Archive for the 'Capital Management' topic

20^th century 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
• 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 known entities and certain elements. Financial control covers capital for tangible assets and finances for cash receipts and expenditures, cost control is limited to known costs against selected elements like activity or project, non-financial control is sporadic depending on individual management, and quality 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 range or performance solutions developed are not controlled and may be classified as intangible assets. No method or information is provided to plan and control return on specific capital investments in performance solutions. Projects are not organized to capture development 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...].

Business performance utilizes capital available to the business to produce business results

Result-performance Management (R-pM) defines the business as “the utilization of capital of worth in performance to incur costs and produce value in results”. Every business in the world must produce specific economic output results in order to be successful. Every business in the world invests in capital, in order to have the capital needed to produce output results. Business performance is the actual utilization of capital to produce results.

20^th century business performance includes both actions executed and results accomplished

The 20^th century definition of performance used in business today includes both the actions executed and results accomplished. This definition causes many 20^th century management problems and prevents actual business definition and management. Business performance management, capital development, business processes, management reporting, key performance indicators, etc mix both performance and results produced together as performance. This causes problems today in actually distinguishing and separating results produced from the performance executed.

R-pM separates results from performance to manage the performance producing a result

Actual business performance does not include things accomplished or business results. R-pM separates out results as results produced by business performance and restricts business performance to the activity of the business and actions executed by the business. [more...].

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

The business is defined as “the utilization of capital in performance to produce value 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 performance solutions.

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. Capital is all the tangible and intangible assets available to be utilized by the business. Capital includes the business organization, processes and systems, humans and their capabilities, facility equipment and supplies, management plans and tactics, and information capital. Capital has a worth in the capability to create result value-added attributable to the capital over the capital life.

20^th century management fails to organize and manage capital as part of the business

Today, people think of capital as items in an asset register or on the payroll, rather than as items to be managed and utilized as part of the business. Businesses invest in enormous sums of money capital and then fail to identify the specific capital items developed, the costs of developing the capital, the worth of the capital as developed, the utilization of the capital to create value, the cost of capital utilization or consumption as capital worth deteriorates, and the value created to return the original investment. [more...].

20^th century management problems are caused by structures laid over the enterprise business

The generally accepted “enterprise business” definition is the activity of providing goods and services. The failure of 20^th century management to organize and manage the activity of providing goods and services creates unsolvable management, business, and performance problems.

The fatal error of 20^th century management is laying a rigid and arbitrary enterprise organization structure over on the business, rather than organizing the business. Since the business is not organized the business cannot be managed, therefore, rigid enterprise management structures for planning, processes, systems, accounts, quality, administration, performance, reporting, etc must be contrived and laid over the business. Structures laid over the business conflict with the actual business, restrict business flexibility, move out of “alignment” as the business changes, and prevent direct business data capture and management.

20^th century management improvements can never solve unsolvable problems

We continue to teach 20^th century management, contrive new 20^th century structures and “business solutions” to lay over the business, and write more 20^th century management books, but we can never solve the top ten problems of 20^th century management. [more...].

Information Technology is one of the top 10 problems of 20^th century management!

Information Technology incorporates a wide variety of unsolvable problems

Information Technology (IT) employed today has many inherent problems that many expensive solutions have never been able to solve:

• Information technology is managed as technology, rather than as capital preventing integration with the business
• Information technology employs large monolithic information systems that are laid over the business, instead of information processing solutions that are utilized by the business
• Information Technology defines different architectures to define and align the business, systems, hardware and networks, and data and information, rather than integrating each with the business
• Different categories of information capital are mixed in many systems using different entity names and definitions producing information complexity and preventing proper information capital management
• Since the business is not organized, information systems manage information related to structures laid over the business and do not capture, process, or report actual business data and management information
• Information Technology is difficult to manage because it mixes business, facility, and management capital that require diverse management and operating capabilities
• It is difficult to manage return on IT investments since the investments are lumped together and do not produce direct measured business improvements
• Information Technology has grown into a large expensive empire that involves much unnecessary processing, extensive overheads, and unsolvable problems

These problems can never be solved with 20^th century management that tries to improve the enterprise by laying new or improved structures over the business.

Information Technology problems disappear when using R-pM to organize the business for 21^st Century Management

The only way to eliminate the Information Technology problems is by organizing the business with Result-performance Management (R-pM) to enable 21^st Century Management. R-pM integrates information technology in the business as capital defined as specific performance solutions utilized to produce specific business results. R-pM provides the following measures to eliminate the unsolvable Information Technology problem:

• R-pM organizes the actual business as specific performance solutions, including IT solutions, to produce specific business results
• Information system solutions are defined and integrated with the business process as modules to produce a specific result or a chain of results
• Information systems focus on managing actual business data in result value and quality, performance cost and effectiveness, capital worth, and return on capital investments that is not processed today
• Information Technology is defined and organized as capital, with other capital of the same category, for proper capital management by those with the professional capability
• Information capital is defined and managed as business data, human knowledge, facility records, and management intelligence to produce information solutions needed by the business
• Enterprise information is integrated by performance solution utilized, result produced, supplier, customer, time period, business transaction, etc in an enterprise Business Information Base for one set of complete and accurate business information
• Information systems and processing devoted to managing arbitrary structures laid over the business and special systems to address problems in data reconciliation, information integration and extraction, and management reporting are discontinued, if not directly needed by the business
• New information system implementation integrates business and information processing with other performance solutions to produce specific output results needed by the business
• The business is organized for a new generation of 21^st Century Management systems and business-information process modules, to process the actual business result by result, and provide one set of consistently-defined management information

Using R-pM to manage information technology as capital utilized by the actual business eliminates the unsolvable IT problems in business alignment, information complexity, data reconciliation, unknown costs and value, unknown capital worth and returns, CIO and IT management capabilities, data integration and control, and on and on.

The Information Technology Problem

Enterprise information systems include a wide variety of systems that are laid over the business

Since the business is not organized, different management structures must by laid over the business to manage the enterprise. [more...]

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

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

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

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

20^th century management includes wasteful and counterproductive administrative functions

20^th century administration performs a function involving fixed routine tasks. Responsibility is for the function or the process of administering, rather than producing results. Administration is responsible for managing enterprise capital, but few administrators recognize this responsibility, in effect preventing proper capital management. Much capital is assigned to centers or labeled as “intangible assets”, removing it from professional management. Other capital is loosely administered through functions, instead of being specifically managed to produce benefit and achieve a return on the enterprise investment. The emphasis is on administrative performance rather than capital result management.

R-pM converts administration to professional capital management

Result-performance Management (R-pM) organizes all enterprise capital for professional 21^st century management for operation, support, development, and utilization to produce results. R-pM replaces administration with capital management. Capital managers must produce capital management results to develop, maintain, and improve the worth of capital to provide specific solutions. Performance management, within capital management, deploys and maintains solutions to produce revenue, capital, and investment results.< [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.

R-pm manages financial capital with other tangible facility capital to create value in results

Result-performance Management (R-pM) utilizes conventional financial management capabilities to manage all tangible facility assets in the 21^st century. Financial assets and facilities are a sub-set of reusable facility equipment, cash is a sub-set of consumable facility supply, and accounts are sub-set of facility financial records.

All facility capital requires similar application of expertise to operate and maintain, to supply, and to record. R-pM ensures that all facility capital is supported for operation and development and for utilization to produce value in results.

R-pM 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...]

Accounting is part of one of the top 10 problems of 20^th century management

A chart of accounts is laid over the business, rather than recording the actual business

20^th century management historically has separated cash from other capital to be managed in financial management and to be accrued and recorded through accounting. The need for the separation has decreased due to technology and advanced solutions. Technology has also led to high-worth information and intellectual capital that needs to be accounted for and managed. But the separate focus on cash tends to prevent other capital of worth from being managed professionally. Capital and cash transactions that are recorded are recorded against a contrived chart of accounts, rather than accurately recording the complete financial status of the actual business.

R-pM establishes facility records capital to professionally record the actual business

Result-performance Management (R-pM) manages all capital, including currently undefined capital and “intangible assets”. R-pM manages accounts and other records of the business as facility records capital and provides performance solutions from records as information capital. Facility records are the tangible information capital of the enterprise. Facility records go beyond the limitations of accounting to record:

• Financial records for the full business cycle, including fundamental business data on performance costs, result value, and capital worth
• Non-financial records for statistical, documentation, images, and other records

R-pM requires broadening 20^th century accounting to professional records management to keep records on the actual business and to make records solutions available to produce high-value results.

The Accounting Problem

Accounting does not record the actual business

Due to 20^th century management problem number one, the business is not organized. [more...]

Accounting, today, does not maintain accurate business records

20^th century management does not organize or manage the business. This makes it impossible to keep records on output results of value produced by the business and the consumption of capital in costs to produce each result. Instead of recording the actual business, a chart of accounts is laid over the business to record income and expenses and the worth of certain known assets. 20^th century accounting records the cash generated and spent by the business, rather than recording the complete development and utilization of capital and the complete economic output results produced by the business.

Accounting, today, contains many unsolvable 20^th century problems

Accounting is one of the main unsolvable problems of 20^th century management. Accounting is separate from the actual business, keeps only a sub-set of needed financial and non-financial business records, keeps records against a contrived chart of accounts and not the actual business, sees it role as control rather than capital management and business support, allows financial management problems such as intangible assets and unknown costs to persist, does not provide complete and accurate business information needed for corporate management and governance, and on and on.

R-pM accurately records and accounts for the actual business for 21^st Century Management

21^st century management uses Result-performance Management (R-pM) to organize the actual business as one integrated business structure. The business structure replaces all organization, accounting, planning, performance, costing, reporting, and administration structures laid over the business. R-pM employs professional records management to manage facility records as capital, to maintain complete and accurate financial and non-financial records on the actual business, and to provide information performance solutions from records for good corporate management and governance. Records management is integrated within the business to be utilized to make decisions at all levels and to record accurately actual business decisions made.

The business is the only valid account structure

The business structure organizes the economic output results of value produced to give revenues and income, the capital in performance solutions utilized to incur costs, and the positive worth of capital as assets and the negative worth as liabilities; to provide the only valid account structure. The business structure is professionally maintained as a business organization solution to represent the actual business accurately. Accounts are maintained by professional facility records management to maintain full financial, statistical, and qualitative records on the complete business. The actual business provides the chart of accounts and records are updated from actual business data on result value produced, performance costs incurred, result value-added, and capital worth. Complete and accurate records are maintained on the full business cycle and the full business scope across the enterprise.

This is explained further in the article “Your Business is your only valid Account Structure” in 21^st Century Management Magazine. The guidance needed to organize, manage, and account for your actual business is provided in the R-pM Toolkit, your 21^st Century Management Manual, which can be downloaded from Result-performance-Management.com. .