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Date: 2019-09-22 Page is: DBtxt001.php L0700-TVM-the-basic-methodology

TRUE VALUE METRICS
THE BASIC METHODOLOGY
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A KEY CONCEPT FOR EFFICIENT NUMBERING FOR MANAGEMENT
THERE MUST BE A BASIS FOR COMPARISON
THERE MUST BE AN EASY WAY TO MEASURE PROGRESS RELATIVE TO THE FIXED BASIS
Conventional accountancy has used 'standard cost accounting' and 'variance analysis' for decades. It is a very powerful way of reporting about a fixed normal and variances from the normal. For the TVM accounting enhancement the same basic concept has been expanded for all the elements associated with everything. There is a lot of detail, but the reporting summary is very short and simple.
MATERIALITY
Paying attention to everything makes effective accountability impossible. Rather most of the attention should focus on issues that are the most material, and every effort made to improve these matters.
EASE OF IMPROVEMENT
Initiatives to improve performance should avoid using resources where improvement is very expensive or impossible. Some improvements are relatively quick and easy and can start to move the needle.
STANDARD VALUE PROFILE
TVM is developing a small number of standard value profiles (SVPs) as a reference basis for major components of the socio-enviro-economic system. The number of these SVPs will be increased over time after their operational effeciveness has been confirmed.
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THREE KEY PERFORMANCE MEASURES APPLICABLE EVERYWHERE
ENERGY USE
THE UNSUSTAINABILITY OF THIS ENERGY USE
Energy is a foundational element for life and almost all economic activity.
One easily accessible measure of energy consumption is the money spent to buy energy.
For reference, it is possible to calculate what a sustainable amount of energy would cost.
Finally, the level of unsustainability may be calculated. The average for all the USA is likely to be around 5 ... meaning that if everyone in the world consumed like the average American, there would need to be 5 planets.
PAYROLL PROFILE
WHAT IMPACT ON SOCIETY
Inequality is one of the biggest issues of our time. It is caused in large part because people who work for a living are being paid too little and people who own things are being rewarded too richly.
A payroll profile shows many things, including:
(1) how payroll costs are distributed between those at the top and those at the bottom.
(2) the characteristics of the embedded payroll in the products between different parts of the supply chain / legal entities / countries.
MATERIAL FLOW
WHAT UNSUSTAINABILITY FOR THIS FLOW?
The size of an economic activity is related in good part to the mass or volume of the material flow associated with the activity. The flow of material contains an embedded amount of social impact and environmental impact as well as economic cost which change as the material flows through the socio-enviro-economic system. These flows are drivers of good and bad impact throughout the system and a measure of the unsustainability of the system.
TAX PROFILE
WHAT IS THE SCALE OF TAX OPTIMIZATION?
Many executives believe that a company has a duty to minimize taxes as much as possible and permitted by law. This may be a correct legal position, but it is a flawed moral and ethical position and a formula for a failing world. Taxation is essential in support of government and its vital services. Reasonable profits (a reasonable return on assets employed) should be taxed at a quite low rate, but high profits relative to return on assets employed should attract a much higher tax rate. Paying taxes is a corporate social responsibility.
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ELEMENTS OF THE TVM INITIATIVE II
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ENHANCED ACCOUNTANCY
TVM uses the core framework of conventional accountancy, that is balance sheet accounts and profit and loss account accounts to account for the financial impact (money and profit) of a reporting entity. The same basic concepts are used to account for social and environmental impact using separate value metrics for social impact and environmental impact. The TVM approach may be applied to all of the actors in the socio-enviro-economic system.
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RADICAL ACCOUNTABILITY
There has been accountability of business to the owners (investors / stockholders) with periodic reporting and audit. In the modern day it is time for business to become accountable for impacts on society and the long term sustainability of the environment.
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MOVING THE NEEDLE ON IMPORTANT ISSUES
Talk is easy, but moving the needle requires a framework for management involving data, plans, action, review and feedback. The fastest progress is achieved with rapid iterations of small steps at the lowest level of the pyramid.
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USING DATA TO ENABLE BETTER DECISIONS BY ALL THE ACTORS
Big data may be used for academic research, but data for better decisions is often very different. Data should help with understanding and enable rapid action to remove constraints and move the needle rapidly in the right direction.
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METRICS / MULTIPLE UNITS OF ACCOUNT
Money is used to measure economic performance. Something else is needed to measure and account for social performance and environmental performance. TVM is building on the existing detail measures to establish summary metrics for these dimensions.
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EXTERNALITIES / EVERY PERSPECTIVE OF THE SYSTEM
In conventional financial reporting, all externaities are ignored. In TVM the externalities are brought into account as well as addressing how the measure of performance changes with different perspectives. For example, profit up but social performance (wages) down.
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STANDARD VALUE PROFILES BASIS FOR COMPARATIVE PERFORMANCE
TVM standard value profiles (SVPs) are the basis for comparative performance not only for economic performance (profit) but also social performance (social benefits) and environmental performance. SVPs may be used everywhere in the system
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USING PAYROLL PROFILES TO UNDERSTAND SOCIAL IMPACT
Inequality has grown dramatically in the past several decades because top managers and owners have been rewarded too much and workers paid too little. TVM payroll profiles show this and better enables payrolls to be managed.
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USING ENERGY CONSUMPTION TO REDUCE UNSUSTAINABILITY
The modern consumption economy is catastrophically unsustainable already with relatively few people middle class and rich. Much of this is assocated with energy throughout the supPly chain and during use. TVM energy profiles enable better management of this problem.
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USING MATERIAL FLOWS TO ADDRESS OUT OF CONTROL PRODUCTION
Modern industry is consuming resources and stressing the ecosystem in an unsustainable way. Many major material classes exceed the planetary boundaries of sustainability by a large margin. Every business, production system, product and user must be held accountable.
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AN IDEA FROM ACCOUNTANCY THAT IS VERY POWERFUL
Balance sheet improvement over time is progress. Measure the changes, and you measure progress.
NO CHANGE IN BALANCE SHEET
STEADY STATE
GROWTH IN THE BALANCE SHEET
POSITIVE PROGRESS / VALUEADD
DIMINUTION OF THE BALANCE SHEET
VALUE DESTRUCTION
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CONVENTIONAL ACCOUNTANCY IS WELL ESTABLISHED
Good accounting embraces both P&L Accounts and Balance Sheet Accounts
Profit and Loss Account (P&L A/C) P&L A/C with Balance Sheets
The importance of Balance Sheet AND Profit and Loss Account in conventional financial accountancy cannot be overstated.
It makes for clarity AND is a powerful way of identifying management misfeasance
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Enhancing the Profit and Loss Account to Include Externalities
Adding in the BAD impacts Adding in the GOOD impacts
Combined Financial Impact plus the Externalities
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Only Financial / Only Entity Enhanced / Only Entity Enhanced plus impact on State
Profit and Loss Account with Enhancement
Conventional Entity Focus TVM Enhanced Focus with Externalities
Business should enhance its accounting and reporting to have both the conventional financials AND a complete accounting for the externalities ... that is the impact on social capital and natural capital The business should be looked at by outsiders as the totality of their financial accounting AND their accounting for social impact and natural capital impact
TVM Enhanced Focus with ALL the CAPITALS
A business should be put in the context of ALL the CAPITALS ... that is Social Capital, Natural Capital and Economic Capital.
In this graphic the SUN is also included as a reminder that without the sun, the planet earth would be very cold and life impossible.
Conventionmal financial capital and the accumulation of financial wealth is included in Economic Capital.
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ALL ACTIVITIES (PROCESSES) CHANGE ALL CAPITALS (STATE)
These reflect more and more detail about the framing and inclusion of externalities
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THIS IS BASIS FOR ACCOUNTING FOR EVERYTHING
Everything is summarized along the same lines as a financial consolidation
Enhanced Reporting for any Entity Which also may look like this
Processes / Entities adding up to a PRODUCT
Processes / Entities adding up to a PLACE
Processes / Entities adding up to an ORGANIZATION
Various elements adding up for a PERSON



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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. TVM is a 'big idea' that has the potential to be a game changer leveling the playing field so the wealth and power is shared on a more reasonable basis between people who work for a living and those that own the economy and the levers of power. In order to be effective, it cannot be funded in the conventional way with a for profit business plan, but absolutely must remain an open access initiative.
WE WANT TO MAINTAIN AN OPEN KNOWLEDGE MODEL
A MODEST DONATION WILL HELP MAKE THAT HAPPEN


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