image missingTrue Value Metrics (TVM)
Meaningful Metrics for a Smart Society
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Date: 2019-06-26 Page is: DBtxt001.php L07-00-TVM-BRIEF


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Accounting for ALL the Capitals
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TRUE VALUE METRICS
BRIEF OVERVIEW
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PETER
BURGESS
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Double Entry AccountabilityTM
for PEOPLE, PLANET and PROFIT
FACING UP TO CHRONIC UNSUSTAINABILITY
METRICS TO MAKE THE WORLD A BETTER PLACE
TRANSPARENCY / ACCOUNTING / ACCOUNTABILITY
WE WANT TO MAINTAIN AN OPEN KNOWLEDGE MODEL
A MODEST DONATION WOULD BE OF HUGE VALUE!
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SECTION I
GO TOP SiteNav L0700-SN-CIP-CONTEXT-ISSUES Open L07-01-ISSUES-CONTEXT
ISSUES / CONTEXT
AMAZING POTENTIAL / POOR OUTCOMES
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TOP 1% ... HUGE WEALTH and EXPENSIVE TOYS

Real Estate

Luxury Yachts

Private Jet

Hermes handbag
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CATASTROPHIC SITUATION AT THE BOTTOM OF THE PYRAMID

Terrible Poverty

Malnutrition

Starvation

Genocide
ENVIRONMENTAL DEGRADATION / ECOSYSTEM COLLAPSE
Deforestation Strip Mining Eye of storm Hurricane
Greenhouse Gas Traffic Somaliland Ethiopia
Bottom line ... my generation of leaders has made it possible for a few people to become immensely wealthy while leaving most people behind working hard but not getting rewarded very well. At the same time, they have allowed for a massive degradation of the environment and natural capital which is setting the stage for catastrophic failure of essential ecosystems that control climate and enable life as we know it.
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SECTION II
GO TOP SiteNav L0700-SN-SEES-OVERVIEW Open L07-03-SEES-STATE-CAPITALS
HOW THE WORLD WORKS
SOCIO-ENVIRO-ECONOMIC SYSTEM
IT'S A COMPLEX WORLD!
Managing complexity is difficult. In modern times, the system has been managed for the benefit of those who own financial capital. This now being referred to as financialization. This system does little to create wealth, but does a lot to enable the concentration of wealth. The dominant economic metrics of GDP growth, corporate profit growth and stock market wealth do little to manage and improve the creation of wealth.
In the past, the dominant management metrics have been aligned to profit performance, and have been very effective. There have been no management metrics to address performance related to social issues nor performance related to environmental issues. Inequality has been growing since the 1980s and degradation of the environment, and especially the climate system has emerged as an existential risk. As long as profits increase and stock market wealth increases, it is assumed that the system is fine. This is a mistake.
Decision makers need to appreciate that the system is complex and everything is interconnected. Progress will not be made by one big simple idea being implemented, but by a multitude of efficient little ideas being implemented by everyone so that everyone gets a benefit and nobody is a loser. This is not 'utopian' but reflects how successful societies and communities actually work. WWII was not won by a big idea being debated in London and Washington, but by millions and millions of ordinary people motivated with common purpose to do most extraordinary things. A better world will be achieved when there is common purpose and everyone is involved.
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SECTION III
GO TOP SiteNav L0700-SN-SEES-STATE-CAPITALS Open L07-03-SEES-STATE-CAPITALS
STATE
THE STATE OF ALL THE CAPITALS
SOCIAL
CAPITAL


SOCIO
NATURAL
CAPITAL


ENVIRO
ECONOMIC
CAPITAL


ECONOMIC
In conventional financial accountancy STATE is reported using the 'balance sheet' accounts. They refer to the situation of each of these accounts at a moment in time. Progress has been achieved when the value of the balance sheet improves (increases) over time. In this reporting, it is all about the ECONOMIC CAPITAL ignoring all externalities. In TrueValueMetrics (TVM) it is about the SOCIAL CAPITAL STATE and NATURAL CAPITAL STATE as well. Worse, most of the reporting in the modern world is solely from the PERSPECTIVE of the corporate business organization about its own perforemance and how this correlates with key MACROECONOMIC totals and various popular averages, many, like GDP which have dubious relevance to the lives of ordinary people and the natural capital upon which everything depends.
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SECTION IV
GO TOP SiteNav L0700-SN-SEES-FLOWS-ACTIVITIES Open L07-04-SEES-FLOW-ACTIVITIES
FLOW / ACTIVITIES
EXTRACTION / PRODUCTION / CONSUMPTION / POLLUTION
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PAYING ATTENTION TO EVERYTHING
RECOGNISING IMPACTS AT EVERY STAGE OF THE LIFE CYCLE
NATURE EXTRACTION
SUPPLY CHAIN PRODUCTION
USE
WASTE
ALL ACTIVITIES have impact on STATE. There are complex flows which result in CHANGE in STATE. Most activities have the goal of growing ECONOMIC WEALTH and over the past many decades there has been an impressive growth in ECONOMIC WEALTH. Until recently little attention has been paid to the impact of these ctivities on SOCIAL CAPITAL and NATURAL CAPITAL. It should be a priority to focus more on improving the progress of SOCIAL CAPTAL with the least degradation of NATURAL CAPITAL ... and for this, TVM has developed an enhanced system of multi dimension impact accounting.
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SECTION V
GO TOP SiteNav L0700-SN-SEES-FLOWS-ACTORS Open L07-05-SEES-FLOW-ACTORS
FLOW / ACTORS
PEOPLE / COMPANIES / GOVERNMENTS / CIVIL SOCIETY
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PEOPLE ... THE ULTIMATE ACTORS
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PEOPLE MAKE DECISIONS ABOUT THE CONSUMPTION OF PRODUCTS
Food - Vegetables Food - Meat Housing Clothes Mobility Recreation
More consumption correlates to a better quality of life up to a certain level. Beyond that level more consumption may well have negative consequences, as for example too much food may result in obesity and diabetes or worse.
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PEOPLE AS CONTRIBUTORS ... AS DECISION MAKERS
AS INDIVIDUALS

Live life ... work & family
IN ORGANIZATIONS

Do the work ... make the decisions
AS INVESTORS

Allocate financial resources
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PEOPLE AND GOVERNANCE
VOTERS ... POLITICIANS ... CIVIL SOCIETY
President

President Obama
Congresswoman

Alexandria Ocasio-Cortez
Voters

YES on Women's Issues
Policy

Green New Deal
Everything should be about people. Unfortunately the focus of decision making for many decades has been more on profit than on people, and the environment has been ignored. This has been good for a few, but too many have not seen any benefits.
There is a correlation between quality of life and consumption. As the world's population gets a better quality of life, there is going to be more consumption. For there to be consumption there also has to be production.
There is also a correlation between production and environmental pollution as well as between consumption and waste. Much of this can be corrected but the incentives to do this are very weak.
People have made enormous technological progress but very little of this has been applied to improving the social and environmental performance. Almost all of the effort has gone into applying technology to improve profit performance.
This can be changed. This must be changed.
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SECTION VI
GO TOP SiteNav L0700-SN-CIP-PERFORMANCE Open L07-06-PROGRESS-PERFORMANCE
PROGRESS & PERFORMANCE
IMPACT ON PEOPLE, PLANET & PROFIT and ALL THE CAPITALS
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GDP UP ... GPI FLATLINE PRODUCTIVITY UP, NOT WAGES CLIMATE CRISIS
There is a chronic disconnect between the potential for progress and performance and their realization. This is a 'management' issue and a failure to understand how the system is being gamed.
The demise of the Soviet Union was a result of massive misallocation of resources (too much on collective farms and military for example) and totalitarianism ... not so much the socialist agenda.
The past success of the United States has been the abundance of land, rich soil and natural resources that have been available for practically unlimited exploition, funded largely by money from Europe, with labor furnished by immigrants.
Western liberal capitalism has been weakened by misunderstandings about its performance. Per capita GDP growth since the 1980s has been strong, but made up of massive increase in the wealth for a few and little or nothing for everyone else. Now there is a dangerous concentration of economic power. Rule of law has entrenched this inequality because the rich and powerful are in control, and the efficiency of markets in the modern world is a myth.
Socialism per se did not cause the situation in Venezuala. The collapse of the Venezuelan economy has come about because of extremely corrupt and inept leadership.
There is potential for better performance in the modern world. Better management metrics and radical accountability are needed to make this happen.
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SECTION VII
GO TOP SiteNav L0700-SN-CIP-POSSIBILITIES Open L07-07-POLICY-POSSIBILITIES
POLICY & POSSIBILITIES
AMAZING TECHNOLOGY / UNPRODUCTIVE POLICIES
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STREAMS / STRANDS / STRINGS
WHAT ARE ALL THE IMPACTS FOR THE LIFE CYCLE OF PRODUCTS?
NATURE EXTRACTION
SUPPLY CHAIN PRODUCTION
USE
POST USE
Everything that is used to support a high standard of living and quality of life has a long supply chain, then production and distribution, then use, and then a post use waste chain. For metrics to be meaningful, all of these stages must be brought into account.
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CONSIDER ALL THE PERSPECTIVES
EMPOWER ALL THE ACTORS
AND ACCOUNT FOR IMPACT ON ALL THE CAPITALS
TECHNOLOGY

Enabler of progress
ORGANIZATIONS
More than profit
PEOPLE

Men, women & children
PLACE

Where people live
PRODUCTS

Quality of Life
Some people are very fortunate, and others less so. The accident of birth should not be the main determinant of success and a happy productive life. There should be opportunity for everyone. The characteristics of the place make a big difference to quality of life. The choices people make regarding the products purchased and consumed impact the person, the economy and the environment.
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There have been many policy choices over the past several decades, all of which have been good for corporate organizations and the owners of wealth. Essentially no policies have been embraced to improve the socio-economic situation for those who are struggling. The possibilities are massive because of amazing technological innovation, but the use of technology has been mostly in the interest of those with power and influence. There are the conditions for rapid socio-enviro-economic progress, but only if the policy choices are those that will enable such progress.
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SECTION VIII
GO TOP SiteNav L0700-SN-TVM-MANAGEMENT Open L07-08-TVM-MANAGEMENT
TVM - MANAGEMENT
MOVING THE NEEDLE ON IMPORTANT ISSUES
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Peter Drucker famously said you manage what you measure ...
This is undoubtedly true ... in the corporate world, the components that go into making profit are measured intensely in order to improve profit performance ... and it works!
Unfortunately, we don't do anything like the same amount of measuring in order to improve society and avoid degrading the environment ... and we don't have any easy way of talking about social performance and environmental performance in the same way that we are able to talk about corporate performance and investment portfolio performance. This has to change
We argue that you had better measure the right things
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INTRODUCING THE TVM INITIATIVE
image missing Numbering the Triple Bottom Line

Accounting for ALL the Capitals
image missing
METRICS TO MAKE THE WORLD A BETTER PLACE
ACCOUNTING FOR EVERYTHING THAT MATTERS
MANAGEMENT TO MOVE THE NEEDLE
CORE IDEA ... PROGRESS IS CHANGE IN STATE
These images reflect the very important idea in conventional financial accounting that the change in state, that is the change in the balance sheet shows progress or not.
To measure progress there is a need to have metrics about the state, but there is no need to have detail about the activities during the period.
This is an enormously important idea to facilitate measurement.
THE ENHANCEMENT OF CONVENTIONAL ACCOUNTANCY
This graphic shows how conventional financial accountancy should be enhanced to incorporate impact on all the capitals, and not simply the capital of the owners of the entity.
The challenge is to 'number' impact on social capital and natural capital as easily and efficiently as is done for the money metric used for impact on economic (financial) capital.
The TVM answer to this challenge is the development of an approach that uses standard value profiles in much the same way that standard costs and variance analysis is used in corporate management.
THREE KEY METRICS
ENERGY PAYROLL MATERIAL FLOW ENERGY ... the use of energy contributes in a major way to the climate crisis.
PAYROLL ... the underpayment of workers is a primary reason why there is crisis of inequality
MATERIAL FLOW ... is associated with all sorts of issues in the supply chain as well as post use pollution.
MULTIPLE PERSPECTIVES
PLACE PRODUCT LIFE CYCLE PLACE ... the performance of place has a big impact on quality of life.
PRODUCT ... products are basis for quality if life and also for the generation of economic profit.
LIFE CYCLE ... every economic activity has costs and benefits at every stage
KEY MANAGEMENT ELEMENTS
SUMMARY DETAIL FEEDBACK LOOP SUMMARY ... mainly for BoD, C-suite and investors.
DETAIL ... and relevant for key people to understand the performance of the operation and enable improvement.
FEEDBACK LOOP ... needed to see whether performance is being improved. If not ... why not?
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SECTION IX
GO TOP SiteNav L0700-SN-TPB-PETER-BURGESS Open L07-09-PETER-BURGESS
ABOUT TPB - PETER BURGESS
Peter Burgess grew up in post-war Britain. He was born in Lancashire, spent the war years in the suburbs of London, and after the war moved to rural Devonshire. He was educated at Blundell's and played schoolboy rugby for the English Public Schools against Scotland before entering Cambridge. His academic training was in engineering and economics, and later a professional qualification as a Chartered Accountant. He migrated to the USA in 1967. He worked in corporate financial management until 1978, then as an independent consultant. He did intensive consultancy work with the World Bank, the UN and corporate clients, doing assignments in over 50 countries. He was an early adopter in the field of EDP and later personal computers and applied information technology. In recent years he has become deeply concerned that modern leadership has failed to address the issues of inequality, the climate crisis and corruption and lacks effective management tools for accountability ... hence his current work on the development of TrueValueMetrics (TVM).
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