Value
Based Management is the management philosophy and approach that enables and
supports maximum value creation in organizations, typically the maximization of
shareholder value. VBM encompasses the processes for creating, managing, and
measuring value.
Adding
value to your business is very important for better profits. Recent years have
seen a phase of new management approaches for improving organizational
performance like flat organizations, profit driven organisation, total quality
management, empowerment, continuous improvement, team building, and so on.
Many
have succeeded - but quite a few have failed. Often the cause of failure is not
meeting the targets that were unclear or not properly aligned with the ultimate
goal of creating value. Value-based management is the solution for this
problem. The thinking behind VBM is simple. The value of a company is
determined by its discounted future cash flows. Value is created only when
companies invest capital at returns that exceed the cost of that capital. It
provides a precise value upon which an entire organization can be built leading
it towards profitability.
