Chapter 11



by: josavere

All enterprise activity has as objective the value generation (whichever is the criterion and the form of distribution), the reason why it prevails to work with a system that allows elaborating a plan of profits. These must be sufficient to cover the cost with the capital of the company and of producing excessive for the shareholders, that is to say, TO GENERATE VALUE.
To learn a program of this type is very difficult; the theory of the planning of this type is described in a few pages; can be explained in a few hours, but the learning in the enterprise scope takes approximately five years depending on the development and capacity of the executive group.
The mastery of the technique requires constant work, patience, a critical spirit, and a capacity for analysis that allows for the improvement of the methodology.   First, it is important to create an atmosphere of planning among all the executives, which is due to look for through persuasion. It displeases people to be measured, to keep an expense control, of fulfillment requests of a budget, etc. Experience demonstrates that little by little people comply with this discipline.
The highest levels of enterprise direction must take the subject positively and become pillars of the administration for the implementation of the system, starting with the board of directors, staff that has the responsibility and must set the policies and establishes incentives for its fulfillment. The direction of the human resource and in general all the managing teams must be committed to using all the tools for motivation.


With the Digital Revolution, predictive analytics looks for future results using data from the past; the models use different methodologies with a very similar general objective; some are classification specific (the model results are binary; a yes or no, in the form of 0 and 1) and others regression that allow predicting a value that can be applied to an unknown event in the past, present or future .
The Digital Revolution provides BIG DATA with an abundance of structured variables, such as data tables, and unstructured variables, such as texts, images or videos, and provides new possibilities for prediction and brings about a change in layout. Now they are built flexible and heterogeneous with a proven ability to predict well, data different from those used to estimate them; the final predictor used combines different models, procedures and data types.
Decision Trees, Neural Networks, Support Vector Machines, Bayesian Analysis, Logistic Regression, Linear Regression, Time Series and Data Mining, K-Nearest Neighbors, Ensemble Models, Gradient Boosting, Incremental Response Models, Replace, Introducing Multiple parameters extracted from Big Data, with many advantages, the models traditionally used by statistics.
Big Data Analytics is the technology used to analyze a huge amount of structured and unstructured data that is collected, organized and interpreted by software, transforming it into useful information for decision-making and to generate ideas about market trends. In addition, it contributes to the generation of ideas for new products and services, customer attraction, audience understanding, security and more benefits to make strategic decisions.

Each company must study its particular case and implement its model, with the resources available to them, in clearly understandable terms by all the people of the organization, who must commit themselves voluntarily to their compliance.
In a certain way, half of the work consists properly of the planning; for this, followed, in general terms, by the steps that later are described. The other half consists of the opportune control of the accomplishment of the results of the production and sales charts, and others that are due to be elaborated by responsibility centers.

  • A budget of production with its relatives by marriage
  • A budget of materials, (differentiating raw materials concerned nationals)
  • Budget of purchases
  • A budget for manual labor
  • A budget of general expenses of the manufacture
  • A budget of administration expenses
  • A budget of sales and trade expenses
  • A budget of publicity Budget investments in human resources
  • A budget of other investments
  • A budget of payment of taxes
  • A budget of cash
  • A budget of financial expenses   (based on the cash projection)


The careful and analytical comparison of the causes by which the results were not fulfilled, and the feedback of the system, will be the basis to obtain the most budgetary age, which, is obtained the day that the company is in conditions for projecting basic financial statements: general balance sheet, earnings statement, state of sources and applications of funds and the financial indicators par excellence: the projection of the cash flow and the .
When a company manages to take that step, is in conditions for planning its development according to the policy drawn up by its directors within the frame of the main target to generate value with direct profit for the people who interact in tangible ways and for the owners, including the small shareholders through the increase of the value of the shares in the market.
For planning is necessary a system of costs that allows for a clear differentiation between the fixed and variables costs, that depends on the volume of production; a reviewed analysis of equilibrium point to calculate the minimum amount to produce and sell, a wide knowledge of the market to calculate the potential of sales and, the cost of capital to the company.



A. PROJECTION OF SALES INDEPENDENTLY TO THE PRODUCTION CAPACITY: using econometric models like the matrix of sectarian growth, regression analysis, analyses of correlation, movable averages, etc., combined with quantitative models as one acquires knowledge in HELUSA S.A.


B. A GOOD SYSTEM OF COSTS THAT ALLOWS ITS PROJECTION: we must begin by considering, with the aid of the experts, the possible increase in different items and projected the curve of the fixed average cost, to observe its behavior at different levels of production.

Pp = CMFp + CVp  + MU


price to a Q3 amount


projected fixed average cost


projected variable cost


margin of profits

C. CALCULATION OF THE COST OF THE CAPITAL: as we analyzed in a previous document, one calculates based on the weighted average of the different alternatives of financing. It is a dynamic concept that varies as changes appear in the financial structure  For the plan of value generation is due to work with projected costs according to the plan of financing, looking for an optimal financial structure.


E. ESTIMATION OF THE CAPACITY OF INDEPENDENT PRODUCTION FROM THE CAPACITY OF SALES: the areas of sales and production in simultaneous form elaborate the respective budgets with the use of all the techniques available to them. The people in charge of their compliance, when putting it under their approval, must sustain them with clear and forceful reasons that they allow the direction to trust them and to respond to all types of questions before its approval. In this first attempt, the production is due to budget with the resources available then, but obviously, looking for optimization. The sales must be budgeted without extraordinary investments of any nature, delivering the maximum attack normal to take care of the market.

F. COMPARISON AND ANALYSIS OF THE PREVIOUS RESULTS: initially we will make a comparison for all the periods in general; the annual number of sales versus the number of production. If the amount to sell is superior to the amount to produce, we must go into studying and quantifying the possible alternatives to increase the production to the required level, for example:

  • To buy two machines of such specifications. They must be in operation from so dates and require an investment of dollars.
  • In the opposite case, the alternatives are to increase the sales (businesses of export, reduction of prices, bargains, special plans of trade, etc.). If any possibility does not look feasible, it goes to the search of mechanisms to reduce the production, quantifying all the possible alternatives:
    • Reduction of staff
    • Change of product mixture
    • Cuts in the installed capacity, etc.

G. CALCULATION OF THE TOTAL COST OF PRODUCTION AT THE CONSIDERED LEVEL: after this comparison, we go to the curve of the projected fixed average costs and calculate as it is going to be its value for the predicted volume of production (Q3), which is equivalent to the average sum of the fixed one (CMF3) plus the variable cost (V3) unitary with values considered according to what was indicated in step 1.

H. ESTIMATION OF INCREASE IN PRICES: with this fixed cost plus the addition of the variable cost and the margin of profits, we considered the projected unitary price for the amount (Q3). Comparing the previous one with the effective sale price, we calculated the increase that is required to conserve the profits margin, Pp/Pa = %

Pp = CMF3 + V3 + Up3



considered sale price


the fixed average cost at a level of production 3


variable cost


the awaited margin of profits

I. LATER ESTIMATIONS OF SALES AND PRODUCTION: if regarding the projection of the increase of prices in the national scope (projected index of inflation) the resulting increase is out of proportion, again the budgets of production and sales are used, logically looking for, the possibility of increasing the amounts (studying the different tools from the creation of demand and increases of short term productivity), to situate us in a feasible level, that the increase in the sale price is inferior or in an extreme case, equal, to the projected index of inflation.
It is required to study alternatives until situating in a reasonable increase in prices, according to the conditions of the market. It is necessary to take notice of the investments required the studied to get the alternative because they affected the cash flow, which serves as a base for the calculation of the cost of capital and the financial expenses.

J. INITIAL APPROVAL OF BUDGET (FIRST ANALYSIS): the result budgets of production and sales must yet be purified and analyzed at the highest level and the possible detail for their final approval. Also, the other elaborated budgets, will be sustained by the people in charge of their enforcement and properly approved by the top management, using the appropriate indicators and compared with the previous periods.
Once approved these budgets it is come to determine the games that are required to be able to arrive at them, like the budgets of materials, indirect manual labor, expenses of manufacture, maintenance, sales expenses, appropriations for publicity, research, and development, preservation of the environment, qualification of the staff, expenses for trips, taxes and the others depending on the company individually.

K. INITIAL PROJECTION OF THE RESULT STATEMENT: with the budgets approved in the first analysis pas to structuring a projection of the operative result, bases to continue with the elaboration of the general plan.

Sales (prices projected Pp)






Rough profit



- Administration expenses



- Sale expenses



Operating profit (losses)



The operating figure of calculated profit requires special attention because it constitutes the first filter.
It is initiated by calculating the indicators that permit evaluations to know:

d. % of increment in the rough profit in relation to the previous periods.

If the predicted figure of operating profit fully satisfies, comparing with the indicators of the industry is passed to split the plan into periods of control, by centers of responsibility and the projection of cash.

L.TO DISTRIBUTE OF THE OPERATING PLAN BY CENTERS OF RESPONSIBILITY AND BY PERIODIC FIGURE (monthly, weekly, annual): the incomes by different concepts of the elements of the cost, and the expenses projected split in budgets by centers of responsibility according to the letters of organization of the company, of such way that they have always a responsible person for its compliance, setting down the bases for the control of the plan and the taking of corrective actions.

M. ESTIMATION OF THE FINANCIAL EXPENSES: the financial budget of expenses depends on the financial structure that the firm adopts and the projection of the cash flow, in the measurement that the approach the execution to forecasts. The most important step consists of a structure that commonly calls the prognostics of incomes and expenses, prepared based on the annual budgets priory approved monthly, keeping in the seasonality of the sales and the collections of cash, and structuring a follow-up.
For this, remember the expenses that do not imply the exit of cash, such as the depreciation, the amortizations, some social fees, etc. The budget of the expenses that require exit of cash, in deadlines of rigorous fulfillment, therefore for a company is very important the history of honoring its obligations. Any additional expense that presents should be authorized priory and tied to the general projection.
The incomes result from the budgets of sale, in the deadline granted by the company, except the estimation of the delays of clients plus the recovery estimated of the accounts receivable defeated. Any income should be added that can be predicted at the moment of the calculation.
Comparing the incomes and expenses can present two basic situations:
1. Balancing figures at the end of the year with a foreseen deficit.
2. That it be finished with a surplus, thus in some months itself present deficit of treasury.
If we start from the assumption that all the current actives should become money in a lower cycle to a year, normally the current income should be enough to cover the current expenses and, therefore, it is to the second situation be expected. This means that if the surplus of budgeted cash for the end of the exercise turns out normal, scored with a good criterion, the situation is clear and proceeds to finance the possible temporary deficit with short-term loans adapting to the conditions of the money market.
If the projection of cash shows a surplus month by month and if the accumulation presents a considerable amount, the company probably has an over-investment in current activities, which implies that we are losing profit value in the exercise. In this case, we can think about studying new investments or in an enlargement of the plant.
If on the other hand, a permanent deficit is presented, it implies there is a need for capitalization according to the size of its accumulation through the year. In this case, it is very important to study the possible causes of the situation and how to solve them. Among others there could be:
a. Violation in previous periods or the exercise in question, of the principle of conformity according to which, the fixed assets and the fixed part of the current activity should be financed with its capital and with the long passive term.
b. It lowers profit value, which the faster the operating cycle, it reflects in less liquidity.
c. Over investment in fixed assets, or in other assets that are not generating cash.
Once the problem is detected it should be decided which alternative of financings is through execution of assets, retention of profits, or capitalization of the associates, and then proceeds to elaborate a new cash flow that satisfies normalizing fully the situation.
This, adjusted with the initial figure of cash, equivalent to the final balance of the previous exercise, will serve as a base to calculate the financial expenses added to the ones that brought the previous flow, the expenses incurred by the temporary deficit, and reducing the income by the performance that can be obtained when there is a present surplus of cash.
By the way, upon presenting the solution of financing in itself we cannot lose sight of the tributary aspect, which does that in principle, the debt result as the cheapest alternative of financing. The undue use of this concept has carried many businessmen to deep financial problems that end in technical bankruptcy. Logically, the capitalization will be subjected to an improvement of the net figure of profit and the value generation index corrected and projected, .

N.  DEFINITION OF THE GOAL OF PROFITS: taking the patrimony of the firm, without losing sight of the general conditions of the market and in realistic terms, the goal of profit value should be set so that the owners or directors consider it reasonable. For this we use:

  • Rough index profits / net sales: serves as a parameter to calculate the efficiency of the operation, base to think about alternatives for financing
  • Net profit / net sales
  • Net profit/patrimony
  • Net profit projected / net profit of the exercise base (%)
  • Comparisons with indicators of the industry
  • Financial structure, which should contribute to that goal in the measurement that should be optimum

For this, we simulate projections of the state of results, with increments of prices that are not over the increase expected for inflation according to the macroeconomic estimations. Of the amount of cash resultant the appropriations that define to the board of directors for research and development, training and human growth, positioning, and preservation of the environment.

O.  TO PREPARE THE STATE OF RESULTS: with all the resultant information of the calculations, we are ready to prepare a state projected of results-oriented to the generation of value (useful for administrative effects), we observed that all the components of the cost and the appropriations of expenses are presented in double appropriations, an indicating the projected figure and another free to place the resultant value in the implementations. In this way, the control of the Plan is prepared to indicate the unfavorable and favorable variations and their effects on the result. With each one parted a complementary periodic fee should be indicated, the cause of the inconsistency, and the corrective action to take.


Raw materials
+ over costs by inefficiency:
Raw materials
+ Variable Administration Expenses Excess (Reduces the margin)
+ Over expenses of Variable Sales (Reduces the margin)
- Of Production projected
+ Production Expenses Excess
- Of Administration projected
+ Administration Expenses Excess
- Expenses of Sales
+ Sales Expenses Excess
+ Financial Excess of Expenses
+ o - Results in Payments of Taxes

Research and Development
Preservation of the environment
Human development
It requires special attention because it is oriented to the implementation of the salaries of risk.
TIMELY the periodic report should be presented oriented to the calculation of the , it should elaborate a matrix as it is indicated subsequently, since it permits a clear orientation toward the control of all the activities predicted in the initial plan, indicating the leaks that are presented with the pertinent notes that they serve as a guide to take corrective actions.

Date:_________ Period of evaluation (month, week, day):_______________


Center of responsibility


projected value

final value

notes (explanation of the variation)

person in charge (position)

Production: machine I

cost of M. L.



payments of not budgeted extra hours due to an unexpected increase in the production due to the increase of units from the buyer

Andrés Ortiz (Head of machine I)



analyzed by:_______________________


P. CALCULATION OF THE : with all the previous information we are ready to calculate if the plan predicted allows us to generate value or if on the contrary, it destroys, in which case total replanting would be required.

We remember the formula the :


EVA corrected and projected


profit of the period


investments in research and development


investments in publicity capitalized






cost of capital




revaluing the patrimony

It is probable that preparing the financial budget of expenses messes up the figure of expected profit. If the alternative is selected well the amount of net benefit should be improved in relation to the initial situation. Also, it can be presented on the contrary case by difficulties to obtain adequate financing.
In case one or the other is present, we will proceed to perform the pertinent adjustments or to replant the situation again until we summarize the plan that will serve as a guide of action for the business. In practice, many adjustments are required to achieve a definite optimum proposal that is the one that should generate value.
If the fully satisfies, we concentrate on the projections that permit us to refine the plan, as follows:

Q. DISORDER OF THE ANNUAL PROJECTION IN PERIODS (semester, quarterly, monthly, and weekly or daily): the degree of the disorder depends on the level of control and the periodicity with which we wish to exercise it in the general direction. At different administrative levels, the control will exercise different forms, for example, for the presidency is very important the , while for the supervisor of production raw materials the consumption per unit, of raw materials is more important.

a. General balance: it is taken as a base for the balance of the previous exercise, the state of results projected, and the probable changes motivated by the predicted actions. For example: if the plan contemplates a capitalization, the patrimony in the corresponding appropriation will be increased.
b. State of results projected.
c. Projection of the cash flow (financial indicator par excellence).
d. EFAFP (josavere) states projected changes in the financial situation: it is prepared following the steps indicated in the document on the subject.
e. Financial indicators: should be calculated by liquidity indexes, activity, indebtedness, cover, and profit value. Based on them is the benchmarking prepared or by comparison with the indicators of the leading companies of the world in the corresponding sector.

S. GENERAL DISCLOSURE: once approved the plan to the highest level, it should gather the responsible for its enforcement for its final disclosure and achieve the contest of all involved in order to obtain the objective. The budgets finally approved should acquire the character of “compromise” well understood in administrative terms and they will serve as a base to do periodic evaluations and the making of decisions that permit timely correct the lacks that should appear.
The objective figure serves to set some parameters that permit to organize a plan of participation in the profits, which well structured can become an excellent tool the increased productivity, defense against inflation; the social element of justice and of a generation of value, the only reason that attracts investors, especially the foreigners who use the EVA as its indicator par excellence, taking advantage of the electronic banking and the internet.
The periodic comparison of the real results with them projected serves as the base to take corrective actions that permit to perfect of the system and achieve the objectives.
To properly orient investors it is required to create a culture of financial projections that ease the comparison with the opportunities that the market offers. The comparison of the real results projected to the end of the exercise will permit to structure of the indicators of credibility that will serve as a guide to orient investors.

T. CONTROL: it constitutes an objective base to evaluate the fulfillment or to detect mistakes in the elaboration of the general plan.
It should be prepared with the periodicity that the characteristics of the business individually require as follows:
a. It should be opportune, accepting the sacrifice of the precision or accuracy for the sake of the promptness so that it permits the analysis and takes the corrective actions.
b. Clear and concise objectively informing the facts that could affect the result. It is important to request an explanation concerning the direction of the center of responsibility before supplying information at the upper level. They should be signed by whoever elaborates on the report and by the person responsible for the respective center.
c. The executive responsible should participate in presenting alternatives to improve the situation with a focus oriented to see the making of decisions.

AI opinion: the Value Generation Master Plan proposed by José Saúl Velásquez Restrepo addresses business management from a comprehensive perspective with the objective of generating value for the company and its shareholders. Below are some observations and comments on his approach:
Focus on value generation: The main focus on value generation is fundamental in business management. Creating value is a common goal for companies, and it is essential to have a master plan to achieve it.
Planning and control: The author highlights the importance of planning and control in business management. These elements are crucial to ensuring that the company is on track to achieve its value generation goals.
Planning culture: Creating a planning culture at all levels of the organization is essential. The commitment of all members of the company in the implementation of the planning system is vital for its success.
Top Management Involvement: Active top management involvement is crucial to establishing policies and providing incentives that drive master plan delivery.
Incorporation of the Digital Revolution: The author mentions the importance of taking advantage of the Digital Revolution and predictive analysis to improve decision making. Incorporating technology and data analysis are essential in today's business environment.
Cost and differentiation system: The author highlights the need to have a cost system that allows differentiation between fixed and variable costs. This differentiation is essential for decision making based on production and sales volume.
Estimation of production and sales capacities: Estimation of production and sales capacities is a crucial step in planning. Coordination between sales and production teams is essential to ensure realistic planning.
Control and analysis of results: Control and analysis of results are essential to correct deviations and take corrective measures. System feedback is key to continually improving the value generation process.
Financial planning and calculation of the cost of capital: Calculation of the cost of capital and financial planning are central elements in the generation of value. This involves estimating cash flows and the optimal financing structure.
Utility Goal: Defining a realistic utility goal is crucial. This involves considering various financial indicators and the financial structure of the company.
Breaking down the projection into periods: Breaking down the annual projection into shorter periods (monthly, weekly, etc.) is a good practice to facilitate control and decision-making over time.
Financial indicators: The use of financial indicators to evaluate performance is essential. These indicators provide key information about the financial health of the company.
Disclosure and culture of financial projections: The disclosure of financial information and the creation of a culture of financial projections are important to attract investors and maintain transparency in the company.
Control reports: Control reports must be timely, clear and proactive. They provide valuable information for decision making and correction of deviations.
In summary, the Value Generation Master Plan proposed by José Saúl Velásquez Restrepo is a comprehensive guide for business management focused on value creation. Planning, control, technology and data-driven decision making are key elements in this approach. Effective implementation of this master plan can help companies achieve their financial objectives and generate long-term value.

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