Archive for the 'Value 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...].

The business is defined as “the utilization of capital of worth in performance to incur costs and produce value in results”. Every business in the world invests in capital, the capital is utilized in performance, and utilization of capital in performance produces output results. The three components of the business are capital, performance, and results.

The objective of every business is to produce results

Results are the outputs of value that must be produced across the business for success. Revenue management results include products, services, customer contacts, sales orders, revenues, and profits. Revenue support results include advertisement run, market surveyed, customer followed up, etc. Capital management results include payroll paid, human training executed, asset maintained, marketing tactic devised, information created, etc. Investment management results include new product developed, information system implemented, new equipment procured and installed, etc. Every output that must be produced by the business is a result. Results must have a value that exceeds the cost of performance to produce the result for a successful 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...].

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. .

20^th century management reports against structures laid over the business

The generally-accepted definition of enterprise business is “the activity of providing goods and services”. In order to organize and manage the business, we must organize and manage both the activity or performance involved in providing and also the goods and services provided to our customers.

20^th century management does not provide a structure to do this. Instead of organizing the business, an organization structure is laid over the business to define organization units, functions, and positions. Since the business is not organized, management structures must be laid over the business. A business strategy defines visions, objectives, owners, requirements, and other entities. The chart of accounts defines centers, objects, and codes. The business process defines process objectives, stations, performance activities, performance quality, and other entities. Information systems have their own built in file structures and entities. Cost accounting gathers known costs against activities, centers, selected final products, or other entity. Performance management systems require reporting on other sets of entities concerning the process, training, customer actions, etc. The many structures laid over the business produce business complexity and hide the actual business.

Overlaid structures capture vast amounts of data and report mountains of information, but not on the actual business

None of these structures captures actual business data or reports actual business information. [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...]

Corporate Directors have a responsibility for best business management

Corporate Directors and other business governors need to ensure that a viable business strategy is in place to create planned future value, that capital investments provide itemized returns by creating strategic value, that the business is managed to create strategic value, that accurate financial and non-financial records are kept on the business, and that progress in executing the approved business strategy is maintained.

20^th century management prevents corporations and their directors from doing any of this. The actual business is not organized or managed, so most business data is not captured. Strategies are contrived overlays on the business, not actual business strategies. Corporate investments are based on guesses and estimates, not actual business measures. A contrived chart of accounts keeps partial financial records and does not record the actual business. Management information solutions provide enormous quantities of information on contrived structures laid over the business, but only incidental information to manage the actual business.

Result-performance Management (R-pM) organizes the business for 21^st Century Management to provide good corporate governance, as explained in the earlier post “Corporate Governance is a Small Part of the Big Corporate Management Problem”.

R-pM provides transparent business organization and management

As a Director, you approve the business and financial results in the economic outputs to be produced by the business. You approve capital investments and financial expenditures needed to provide the capital to produce results. [more...].

Line Department Managers are the most important result managers

Are you a line department manager, responsible for contributing to enterprise revenues and profits? If you are, how do you define and organize the part of the business that you manage? What are the entities that you manage in your position? What are the entities you utilize to contribute to revenues and profits?

Most of you will answer based on the contrived structures that your enterprise has always used for organization and management. It is unlikely that you answered in terms of the actual business. You have much to gain by understanding the actual business that you are managing.

Result-performance Management (R-pM) organizes the business for 21^st century management

The means to understand the actual business that you manage is through Result-performance Management (R-pM). The enterprise business and your business is defined by only two entities:

• Results: The economic outputs that create the value from the business
• Performance Solutions: The capital consumed in performance to generate the costs incurred by the business to produce result value

You manage only these two entities in your business, as a sub-set of the enterprise business. Planning, gathering information, and managing other entities like activities, tasks, functions, positions, etc. [more...]>