image missingTrue Value Metrics (TVM)
Meaningful Metrics for a Smart Society
image missing Navigation ... HOME
HOME
CONTEXT
ISSUES
POSSIBILITIES
HOW THE
WORLD
WORKS
ACTIVITIES
SECTORS
STREAMS
STATE
ALL THE
CAPITALS
ACTORS
PEOPLE
ORGANIZATIONS
PRODUCTS
STUFF
CONSUMPTION
PLACE
COMMUNITIES
COUNTRIES
PEOPLE
QUALITY
OF LIFE
NATURE
SOURCE of
all VALUE
ECONOMY
MONEY
LIQUIDITY
TRUEVALUE
DATA at
the CENTER
ABOUT
VISION
STRATEGY
Date: 2019-02-17 Page is: DBtxt001.php L070-DEFINITIONS

DEFINITIONS
What things mean in the context of True Value Accounting

Inpage navigation by ISSUE alphabetical
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z

AAA GO TOP
Accountability.
TVM has ambitious aims ... including to make it possible for the public to hold decision makers accountable and to make it impossible for decision makers to avoid responsibility for their actions. ry much more will be possible with peer to peer sharing in a mesh environment. TVM seeks to provide a coherent framework so that data has some relevant reference points.
Open n8-Accountancy-1
Accountability.
TVM has ambitious aims ... including to make it possible for the public to hold decision makers accountable and to make it impossible for decision makers to avoid responsibility for their actions.
The following is a common mindset: “I know what I am doing ... and God forbid that you or anyone else will try to hold me accountable!”
Checks and balances. There are systems that are in place that enable decision makers to trumpet their successes. There need to be equally strong systems that report objectively about the outcomes of all decisions ... both the successful outcomes and the unsuccessful outcomes. Data for this need to be collected, and they need to be easily accessible in a useful format.
Neutral data. Data should show what is ... good or bad. Data are neutral ... they merely attempt to reflect the truth about what is going on.
Objective analysis The TVM system treats all data in the same way using a uniform system. The TVM system aims to be as objective as possible incorporating the difficult concept of value as an integral part of the system. The reported results will reflect good and bad performance based on the underlying data.

Accountability ... Holding People Accountable
Holding people accountable is a key incentive to right behavior in society and among decision makers. It is human nature to make decisions that are most in favor of oneself and ones family and friends ... but that is not usually what is best for society, and the organization.
There is a lot of talk of transparency ... but there is less of putting transparency into action. Reporting is part of transparency.
But reporting is more than just a pro-forma ... reporting is a part of a process that helps people to understand.
Why the escalators don't work. The subway station at 63rd and Lexington on the F line is relatively new ... but the escalators are frequently broken down. Why? They are Otis escalators ... normally a high quality escalator manufacturer ... but in this installation they are not working well. The reason for this is some gross incompetence somewhere ... in the purchase and contracting for the equipment ... in the installation of the equipment ... in the ongoing maintenance and operation of the equipment.
Data about these decisions ... about the operations ... are hidden from view, so there will be no accountability for the responsible parties. But one thing we do know ... somewhere in this set up there is something very wrong.

Peer to peer information sharing is an emerging way for data to be transmitted to where there is the most value from data use. The web has enabled a significant amount of sharing already, but very much more will be possible with peer to peer sharing in a mesh environment. TVM seeks to provide a coherent framework so that data has some relevant reference points.
Account codes ... analytical codes.
The point of accountancy. The point of accountancy is the use of data that costs as little as possible to create value that is the biggest possible. This is what has been central to accountancy for a very long time and has served the (limited) objectives of profit maximizing business and capital markets very well. TVM has the same central idea, except that the goal is to create the maximum of social value. Accountancy collects and organizes data in a systemic way ... data that are neutral and representative of reality. Accountancy ... a system
Accountancy is a system. Corporate Accountancy is a system, and TVM has been developed as a variant of this system. Both based on the same basic principles for record keeping and accounts that have been used for several centuries.
Universality of accountancy. Accountancy has universality, but we have become accustomed to seeing accountancy being used only in an organizational setting, whether it is a company, or in government or an NGO ... and in recent years accountancy has been used creatively without respect for basic principles. But the powerful logic of accountancy applies wherever there are economic transactions and it is logical to apply the principles of accountancy to the Community and the public in much the same way that the system applies to an organization and its stakeholders.
Core principles of accounting. The old fashioned principles of accounting are timeless ... though sidelined in much of modern accounting practice and accounting education. The reason is quite simple ... most of the leadership of our modern global society has favored a regime of minimal accountability that allows greed to flourish.
The central point to accounting is to get data about facts into a record that is reliable. How it is done is very much a secondary level set of issues. The data are neutral ... and they are about facts. Measuring facts may be difficult ... but accounting aims to have data about facts on the record. When you have data ... there can be analysis ... and reports ... and conclusions. And if there is organizational structure there can also be decisions and improved performance.
Double entry concept. Double entry is a powerful idea, now almost 500 years old ... and perhaps somewhat diminished in its importance with the use of computerized accountancy over the past 40 years. This is problematic because of the checks and balance that double entry enforces.
There are two sorts of accounts that together balance ... (A) Balance Sheet Accounts; and, (B) Income and Expenditure Accounts.
Changes in the balance sheet accounts over a period are the same as the difference between income and expenditure over the same period.
Reporting entity. In corporate accounting the accounting is about the activities of the organization. In TVM the accounting centers around an economic activity which may be 'rolled up' to reflect the performance of an implementing organization or 'rolled up' to inform people of the performance of the Community.
Oversight information. This concept of “balancing the books” has deep significance for the control of economic resources. It is a whole lot more than the accountancy done as a step towards filing a tax return or satisfying a legal requirement imposed by some regulatory agency. Balancing the books helps to identify problems in the activities of an economic entity through the simple process of equating what has been used with what has been achieved ... and if this is not right, something needs to be addressed.
The point of accountancy. The point of accountancy is the use of data that costs as little as possible to create value that is the biggest possible. This is what has been central to accountancy for a very long time and has served the (limited) objectives of profit maximizing business and capital markets very well. TVM has the same central idea, except that the goal is to create the maximum of social value. Accountancy collects and organizes data in a systemic way ... data that are neutral and representative of reality. The point of accountancy is the use of data that costs as little as possible to create value
Accountancy ... a system. Corporate Accountancy is a system, and TVM is a variant of this system. Both based on the same basic principles for record keeping and accounts that have been used for several centuries. Accountancy has universality, but we have become accustomed to seeing accountancy being used only in an organizational setting, whether it is a company, or in government or an NGO ... and in recent years accountancy has been used creatively without respect for basic principles.
But the powerful logic of accountancy applies wherever there are economic transactions and it is logical to apply the principles of accountancy to the Community and the public in much the same way that the system applies to an organization and its stakeholders.
It is a whole lot more than the accountancy done as a step towards filing a tax return or satisfying a legal requirement imposed by some regulatory agency.
The core principles of accounting. The old fashioned principles of accounting are timeless ... though sidelined in much of modern accounting practice and accounting education. The reason is quite simple ... most of the leadership of our modern global society has favored a regime of minimal accountability that allows greed to flourish.
Data reliability. The central point to accounting is to get data about facts into a record that is reliable. How it is done is very much a secondary level set of issues. The data are neutral ... and they are about facts. Measuring facts may be difficult ... but accounting aims to have data about facts on the record. When you have data ... there can be analysis ... and reports ... and conclusions. And if there is organizational structure there can also be decisions and improved performance.
Double entry. Double entry is a powerful idea, now almost 500 years old ... and perhaps somewhat diminished in its importance with the use of computerized accountancy over the past 40 years. There are two sorts of accounts that together balance ... (A) Balance Sheet Accounts; and, (B) Income and Expenditure Accounts. Changes in the balance sheet accounts over a period are the same as the difference between income and expenditure over the same period. In corporate accounting the accounting is about the activities of the organization. In TVM the accounting is for the activities of the Community and embraces everything.
This concept of “balancing the books” has deep significance for the control of economic resources. Balancing the books helps to identify problems in the activities of an economic entity through the simple process of equating what has been used with what has been achieved ... and if this is not right, something needs to be addressed.
Logical Framework ... of Accountancy The logical framework of accountancy is a key to why accountancy is such a powerful management tool and reliable as a way to organize a very large amount of data.
The double entry concept. TVM has been developed from the corporate system of financial accountancy that has been used for a long time used in modern corporate organizations ... and in turn evolving from a system of accounting developed several hundred years to enable merchant adventurers to keep accounts and report to their investors. Double entry is a simple technique that requires both action and response to be recorded ... when money is paid out, it is expected that value comes in ... when some good is delivered, it is expected that money is paid in for the good.
Financial balance sheet. Corporate accountancy uses the balance sheet to describe the state of the organization. The balance sheet describes the financial state of the organization at a given point of time. The balance sheet provides a listing of assets, a listing of liabilities, and shows the difference between the two.
Changes in the balance sheet over time are a result of activities in the time period. The net change from one period to the next in the balance sheet is the same as the net of revenue and cost or profit in the activity report. The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement. The assets and liabilities of a balance sheet are accounted for at their cost ... reflecting the double entry of cash used equals asset acquired ... and liability acquired will be satisfied by cash paid. The listing of assets and liabilities can be in summary or detailed.
Activity reporting. The activity report ... the profit and loss account ... describes the operations of the organization for a specified period of time and the relationship of revenue to cost and therefore profit. There are innumerable formats for activity reports ... and many different names. They may be prepared with a lot of detail or be very much summarized. To a great extent the public and external stakeholders get summary reports and internal managers and staff work with reports at the appropriate level of detail.
The data contained in activity reports that is usually hidden from external view would serve very well to improve transparency ... but few corporate organizations embrace this.
Integration of balance sheet and activity reporting. This integration of balance sheet and activity statement comes about because of the double entry characteristic ... and provides a powerful way of understanding a lot about an organization without needing to know everything about an organization ... or community.
This concept underlies the ideas of balance sheet, operating statement and the relationship they have to each other ... specifically that the the net change in balance sheet value between two dates equals the income from the operating statement between these two dates. Corporate accountancy uses both balance sheet and an activity report to describe the organizations performance. The balance sheet describes the financial state of the organization at a given point of time and the activity report ... the profit and loss account ... describes the results of operations of the organization for a specified period of time.
The net change in the balance sheet from the beginning of the period to the end of the period is the same as the net result reported in the activity statement.
Cash flow statement. A cash flow statement is similar to an activity statement but has a focus only on those transactions that have a cash impact. For example, some accounting costs, such as depreciation related items, do not have a cash element. In the logical framework, changes in the balance sheet, activity reporting and cash flow are all different views of the same comprehensive set of data.
Account codes ... analytical codes.
The power of relational analysis is maximized by the design of the analytical codes. This is the key to easy analysis, and relatively easy to do for a relational database. Frequently, however, it is ignored and easy analysis then becomes impossible.
An experience accountant can tell a lot about an organization simply by looking at the account codes ... and the logic of the account codes.
Over a period of years, I did consulting work that involved the World Bank, the IMF, the UN and bilateral donors in developing countries, some of which were English speaking and used Anglo Saxon accounting and some French speaking using the French Plan Comptable.
Mostly the accounting was treated as a necessary evil, and the account codes were disorganized. Not surprisingly the accounts and the financial reporting was equally disorganized and not very useful for any analytical purposes. A gift for those with evil intent!
Rather disconcertingly, the IMF's recommended code of accounts for many years for government accounting was very badly formatted, making it difficult for government accounts to be easily analyzed using the account codes.
Accrual Based Accounting
Accrual accounting is used in the business world because it matches the expenses and the revenues within a reporting period so that the profit results are not distorted.
This type of accounting has been the norm for commercial and industrial entity accounting since early in the industrial revolution ... but is not used in most governmental entities and many not for profit organizations (See also Cash Basis Accounting)
TVM uses the accrual principles, applying these concepts not only to the money dimension of the accounting but also to the value dimension. This has many benefits, notably bringing into account future impact of present activities, both beneficial and detrimental.

BBB GO TOP
Balance Sheet
A balance sheet is a very powerful part of financial reporting. A balance sheet shows the state of the reporting entity at a point in time. It shows assets and liabilities and the net of assets and liabilities.
Balance sheet – assets.
A balance sheet should show the total of assets, and detail the make-up of the assets. There are both tangible and intangible assets. Money, equipment, etc. are tangible assets. Goodwill is an intangible. There are current assets and there are fixed assets. There may also be “off the balance sheet” assets.
In the corporate environment the generally accepted accounting principles (GAAP) are applied. In TVM the concepts are broadened to ensure that assets are reflected in the best possible way to show the state of the community. In the TVM environment, possibilities and potential are assets.
Balance sheet – liabilities.
In corporate accounting with GAAP the liabilities are those that are reflected in law and about money. The amounts owed, are the liabilities. There are also contingent liabilities that may be liabilities if certain things do not work out.
In the TVM environment constraints of various kinds are liabilities.
Balance sheet – net state.
The net state is the difference between the assets and the liabilities. In corporate accounting this is stockholders' equity.
In the TVM environment, the net state is a convenient measure of the state of the community. However, it is rare for this measure to be complete enough to be a useful comparative index across many different communities.
Some history. The accounting profession used to have great concern that there should be no chance of manipulating the values on the balance sheet ... but this has been subverted.
Caveat.
Accountancy has been very engaged with ensuring that assets and liabilities are accurately reflected on the balance sheet. Unless these numbers are right, financial reporting becomes an exercise in dangerous stupidity. It is apparent that sound accounting principles have been ignored in the development of modern rules about how financial assets and liabilities are valued for balance sheet reporting.
Change over time.
When a current balance sheet about now is compared with a balance sheet about some time past, there is an immediate view of how things have changed. revenue of the period should be matched with the costs associated with this revenue.
The balance sheet of a community, a neighborhood or a block shows in stark simplicity what is happening. Much may stay the same from year to year ... indeed from century to century ... but some items change rapidly, sometimes for the better, sometimes not. A community balance sheet report can be prepared that shows what is changing in some detail while having the rest that has not changed in simple summary.
A common interval or period is one year ... but there are circumstances when more frequent analysis is useful. Monthly reporting provides information about seasonality for example. In farming there are times when stocks are very low, and then after harvest very high. A monthly balance sheet report shows when stocks are lowest and highest.
Behavior of Cost
(see also Behavior of Price) (see also Behavior of Value)
The analysis of cost should be based on units of measure that are the most relevant to users and decision makers. For example, where the goal is the reduction of malaria, the unit of measure for cost analysis should be a good proxy for this goal, or a logical step towards this goal. Thus: in the case of ULV spraying, cost per acre is a useful metric because it relates to performance in an understandable technical way, and cost per capita is an indicator of cost and possible cost effectiveness of impact on the population.
Indexes may be uses as a way to simplify the recording of change ... but mainly at the detail level. Progress requires change, and change can be reported using an index as a measure. Care should be taken to ensure that percentage change is fully explained so that out-of-control exponential change is not recognized.
Key indicators of progress in a community are very useful, but less so when they are combined with other indicators to form an aggregate index. However, a combination indicator of an aggregate index does have value in communicating in a summary form though of little value for decision making. An aggregate indicator is a useful measure of the change in profile of the community over a period of time, while not being of much use for decision making.
Costs vary depending on the circumstances. Good program design minimizes costs and maximized cost effectiveness. This should be a component of any system of good management.
Cost effectiveness is most easily optimized when there is good information about costs, without this information planning is merely a guessing game.
For sustainable cost effectiveness, the strategy has to focus on achieving low short term cost together with permanent sustainability. Accordingly there is a need to understand how costs behave under varying conditions.
The analysis of costs should be based on the units of measure that are the most relevant. Where the goal is the reduction in the burden of malaria. The unit of measure should be a good proxy for this goal, or a logical step towards that goal.
In the case of ULV spraying, cost per acre treated is a useful metric because it relates to performance in a useful technical way ... while cost per capita is an indicator of cost and cost effectiveness impact on the population. .
Beyond Financial Metrics.
The analysis of the global economy has been driven for a very long time by metrics that were keyed around financial ideas. The most important measure of all was financial profit ... as well as wealth, the ownership of things that money could buy!
An economic analysis system based on production ... the communist system ... eventually failed because the allocation of resources under this system was inefficient. Relative to this system the money metrics and market based optimization of profit system did much better ... but is also deeply flawed. The system serves to allocate resources so that there is a maximization of profit, but at the expense of value.
Dr. Muhammad Yunus. Dr. Muhammad Yunus and many others have made the observation that metrics that only have the money dimension are inadequate. There needs to be a system of analysis that takes into account the full range of social values ... not just those that get denominated in money terms! Simon Kuznits who did much of the original work to develop the GDP measure argued that a better measure was needed as did Robert Kennedy in a famous speach in 1968 (see extract here)

TVM is built around the idea that there is a need for information that will guide decision makers along the lines described by Dr. Yunus. The logic of a financial accounting system is a good starting point ... and with TVM is enhanced to include not only money transactions, but also transactions that reflect the consumption of value and the creation of value. Corporate financial reporting is very efficient ... making it possible for a huge organization like, for example, General Electric, to report in three pages the activities and results of perhaps 300,000 people. This is done using a Balance Sheet, a Profit and Loss Account and a Statement of Cash Flow. The principles of accounting make financial reports informative without being long with a lot of disorganized detail.
It should be noted, however, that the principles of accountancy have been systematically diluted over the past forty years by lawmakers, regulators and rule making bodies at the behest of special interests. The result is that modern financial reports rarely represent what is true and fair as they did in older simpler times. This, more than any other single factor, explains the abysmal state of financial reporting in modern corporate organizations ... when excellence in management information is perfectly possible.
TVM value accountancy is a better system. Capital markets, economic and financial policy have been driven for a very long time by metrics that were keyed around accountancy and financial ideas. In the prevailing systems of financial and economic reporting, if there is no money transaction, there is nothing. Everything is measure with respect to money ... money profit, as well as wealth. A better system is needed ... but simply having a different system does not mean it will be a better system.
For example, an economic analysis system based on production ... like the communist system ... eventually failed because allocation of resources under this system was inefficient. Relative to this system market based optimization of money profit did much better, but it is a deeply flawed approach, and something better is possible.
The prevailing system ... a market oriented capitalist system ... serves to allocate resources so that there is a maximization of money profit and money wealth. The weakness is that it does not take into consideration the impact that money profit maximization has on society. Nothing else besides these money measures matter.
TVM includes information needed by decision makers that go beyond financial numbers. Principles from the established field of corporate accountancy are used because they are are surprisingly close to what is needed ... and simply need some modest modification to make them work for society as a whole rather than merely for the corporate subset of society. TVM uses the logic of financial accounting as the starting point. TVM includes not only money transactions, but also transactions that reflect the consumption of value and the creation of value.
Profit and growth being the dominant metrics of progress and performance explains much of the behavior of decision makers and markets ... and made exponentially worse by a system where profits are reported based on convenient accounting rules rather than rigorous accounting rules ... and where the most important index of growth is Gross National Product (GNP).
There is something wrong when reported profits reflect profits that the organization is going to make ... the “mark to market” arrangement. There is something wrong when risks are thought to be reduced when they are merely hidden and ratings have little relationship with reality!
There is something wrong when the Gross Domestic Product (GDP) and Gross National Product (GNP) which as well as manufacturing products includes services like banking and financial services, healthcare as well as consumer buying.
GNP and GNP should be the aggregate of the national product ... in other words what the efforts of national economic activity have produced ... product.
Good health is a product ... health costs are not. Where should margins and profits fit into the economic growth equation? Why don't we have a Gross National Cost as well as a Gross National Product.
There is a deep need for metrics that make more sense, and give incentive to getting the important things done in the economy so that there is sustainable progress and improvement in the quality of life. More and more phony growth and phony profit is a road to nowhere.







CCC GO TOP

DDD GO TOP

EEE GO TOP

FFF GO TOP

GGG GO TOP
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is a dangerously flawed metric. The way the GDP is compiled makes very little sense ... like most indexes the GDP is a measure, but what is being measured is far from clear.
Cost is NOT a Product There needs to be clarity about the critical difference between product and cost. Much of the confusion in economic analysis and policy formulation would be avoided if there was a clear distinction about what is a product and what is a cost.
What belongs in the Gross Domestic Product? Gross domestic product should be the output of the economy ... what the economy produces ... the product. Over time, more and more of the product is expressed as the cost of the product at the transaction level and over time the measure has become more and more inflated so as to become meaningless. Rather, it is much worse ... it has resulted in the wrong signals being sent about the prosperity of the nation!
Producers, consumers and prosumers It is widely recognised that affluent consumers have been part of the success of the US economy ... good wages were part of this.
Henry Ford
Henry Ford is meant to have realized that a prosperous working class would eventually be the consumers of the automobiles that his company was manufacturing ... those that were producing were the same as those that were consuming. I associate Henry Ford's insight as being something of the origin of the idea of a prosumer.
Keynes was also very clear about the way wages fed into the success of the economy by expanding aggregate demand.
The Keynesian Dynamic
Keynes was clear about the dynamic of economic activity in a society ... but the Keysian clarity seems to be submerged in most modern economic analysts and policy dialog by ideas that are ideological more than anything else. Though there are powerful analytical tools available to process data ... most of the data are studied with a severe lack of transparency.
What is GDP used for? GDP is one of those macro-economic indicators that has leverage over the economy because of its role in moving the capital markets ... but has little to no use as a tool to understand socio-economic performance.
16% of US economy is healthcare!
The statement is made over and over again that healthcare makes up 16% of the US Gross Domestic Product (GDP). At the same time the observation is made that the proportion is the highest among the top developed countries and the health state of the US population is lowest of the group. Clearly one metric is insufficient to describe the economic characteristic of the health sector. In True Value Accounting (TVA) it is clear that quality of health is a valid product of the health sector, and the cost of this health care should appear in something that might be called the Gross National Cost. At the moment this does not exist as a national macro-economic indicator ... but it is an element of the TVA data architecture

n8-Accountability-1 n8-Accountancy-1 n8-Account-codes-1 n8-Accrual-accounting-1 n8-Activity-1 n8-Analysis-1 n8-Analysis-and-aggregation-1 n8-Analysis-and-reporting-efficiency-1 n8-Analysis-Energy-1 n8-Assets-1 n8-Audio-information-1 n8-Audio-information-1abc n8-Balance-Sheet-1
TVM definition text for Accountancy Open n8-Accountancy-1




650 431

800 750

579 255

576 434

750 531


The takeaway from these economic trends graphs is that decision makers have been able to make decisions that delivered benefit to owners (investors) while the population that works in the USA has been put to further disadvantage compared to prior decades. This is the result that one must expect as long as the dominent measure of economic success is money profit and money wealth accumulation. It confirms my belief that in order for the economy to be optimized for ALL the population there must be measures to reflect quality of life for everyone, and ont a single simple measure that really only works for those with affluence.

US GDP
All profits after tax
Non-financial profits after tax
Corporate Investments




This set of data (from Andrew McAfee) shows a modest growth in GDP for the USA from 1995 to 2011. In this period corporate investment increased but dropped as the economy went into a short recession after the post Y2K tech boom and again in the so called 'great recession' of the period 2007/8/9.
Non financial profits after tax has grown stongly from 1995 to 205 but with signficiant fluctuations with big drops in the 2000 recession and again in the great recession a few years later. Total profits after tax did not fluctuate as much as the financial sector fluctuated less even though it had a huge role in the financial crisis that was responsible for the great recession.
None of these economic indicators suggests an economy and a society in trouble ... rather it looks like a set of trends that are really quite good.

The problem is that when the productivity / worker trends are added in (the red line) then it shows that the achievements of the economy are being obtained with less and less participation of workers. It comes as no surprise that a political candidate such as Donald Trump is able to attract votes based on a promise of change, when a very large proportion of the country's worklers are 'losing' relative to the more advantaged in the society.
This is very basic economic analysis that seems to have been ignorded by politicians, policy makers and the media for a very long time.



The text being discussed is available at


TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative.
It has been funded by family and friends plus donations from well wishers who understand the importance of accountability and getting the management metrics right.
SITE COUNT
Amazing and shiny stats
Blog Counters Reset to zero January 20, 2015

CAVEAT. The information on this website may only be used for socio-enviro-economic performance analysis, personal information, education and limited low profit purposes
Copyright © 2005-2018 Peter Burgess. All rights reserved.