Dear,
Many economists agree that we are at the end of a Financial System model.
For instance, Larry Summers, 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama, has described the current economic environment as "Secular Stagnation; a prolonged period in which satisfactory growth can only be achieved by unsustainable financial conditions”
http://larrysummers.com/2017/06/07/secular-stagnation/
For decades strong economic growth has made Capital abundant, but this started to change in the last decades of the last century when economic growth became weaker and global debt rose until becoming the highest in the history of capitalism.
Excess of debt consumes Capital and weak economic growth prevents Capital generation, this is why Capital has become scarce, and Capital is the most important resource of the Financial System.
If Capital is scarce the priority is Capital Optimization and this is the driver of the New Financial System that will emerge from this crisis.
Capital Optimization requires maximizing the Return of Investments weighted by Capital consumption.
Capital consumption is directly proportional to the Risk Weighted Assets, this means that Optimizing Capital is synonymous with reducing the risk of the economic activities, and risk is always reduced by applying information.
As the economy becomes a Information based Economy, processes have become more important than tangible assets; you can look at the examples of Amazon, Google, Facebook, Netflix, etc.
In order to optimize the Capital consumed in a process we need to determine the value generated by the process, the assets we have to allocate to the process and the risk of suffering losses on the assets (tangible & untangible) allocated to the process.
The Activity Based Costing of the SAP Enterprise Core Components System, in combination with other SAP ECC modules like Profit Center Accounting, Production & Internal Orders, and specially with the multi-dimensional accounting capabilities of the Universal Journal of S4 HANA are an excellent starting point.
ABC Processes, Profit Centers and Orders support the tracking of value generation with sophisticated activity cost driver templates. At the end "activating" a cost is estimating the capacity of the process of generating value from the cost.
The estimation of the value generation is the first step on the Capital Optimization process.
The following step is estimating the risk exposure associated to the value generation. When we establish the link between the risk exposure and the value generation drivers, we will be in the position of reducing the coefficient of capital consumption for value generation (by allocating the information that will reduce the risk).
Processes of the Information economy come with enormous amount of data, this is growing every second and it is growing much faster with the implementation of new technologies like the Internet of Things.
Not all the data have the same relevancy on reducing the capital consumption of the process and the objective is identifying the relevant data, structuring the data in relevant information and finally developing models for integrating the information in the process, reducing risk and consequently Capital Consumption.
For the last 12 years our team has analyzed business processes modeled in SAP System for modeling the cost drivers of these processes in terms of Capital consumption and generation.
With this information, we can optimize the expected profit of a business process, weighted by its Capital consumption, which is the objective of a Capital Optimization system.
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
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Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
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