Value Based Management (VBM) Concept

The Anglo-Saxon expression Value Based Management (VBM) designates a management system in which the ultimate end is the values’ maximization for the shareholder in a long term. Thus, aims, strategies, organizational cultures, systems, processes and performance measures should be subordinated to that ultimate end. In this sense, the management systems based on the value search to align the managers and shareholders’ interests in a way that the managers don’t make decisions based on their own exclusive interest but also on the shareholders’ interests. For that it’s crucial that the performance evaluation system and the incentive system be fully guided for a value creation. Are several the determinant value factors and that can be measured, presenting some examples:  

- Cash flow

- Business volume growth rate

- Operational margin

- Need of investment in fixed assets and in working capital given the growth of the business

- Assets’ costs

- Funding structure

- Tax rate over the income

Having in account all of these determinants, which in its turn depend on several “value drivers” like the markets’ dimension, the company’s market share, raw materials’ costs and other productive factors, salary levels, workers’ qualifications, effective tax rate, stock rotation, payments and receipts average time, equipments useful life, equity costs and debt capital.