Bill of Health for Organizations
Organizations have always been concerned about survival. This is what may have made the Standard and Poor Index very popular, in which the profit and loss data for 500 companies is quoted and updated daily, for reference. In time however, focus shifted from profit and loss as the sole index that measures the capacity for survival, to sustainability. This gave birth to another index, the world most sustainable 100 organizations, which index is published annually. Currently, a third index has become popular. This is the world most environmental friendly 100 organizations, also published annually. The bill of health index, BHI is an attempt to combine all three, 3 measures into one. This would have the advantage of comprehensiveness, rather than the piece meal character of the current measures. Moreover, when organizations and families are recognized to be at the core of the upbringing of the younger generations of humanity, the survival of both becomes an important factor in the equation of life.
Civilization is built by work. And every item that makes up the rich civilization that humanity has built can be traced to a particular organization, according to the processes they have designed. And processes are designed, six sigma, 6σ style, to minimize waste while making products according to specifications. The industrial revolution exposed the human propensity for waste, and the information revolution has pointed to how the process may be optimized, outside of engineering. Thus the unit of work is the task, and the unit of information is the process. Information is useful to the extent that it defines a process, for the resolution of whatever that may be. Moreover in standardizing the procedure for the performance at task, humans can also become self-contained like the universe, so they can make institutions that are self-contained.
To operate in health therefore, organizations would aim to become self-contained; and it would be sufficient that they purpose to double investments, which would be subject to the caliber of the workforce, to which extent they have become self-contained or not. Then given certain costs, F the profits, L would have to be twice as much, for L = 2F ± 1. The ‘± 1’ is a term that defines deviance, A from the standard procedure and therefore self-containment, which is attributable to the workforce that is engaged in the production process. For a workforce that is self-contained for instance, the organization would also be self-contained; as evident in an index of revenues, Rev that would be four, 4 units, as well as an index of value added, VA that would be three, 3 units, and a cost of materials, CM that would be one, 1 unit, to translate these observations into the following indices, serially:
Value Added, 3
Cost of Materials, 1
The critical factor in this series is the cost of materials, CM. Then all the other factors of productivity would depend on it. Until this factor is settled for instance, volume of production, price, targets, and workforce planning would be meaningless. To establish this position, consider the following relationships:
VA = Rev – CM
VA’ = 2Profit – ROI,
Where: ................ROI = Profit / ROI
............................Profit = Rev – Costs
..........................ROI = Rev / Costs
Recall that the value added, VA is generally evaluated as the difference between cost of materials, CM and revenue, Rev for VA = Rev – CM. And profits are evaluated as the difference between costs and revenues, for Profit = Rev – Costs. But the return on investments, ROI is actually an index that measures the same thing as profits, for ROI = Rev / Costs. Then the monetized ROI, ROI is evaluated as a unit of the ROI in monetary terms, for ROI = Profit / ROI.
The Entropy generated in the Organization
Given that profit is twice the costs at 2 units, the ROI would also be 2 units. Then the monetized ROI would be 1 unit, just like CM; to explain the equality of both factors, for ROI = CM. This explains why the value added, VA is predicted as the difference between twice the profit and the monetized ROI, ROI for VA’ = 2Profit – ROI. Then the shortfall in the workforce from self-containment would be evaluated according to the quantity of entropy, EntG generated in the organization as the observed deviance of the actual, from the expected VA, for EntG = VA’ / VA. This is actually an index of the cost incurred by the organization, due to the limitations of the workforce, for Ldp’ = 2EntF + 1. Recall the profit model presented above.
This compromises the position of the organization as a leader in the industry, Ldp. The size of the organization is also compromised, being predicted from Ldp as the bill of health index, BHI for BHI’ = 2Ldp – 1. Then the organization’s culture, OrgC is evaluated as the ratio of the expected, on the observed BHI, for OrgC = BHI’ / BHI. This defines the possible contributions of the organization to the business environment, EB.
The bill of health index
The actual bill of health for an organization is evaluated as the relativity average of the following two, 2 capacities of the organization:
Business continuity index, BCI
Value creation index, VCI
Relativity averages define the square root of the values of the two, 2 extreme points of phenomena. In this case, phenomena are conceptualized as continuities; with minimum values below which they cannot exist, and maximum values above which it would be wasteful to attempt any further improvements. For an organization to be healthy therefore, at the minimum, it ought to create value, VCI. Recall that this would be a function of the cost of materials, CM. Ultimately however, the organization would have to be sustained, BCI which depends on profitability, Pft.
Profitability is evaluated as the correlation coefficient, r between the values of the actual, Pft and the expected profit, PftH; while value creation is evaluated as the correlation between the cost of materials and the monetized ROI. In this case, the expected value of the cost of materials, CM is evaluated as the monetized return on investment, ROI as explained earlier in this work.
There are two, 2 assumptions of note in that explanation, represented for clarity and emphasis:
Firstly, it is sufficient for organizations that investments are doubled. This would mean that profits are twice the costs incurred, and revenue, Rev would be twice the profit, for Rev = 2Pft. Then the value added, VA would be three, 3 times the costs, for the following hierarchy of indices:
Value Added, 3
Cost of Materials, 1
Secondly, profit is actually a measure of the return on investments, in cash; for Pft = Rev – Costs. Then the ROI would be an index of this measure, which is evaluated as a ratio, for ROI = Rev / Costs. For investments that are doubled, both the profit and the ROI would return an index of two, 2. This gives the monetized ROI an index of a unity, for ROI = 1; which equates it to the cost of materials, for ROI = CM.
The correlation coefficient, r actually measures the consistency with which expectations are satisfied, for predictability. They are best at a unity, for r = 1. When this value is subtracted from duality, for 2 – r, this would measure how consistently the organization creates value, for VCI → 1; and how business continuity may be sustained consistently, for BCI → 1. Both values would be best at a unity, for BCI = 1 and VCI = 1; when r is a unity, for r = 1. The following transform, T is applied to VCI, to make both values inverses:
T = 1 / (1 – 1 / X)
The model that evaluates BHI is presented below:
BHI = √ (BCI x VCI),
...............................BCI = 2 – r1: r1 = correlation of Pft and PftH
...............................VCI = 1 / (1 – 1 / VCI1),
............................... VCI1 = 2 – r2: r2 = correlation of CM and ROI
This index is evaluated with three, 3 inputs including Revenue, Rev Profit, Pft and Cost of Materials, CM; all of which are given in the organization’s books. It is sufficient that the input data for the correlation coefficients is available for five, 5 years.
Recall that by the wave model, phenomena would be adequately defined by two, 2 features including position and size. While leadership defines the position of the organization in relation to others, the BHI defines its size, according to the capacities for profit, sustainability and therefore influence on the environment; following the culture that is institutionalized, for the optimization of the human-power resource quality, HpRQ. Moreover, only three, 3 input data are required to calculate the BHI, which are readily available in the organization’s books. The emphasis on process and the standard procedure for the performance at task makes this metric (BHI) an important factor in the upbringing of a workforce that is self-contained. Where the family and the peer group have missed it, in making people who are self-contained, the organization provides another opportunity. Sample data is presented on the table below, for 18 fortune 500 companies. The factors OrgC’ and OrgC’’ on the table define the observed consistency of the data, for OrgC’= OrgC’’. This is actually a measure of the reliability of the information, for which the first five, 5 entries are optimum
The measure of consistency, CSY establishes that the first four, 4 items on the standard procedure series are valid and have been selected correctly, serially as follows:
. In this case, two, 2 relativity averages are calculated, to predict the possibility of work accomplishment; which would be to nurture the object into the expected nature, by energy that is derived from the impulse and sustenance items. Firstly, the square root of the multiple of the impulse, 3 and nurture, 1 factors is calculated; to measure the possibility of starting the work at all, for Nature’ = √ (Impulse x Nurture). And secondly, the square root of the multiple of the impulse, 3 and sustenance, 4 factors is calculated; to measure the possibility of accomplishment, for Nature’’ = √ (Impulse x Sustenance). For consistency, both scores need to be equal, for Nature’ = Nature’’. Then the possibility of starting would be the same as the possibility of accomplishment. This would be an observed characteristic of people who only start what they can finish. They would be predictable, and therefore characteristically loyal and faithful. Moreover, these are actually factors of belonging. To belong, it would be sufficient to have exerted the effort that is required to identify these four, 4 essentials. It would be sufficient to have scored consistently, on the four, 4 items. This is what makes the person, as well as the organization, self-contained.