Archive for the 'Cost Management' topic

Result-performance Management (R-pM) replaces business process management with value chain management to enable business collaboration

Result-performance Management (R-pM) replaces business process management with result-performance management and re-engineered business processes with result value-quality chains. This enables the enterprise to manage result value-added and to collaborate with business and outsourcing partners, who use R-pM, to re-link value-quality chains for shared value. Review the article “Business Process Management that Prevents Value-quality Chains” to learn more about result value-quality chains.

R-pM manages the result value and performance costs for each result in the chain, to manage result value-added across the chain

R-pM can do this because R-pM defines and manages the result, which provides the specific economic output of value that forms each link in the chain. R-pM also manages each capital solution utilized to produce the result to determine the total performance cost and value-added at each link in the chain. Capital solutions are classified and categorized to have comparable and benchmarked costs for alternative solutions used to produce a result. This enables comparison of alternative linking of value-quality chains with business collaboration and outsourcing partners to produce the highest shared value-added. [more...].

Do cost accounting methods capture all costs or charge the costs against the proper entity?

There are many methods of cash expenditure and cost accounting. We cost objects, processes, activities, stations, products, centers, and other entities. But, is there one entity that we really should be costing in terms of incurring costs and one entity that we should be charging to absorb and manage our costs? Do we really know if we are identifying and capturing all of our costs?

Cost accounting must measure the cost of capital consumed or utilized in performance

We continually make investments to acquire, develop, improve, maintain, and support each capital solution. Costs are incurred through the consumption and utilization of capital in performance. Costs are incurred to reduce the balance invested in the capital utilized to zero over the useful life or planned costing period. So the only entity we should cost is capital consumed or utilized in performance. If we are consuming and utilizing capital, we need to document and manage all the capital that is consumed or utilized, like processes, personnel, capabilities, information, strategies, and equipment. [more...].

Many methods have been put forth for cost accounting and control and value management. The main cost accounting methods charge costs to center and activity. Financial accounting charges some costs as expenditures to objects. Value management methods used today do not manage actual business value creation, but provide arbitrary methods to calculate numbers called value.

Cost accounting and value management are prevented by the organization of today’s enterprise

Conventional cost management is restricted by problems with “intangible assets”, “unknown costs”, and confusion over where to charge costs. We also want to manage value, but we have no viable method for value management. We need a method to get rid of intangible assets and unknown costs and to charge our costs to the meaningful things. We also need a method to manage value as part of our business.

Result-performance Management provides the answer by organizing the business for 21^st Century Management

Result-performance Management (R-pM) is a breakthrough for actual business cost and value management. Result-performance Management (R-pM) is available today to organize and manage the business by all tangible and intangible capital utilized as solutions in performance to incur performance costs to produce economic output value in results over planned time periods. [more...]

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 “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 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...].

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...].

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. .

20^th century management cannot manage the components of profits

20^th century management does not manage contribution to profits from the line business and profits from complete enterprise operation. 20^th century management accounts for profits by adding up cash income and cash expenses, independent from enterprise operations and management.

21^st century management manages the components of profits to manage profits

The business consists of economic output results of value that must be managed to manage revenues and income. The business also consists of capital utilized or consumed in the business in the form of performance solutions that must be managed to manage performance costs and expenditures. Result-performance Management (R-pM) organizes the business in the output results produced to create value and the performance solutions utilized to incur costs to determine result value-added, the most important management metric for 21^st Century Management.

Contribution and profits are not just lines that happen to appear on an income statement. Contributions and profits are results produced by the business that should be planned and managed on a daily basis with result goals. Contribution and profits are derived from result value added over performance costs for all the economic output results from the business. Therefore, the value of every economic output result and the performance costs producing the result must be managed to manage the result value-added that goes to contribution and profits.

20^th century management does not manage result value or performance costs

20^th century management does not define or manage results as one set of economic outputs produced by the business. [more...].

There are many business management articles and a lot of talk about value, be it value creation, value propositions, value management, or value chains. With 20^th century management all we can do is write articles and talk. We cannot build actual 21^st century value-quality chains as explained in the new download “How to Build Value-quality Chains“, available now at Result-performance-Management.com.

20^th century management cannot build or manage value or quality chains

20^th century management mixes performance and the output results together as “performance” and manages “performance quality”. 20^th century business process and information systems are directed at a final result and do not specifically define or manage the results leading to the final result. So, there is no way to manage value or to build value or quality chains.

The link in the value-quality chain is the economic output result

Value-quality chains form naturally by organizing the business for 21^st Century Management using Result-performance Management (R-pM). The business consists of two entities.

• Results: The economic outputs from business production that form the links in the chain
• Performance solutions: The capital utilized in business production to produce a result at each link

Any area of the business can be organized by defining the results produced and the performance solutions utilized.

Each result in the value chain has a value, costs, and a value-added

Results form a natural chain of results that starts with input results from suppliers. [more...]