The famed management consultant and self-described "social ecologist" Peter F. Drucker, in his book, Management: Tasks, Responsibilities, Practices, wrote: "The expenses under management's control are the expenses for the future. The capital expenses and the managed expenses express management's risk-taking decisions. These include expenses on facilities and equipment, on research and merchandising, on product development and people development, on management and organization, on customer service and on advertising. A managed expense budget is the area in which a business makes its real decisions on its objectives."
It's clear that effectively apportioning capital among the contending demands of an organization's operational base goes a long way in determining the extent to which the enterprise can compete and fulfill its mission. Stated differently: how well an organization manages its capital and financial resources is one of the strongest indicators of longevity and success.
Every enterprise of any appreciable size and with significant obligations will follow similar guidelines when assigning capital offset to prepare for the outcome of an event or plan. Managers in a variety of disciplines - finance, risk, audit - must deal with the risk associated with their capital allocation decisions.
Clearly, there is a distinct relationship between capital and risk and the analysis that joins them. Improving the use of capital within the organization is crucial and cannot be overstated - and neither can the effects of state-of-the-art predictive analytics on financial management.
TAKEN BY SURPRISE?
While efficiencies arise primarily from a more effective allocation of capital, the absence of adverse "surprises" directly resulting from good business intelligence and a proficient risk management regimen are also critical. Adverse consequences from operational risk can essential) translate into a sudden, unplanned demand for capital.
Such a situation can immediately drain capital from the company's essential operations and affect the credibility of the company's financial position.
With adverse consequences hanging in the balance, the expense scenario takes the form of "nay now or nay more later."
Corporate information technology has sometimes been taken to task for less-than-successful decisions of build versus buy in the last decade.
Many companies now leverage third-party solutions for certain technology operations instead of independently...