All Financial and Governance Crises arise from failure to manage the Business

The current financial crisis and shareholder losses are due to the unsolvable problems of 20^th century management

There always have been financial, economic, and corporate governance problems due to failures to manage enterprises businesses properly. The current crisis arises from governments, financial institutions, and other enterprise failures to manage their businesses and business responsibilities. Governments institute questionable management practices and regulations that encouraged speculative and poorly-secured borrowings. The real worth of capital is obscured in complex mortgage-backed securities. Banks are not able to manage or account for their “asset values” in the real worth of capital solutions.

The problems have always existed because arbitrary and misleading 20^th century management structures laid over every business prevent government and enterprise management decisions within the structure of a managed business. Enterprises are unable to manage and account for real “asset values” in capital worth for planned capital items or solutions, current solutions, or managed solution or collateral disposal. Enterprises are unable to manage and account for value and quality created in business results, costs of declining capital worth in performance, or effectiveness of capital solution utilization in performance.

Governments must take near-term actions but the only long-term solution is Result-performance Management (R-pM)

Governments must do a few things to restore liquidity to the financial system, and ensure that owner-residents willing to continue re-financed payments do not lose their homes. Governments should not bail-out the developers and speculators who took advantage of improperly managed credit and drove up property prices, and the investment institutions that participated in promoting unmanageable mortgage-based securities. Governments also must investigate their own internal management methods and actions that may have worsened the crisis.

Above all, governments, individually or collectively, also must take longer-term measures to eliminate 20^th century enterprise management problems to prevent future crises. The only solution available is R-pM to organize and manage 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” of all government, financial, and other enterprises. R-pM manages the cost of capital of known worth invested in every business, the utilization of invested capital to incur costs in performance, and the value and quality of every business result produced. All decisions boil down to what government, financial, or other business results are needed, what capital and investments are needed to produce the results, and what are the implications of using the capital in performance.

Management does not have the information to manage the business

20^th century management produces inconsistent and inaccurate management information against organization, account, corporate plan, business process, performance management, quality management, risk management, performance management and other structures laid over the business. This requires costly information technology and workloads and produces an enormous amount of “management information”, but does not capture actual business data or report information on the actual business.

R-pM clears away overlaid structures and focuses modern information technology to manage the details of specific capital utilized in performance to produce specific results; along with business descriptors, interacting enterprises, and planned and historic time periods. R-pM provides one integral set of consistent, complete, and accurate management information on all capital investments for income and growth or as capital solutions to be utilized to produce other business results. Capital solutions are measured for the future result value-added providing solution worth, past result value-added providing the return on the solution investment, the investment costs to acquire or develop the specific solution, performance costs in the reduction in current or disposal solution worth, and the unamortized investment balance after performance costs to date. Performance is measured for the utilization or consumption of capital to produce a volume of a specific result to measure performance costs against the both the solution utilized and the result produced. Economic output results are measured to manage result value in the customer willingness to pay and result value-added in the value less performance costs for the volume of results produced across a value-quality chain. Results produced, the performance, and the capital utilized are reported to manage the result quality due to performance effectiveness utilizing qualified capital solutions, the result risk due to performance uncertainty arising from capital solution reliability, the result value-added performance contribution to return the investments in solutions utilized, result actual against goals by meeting performance expectations by optimizing capital potential, result symptoms arising from performance problems caused by specific solutions needing improvement. R-pM provides the business structure to assess planned or utilized solution worth in the future result value to be created plus the continually-updated disposal worth less the cost of the invested capital. None of this information needed to manage and govern the actual business is provided by 20^th century management today.

Accounting does not account for the business and permits unsolvable problems

20^th century accounting does not account for the actual business. Accounting principles are used to construct an arbitrary chart of accounts that is laid over the business to record accrued and actual cash expenditures and receipts. Accounting has never solved 20^th century management problems in intangible assets, unknown capital investment in specific solutions, unknown current or disposal capital solution worth, unknown capital investment returns, unknown performance costs, unknown value creation in specific business results, unknown value-added across the business, and unmanaged non-financial business records. Accounting principles are considered valid, not because they are fundamentally correct, but only because they are generally-accepted.

R-pM provides the actual business structure for professional facility records management to record the actual business. R-pM records every output result planned or produced in the current and strategic value, total cost, volume, value-added, quality, risk, future period goals, receipts for revenue results, and other attributes of results, R-pM records the utilization of a capital solution to produce a result in performance costs, effectiveness, uncertainty, ongoing expectations, result value contributions, and problems. R-pM records each solution planned or utilized to produce a result in the capacity, investment acquisition and development costs, solution potential, qualification to produce specific results, reliability, investment return, planned and updated solution worth, updated disposal solution worth, cost of capital invested in the solution, expenditures in utilization of cash supply solutions, total costs in reduction of solution worth, causes of performance problems, solution improvements made, and other attributes of capital solutions. R-pM leaves accounting principles and methods up to the accounting profession and government regulatory bodies. R-pM provides the business structure to abolish charts of accounts laid over the business and institute 21^st century management accounting of the actual business.

Financial institutions are incurring large losses due to the failure to manage capital as part of the business

All financial institutions and other enterprises make large investments in capital. 20^th century management does not manage capital as specific solutions that must be utilized to provide income and growth from financial and property facility investments and to provide the result value-added for the return and continuing worth of solutions utilized to produce business results, as naturally occurs as part of the business. Financial institutions manage arbitrary “asset value” and have no realistic method to update solution worth and manage solution worth reductions as current or exceptional performance costs.

With R-pM, solution worth for planned or utilized solutions must be based on the future result value-added to be produced by period over the remaining solution life, plus the disposal solution worth in the expected disposal result value based on the current situation, less the cost of capital invested in the solution. Solution worth declines as solutions are consumed, deteriorate, or become dated over time and increases as solutions are improved or replenished.  Solution worth must be managed over the life of the solution.

Mortgage solutions must be managed as capital investments to provide the complete return through results in principle and interest payments. Mortgage solutions have a separate periodically-assessed disposal worth for the collateral accepted as security for the solution. Return on the investment must be managed in the result value-added produced to date. If there are economic changes or problems producing planned principle and interest payment results, the solution disposal worth must be assessed. If future result value-added and solution disposal result value are both less than current solution worth, the solution incurs performance costs that are charged to results produced by the solution, and the solution must be managed as a cause of performance problems and improved. All investments made in mortgaged-based securities must have clear income results over the planned life of the solution and a substantiated and manageable disposal worth, even if supposedly “insured”. All positive worth asset solutions and negative worth liability solutions comprise the business net worth.

If governments want to prevent future crises, they must encourage 21^st Century Management

R-pM is the only means to organize the business of any enterprise to apply 21^st Century Management conventions, definitions, and standards. A managed business is transparent for informed management and governance, and no longer depends on misleading and inaccurate accounting and other management information used today. The business is organized, planned, directed, controlled, reported, and governed as one consistent structure against period goals leading to the strategic business. A false picture cannot be created by structures laid over the business, and actual variances and exceptions cannot be hidden.

An article last week “Government Business Management Program to prevent future Crises and boost Competitiveness” outlined a possible government program to prevent future financial and governance crises by encouraging local business and industry to manage the actual business. The details and procedures for organizing the business with R-pM for 21^st Century Management are provided at Result-performance-Management.com.