Value Stream Accounting and Value System Accounting

The theory, tools and techniques of VSA are built on a strong foundation of traditional, tried-and-tested financial accounting methods such as book-keeping, financial statements, capital investment planning, and cash flow forecasting.

VSA differs from conventional management accounting in the areas of pricing and budget setting.

VSA focuses on creating an effective, efficient, resilient, stable and agile system design. This is the pre-condition for higher quality, lower costs, lower prices, and higher throughput.

VSA achieves simultaneous productivity and agility improvements using an innovative cash-flow control design akin to the 'adaptive fly-by-wire' systems of modern high performance cars and aeroplanes.

VSA uses powerful and elegant computer modelling techniques to support proactive design-and-test of the processes and systems so that they are inherently productive, stable and adaptable.

Systems, Stages, Streams and Steps

Socio-economic systems such as large service or manufacturing organisations are usually divided into functional departments. Each department has an unique function, independent structure, special skills and separate budget. In system design terminology these separate departments are called stages.

The work that the system is designed to do is usually organised by separate services or product-lines called streams. Each stream is comprised of steps where the stream "crosses" one or more stages. Streams may also cross, split and join.

Revenues are generated by streams in the form of purchased services or products. Expenses are consumed by stages in the form of capital, overhead, pay, and non-pay costs.

For an organisation to be economically viable over the long term the total system revenue must meet or exceed the total system expenses. This means that the streams and stages must work in synergy.

Seven Flows of System Design

For synergy to happen the revenue needs to be distributed to the stages such that the flow in the streams is both effective and efficient. This requires a deep understanding of the dynamics of the Seven Flows of any system and careful design so that the Seven Flows are always working in harmony. That is the way to achieve simultaneous effectiveness and efficiency i.e. high productivity and good value-for-money.

Value Stream and Value System Accounting has a specific focus on the Seventh Flow - cash flow - as an integral part of the whole system design.

6M Design®

The methodology that underpins VSA is an improvement-by-design framework called 6M Design®. This is a generic approach that can be applied to improving safety, on-time delivery, service quality and system productivity and so provides a common language and set of techniques and tools that all departments in the organisation can share - including Governance, Operations and Finance.

The use of a generic improvement-by-design framework facilitates collaborative, proactive system design that delivers outputs which meet all stakeholder requirements - from Ward to Board.

Systems Engineering

The overarching framework that 6M Design® and VSA fit into is called Systems Engineering (SE). SE evolved in the 1950's in aerospace, and it was created to support mega-projects such as putting a man on the moon. There is an International Standard for SE called ISO/IEC 15288 (2023).

There is a new variant of SE emerging from the combination of SE and Complexity Science. This is called Complex Adaptive Systems Engineering (CASE).