Advanced Financial Planning and Value Based Management
A white paper that outlines proper Advanced Financial Planning and Value Based Management through a practical example.
Key concepts
Advanced Financial Planning (AFP) – identify relevant value drivers, understand sensitivites and create what-if scenarios around key value drivers.
Value Based Management (VBM) as key concept to managing and executing strategy by identifying drivers that the company should focus on.
Measure and allocate cost of capital to optimize capital allocation
in an organization.When VBM and AFP are implemented, this can unleash tremendous value in the organizations by aligning strategy with operational execution and focusing the allocation of resources to where they can yield the highest returns.
Important read: White paper on Unified Performance Management
Value creation
Shareholders invest their funds in companies, putting their wealth at risk with the intention to receive a greater amount in return. If this is accomplished, in general, this can be considered value creation.
The purpose of this White Paper is to highlight the methodologies used by companies to manage their value creation process based on VBM (Value Based Management) and to demonstrate how they align this with the Unified Performance Management (UPM) framework.
From an accounting perspective, profit can be defined as the amount of income exceeding costs. In many cases, this simple perspective is sufficient to define value creation.Economic profit is defined as the amount by which cash inflow exceeds the costs associated with all factors.
This not only includes expenses incurred in operating the business but also the cost of capital invested in the business.
