Value Based Management (VBM) And Decision Making Process

17value Based Management Vbm And Decision Making Process In The Rene

Value-Based Management (VBM) and Decision Making Process in the Renewable Energy Sector Introduction In today's rapidly changing economic landscape, firms face many questions that guide their strategies, differentiate their competitiveness, and ensure profitability. Suppose an organization wants to determine what resources to allocate, where and how to invest, or how to maximize returns and respond to market forces. In that case, they must evaluate their decision-making. Value-Based Management (VBM) is a critical framework for this evaluation. It aligns company operations, strategies, and decisions to create long-term value for stock owners (Firk et al., 2021).

The above questions have greatly influenced renewable energy despite its rapid growth as it struggles with shifting demand, competitive market, regulatory pressure and technological innovation (Firk et al., 2021). This paper examines VBM's application to decision-making in the renewable energy sector, particularly regarding one critical threat to the industry's health, namely regulatory uncertainty. Through framing the problem statement in terms of economic and ethical aspects, this analysis observes what role industry leaders can play in discovering solutions that contribute to societal good while maximizing shareholder value.

Problem Statement

A significant problem for the renewable energy sector is regulatory risk, which stems from unstable government policies, subsidies, and mandates that create unpredictable environments for long-term investments. This volatility poses a problem for renewable energy firms as they try to achieve both financial stability and strategic flexibility in order to meet the demands of their shareholders. How can these companies manage the financial and strategic risks of regulatory uncertainty in order to deliver long-term value in a policy environment that is inherently volatile?

Evaluating Decision-Making in Renewable Energy

The decision-making in the renewable energy industry is also affected by the characteristics of the industry, which include high capital intensity, government support, and extended project duration. The primary objective of VBM is to make every decision in a company to add value to the company (Alanizi, 2023). In renewable energy, VBM fosters a firm understanding of which investments or projects contribute more towards creating long-term value by considering risks, market conditions, and the regulatory environment (Alanizi, 2023). In this industry, decision-making is usually made on large projects that need a lot of capital investment and time before the returns are realized. For instance, solar and wind power projects are capital-intensive, and the returns realized may be influenced by the energy price, demand, and government incentives. To apply VBM effectively, firms should consider the net present value (NPV) of these projects, the potential for regulatory changes, and the risks of market volatility (Firk et al., 2021). This approach ties decisions firmly to value creation, addressing the industry’s unique challenges while aligning with strategic goals.

Market Structure Theory and the Role of Regulation

Market structure theory, which examines the forces shaping economic competitiveness, provides a useful framework for understanding renewable energy's landscape. The sector has a high level of competition driven by expanding demand for sustainable energy solutions, technological advancements, and the entry of new players (Ren et al., 2021). This competitive environment is heavily influenced by government policies, subsidies, and regulation, which directly affect supply, demand, and profitability. Any fluctuations—such as reductions in subsidies or policy shifts—can significantly impact the economic viability of projects, alter market dynamics, and shift competitive advantages (Ren et al., 2021). Regulatory uncertainty thus becomes a central concern, influencing strategic decisions, market entry, and long-term investment risks. Firms operating in this uncertain regulatory climate must adapt their strategies to mitigate these risks, leveraging the insights of market structure theory to anticipate and respond to policy shifts effectively.

Addressing Regulatory Uncertainty

Effective management of regulatory uncertainty requires a combination of strategic resilience and ethical responsibility. Strategically, firms can diversify their energy portfolio across multiple sources such as solar, wind, and hydropower, and operate in various geographic regions to mitigate the risk associated with any particular policy change (Bakhary et al., 2024). Technological innovation also plays a vital role; advancements can reduce operational costs, increase efficiency, and lessen dependency on subsidies (Bakhary et al., 2024). Forming strategic partnerships with government agencies, industry players, and academic institutions further strengthens a company's ability to influence and adapt to policy changes by pooling resources, expertise, and lobbying efforts (Bakhary et al., 2024). This collaboration enables a proactive stance toward policy development and implementation, empowering companies to shape industry standards and regulatory frameworks that favor renewable energy growth.

From an ethical perspective, industry leaders have a societal responsibility to promote sustainable practices and advocate for policies that support environmental conservation and social welfare (Huang et al., 2019). Transparent communication with stakeholders about policy risks, ongoing efforts to manage such risks, and participation in policymaking processes foster trust and uphold corporate social responsibility. Ethical leadership emphasizes environmental stewardship, stakeholder engagement, and advocacy for fair, predictable policies that provide long-term certainty for investments. By embedding ethics into strategic decisions, renewable energy firms contribute to a broader societal goal of combating climate change while safeguarding their reputation and investor confidence.

Conclusion

In conclusion, the renewable energy sector faces substantial risks stemming from regulatory uncertainty, which threaten firms’ capacities to create sustained value. Implementing a value-based management approach aligns decision-making with long-term strategic goals, emphasizing risk assessment, diversification, and ethical responsibility. By expanding technological capabilities, fostering strategic alliances, and advocating for transparent and predictable policies, renewable energy firms can better navigate the volatile regulatory landscape. Emphasizing social and environmental responsibility alongside financial performance creates a resilient and sustainable business model capable of thriving amidst policy uncertainties. Overall, integrating VBM principles with ethical considerations offers a comprehensive pathway toward resilient growth and societal benefit in the renewable energy industry.

References

• Alanizi, M. (2023). A Value-Based Modeling Framework For Solar Energy Utilization And Monitoring (Doctoral dissertation, The University of Alabama at Birmingham).
• Bakhary, N. J., Azman, N., & Elabjani, A. (2024). Decision-Making Under Uncertainty: Lessons from Renewable Energy Sector Professionals. Journal of Resource Management and Decision Engineering, 3(2), 32-40.
• Firk, S., Richter, S., & Wolff, M. (2021). Does value-based management facilitate managerial decision-making? An analysis of divestiture decisions. Management Accounting Research, 51, 100736.
• Huang, W., Lee, G. T., & Zhang, X. (2023). Dealing with uncertainty: A systematic approach to addressing value-based ethical dilemmas in behavioural services. Behavioral Interventions, 38(4), 1-15.
• Ren, S., Hao, Y., & Wu, H. (2021). Government corruption, market segmentation and renewable energy technology innovation: Evidence from China. Journal of Environmental Management, 300, 113686.
• Additional scholarly sources analyzing renewable energy policy impacts, strategic management, and ethics include:
• Del Río, P. (2017). Towards a comprehensive understanding of the role of regulation in renewable energy development. Energy Policy, 102, 479-490.
• Zhang, X., & Pizarro, R. (2018). Technological innovations and strategic flexibility in renewable energy markets. Renewable and Sustainable Energy Reviews, 81, 1932-1944.
• Li, J., & Xie, L. (2020). Corporate social responsibility and performance in renewable energy firms: Ethical considerations. Journal of Business Ethics, 164(2), 245-261.
• Li, Y., & Chen, M. (2019). Market structure and competitive strategies in renewable energy industry. Energy Economics, 80, 837-846.