Archive for the 'Accounting Management' topic

20^th century management lays reporting structures over the business

Since the business is not organized or managed today, the actual business cannot be reported. Management reporting is against the myriad of organization, management, administrative, and other structures laid over the business. Each structure employs its own terminology and information systems to produce reports on the structure. This produces a myriad of unrelated management reports for plans, business processing, resource planning and utilization, manufacturing, supply chains, customer relationships, accounting, quality control, financial management, human resource management, information technology management and on and on. The reporting possibilities create information complexity with no specific framework to relate all the reporting. Despite all the reports and complexity, there is no direct reporting on the actual business.

We try to bring together information from the diverse structures by adding special 20^th century reporting structures, such as:

• Performance management: Control panels, dashboards, scorecards and various other structures to capture and report information
• Strategic enterprise management: Structures to consolidate defined information from specific information systems
• Data reconciliation: Structures to gather and redefine inconsistent data from diverse systems
• Decision support and drill down: Structures to allow management to search and find information in diverse systems
• Categorization: Structures laid over information to reconcile and restructure information and to manage records, documents, reports, content, and other information sub-sets

These various reporting structures and supporting information systems constitute a large overhead and contribute to rather than solving information and business complexity problems. Management information produced is inconsistent, inaccurate, and incomplete in terms of what is actually happening in the business.

Business management reporting must be against the current and planned business

In order to report the business the actual business must be organized, planned, directed, and controlled as explained in previous articles. Actual business reporting is provided by reporting the three components of the business:

• Results: The economic outputs of value and quality produced across the business
• Capital: The investments in capital as specific solutions that must be acquired and developed to provide the capability to produce future results and that must be utilized in business performance to produce actual results
• Performance: The deployment and utilization of a specific capital solution to incur costs and provide effectiveness in producing a specific result in a performance domain

The business can be reported only by organizing the actual business as current results produced, invested capital available to the business, and performance in the utilization of a capital solution to produce a result. [more...].

20^th century enterprise management lays structures over the business to control the enterprise

The operations and development of the enterprise today are controlled by structures laid over the business for:

• Financial and statistical accounting through a chart of accounts structure
• Financial control through actual compared to budgeted measures
• Cost accounting through activity, center, and product structures
• Capital development control through project structures and asset registers
• Quality control through TQM, six sigma, and other quality structures

The control provided by each of these structures is limited to certain entities and known measures. Financial control covers capital for tangible assets and finances for cash receipts and expenditures against plans or budgets. Cost control is limited to known costs against arbitrary entities like activity or center. Non-financial control is sporadic depending on individual management. Quality control focuses on performance producing selected end-product results.

Accounts record accrued and actual receipts and expenditures from point money comes in to the point money is spent. There is no control of the business cycle from the point money is spent until value is created to enable money to come in. Accounting control is enforcement of rules and principles rather than providing accurate information for business control.

Capital development lumps costs together as a project or tangible asset. The specific capital solutions developed are not controlled and may be lumped together as one large asset or classified as intangible assets. No method or information is provided to plan and control return on specific capital solution investments. Projects are not organized to capture investment costs for implemented solutions and plan value-added to the business from solution utilization. Capital worth numbers are sporadic for some asset and liability solutions, but real capital worth in the capability to produce future business value is unknown.

Each structure is separate from other structures and uses its own terminology and definitions to describe the enterprise. Each structure introduces high costs and much effort to collect and report information. But, none of these overlaid structures can control the actual business.

The actual business must be controlled for each component of the current and planned business

In order to control the business the actual business must be organized, planned, and directed as explained in previous articles. [more...].

Financial Management is one of the top 10 problems of 20^th century management

Financial Management manages money separate from other tangible assets

The early 20^th century enterprise was concerned about managing and protecting cash. Financial management fundamentals were established to manage actual and accrued cash from the point received until the point that it is invested or spent. Financial management problems such as unknown capital worth, unknown costs, unknown value creation, and unknown return on capital investments have never been solved by traditional financial management. Financial management tends to be equated with capital management. This allows non-financial capital to be administered, rather than managed, or to be labeled as “intangible assets” and not accounted for or managed. Today, financial capital is managed largely by computers. Non-financial capital and intangible assets are an increasing percentage of enterprise worth and must be managed properly.

Financial capital must be managed with other tangible facility capital to create value in results

Financial capital must be managed as part of the business and not administered separate form the business. 21st business management utilizes financial management capabilities to manage all tangible facility assets. Financial assets and facilities are a sub-set of reusable facility equipment capital, cash is a sub-set of consumable facility supply capital, and accounts are sub-set of facility records capital.

All facility capital requires similar application of expertise to operate and maintain, to supply, and to record. In a managed business, all facility capital is supported for operation and development and for utilization to produce value in results.

The business also integrates financial parts of other results that have been separated out. Management strategy capital includes financial strategies as an integral part of management strategy solutions. Investment management results manage shareholder funds for investment, capital development, and shareholder value results.

The Financial Management Problem

20^th century financial management gives us intangible assets, unknown costs, unknown value, and unknown worth

Now, as we go into the 21^st century, there is a growing need to go beyond financial management fundamentals and change the way enterprise capital is managed: [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...].

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...].