth in future contribution to result value or income added over the remaining solution life, plus the solution disposal result value
• The projected gain or loss on capital solution investments in the current solution worth less the unamortized investment balance
• The qualifications of specific capital solutions to perform effectively to produce specific high-quality results
• The potential of solution utilization in performance to meet expectations and reach result goals
• The managed reliability of solutions to reduce performance uncertainty and result risk
• The inadequate or deficient capital solutions causing performance problems that produce symptoms in late or low value-quality results and the elimination of result symptoms by solving performance problems through improved capital solutions
• The strategic result value-added and shareholder value to be created by managed strategic results
• The itemized result value-added planned to justify result research and capital acquisition and development projects

None of these important measures, indicators, and metrics that can be produced by the actual or planned business are known or managed by management today, because the actual business is not planned, organized, or managed.

Instead, enterprises lay archaic 20^th century management structures over the business producing well-known, but unsolvable, problems with reorganization, alignment, “business complexity”, “business change”, unknown costs and value, unknown capital worth and returns, intangible assets, IT and business conflicts, investments, projects, accounting limitations, inaccurate information, corporate governance, quality, risk, collaboration, outsourcing, IT overheads, and on and on. 20^th century management is a dead-end. New 20^th century structures can never solve these problems, but just increase business complexity and escalate IT and other costs.

We will continue to lack the information needed for proper business management and continue to face unsolvable problems, until we organize and manage the actual business of every enterprise and base accounting, industry regulations, auditing, and compliance reporting on the actual organized and managed business.

20^th century organization structures used today do not organize the business

20^th century management lays a contrived enterprise organization structure over the business, instead of organizing the business. This is the fatal error of 20^th century management. [more...].

The G20 failed to identify or address the problems that caused the economic crisis

Many government and non-government experts have identified the need for new business practices and management structures to solve the problems within financial institutions and corporations, in order to prevent repeat the losses and failures that led to the economic crisis. The fundamental problems with risk management, capital worth (asset value) measurement, financial management, output result and value management, recording of financial and non-financial business data, consistent and accurate business management information, consolidation of businesses of corporations and institutions, and the many others must be solved in order to prevent future crisis. These 20^th century enterprise management problems are identified and described in detail here at the Business Change Forum.

Descriptive white papers on 21^st century business management; the only solution to the economic crisis, and on a government business management program to address the crisis were sent to all government agencies and multilateral institutions related to finance, commerce, banking, economy, and business worldwide. The information conflicts with the conventional thinking that limits the possibilities of these agencies, so it is deleted or ignored.

The G20 successfully repeated the mistakes of the past

The G20 meeting is being hailed as a success. The contributions to the IMF and the World Bank should help recovery in some needy countries. But, the biggest success of the G20 was to repeat prior successes in similar government action following earlier financial, economic, and corporate governance problems. One objective of the summit was to restore confidence in the methods, systems, structures, and regulations that caused the economic crisis. Like the response to all previous crises the G20 tweaked a few existing methods and called for expanded regulation of corporations, financial institutions, and tax havens.< [more...].

The current economic crisis demonstrates the need to manage capital as part of the business

We hear a lot about capital these days be it capital asset values, capital scarcity, new capital products and instruments, and so on. You can see that no one is too sure what all this talk of capital means and how capital relates to actual corporate businesses. The confusion arises because the future worth of capital assets or solutions and the historic return on investments in capital solutions has never been managed properly in 20^th century management used today.

The problems that caused the economic crisis are actually symptoms of one problem; the failure to manage the business. Financial institutions crashed because they could not manage asset value in the capital worth as an ongoing part of the business. Corporations are unable to manage the individual businesses within corporation as a part of the managed corporate business. Enterprises are not able to capture actual business data and do not have the information to manage the business.

The only answer to the confusion and the causes of the economic crisis is to learn what capital really is and how capital must be managed as part of the business. Business management eliminates the problems by organizing capital solution investments as part of the business, by managing capital solutions utilized in performance to incur costs and create value in actual business results to provide return, and by managing solution sale or disposal after use by the business.

What is the business and capital as part of the business?

The business is defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Every business in the world invests in capital needed, in order to utilize capital in performance, in order to produce output results. The capital must have a worth that justifies the investment costs for acquisition or development and implementation as capital solutions and the continuing utilization over the useful life of the solution. Capital solutions are utilized to produce result value, be in business results produced or in income, growth, and disposal result value for solutions purchased as investments. Capital solutions have a disposal worth in the result value produced from sale or liquidation at the end of the useful life or in the sale of solutions purchased as investments.

Capital is the investments in the business to have the capability to produce results

The only reason to invest in capital is to provide the capability to produce results. [more...].

The Economic Crisis is caused by failure to manage businesses

Managers of financial institutions and other corporations that suffered large losses in the economic crisis blame the problems on unreliable accounting information and ineffective management structures. Financial institutions say that they are unable to manage “asset value” as one reason for the current economic crisis. The term “asset value” shows that they do not manage the business of the corporation. All businesses are “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. Much capital is not managed and is labeled as “intangible assets”. Other capital is not managed for the return on investment and the worth of the capital is not managed as a specific solution to be utilized and sold or disposed of at the end of its useful life. The term “asset value” shows the failure to manage the business. Assets are specific capital solution investments of positive capital worth. Value is an attribute of output results, such as interest and dividends earned, that provide the return on the solution investment. Result value-added is the value less the full performance costs of the solutions producing the result. [more...].