What is Value Point Accounting?

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.