Value Point Accounting (VPA) applies financial investment principles to business operations at the elemental level. Your business is viewed as a portfolio of product and customer combinations. Each product or service billed to each customer is treated as a separate investment in the total business portfolio. Think of a grid with X axis as products and Y axis as customers. Each point on the grid is a “value point” in that it earns a unique return on capital. A business can readily have thousands or millions of value points – each with unique performance.
How is it used?
Information from Value Point Accounting can be a key input to tactical and strategic business decisions. The best application for business operations is decision support for pricing, credit, capital expenditures and cost reduction efforts. Strategic application is the clear identification of product lines and market choices where growth can improve rather than degrade overall return on capital and business value. See Applications tab for examples.
How is it done?
A goal of Value Point Accounting is measuring ROI (return on capital) for each value point. Determining total cost and investment for each value point is a challenge. Typically this requires the use, in whole or in part, of several financial performance measurement techniques. These include economic value, activity based costing (ABC), capacity based costing, theory of constraints (TOC), cost of quality (COQ) and modeling of operations.