The allocation paid out by Finance to an org or activity must BUY SOMETHING.

It buys more funds back from the activity than it paid out and it buys the production of that activity.

Finance is best understood as a COMMODITY in terms of beans.

So many beans issued to an activity and so many more beans back.

Beans do not magically materialize into more beans. What brings back more beans for those issued is the PRODUCTION and INDUSTRY of org staff and how wisely the beans are allocated.

Even the interest one earns on a bank account is earned in fact by someone’s production and ability to get more beans out of an activity than are put in.

Where Finance uses its beans to buy production and industry and projected income at a cost which requires the activity to be viable it gets back more beans and a raised allocation-production ratio.

The first rule of Finance and any activity is INCOME GREATER THAN OUTGO.

Where Finance can skillfully apply this to the divisions and personnel of an org as well as the org as a whole the additional beans materialize because what is bought is production and the products which add up to the product of raised income and viability.

Activities that allocate by need and fail to force and pay for production are the basis of failed economies and welfare states.

“We need ....” is taken by Finance with a yawn unless followed at once by a projected resulting valuable product or income realistically planned and immediately in view.

Finance allocates against proven production and projected income.

The FBO looks at where the beans are going and what income and production they are buying.

When he finds that the beans issued to an area or division are not buying production or income he designates a cap-in-hand status to that area and the beans issued become those essential to product only until the product emerges in the expected volume and quality.

One org with a soaring payroll particularly in the Tech area while delivering less than 5 auditing hours per auditor per week had all on full pay and bonuses. The org had finance troubles and found sums needed to promote absorbed instead by high payroll.

How? The org was on fixed pay (high) and gave only small production bonuses, obligating a high payroll expense without regard for production.

Other errors aside, the Finance error is an absent demand that the beans issued to that area buy more beans or valid full capacity production.

A reversal of this, setting low basic pay and high production bonuses, would have bought production for the beans issued and where there was no production would have issued no beans or a bare minimum.

The apparency that income sources devolve upon certain single portions of an org leads Finance into difficulty unless the products and sub-products of the org and its divisions are fully grasped.

The tracing and reinforcing of income sources while a necessary and vital action falls far short of the total action of finance in its investment of beans.

A company receiving income only after the fact of delivery would appear to an inept or unfamiliar Finance person to have DELIVERY as its major income source. If Finance then seeks to raise income by forcing all beans into stepped-up delivery while neglecting the prior promotion and sales there is soon no demand and nothing to deliver and NO BEANS.

Income sources traced superficially to SALES expertise alone, neglecting promotion and delivery again gives NO BEANS.

A Finance person seeing sales expertise as the company’s immediate and major income source quite rightly issues more beans to sales. But if he leaves promotion and delivery underfinanced, sales suddenly finds itself selling an unknown product due to absent prior promotion, and sales made go undelivered or poorly delivered or even refunded.

Finance tracing income sources to promotion alone and neglecting to follow up with sums to sales and delivery gives the same result.

Thus, in addition to org income sources, Finance and org managers must know the valuable final products and sub-products of the org and its divisions and posts in order to wisely allocate funds.

Income greater than outgo applies equally to each division and person in an org.

If Finance is fully familiar with the products of divisions and key posts of an org and their costing and value to the completed org product and expected volume or capacity it can skillfully apply income greater than outgo individually to each.

An org has valuable final products for which it collects income.

Each division and area of the org has a product or products which contribute to the whole action which gets the org product promoted and delivered and the income collected.

How much it costs to produce how much product is the COSTING of a division or org or post.

It is not always possible to determine how much income a single post or division contributes to the whole activity.

But one can know to what degree a sub-product is vital to the delivery of the org’s valuable final product and one can know how much it costs to produce it. And one can expect each area and post to be productive and viable as a single activity.

Costing to be real must also take into account the expected CAPACITY or IDEAL SCENE of the activity.

A plant producing at half capacity yet fully manned and running at full expense gives a product which costs twice what it should if the activity is to be fully viable and profitable.

A costing of the Tech division described above would show that with production at 1/5 capacity, its product cost 5 times what it should cost to be viable as an activity and profitable to the org.

Thus, funds allocated to an activity by costing alone will not buy or ensure production or return more beans.

If one were allocating beans by income and products, he would have to consider the COSTING of each product, the importance of each product (how vital it is to the Valuable Final Products of the org) and the expected capacity or volume of each area.

One could juggle these about and assign an allocation value to each product and sub-product and key stat.

So many letters out, so much bulk mail out, so many student points and well done hours = so much allocation.

Under such a system the FBO would get production and more beans back for the beans put in.

The Ad Council doing FP on such an allocation would shortly see what under-productive areas were causing a reduced allocation and would pound those areas to produce. Likewise, the activities of productive divisions and areas would be reinforced by the FP body.

What accomplishes this is NOT Finance acting as org management, but Finance applying income greater than outgo to each division and area of the org and handling money as a commodity of which one issues so much and gets so much more back.

Finance becomes org management only where it ceases to handle finance as a commodity like beans and where org managers themselves fail to grasp and understand financial realities.

Financial Planning is how one uses the funds one has to keep things running well and make more income.

There is some degree of loss in a failure to prevent unreal and unprofitable expenditure.

Orgs and FP bodies are sometimes improvident in their planning and Finance people are alert for this and have to be because they quite rightly expect beans back plus more for beans expended.

But the greater loss to Finance is income lost or never made.

The difference between what an org should be making and what it does gives Finance greater loss than any FP saving could ever recover.

Foolish or unreal expense is prevented because it’s a poor investment. But an org of $50,000 income potential making only $20,000 is a weekly loss of $30,000 to Finance.

An org stacking up thousands in collected but undelivered services gives Finance a potential and staggering loss in sums refunded.

An org seeking to save 10 shillings while neglecting to develop and boom a continent doesn’t make sense.

One knows the income sources of the org cold and one knows what sub-products promote and sell and deliver and collect income.

One puts finance as a commodity first and most into these and never saves on them except to raise the viability of a vital division or area not producing well and then only to raise production.

One seeks new income sources and means while reinforcing those already successful and reviving any no longer current.

One gets sums already owed to the org collected with industry and in high volume.

One handles emergencies by making more money and has lined up 3 or 4 valid income sources each and any one of which would provide the needed funds.

One uses beans to buy raised income and production and refuses to finance non-production or fruitless expense.

One knows cold the costing of vital and other org products and demands full capacity production and viability and income greater than outgo of each division and area and post of the org individually.

One predicts and plans for expansion occurring and the future adequacy of materiel and quality of delivery before the sudden absence of adequate staff or delivery facilities becomes a screaming urgency.

And one knows that more profit can be lost than ever could be saved on expense.

Money is a commodity.

It is subject to certain realities. Its realities apply to the whole org and equally to the divisions and persons in the org. Its realities have to be fully grasped by Finance and FP members and org managers.

Handled by Finance people as a commodity of which one always gets back from an area more than went in it brings raised income, expansion and reserves.