Manage Cost and Value Business-wide for Result Value-added to Profits

20^th century enterprise management cannot manage actual business costs

Cost accounting is separate from 20^th century financial accounting, which accounts only for expenditures. Elaborate 20^th century methods are used today for capturing certain performance costs. Various methods measure activities, centers, stations, jobs, products, processes, etc. But, enterprises have problems determining the full cost of performance and deriving meaning from costs. Costs are often chased from one place to another, without really being reduced. Costs only have meaning only at a high and generalized level. Many capital solutions that are utilized to incur costs are not separated out as entities and many are lumped together as intangible assets and ignored. So, many costs are “unknown”. When costs are known, they are not related to the business. They are charged to contrived entities like activities and centers. The only valid entity to absorb performance costs is the output result produced by the cost.

20^th century enterprise management cannot manage actual business value

Value is a word employed in expressions like value proposition, value chain, stakeholder value, etc. Various methods describe different values, without a common focus on what creates and provides value. Value is calculated through contrived formulas, rather than managed as a business result metric. The value of the business is in the output results produced across the business. Results that contain value are not defined as a set to absorb costs and manage value-added. So, there is no method to manage value created, full costs incurred, and actual value-added by any part of the enterprise.

21^st century business management manages cost and value as part of the business

Business management provides the proper meaning for cost and value and value added. Value is created in the results produced as outputs from performance. So, there is only one entity that properly absorbs performance cost; the result produced. The result value less total performance costs is result value-added, the most important metric in business management. In order to charge costs properly, the enterprise must define and organize all the specific results produced across the business. All results have a customer and a value the customer who receives the result is willing to pay. Result value over time is managed to exceed the full performance costs to produce the result providing a positive value-added.

In order to know all costs the enterprise must manage all capital investments to know the amount invested in each capital solution utilized in the business to produce results. Performance costs are incurred when a capital solution is utilized in performance to produce a result. Costs are incurred at cost as supply capital, human personnel time, or capital provided as a service is consumed. Performance costs for other acquired or developed capital are incurred to capture the reduction in solution worth as the capital deteriorates or becomes outdated, over its useful life. Performance costs account for the reduction in solution worth and amortize the solution investment to reduce the unamortized investment balance.

Costs are incurred each time a volume of results is produced

Performance costs are charged by each solution utilized to the result produced for the volume of the result. Costs may be generated by a count of whole results such as services or orders completed, Costs may be generated for work on a partial result over a period, such as report 40 percent complete or service 40 percent provided. Result value-added is the result value less total performance costs for all solutions utilized for the volume of full or partial results produced. In order to manage costs and value-added, capital solutions utilized are related in a result-solution performance domain to each result produced.

Result value is determined by customer willingness to pay for the result

The only way to manage actual business result value and full performance costs to manage value-added across the business, is to manage the business as one structure.

Result costs, value, and value-added are managed along result chains that exist within the business and lead to a final result that goes to an external customer or provides another business objective. The value of each result is established by the internal customer willingness to pay for the result within the external customer willingness to pay for the final result. Result value added is determined by total performance costs incurred to produce a value of results. Result value-added is managed to be positive across a chain of results. Low-value results or high-cost solutions are identified and corrected. Result value-added produced is attributed back to the solutions utilized to provide the gain or loss for determining the return on the solution investment. The future expected performance costs plus result value-added in utilization attributed for all results contributes to current solution worth. Result value-added becomes the main management metric in a managed business and leads directly to profit and shareholder value results. Cost and value accounting is part of normal facility records management.

Result value-added is managed to be positive over time

Result value-added must be positive over time for all results. If the result value-added is consistently negative, the result costs more than its value and should not be produced. If the result is essential, the performance costs incurred must be reduced or the result value must be increased and the value of other results in the chain or set must be reduced to maintain the final result value. Continuation of negative value-added results must be justified by planned future value-added gains.

Performance costs are managed against solutions and results across the business

Business management organizes all enterprise capital so that it can be measured to determine costs incurred from the consumption of the capital. Capital solutions are acquired or developed as a result. Solution acquisition and development costs are captured against the result. When the result is closed and a capital solution is defined, the result acquisition and development costs are entered as the solution investment. The expected solution life and payback periods for the solution investment are established. Rules or determinates are adopted for determining reductions in solution worth and charging as performance costs to results produced, so that solution worth reaches expected disposal worth at the end of the useful life. The return on investment for each solution is equal to the performance costs absorbed by results for the payback, plus the result value-added attributed to the solution for the gain or loss, accumulated for each reporting period since the solution was implemented.

The performance structure captures all performance costs as the consumption and utilization of capital, causes a reduction in solution worth. Methods for charging solution utilization are established for each solution type and result. Performance costs can be established for the amount consumed of each solution, for utilization to produce a result volume, or for results produced over a time period. Exceptions or details can be set for a specific result, when a solution is deployed to a performance domain, and then managed against expectations. Total performance costs are captured by capital solution, solution type, and capital category and class.

Result value-added provides the return on solution investments and current solution worth

Result costs are related to independently-determined result value in the willingness to pay by the customer who receives the result. The internal value of results can be determined by the market, management evaluations, and other means; but is adjusted within the final result value in the external customer willingness to pay. Result value is created for the count or other volume measure of results produced. All performance costs are absorbed by the results at some level produced from the cost. Costs charged to a result at a higher level are allocated back to results at a lower level. The total value and cost of producing a result are summarized in the result structure into higher-level set-results, key-results, and result areas to show costs and value-added by responsible manager, product or service, project, region, or any other combination of results.

Result value-added is attributed to capital solutions in the performance domains that produced the result by the contribution to producing 100 percent of the result or other determinate. The domain value-added is related back to the capital solution as a gain or loss in the return on investment for the solution. The current solution worth is equal to the remaining performance costs to be absorbed (unamortized balance), plus the assessed positive or negative value-added for all results produced over the remaining life, plus result value arising from sale or disposal of the solution.

Business management controls costs and value against the business structure

Contrived structures that collect known costs today for centers, activities, projects, jobs, products and other entities are inaccurate and do not relate to the business. 20^th century activities and business processes are redefined as result value-quality chains, by the relationship between results produced by the process or activity. Project or job costs and value are managed as a business subordinate to the enterprise business. Centers are the business organization solutions utilized to produce a set of results. Products are a sub-set of results. All these costs and value created are known through business management. Business management can report costs and value by the various attributes of results, capital solutions, and performance, as extracted from the one business structure. Management measures like cost cutting and low cost maintenance, value creation and maintenance, return on investment management, and solution worth maintenance are embedded in the business management routine. All managers easily learn the proper management of result value-added. The details of performance cost, result value, capital worth, and investment returns are handled by one or a few specialists. The enormous amount of work today in collecting and processing data against the wide variety of organization, accounting, performance management, and other management structures laid over the business is eliminated.

Performance costs and result value are managed to provide the value-added for each end-result, which is summarized to set-results and key-results. Result value created less total performance costs is the result value-added, the most important 21^st Century Business Management metric. Performance costs and result value-added are produced directly by the business and maintained by routine facility records management. Special structures are not required. Result value-added is managed to be positive along the chain by eliminating low-value results, reducing performance costs, or increasing result value and reducing the value of other results in the chain. Actual result value-added plus performance costs absorbed contributes to the return on capital solution investments. Future performance costs to be absorbed plus assessed expected result value-added contributes to current capital solution worth. Result chains can be established across collaborating businesses and integrated with supplier or customer result chains to maximize shared result value-added. Result value-added is managed to ensure profitable operations by every part of the business and to produce profit and shareholder value results. This provides a powerful management tool to maximize on high-value-added results, and close or improve or have another enterprise produce low or negative value-added results.

Result-performance Management (R-pM) provides the procedures to manage cost and value business-wide

Result-performance Management (R-pM) is the only source of knowledge and expertise on how to manage the actual business. Forward-looking enterprises are now using R-pM guidance to organize and manage their business to gain breakthrough advantages over competitors burdened by unsolvable 20^th century management problems. Business management is explained and documented in the Business Management Toolkit. The Toolkit provides procedures for actual business management and maintains emerging 21^st century management conventions, definitions, and standards. Management consultants who base 21^st century business management services on R-pM knowledge are licensed to help enterprises learn, organize, and manage the actual business. Business management knowledge and the Business Management Toolkit are available and supported today at result-performance-management.com.

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