management-decision-making-with-eva-guatemala



Management Decision-Making with Economic Value Added  

Frame Your Decisions to Improve Economic Value Added

13 February 2025 in Guatemala

This course is designed for corporate executives struggling to understand and apply Economic Value Added methodology to their operating and strategic decisions. The goal is to enhance the understanding, simplify the practice, and provide a framework to build quick tools for routine decisions.
If you are working in one of the following roles, we invite you to join us for this interactive workshop that will boost your ability to make decisions that create value:
  • CEOs, General Managers, and Business Unit heads and their direct reports.
  • Corporate development, planning, finance and strategy professionals.
  • Senior functional executives and their direct reports.
  • Board Members.
  • Understand what Economic Value Added is and why it matters.
  • Relate your understanding of finance and accounting to Economic Value Added.
  • Be able to calculate Economic Value Added with basic accounting data.
  • Build a shortcut tool to quantify the impact of incremental capital usage on Economic Value Added.
  • Reduce complexity in using and updating capital of capital.
  • Construct robust decision-making tools to make routine decisions easily and consistently.
  • Discuss approaches to set Economic Value Added performance targets.
Economic Value Added methodology is a shareholder-aligned framework to maximize value. The key is to account for capital usage in strategic and operating decisions as well as in the accountability system. It is a simple yet nuanced change. Often decision-makers struggle to make this transition. Conventional biases continue to taint their decisions. This course is designed to ease this transition. 

We first draw the Big Picture that illustrates all the moving parts as well as how they interact to create value. Participants typically are familiar with the constituent parts as stand-alone elements, but fail to grasp how those parts constitute the whole. With hands-on exercises, participants then calculate Economic Value Added from basic accounting data. A framework to simplify and evaluate routine decisions with a value lens is introduced and practiced. The goal is to enable participants to frame their decisions in the form of simple algebraic calculations. We also practice capital budgeting employing the Economic Value Added methodology. 

A drivers framework is introduced to establish a direct line of sight between operating metrics and Economic Value Added. Finally, we discuss best practices in adjusting and updating the Economic Value Added system as needs arise. 

The course enhances participants' Economic Value Added prowess by providing a more holistic view as well as equipping them with shortcuts and formal tools.

1. The Big Picture of Value Creation

What is Value-Based Management (VBM).
How accounting fails to measure value and creates misalignment of interests.
Measuring profitability that accounts for "total factor productivity".
Control versus alignment-driven management.
Core elements of a VBM system:
  • Comprehensive performance measurement.
  • Decision-making support and analysis.
  • Value-aligned incentive compensation.

    • 2. Economic Value Added

    Centrality of opportunity cost of capital and the minimum required rate of return.
    Why return based measures may not measure value.
    Balance sheet usage and its costs and benefits.
    Equivalence of cash flow and Economic Value Added as shareholder value objectives.
    Why Economic Value Added is superior to cash flow as a value management tool.

    3. Calculating Economic Value Added

    Back to basics separation of operating, investment, and financing decisions.
    Correcting accounting that distorts managerial behavior.
    Accounting adjustments that reveal underlying economic performance.
    Performance measurement approaches to encourage long term investments.
    Cost of capital calculation overview.

    4. Decision-Making Tools

    Tradeoffs between operating and asset efficiencies.
    Analysis of selected operating decisions:
    • Quantifying working capital trade offs.
    • Implications of outsourcing decisions.
    • Assessment of automation versus labor.
    • Impact of decisions upon production runs.
    Economic Value Added-based investment analysis.
    Economic Value Added drivers framework.
    Cascading drivers tree.

    5. Issues Related to Incentive Compensation

    How to update parameters that affect compensation.
    Best practices and pitfalls in employing Economic Value Added in bonus plans.
    Economic Value Added targets and budgets.
    Kindly click on Download to receive the complete program details in pdf format.