Itemize the benefits and returns from capital development

It is impossible to itemize the costs and benefits of capital development today

In my years as a management consultant, I managed and was involved in many capital development projects, mostly management improvement projects to develop or implement information systems, re-engineer business processes, reorganize enterprises, etc. Invariably I faced problems in planning the project to understand the specific capital to be developed to itemize the costs of development and to understand the specific benefits to itemize the return on capital development investments.

I tried to get the client to itemize the business improvements they wanted in specific results needed from development. This was resisted because managers never thought of the business in terms of results other than such high-level results as products produced, sales booked, and revenues generated. It is easier to estimate an increase rather than build up specific result value improvements, since results produced by the business were not defined and managed as a set.

The same applied to the capital to be developed. The focus was on tangible assets like new software package or computer hardware or the project as a whole without sub defining the range of specific capital solutions to be developed, particularly those “intangible assets”. Again, the problem was that capital was administered as assets, employees, systems, etc rather than being managed as all the capital invested in the business as specific capital solutions utilized by the business. Project planning turned out to be a lot of guesswork.

Nevertheless, projects were planned to the degree possible to determine specific business results to be improved by the project to provide value-added benefits and specific capital solutions required to produce the results. The project was organized to develop specific solutions and the needed results by utilizing the enterprise and consulting capital assigned to the project as project solutions to manage solution development and capture the costs of the project against the solutions developed. Of course, the accountants resisted breaking down the project to specific solutions to be developed and specific project costs incurred. They could not measure new results and capital solutions implemented after the project to determine the return on the enterprise investments. Their 20^th century accounting principles lumped investment costs by the project and major tangible assets to be depreciated.

20^th century management does not provide a way to manage capital development

20^th century management does not manage the enterprise 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 business has three components: 1. capital investments in the business available as capital solutions, 2. results required for business success, and 3. performance in the utilization of a specific implemented solution to incur costs and produce value in a specific result.

20^th century management does not define specific results produced and capital solutions utilized to be managed as sets. Added result value cannot be managed to provide benefits and specific capital solutions developed cannot be managed to know costs. Capital development projects are difficult exercises separate from the business context to develop performance or tangible assets to produce some estimated return on investment. Much capital development and solution implementations fail to create the added result value needed for the return on investment.

All capital development should develop capital, plus business results for return on investment

Every business enterprise must produce output results that lead to goods and service results to create value. An expanding enterprise must produce new results of increasing value. The enterprise needs additional capital in order to produce new results as part of the business. The capital must be acquired or developed, implemented as specific solutions, and then utilized to produce improved or new results of increased value. The value added to new business results must justify the capital expenditure to acquire or develop needed solutions and provide the return on investment.

All capital development is really result-capital development to develop capital as solutions to be utilized to create additional value in output results produced by the business. The additional value of output results provides the return on the capital development investment. If the capital solutions utilized and the results produced by the business are not managed, result-capital development cannot be managed properly and the return on investment cannot be measured. Even physical capital development, like a new building, produces capital solutions to produce results, be it the enterprise office facility solution utilized for many business results, or a facility solution to produce lease or rental income results.

21^st century business management organizes results, capital, and performance as part of the business

The answer for all future result and capital development is to organize the business for 21^st century management. The business is organized as results to be produced, capital needed as specific solutions to produce results, and performance in the utilization of a specific solution to incur costs to produce value in the result. Once the business is organized result managers understand and manage the full scope of results needed across the business. Capital managers have defined and managed the full set of capital in their category to be utilized by the business. Performance managers provide and monitor the specific solutions implemented in the business and utilized by result managers. Once the business is organized and managed, experience is gained in managing result value, capital worth and returns, and performance costs and value added for both operations and development. New solutions needed to produce the results and the costs to be incurred in development and future operations can be determined.

Result-capital development is managed as part of the business for measured investment returns

Result-capital development manages capital development as both capital development in solutions to be utilized by the business and result development to develop the business results to be produced to plan and manage the value added to results. New capital solution development is planned and managed to produce new or improved results. Each result-capital development project is managed as part of the business with its own project business structure.

Implemented solutions are then managed in operation to charge development and operating costs to results and measure and the added value-added to determine the actual return on investments. 21^st century business management is the essential approach for any new result-capital development.

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