What is value-based management and how is it used?

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What is value-based management and how is it used?


What is value-based management and how is it used?

Explanation & AnswerSolution by a verified expert


Value based is the process adopted in financial planning with the motive of increasing the wealth of shareholders. It is the approach that enables the corporation to focus on long term gains rather than quick short term profits.
The approach undergoes the following steps:

Creating Value - A firm should generate the maximum value for its shareholders by earning greater profits and increasing the market value of these shares.
Managing Value - A firm should always manage to maintain the existing value of its shareholders even in the changing external and internal business environment.
Measuring Value- A firm can measure its created value through revenues earned at the end.

Value based management is used at all levels of management by planning, organising and dividing the work among certain departments to receive maximum efficiency and effectiveness and earning maximum profits to increase the value of shareholders as well as the firm.

Verified Answer

Value based management is a managerial process which ensures that the rate of return to shareholders must be greater than the cost of capital if financing the business.
This approach is used by managing assets, liabilities, income, and expenditures in an organisation in a way to maximise the return to shareholders.

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