A Trillion Dollars to restore Confidence in poorly-managed Institutions

By Harry Greene

Governments are putting up enormous sums of taxpayers money to “restore confidence” in the existing status quo

The US government is putting up 700 billion dollars and other governments hundreds of billions more to restore confidence in existing business practices. They proclaim the need to solve the problems that caused the financial crisis. But the money is to be used to bail out the losers and address the symptoms of the problems. No money is earmarked to address the actual problems in the way enterprises manage and account for their capital, the performance of their capital, and the results produced from the utilization of the capital. The objective is to restore confidence in the institutions and methods used, rather than improving the institutions and methods to prevent re-occurrence of the problems.

The money being spent will not solve the problems or prevent re-occurrence of the problems

20 years ago, large government bail-outs failed to address the real savings and loan management problems. Now we have a financial crisis many magnitudes greater. What will the next financial crisis twenty years from now bring? The problem is not just with financial institutions, but also in the fundamentals of management used by all enterprises. It is imperative that governments recognize the problems in 20th century management that do not allow enterprise to manage the value they create in economic output results, the return on and worth of specific capital investments, all the costs they incur in performance, the value-added to the business that provides investment returns, and the realistic future value-added that provides capital worth. More rules, regulations, and compliance reporting just burden the enterprises and do not address the problems. All current accounting and compliance reporting is incomplete and inaccurate and does not account for or report the actual business.

20th century accounting accounts for cash and does not account for the business

20th century accounting and generally-accepted accounting principles employed today were devised to account for money in actual and accrued cash expenditures and receipts. Capital is only partially accounted for in tangible assets that are easy to record for known cash outlays. Other capital produced by the business is not recorded as capital and may be labeled as “intangible assets” and ignored. The actual business is not accounted for today. Accounting is against an arbitrary and contrived chart of accounts structure laid over the business. Today we have unknown investments in capital solutions, unknown capital worth, unknown value creation, unknown performance costs, unknown value-added across the business, and unknown return on investments.

20th century accounting must be replaced by professional 21st Century Records Management

Accounting must be replaced by professional facility record-keeping based on actual business management, utilizing the power of 21st century information technology. A new set of record-keeping principles must be used to record and reconcile all aspects of the actual business, not just reusable financial facility equipment and consumable cash facility supply solutions. All financial and not-financial business data must be captured for all business result value and quality created, all capital of managed capacity and worth utilized, and the cost and effectiveness of performance in utilizing the capital to produce results. Transactions must be generated by the business to record actual result volumes produced, actual value created leading to revenue values, actual performance costs and effectiveness for all capital utilized, and actual value-added to results across the complete business leading to profits. Capital must be managed to capture all cash expenditure investments by solution to be amortized in performance costs against results produced to manage value-added across the business, and to evaluate result value-added that provides capital worth to justify investments and provide the return. All capital solutions must be managed as assets of positive capital worth or as liabilities of negative capital worth to know full business net worth.

Management must have of one set of complete, consistent, timely, and accurate information

The proliferation of information systems and structures providing conflicting, incomplete, and inaccurate management information today must be replaced by one business information base that references all information from the basic business data entities in results, capital solutions, business descriptors, and related enterprises by time period. The business information base must contain one set of business data, human knowledge, facility records, and management intelligence integrated to support and document capital solutions utilized and results produced. All business information including emails, Internet postings and downloads, files transferred, images and other media, and off-line documents must be referenced and accessible from the appropriate business data entities.

Governments should fund improvements in financial institutions and other enterprises to provide proper management of the business

The government should require that publicly-traded corporations organize and manage the actual business to provide transparent reporting to shareholders and regulatory bodies. The government should provide programs of encouragement and assistance to financial institutions and other enterprises to organize, manage, account for, and report the actual business in capital investment expenditures, value created within revenues, full performance costs, value-added for profits, and full capital asset and liability worth.

The only solution is Result-performance Management (R-pM) to organize, manage, account for, and report the actual business

Result-performance Management (R-pM) is the only way to 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”. The business consists of three components:

  1. Capital solutions, including all investments in tangible and intangible assets that must be managed to be available to the business and utilized properly in business performance
  2. Performance of the business in the implementation and utilization of capital solutions to produce business results
  3. Results produced that provide the economic outputs of value required for business success

The organized business provides one structure for all planning, direction, control, accounting, reporting, and governance. The arbitrary contrived structures laid over the business in today’s 20th century management must be cleared away to prevent distortions and misinformation and enable complete and accurate business data capture.

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