Comprehensive Financial and Capital Management with R-pM

According to the Business Change Forum “financial management” is one of the top 10 problems of 20^th century management. The early 20^th century enterprise was concerned about managing and protecting cash. Financial management was set up to manage cash from the point received until the point that it is invested or spent. Cash management is automated today and the needs for effective financial and other tangible facility capital management have changed.

Financial management is the biggest obstacle to proper business and financial management

Enterprises make large capital investments, but there is no financial management of the specific capital developed, the specific investment in the capital, the worth of the capital, and the utilization of the capital to produce the return on investment. Enterprises incur high costs to create value in the business, but 20^th century financial management does not manage the finances of the enterprise business. There is no financial management of the costs incurred in the utilization of capital, the changes in capital worth, the value created in business output results, the value-added across the business leading to the value provided to customers.

20^th century financial management has never solved problems in “intangible assets”, unknown costs, unknown value, unknown worth, and unknown return on investments. 20th century financial records and management reporting are inconsistent, incomplete, and inaccurate. The emphasis on financial management leads to non-financial capital solutions that are not managed properly to produce specific value and to increase capital worth.

The 20^th century financial management profession with the CFOs and accountants work behind sacrosanct generally-accepted principles that cannot be questioned. But, in fact, financial management and accounting principles do not manage or report business finances properly, and financial management remains today the biggest obstacle to proper enterprise business management and financial control. It is time for enterprise and corporate management to take control of how the enterprise business is financially managed.

Financial Management tends to be equated with Capital Management

Financial capital is only a portion of enterprise facility capital, but financial management tends to be equated with capital management, causing management neglect of non-financial capital. This allows non-financial capital to be administered, rather than managed, or to be labeled as “intangible assets” and left un-administered and un-managed.

21^st Century Management must transform the way capital is managed

Now, in the 21^st century, there is a growing need to transform the way enterprise capital is managed:

• Cash is electronically recorded and transferred, facilitating control and management
• Tangible fixed and movable assets are being superseded by other assets as a growing percentage of enterprise worth and importance
• Information, business, intellectual, and management capital are becoming more important, and can no longer be ignored as “intangible assets”
• Recording expenditures in terms of what money is spent on has been superseded by the need to record the cost, value, and use of what was received
• The full business cycle must be financially-managed to know value for money spent, subsequent value added, and value provided for money received.
• The emphasis on financial management prompts neglect in management of other tangible capital, which now is more important and must be managed
• All capital must be managed to improve worth and result value-added, rather than being assigned to a center as a burden on center managers
• “Intangible assets” cost tangible money to develop and utilize. “Intangible assets” are actually un-managed assets of increasing worth that must be managed.
• The enterprise needs accurate assessments of the worth of capital employed and the total worth of the enterprise
• Capital management must include operation, support, and improvement of all capital to meet user needs.
• Capital management also must support the performance of capital in utilization to produce value

These factors require us to manage capital properly as part of the business to manage capital and enterprise worth, performance costs incurred in capital utilization, investments in specific capital solutions, and the return on capital investments in the value-added to business output results.

Capital must be organized by the capabilities required to manage and support the capital

There is a growing recognition of the problem of enterprise chiefs, who are responsible for diverse capital, and the need to relate the capability of the chief to the category of capital that is managed. It is more important to distinguish all financial or non-financial capital by the capabilities needed to manage the capital properly. All capital must be managed from the strategic need, though investment analysis, through acquisition or development, through implementation, through utilization to gain the return, and beyond.

Result-performance Management organizes the business for 21^st Century Management

The financial management problem is eliminated by Result-performance Management (R-pM), which institutes modern capital management by professionals with the needed capabilities. R-pM organizes and manages the actual business defined as “investments in capital as solutions of worth utilized for costs and effectiveness of performance to produce value and quality in results”. The enterprise business has three components:

• Capital in the professionally-supported capital solutions of worth available to the business
• Performance of the business in the utilization of capital as specific solutions to incur costs and provide effectiveness to produce results
• Results in the economic outputs of value produced by utilizing all required solutions in performance

Therefore, if we are going to manage the business, we must organize and manage the capital utilized by the business, the performance of the business in the actual utilization of capital to produce results, and the output results produced by the business. But, today we cannot manage the business because we have never organized or supported human and other capital utilized in business as a set of specific solutions and we have never organized the output results that must be produced for business success as a set of specific results.

R-pM organizes capital into solutions utilized in performance to produce results of value and supports capital solutions through capital management. Enterprise capital is organized to meet two capital management needs

1. Capital is categorized the capabilities needed to support capital operation, development, and utilization
2. Capital is classified by how it is utilized to produce results to be integrated and utilized properly

The financial management problem is eliminated when we manage all capital so that it is properly protected, improved, developed, and utilized for benefit and return on investment.

R-pM manages financial capital as one form of facility capital

Money is the easiest form of capital to manage. The enterprise is subject to loss, if any capital is not managed properly. Financial investments are the easiest-to-manage part of reusable tangible assets or facility equipment capital. Cash is the easiest-to-manage part of consumable facility supply capital. Financial assets are a subset of tangible assets in enterprise facility capital. Financial accounts are a subset of facility records capital that must keep complete financial and non-financial records of the business.

Many of the principles of financial management apply to all tangible facility capital not just financial capital. It is no longer so important to manage money separate from other facility capital. It is very important to manage the worth of all capital, the cost of consumption of all capital, and the value created through the utilization of all capital.

Financial capital, like all tangible capital requires expertise in the particular capital to operate maintain and develop the capital. All traditional tangible capital is facility capital that must be integrated and managed by professionals in asset management, supply management, and record-keeping. The Chief Financial Officer (CFO) and financial management staff need to expand their outlook to manage all facility capital to produce results.

R-pM manages enterprise capital through four categories to apply the required capability

R-pM organizes all capital to be professionally managed. R-pM enables the enterprise to organize all capital by the capabilities required to manage the capital properly for utilization, improvement, development, and benefit. R-pM simplifies capital management down to four categories of enterprise capital for professional 21^st century management:

• Business capital: Organization, process, and data requires business knowledge and analysis capability to define and manage
• Human capital: Personnel, capability, and knowledge  requires human handling and development capabilities
• Facility capital, including the financial facility subset: Equipment, supply, and records requires expertise in the operation, maintenance, and support of the subsets
• Management capital: Strategy, tactics, and intelligence requires management judgment and research capabilities

Organization of capital by category enables all capital to be supported and managed in performance.

R-pM manages enterprise capital through three classes to be integrated and utilized

Capital is sub-defined within category by class so that it can be integrated and utilized properly to produce results:

• Readiness capital needed to produce the first result in a result unit integrates reusable facility equipment with the organization, personnel, and strategy
• Production capital utilized when producing a result integrates consumable facility supply with the process, human capabilities, and tactics
• Information capital to be informed and to document results integrates facility records with data, knowledge and intelligence

Integration by class enables all capital to be utilized for specific results.

R-pM eliminates the 20^th century financial management problem

All categories of capital are sub-defined into the specific solutions utilized to create value in specific results. So, when the enterprise organizes all of its capital to be managed;

• Intangible assets become tangible
• The worth of capital developed and the enterprise worth are assessable
• All capital is managed for support, improvement, and development
• The utilization and performance cost of all capital is managed to produce value in results

This enables modern well-managed enterprises to create strategic value in 21^st century management, and leave 20^th century financial management problems behind. Learn more about R-pm at result-performance-management.com.