Archive for the 'Value Management' topic

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...].

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

Establish facility records capital to professionally record the actual business

The business organizes all capital, including currently undefined capital and “intangible assets”. The business manages accounts and other records of the business as facility records capital and provides capital 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

Business management broadens 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...]

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...]

The business utilizes capital in performance to produce results

The business is defined as “investments in capital as solutions of worth utilized for cost and effectiveness of performance to produce value and quality in results”. Every business in the world invests in capital and expects a return on the capital investment. The capital must be organized as specific solutions that have worth in order to be of benefit to the business. Capital solutions are utilized in performance and incur performance costs for the direct costs or amortization of the solution. Utilization of capital effectively in performance produces output results of quality. Each business result has a customer who wants the result produced and is willing to pay a value for the result. The result value created provides the return on investment to date and the future capital worth over the remaining life of the solution. The three components of the business are capital solutions, performance domains utilizing a solution to produce a result, and the results produced.

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. [more...].

Economic output results produced by your company business are not managed today

Every enterprise, including your company business, produces economic outputs. These outputs are results, even though they are not called results and are not managed as entities in a set of results. But, the objective of every company business is to produce products and services and other economic output results in a chain of results that lead to the revenue and profit results. Some results are identified as entities such as; design completed, material item received, machine maintained, product produced, business service rendered, production waste recovered, order delivered, etc and are managed separately.

Other results usually are not defined or managed, such as business organization updated, new personnel recruited, capability development completed, knowledge document created, computer network hour operated, supplies procured, record transaction processed, strategy approved, pricing policy initiated, market study completed, investment justified, etc.

Results are not managed as a set of outputs or accomplishments by your company business today because your company is managed as an enterprise, not as a 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. The capital solutions acquired and developed from investments are implemented to be utilized in business performance. The utilization of capital solutions in performance produces business results. [more...].

20^th century enterprise management cannot plan and manage investments for a specific return

20^th century enterprise management used today concentrates on performance and the need for performance improvement. Development planning and execution concentrates on the capital needed for performance. Investments are directed primarily at tangible assets or achieving a project outcome. Return on investments cannot be calculated, since specific capital items and business improvements are not defined. So, potential increases in sales, revenues, etc are estimated to justify the investment. Project management manages the project separate from the business as an entity in itself.

20^th century enterprise management objective is capital development without managing the capital developed

20^th century enterprise management supposedly manages capital development. The managed capital developed is limited to capital that is managed, primarily in assets and employees. Most other capital is not managed or is classified as intangible assets. Development costs are not captured against the specific capital items to be utilized by the business to provide the return. [more...].

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...]

Rule no. 2 of 21^st century business management: Generate profits from a chain of managed value and quality

21^st century business management manages economic outputs from the business as results, manages investments in the business as specific capital solutions, and separately manages performance in the utilization of specific capital solutions to produce specific results. Separating results and capital from performance enables the enterprise business “the activity of providing goods and services” to be managed directly.

Goods and services are final results that go to the customer and have value in the customer willingness to pay and must be of the quality to satisfy the customer. The final goods and services results are produced by a chain of results of value starting from input results from the supplier. Business activity is the utilization of human and other capital in performance to produce a given result. So the business in “the activity of providing goods and services” must be managed by managing the performance producing each result of managed value and quality in a chain of results from supplier input results, through internal result transformation, to the final customer results. The result value-added in excess of performance costs across the chain contributes to the profit result.

20^th century management manages performance across processes and information systems

20^th century enterprise management, used by all enterprises today, does not recognize or manage output results from the business as a business entity. Results or accomplishments are managed as a component of “performance” along with the business activity in utilizing capital in performance to produce the result. [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...].