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Burgess Manuscript
Basic Concepts for TrueValueMetrics
Version of 2010
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CHAPTER 6
Entities for Analysis and Reporting
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This chapter describes the change in perspective that there is with TVM compared to the organization perspective that dominates business money accounting, and organization centric performance analysis. TVM makes people and the performance of the community central to the metrics.
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Chapter 6 / Section 1
Where To Engage?
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If Government is Involved!
Central Government
If central government is involved, then the management and coordination will have its center of
gravity at the top … and it likely will not work.
In parallel with the “top” level initiatives, there needs to be a series of modest scale
activities that have focus on community and are able to be managed and coordinated to
do tangible work. These activities can successful and contribute to community progress.
These activities can work and contribute to the reported success of organizations
Nevertheless it will be at the “top” that there will be an ongoing assessment of
performance … and the establishment will keep on doing its statistical compilations at
this level. These statistical series have some value … they are a long time series, and
though they are almost 100% useless for decision making they do serve as fairly useful
proxies for aggregate performance.
Better when Multi-Sector at Community Level
Almost nothing will work when it is planned “in a silo” with the intention of operating
“in a silo”. This is the planning model of most single sector initiatives … and also
explains why most of these initiatives are impressive failures.
Attempts to coordinate a set of single silo initiatives at the “top” so that they work
together at the community level never works … but just adds another level of
coordination at the “top” while doing nothing much of use at the community level.
Activities are community specific … or place specific. Activities that are priority in a
community are those that are addressing priority needs in the community.
Expertise is sector specific, and to be useful it needs to be able to reach the community
and the activities where the expertise is used. Expertise may come to an activity in a
variety of ways ranging from an Internet connection to the engagement of consultants
and organizations with deep sector knowledge.
Many communities have multiple deficits … and in these cases the deficits may
aggregate to make it very difficult to have successful activities to address any of the
needs. This is a challenge and the starting point is data … and then small steps over time
to help the the community to move forward.
For a continuum of progress there has to be deep understanding of what can be done at
the community level … everywhere!
Practical Aspects of Micro-Up
How best to plan, manage and coordinate?
The focal point of many years of failed development has been top down planning and
resource allocation together with a preoccupation with profit at the expense of value. The
idea of micro-up bottom of the pyramid empowerment rather than the prevailing top
down development model holds the promise of better performance, but there are practical
difficulties.
TVM addresses the broad issue of data and its use for decision making, oversight and
accountability. This can go a long way towards addressing the challenge of bottom of the
pyramid empowerment, the allocation of scarce resources and accountability for their
effective use.
With government, decision making at the top!
If government is the focal point, then planning, management and coordination will be at
the top … and it will not work.
In parallel with the “top” level initiatives, there needs to be a series of modest scale
activities that have focus on community and are able to be managed and coordinated to
do tangible work. These activities can successful and contribute to community progress.
These activities can work and contribute to the reported success of organizations
Nevertheless it will be at the “top” that there will be an ongoing assessment of
performance … and the establishment will keep on doing its statistical compilations at
this level. These statistical series have some value … they are a long time series, and
though they are almost 100% useless for decision making they do serve as fairly useful
proxies for aggregate performance.
With community, decision making bottom-up
Activities are community specific … or place specific. Activities that are priority in a
community are those that can address priority needs in the community. The best place to
ascertain community priorities is in the community … and it is in the community that
there should be planning.
Many communities have multiple deficits … and in these cases addressing only one of
the deficits may not have much impact.
Which disease to die from?
A child may be treated for malaria and live because this is a global priority
for donors … but then die a month later from some water-borne disease that
is not being addressed.
Planning and assessing progress at the community level is very much easier than trying
to get the same level of certainty at a national or global level.
At community level … multi-sector coordination
Almost nothing will work when it is planned “in a silo” with the plan to operate “in a
silo”. This is the planning model for most single sector initiatives … and explains why
most of these initiatives are impressive failures. This is the planning model used almost
universally by the World Bank, the UN and official development assistance agencies like
USAID, DfID, and others.
Attempts to coordinate a set of single silo initiatives at the “top” so that they work
together at the community level never works. Usually this merely adds another level of
coordination on “top” of what is already, not to mention adding expense, while doing
nothing tangible for coordination at the community level.
Expertise is sector specific, and to be useful it needs to be able to reach the community
and the activities where the expertise is used. Expertise may come to an activity in a
variety of ways ranging from an Internet connection to the engagement of consultants
and organizations with deep sector knowledge. Broadly speaking the key know-how
should be “pulled” into the community to address some priority rather than being pushed.
For a continuum of progress there has to be deep understanding of what can be done at
the community level … everywhere! A starting point is to have a modest set of
community level data which may, over time, be expanded as the community progresses.
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Chapter 6 / Section 2
Community Is a Focus of TVM
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Communities are Where People Live
All communities are different
Community is where people live and work. It has been said that “all politics is local”, but
it is even more true that “all life is local”. There are many advantages associated with
community focus planning, with the ability to have programs that are of a manageable
size, and the ability to see the impact, and adjust to handle constraints that would
otherwise disrupt progress. In a community the decision making is done by people … and
cause and effect are meaningful … not merely remote statistical abstractions.
Relief and development analysis is complex … but is simpler at the community level
than at a national level. With a community focus approach it is possible for analysis to be
simplified to focus on material activities that are most impacting performance of the
community. Community analysis is location specific and community centric, rather than
the more usual sector centric analysis with implementing organizations.
The advantage of the community centric approach is that activities may be optimized to
suit the place which results in much more effective socio-economic progress. Where
resources are limited this is an important consideration. Location specific community
centric planning and resource allocation is important because each community is
different, and accordingly the activities in each place should be different. National level
plans provide a guiding overview, it is but it is planning and analysis at the community
level that makes it possible to do things that optimize progress. Every community is
different. Planning at the community level is more relevant than planning at any other
level. If the goal is for people to have a better quality of life, then the community is
where people live and work.
What is the “state”? What is the “progress”
The performance of a community is often pretty clear at the community level … but
performance at the community level is not well documented and in a form that facilitates
decision making, oversight and accountability.
The money and material resources of a community are a mix of private property, public
property and the resources of the commons. The complete resources of the community
are also those that have social value, though not a direct trading or monetary value. These
are all part of the “state” of the community and include
- the value of the human resource;
- the value of organization and governance; and,
- the value of future opportunity and potential.
State … balance sheet of the community
The state of the community is recorded using data about the community. The data are
organized along typical accounting lines with items sorted according to balance sheet
assets and liability classifications. The data reflect not only money accounting asset
classifications but also TVM value classifications for all the value elements for the
balance sheet.
The TVM construct for state of the community is similar to a balance sheet of a corporate
organization but expanded beyond the normal assets and liabilities to embrace the value
intangibles, especially the value associated with quality of life in the community. The
state of the community is about quality of life and the assets and liabilities of the
community.
Progress … balance sheet change over time
There is progress when the state of the community is improving from year to year. The
state of the community is an aggregation of value … and while value is subjective and
not easy to quantify it is very important and the fundamental basis for determining
quality of life. The TVM construct for progress is based on the core idea from double
entry accounting that changes in the balance sheet may be used to understand the
progress of an entity over a period of time. The change in the balance sheet … the change
in the net value plus is a measure of progress. A community shows progress when the
balance sheet improves.
Performance … what cost? … what impact?
The progress and performance of a community are functions of the potential of the
community and the efficiency and effectiveness of the socio-economic activities in the
community, including those originating within the community and those that come from
outside. Too many activities in the prevailing socio-economic systems benefit some at
the expense of others … usually the poor and powerless.
Some ancient practices are very efficient
It is thought provoking to consider how any human being can live and
prosper in the middle of a dessert … but pastoral societies do this by being
highly efficient in their use of very limited resources. Relative to the
potential of the available resources they do amazingly well.
In contrast a modern advanced economy … the prevailing throwaway
consumption based economy … is highly inefficient in its use of available
resources. Cleaner effluent from a profligate resource using production
process is a step in the right direction … but only a very small step!
Quality of life determined at the community level
Quality of life is determined at the community level … whether it is a rich community
with abundant resources or one that is poor and struggling. Good decision making has a
huge role in making the best possible use of resources, and community performance
metrics should be suited to decision making at the community level.
A good start is the efficient and effective use of resources. The underlying assumption of
market economics is that the market delivers efficient allocation of scarce resources …
but this is rarely so because few markets have economic efficiency but are being gamed
so that winners win and losers lose rather than delivering an optimum equilibrium. TVM
at the community level provides data so that the market works more efficiently with
value taken into consideration as much as profit. TVM analysis aims to be useful ... to
improve decision making and socio-economic performance.
Facilitating Progress at Community Level
Get data
TVM is a system that works with data … and has community, a place, as the core of data
collection and analysis. All the data are linked to place and associated with time. Every
fact that is going to be important in decision making about the community is needed.
Broadly this breaks down in the following sections:
- Information about the area … the place;
- Information about issues to be addressed;
- Information about ongoing activities and interventions; and
- Information about the results ... the impact on the issues being addressed.
Data are needed about needs, about resources and about constraints. The challenge is to
get these identified and organized in an efficient way.
Where are decisions made … where are the data?
The success of community development depends a lot on where decisions are made and
what data are available. People are a key to community success … but how are they
organized to be effective in helping the community to progress.
The community governance structures may be the best locus for decision making and
data, but maybe not. Maybe the locus should be an activist group or other civic
organization. The community as the reporting entity is not the community government
but the community … the community government is an organization within the
community.
It is possible for data to be effective without having any formal locus … data are about
the community as a whole and may be located “in the cloud” if there is no other place
where they may reside.
What are needs of people?
People have needs … basic needs. People have wants that go well beyond needs. A
“middle class” quality of life is about needs being satisfied without any worries and some
level of want being realized to suit oneself and deliver on a reasonable “quality of life”.
Modern metrics for progress are poor indicators of quality of life, but more metrics that
correlate with more and more economic activity and profit.
In all of history, society has been constrained because there were more basic needs than
the practical capacity to supply these basic needs … but this is no longer the case.
Modern science and technology could now enable global capacity that would be more
than sufficient to satisfy all basic needs … but the governance structure and metrics for
allocation of resources to make this happen are missing. TVM therefore starts any
community analysis with needs.
In a sustainable economic setting, the needs of people are satisfied using the money they
earn to purchase everything they need and want. The economic infrastructure makes the
products and services they need easily accessible. A combination of productivity and
market forces (in theory) makes the products and services affordable.
On other words in a sustainable economic setting, people meet their needs and their
wants through their own economic activities … and society improves over time because
productivity improves, surpluses result and society has reserves for unanticipated
problems.
What do people need?
There is not one easy simple formula … every community has
different needs, depending on its history and the resources at its disposal.
Needs very different
After the earthquake in Haiti in January 2010, the communities directly
affected by the earthquake had need for rescue, emergency services and all
the basics for survival … vastly different from communities in other parts of
Haiti not structurally damaged by the earthquake, but having to cope with a
massive influx of displaced survivors.
The essentials for survival in a disaster affected community are water, food, shelter,
sanitation, health care, and security. In most disaster situations people “self organize”
into working communities or groups to help each other and to make the best of what is
available.
What do people want?
A community is likely to have very different priorities from those
that an outsider may see as the key priorities … especially when the potential of the
community is not clear and the vision of community leaders is limited. Change usually
starts with small steps … and accelerates over time … success building on success.
People replicate success … but want to see success in practice not merely as a project
hypothesis.
Unmet needs in a poor socio-economic setting
Unmet needs are a result of resource shortage, capability shortage and organizational
deficit. The scale of unmet needs and the possibilities for progress are constrained not
only by the availability of resources … but also they are constrained by issues like lack
of know-how, poor organization and the way in which available resources are deployed.
The resources of the planet are finite … but they are substantial. TVM takes all resources
into consideration … including human resources, natural resources, technical resources
and financial resources. TVM wants to know what resources are in the community and
what resources can be mobilized to satisfy the needs of the people in the community.
In some poor settings, the reason for poverty is because of external exploitation and
forced deprivation. The poor and powerless are unable to change anything for the better
while the rich and powerful stay in control. Over the past five decades or more there have
been international initiatives to reduce poverty. These initiatives have had some impact,
but nothing like the impact that should have been achieved given the resources available
for the work. More community data will serve to make abuse more visible.
External resources
Poor communities may not have the local resources to do what needs to be done. People
may know what would improve the community but do not have the materials to do the
work nor the money to buy the materials.
In some cases unmet needs exist because knowledge … human capacity is a constraining
factor. Resources may be available, but they cannot be used to satisfy needs because the
know how is not available. Lack of knowledge capacity needs to be addressed and made
part of the process for community progress. Focus is needed on how resources have to be
organized in order to provide the capacity that will deliver goods and services to satisfy
all the basic needs … and more.
In the community setting, unmet needs require incremental resources, but it should be
done using a systems approach that looks for continuous incremental sustainable
improvement. People with needs should be at the center of initiatives to satisfy needs …
the minimum of external resources should be injected into the process.
A big part of the key to sustainable progress is that the economic productivity of people
has to be improved AND opportunities to use incremental education, knowledge and
skills have to be created.
More Education Without More Jobs is a Waste
What role for natural resource wealth?
Natural resource wealth is a problem … more than anything else mineral rights are being
exploited under the “rule of law” so that ruling elites and corporate interests are able to
enrich themselves while ignoring any claims that community people might reasonably
have.
The world's big energy and mining companies have become larger economic entities than
most national economies and they wield a huge amount of economic power. In theory
they behave according to the rules of law and international ethical norms … but few
people have any idea what really goes on behind closed doors.
It would seem reasonable that natural resource wealth could be used to improve the
quality of life for poor communities that are resource rich … but it is not happening on
any significant scale. There is more talk than 20 years ago … but not much change yet,
and there probably will be little change unless there are more relevant metrics like TVM
about community performance and the associated organizations, activities and value
chains.
Huge abuse of power
When you apply value chain analysis and “follow the money” it becomes
fairly apparent that there is a big disconnect between what is said and what
is done! How come heads of state in resource rich countries become so rich
while people remain so poor? There is huge corporate benefit accruing at
the same time that chronic poverty remains.
What are the possibilities
Each community has potential … but all are different because the place and the people
are different. Performance depends on what is possible in the place … what resources
there are and what constraints there are. The future progress of the community will
depend on what is done … what activities so that the state of the community improves
over time. Planning provides a guideline about how this progress towards the optimum
possibilities may be achieved.
The potential of the community is a function of the resources of the community including
especially the people of the community. Though the resources of the community are a
limiting factor, they can be organized in an optimal way to achieve more … and have a
higher productivity and more surplus production. The potential of the community
changes when the value of the resources change … as the value of the human resource
changes when education is improved, skills are improved and health is improved
Cause and effect not correlation is important
Measuring progress and measuring performance is expensive and has no value unless the
information is used to improve performance. A little information that improves decision
making is very valuable … it does not need to be an academically rigorous study … just
some useful facts that decision makers can easily process. Management information aims
to be meaningful and valuable … trying to get at cause and effect in a practical way.
A good part of academic study tends to being rigorous in methodology … academically
useful, maybe but not of much practical use. For financial reasons more than anything
else, a large part of the data about socio-economic performance comes from the academic
community that has cornered most of the available money. This has been good for the
academics and college researchers, but very bad for society as a whole. Academic studies
that identify correlation that has little or no practical application are a wasting resources
and probably worse … teaching a way to research that cannot very much help progress
where it is most needed.
Cause and effect … performance
It is virtually impossible to identify useful linkages of cause and effect at the level of
national aggregation … a common level of study by the academic community … but it is
quite possible at the community level. The cause of progress in a specific community
may be understood by analysis of the activities in this community. Activities that are
surplus producing with net value adding help the community to progress. Though all the
facts will rarely by available, enough data may exist so that in combination with an
understanding of the linkages in the community, there can be improvement in the way
things are done.
The progress of a community is affected by
- the starting point … the available resources of the community;
- the potential of the community;
- the vision of the community leaders;
- how the community organizes; and
- the priorities and what activities it chooses to do.
When good decisions are being made in the community, the results are rapidly apparent
… same with bad decisions.
Value chain analysis
Value chain analysis is important for community decision making and to understand the
potential of the community relative to its performance. The fact of terrible poverty in
places that are major oil producers suggests that the value chain in place is wrong …
albeit legal. Rule of law is usually thought of as a way to make progress possible … but
the application of rule of law in many situations involving big investments and big profits
suggests that rule of law enables rip-off in ways that need to be exposed. Every
community needs to be doing value chain analysis in connection with all its external
socio-economic activities including things like governance constraints and security
matters.
Community Plans, Oversight and Accountability
Plans
Data make it possible to have plans that aim to make a community progress … but the
aim of the plan is not to have a plan, but to facilitate progress. The data that makes it
possible to plan also makes it possible to measure progress
Oversight
Oversight is the link between implementation and plan … when done in a constructive
way oversight helps to keep progress on track. The purpose of oversight is more to
identify problems and deliver help than to find fault and pinpoint blame. Oversight is
successful when there is high performance progress … not when it catches people out!
Accountability
Accountability also should start from a positive place. The primary goal of accounting is
not to find fault with performance, but merely to have data about performance. Most of
the time the data show rather normal transactions and performance … but sometimes the
data show excellence that should be celebrated and sometimes the data show
inappropriate behavior that should not be tolerated. People should know about progress
and performance and celebrate jobs well done. People respond more to favorable
encouragement than to negative fault finding and blame. Positive reinforcement is
possible when there are data to provide accountability.
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Chapter 6 / Section 3
Organizations
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Every Type of Organization Must Be Engaged
Profit focus organizations
The profit maximizing enterprise ... the engine of the modern economy has a dynamic
that seeks the maximum of profit and the maximum of stockholder value. Though a good
organization would work to have great stockholder value that is sustained over time ...
the way capital markets work, it behooves the management and decision makers to focus
on short term value even if this consumes long term value.
While the score-keeping was rigorous and relatively simple fifty years ago ... modern
corporate score-keeping is now the subject of all sort of rigging ... no relative of rigorous.
The law and rules have allowed all sorts of practices that have helped make it possible to
have reportable profits on top of enterprise activities that have been catastrophic.
Bluntly put ... a lot of this has been fraud, even though it has been “legal”.
Value focus organizations
The not for profit or NGO has a very different dynamic. Job one is the survival of the
organization, and for this a constant flow of funding to support the activities is crucial.
There are a lot of activities that are done to support this priority ... including the
production of monitoring and evaluation reports that satisfy the funding organizations,
the donors.
The organization must do some of what the donor expects them to do ... enough to be
able to show the donors that the activities being funded are taking place. Nobody is,
however, looking at cost efficiency and assessing whether or not the spending is resulting
in a high or low level of activity. Nor is anybody looking at the results and assessing cost
effectiveness in a rigorous manner.
While the mission of the private charity or NGO may well be laudable ... this does not
automatically translate into a well run organization that is both cost efficient and cost
effective. These metrics are usually missing.
The social business
The social business has a different dynamic. The operations of the business may be
highly profitable ... but the resulting fund flows are used to expand the operations to
serve more of the market rather than to reward stockholders and maximize stockholder
value.
The business model helps to make best use of technology and resources to get the
maximum of productivity. The social dimension aims to provide the most of value to the
community by scaling up the operations as effectively as possible and as fast as possible.
The sustainable business means that the enterprise is sustained not by donors, but by the
market.
Faith based organizations
Faith based organization are involved in both worship and in social outreach of various
sorts … local and international. The money accounting metrics fail to communicate much
of what faith based organizations do … these data only tell about the money transactions,
when the major part of a faith based organization is about things that have value without
much if any connection with money. FBOs need money to pay their bills, but it is the
value creation that they do that is their core value.
Government entities
Government entities have become a very big part of many economic systems and provide
some services that are of value to society … and many that cost a lot without doing much
of significance.
How Organizations Impact Value
Every stage of the value chain
Employment … the cost of the employment is included in the money profit computation,
but there is also the value associated with the staff having employment. In economics the
multiplier effect comes about because there is value in employment beyond merely the
money that comes to the employee.
Goods or services provided … the revenue from these is included in the money profit
computation, but there is also the value associated with these goods and services
satisfying essential needs in the society. This may be equivalent to the price … but
usually not. Usually the price is lower than the value, sometimes substantially, otherwise
there would be little incentive to purchase.
What about intangible? It is nice to have the business in the neighborhood … it is
convenient. They serve as an anchor to the other businesses, and so on.
Or maybe the intangible are negative and not so intangible. Maybe the organization is
using high volumes of water, or discharging polluting effluent into the waterways or
sewers, or polluting the atmosphere, or making excessive noise. None of these are in the
money accounts, but they are part of the value model for the organization.
The organization perspective is about the money profit accounts and is likely to be
“private”… but the community perspective has the value accounts and is “public”. A
community wants organizations where the value accounts show that the organization is
one that is worth having … not especially for the owners who get the profit, but for the
value that comes into the society.
What Organizations Do!
Everything ... they dominate the global economy
An organization has the capacity to do things that an individual cannot do on his/her
own. This means that an organization is more efficient in its operations than any
individual … but this does not mean that this will translate into a higher benefit for
society.
Private sector for-profit organizations deploy resources to achieve the most possible
profit and be in the strongest possible financial condition. Whether or not this is good or
bad for society is of no concern within the metrics of money accounting.
Not-for-profit social business and faith based organizations that use money accounting
only put on the record those activities that are denominated in money terms. This means
that the core purpose of these organizations does not get recorded in a systematic way.
The purpose of organizations and their progress does not link well with the purpose of
community and community progress. Frequently what is good for the profit performance
of a corporate business is not good for the progress of the community … not good for the
quality of life of the people in the community … not good for the environment in the
community … etc.
A small organization may well have a common purpose with the community where it
operates … but this is rarely the case with a big organization. Big organizations do many
things in many places … they produce goods and services in response to market demand
and in ways that serve the interest of corporate profit performance … but they do rather
little in response to what would be the best for the communities that are stakeholders in
the corporate operations. Money accounting makes it possible for the corporate
organization to know a lot … almost everything … about the behavior of revenues and
costs and profits, but these metrics do nothing to inform either business management or
the public of the value impacts on society … on the communities.
Data about organizational performance
Generally speaking, very little is known about the operations and performance of
organizations. They are very secretive and aim to keep secrets away from their
competitors and the broader public. While it is possible for corporate organizations to
take credit for some of the progress towards prosperity that has been achieved by the
world over the last 200 years, it is also something of a conundrum that the progress of
science and technology has been so many times greater than the progress of global
society in aggregate. Somewhere in the system, there are huge losses of opportunity and
performance … and these are well hidden inside the organizations that dominate the
economic landscape.
Different types of organizations handle data in different ways. Whether or not an
organization is for profit or not, the default setting for any organization is to be in
competition with its peers rather than to be cooperating.
The corporate business has a lot of important data about its performance available inside
the organization, but very little of this information is available for public scrutiny. The
corporate business makes data about its performance available to the public either; (1)
because laws and regulations require the information to be made public; or, (2) the
information is useful in furthering the goals of the corporation.
The not-for-profit organization makes data public that are going to further its fund raising
activities … and otherwise usually make public only what is required by law.
Government organizations do not make much data public about their performance …
though many government organizations make public a lot of data through their
publishing activities. The system of accounting used in government is rigorous about the
budget process and spending relative to budget, but the value being realized as a result of
spending is not a part of this system of accounting. Government accounting as an
effective system of financial control is further compromised by the annual cycle which
encourages inefficient spending of unspent budget allocations towards the end of any
year. This is a source of considerable abuse.
Metrics about impact on society
Mainstream money accounting has nothing to provide a measure of organizational impact
on society … and efforts to expand the reach of money accounting beyond the basic
profit computation and report has not proved particularly useful.
TVM value accounting goes beyond the money transactions to include also value
transactions … and TVM also brings a community perspective to the metrics rather than
simply the organization perspective.
In corporate money accounting, periodic financial statements are able to convey a lot of
information in a very summary form providing much information with little data
overload. These corporate management accounting systems also make it possible to use
detailed drill-down to access information about the underlying activities and to see
metrics about performance.
TVM looks to this detail of organizational activity as the foundation for knowledge about
corporate impact on society. The individual corporate activities are located in a place,
and the impact of corporate activity in a place should be on the record and accessible to
the stakeholders of the place. There should be an accountability about the activity so that
there is accessible knowledge about the impact these activities have on the community …
about the value consumption that is going on in the community, the value creation and
whether or not the activities are value adding or are value destroying.
Money based performance is commonplace
Socio-economic progress has very little to do with the financial performance of an
organization … it has everything to do with the changes that happen to people and to
community. Not all activity automatically results in desirable impact … and many
decisions have negative consequences as well as the intended benefits.
All forms of organization … small and large business organizations, governments, notfor-profit organizations of all sorts … all organizations measure performance using basic
money accounting. They usually have a budget about how money is going to be used and
where money will come from … and then accounting and reports to show the income and
expenditures of the organization.
There are conventions about how profits will be reported … and taxed … and other
conventions about how the detailed accounting will be done. At its core, this is all about
money based performance. Within these metrics there is absolutely nothing about value.
Value metrics weak or mostly missing
Most organizations are unable to relate the work that they do with the impact they have
on the community or on the larger society. The accounting system does not address
value impact on society at all.
You cannot manage what you do not measure
Big organizations that operate in many communities and in many sectors have little
connection to the performance of the community. A good community activity
implemented by an organization will have a favorable impact on the community
independent of the overall performance of the organization … but most organizations do
not know much about value impact for the community though they may know more
about the profit impact for the organization.
The reason why organizational performance is important in the analysis of relief and
development is that the organization is often the vehicle for transmitting resources, and in
some cases consuming resources with no related developmental benefit. Communities are
badly affected by the transfer of value from the community into the broader national
economy or global economy.
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Chapter 6 / Section 4
Activities
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Bottom of the Analytical Pyramid
Activities are ubiquitous
Activities are at the bottom of the analytical pyramid … or almost. In TVM the idea of
activity has been used rather than any of the words that describe this that originate with
either the corporate organization or development institutions like the UN or the World
Bank.
In the UN and the World Bank the “Project” is main form of organization at the
implementation level. In the case of the UN the project is sometimes very small, but in
the case of the World Bank may be extremely large, maybe multisectorial and
comprising many different components. In a corporate organization the large
organizations may be subdivided into business units, into subsidiary companies, into
departments, into profit or cost centers. For TVM is does not really matter what structure
is being used by the organization, the value accounting for an activity fits into any of the
structures.
What is an activity
An activity is any use of resources to achieve some socio-economic purpose. In order to
be easy to measure and evaluate, the activity should be simple if not small. Complex
activities with many different things going on are more difficult to analyze and are better
separated into individual activities for management analysis. This is what happens all the
time in corporate management information systems, and the same should apply in TVM.
In money accounting and management accounting in an organization, there is often cost
or profit center reporting, or departmental accounting. These reports are simple to
understand and to relate to the activities of the unit. So it should be with an activity in the
TVM. In TVM an activity is an entity where socio-economic resources are used … value
is consumed … and socio-economic value is created. When the value created exceeds the
value consumed, there is value adding, otherwise there is value destruction. In TVM an
activity is small … small enough to be comprehensible.
TVM thinks of “activity” as a socio-economic event that converts resources into needed
goods and services … and in the process provides jobs and remuneration for workers.
TVM has a focus on the activities that are creating socio-economic value for the
community … and what is needed so that good surplus producing value adding activities
are facilitated. Socio-economic value performance is one of the core metrics for a smart
society … yet almost absent from the money related metrics used by the corporate
community, capital markets and the broader society at the present time.
The basic entity for performance analysis
An activity is the basic entity for performance analysis. In TVM an activity has two elements:
- The use of resources
- The product of the activity
Use of resources has two components:
- Use of resources that are accounted for in the money accounting of an organization
- Use of resources by an organization that are not fully accounting for in the money accounting ... as in cash based systems
- Use of resources that are part of society's commons and not included at all in an organizations accounting of activity costs.
The product of the activity has two components:
- The money revenue that arises;
- The value benefit that impacts the beneficiaries and the community
Use of resources that are part of society's commons and not included at all in an
organizations money accounting and activity costs … but they should be using the TVM
framework.
Activities are the origin of value adding ... or value destruction. Data about activities may
be needed to explain why some aspect of the community balance sheet has changed ...
but it many situations is is quite obvious without much need for detailed data.
Activity reporting is similar to the reporting of the corporate Profit and Loss Account or
Operating Statement. An Activity Report may show some of the characteristics of
economic activities in the community that have had an impact on socio-economic
changes. An Activity Report helps to explain the changes that have taken place in the
balance sheet of the community. Thus, for example, an increase in stock levels of grain
might be explained by an unusually good harvest ... and explain why there was a good
harvest.
Activities are the origin of value adding ... or value destruction. Data about activities may
be needed to explain why some aspect of the community balance sheet has changed ...
but it might be quite obvious without much need for detailed data.
The TVM reporting format embraces the accounting ideas of “roll up” and “drill down”.
The TVM reporting framework has the community as the primary unit for accounting.
The data about community may be aggregated to provide reporting at the district and
provincial level as well as at the national level.
The same framework of data is used at each level. The “roll up” and the “drill down” of
the data provides a coherent set of data for decision making at the national policy level
and at the tactical operational level in the community.
Data About an Activity
What is the activity?
It is activities that change the state of the community. The cause of improvement in the
quality of life is a result of a portfolio of socio-economic activities that in aggregate are
surplus producing and value adding for the community.
What need does it serve or satisfy?
Activities have impact on progress, and cost effectiveness is a measure of this
performance. Surplus producing activities result in socio-economic progress. Cost
effectiveness is the relationship between the impact and the incremental costs, that is
value consumption that was used to achieve this increase.
What cost ... what resources are being consumed?
An activity has a good cost efficiency when the amount of cost or value consumption is
better than a norm or standard, and a poor cost efficiency when worse than the norm. The
purpose of the cost efficiency measure is to compare performance in the conduct of an
activity.
The socio-economic performance of a community is determined by the activities that are
going on. Where activities are productive and there is surplus production … sometimes
equivalent to profit … the condition of the community improves. Whether or not
activities can be productive and surplus producing depends on the available resources,
the enabling environment and constraints. Wealth is created with activities that deliver
surplus production … poverty is a result of activities that are unproductive and do not
add surplus to the society.
What is being achieved … what impact?
Data are needed to show which activities are important .. but no need to have detailed
data about things that are immaterial. Quite simple data serves to determine what is
important and what is not … common sense may be used. Low productivity is the root
cause of poverty. Every activity in a community should be value adding so that the socioeconomic activities of the community are producing progress.
The impact of an activity may be noted simply by observation. An observation is noted
… and then another … and then another. They add up to some useful information about
the activity. Even in quite large contracts it is possible to observe important
characteristics of the activity … for example: the way the contract is being implemented
and the impact on the surroundings.
Construction … New York 2nd Avenue subway
There is a major construction project going on in New York at the present
time to build the 2nd Avenue subway. It is being managed by one of the
world's biggest contractors … but you can tell it is a government contract by
the lethargic pace of what is going on. The duration of the contract has been
extended … one has to wonder what impact that will have on cost to the
public and profit to the contractor. Meanwhile there is also an impact on
local business and quality of life that only comes into play with TVM
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Chapter 6 / Section 5
Sectors
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Sector Perspectives
Sector Expertise
Sector expertise is important. Activities will be high performance when the best possible
sector knowledge is applied. This is not an academic or bureaucratic construct … this is
engineering and science and very specific to the sector. Good performance is based on
having sector skills that are good.
The performance of society depends on many factors, but, simply put, in essence
performance is a function of two things
- the resources available; and,
- the way they are used.
The resources available are constrained. The starting point it resources available locally.
A second source of resource is external mobilization of resources, which may not be
capable of being controlled locally. Resources available is a limiting factor.
But there is also the way resources are used. Good productivity is achieved by using
available resources in the best possible way … and it is in this area that sector specific
knowledge … know-how … is important.
A pattern that has been observed over a very long time is that performance is best when
there are good people with really in-depth knowledge doing practical things throughout
the process or value chain. Much of this knowledge is not fully documented … just
known because of experience. This know-how cannot be learned in a library … only by
doing the work and learning from others who also know the stuff. This knowledge is part
of old fashioned apprenticeship programs … and missing from most academic study to
the detriment of society.
Sector Performance
Linked multisectoral activities
Society is a complex … and a community focus program reduces complexity by getting
to a manageable level of scale. We know that productivity in one sector is needed to have
productivity in the next sector … and in the end all sectors have to be productive in order
for society to be productive. When there is a constraint in one sector … every other
sector is faced with constraint to more or lesser degrees. All of this can be taken into
consideration in a community focus plan so that local resources can be deployed in the
most productive way.
The TVM system has its focus on metrics … not on any of the other aspects of
performance including know-how.
The TVM approach may be used in almost any situation to measure performance and
productivity … and to understand which set of know-how preforms best. Productivity is
the relationship between the amount of resource used and the amount of impact achieved
… two measures that are totally independent of the process … independent of the sector.
Someone has to know the relevant best practice in the sector … and decisions have to be
made to allocate resources and use best practice. TVM helps to understand performance
… but not the know-how per se.
Sector detail has data about people and knowledge, organizations and capacity, and
activities associated with the sector. The sector detail also shows where sector activities
are being done and where. Another people section pulls together who knows what …
because while it is good to know people, what is the point if they do not know what you
need to know. People and knowledge are also a component of sector detail.
Measurement
Part of my academic training in engineering were “labs” where, more than
anything else, we learned about measuring things … the calorific value of a
fuel, the strength of materials, the efficiency of a system, and so on. There
were ways for measuring everything. Some of the methods involved
destruction of the subject … but others were non-destructive.
With modern technology, the potential for effective measurement is much
better now than when I was being trained and it should be fully utilized.
Sector issues unique to each sector.
It is amazing what technology is now available in each and every sector. Not all of the
technology is universally useful and improved value analysis would help to make the best
use of available technology.
Health
Amazing medical science … but a far less amazing global health sector because the cost
and profit characteristics of the sector are out of control. There is a massive need for
more healthcare globally using cost effective approaches.
Education
Education has a mixed history with some education excellent and some very poor.
Technology has not had a particularly favorable impact on education … and technology
may be doing more damage to the human neural system than is presently recognized.
There is a massive need for more education globally using cost effective approaches.
Transport
Transport technology has improved, but much of the global transport infrastructure is
out-dated or seriously deteriorated. Massive investment is needed to upgrade transport
infrastructure and equipment.
Tourism
Tourism is a sector that has potential to be a revenue earner in many poor societies, but
the infrastructure is constraining this and in many cases the value adding for the
destination communities is weak.
Water
Water may prove to be the source of major conflict in the years ahead. The profligate use
of water by the modern industrial society means that increased wealth and related
industrialization is going to run up against water limits almost everywhere in the world.
Ways to reduce per capita consumption of water is going to be a priority.
Energy
Energy shortages have been predicted for a long time, but better technology to locate and
extract energy resources have been developed that enable available resources to be
exploited very profitably. This avoids the big challenge of long term energy availability
Printed on Dec 2, 2010 at 07:00 PM 19 TBM_About_002_CH06.odt
The Basic Concepts of True Value Metrics
especially as major industrial growth accelerates in China, India, Brazil and other
emerging economies.
Shelter
Shelter is a basic need … and inadequate for maybe 2 billion people mainly because
suitable shelter is unaffordable for poor people. The issue of poverty and the issue of
suitable shelter are closely linked … and have to be incorporated into community
development initiatives.
Food
Food is a basic need … and too many people are poor and hungry. Some estimates are
that there are perhaps as many as 4.5 billion people who have inadequate nutrition
because of poverty. The business model for industrial food and agriculture may not be
the best for people although it has been impressive for its raw productivity and business
profitability.
Graphic of community balance sheet change
Community balance sheet change is TVM's core metric for progress. The community is
where progress dynamics are easier to understand and where measurement has more
clarity. Changes in the balance sheet show where there are changes sector by sector?
Detailed data will show what activities contributed to progress and which did not!
The community level analysis produces an understandable view of how activities are
helping to achieve progress … relative to the resources being used and the decisions
being made.
The community is the most important locus of life, so quality of life impact can be
monitored and measured more easily at this level. The TVM construct for measuring
progress ... the changes in the socio-economic state of the community from the beginning
of the period to the end ... applies to every aspect of the community.
The relationship between the starting value state and the later value state depends on the
effectiveness of the activities. It is possible to focus on just a part of the community
“balance sheet” to analyze and understand something of the progress of the community.
The larger complete balance sheet comparison also helps to make it easier to understand
what important constraints exist and need to be resolved.
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Chapter 6 / Section 6
Individuals and Families
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Where Quality of Life Really Matters
The individual
People centric analysis is probably the most desirable … but it is not easy, and is not
desirable. The data needed may only be obtained by detailed probing into matters that are
best left private and left within the family.
Though people centric analysis as the main method of analysis is impractical … thinking
about impact on people is important. Individuals and families are a very important piece
of the structure of society, and it is useful to remember this, even though the main
metrics recommended in TVM are at the activity level and the community level rather
than with the individual and in the family.
The family
The dynamic of an individual and the dynamic of a family are different. Part of this is
gender … part of this is age … and part culture … and other things as well.
The goal is to improve quality of life … and this is done when both the individual and the
family are progressing. And when individuals and families are making progress, it is
likely that the community as well will be making progress.
Dynamic of family … who helps who?
A typical mulit-generational family has parents helping the children … and then at
another stage in the evolution of the family, the children looking after their parents.
But there is also what happens in terms of the members of the family helping the
community … and the community helping the members of the family.
People are both consumers and they are producers. There is community progress when
families are able to produce more than they consume … and there is family progress at
the same time. This is a sustaining community.
People as population
Population demographics are an important part of the value calculation for a community.
Needs are a function of population … and the satisfaction of needs is another function of
population. Human resources … people … are the core of everything. Quality of life is a
metric that has no meaning without people. People have critical basic needs without
which people do not live. A functional society should make it possible for basic needs to
be satisfied without any value diminution for society as a whole.
People in the balance sheet
Because people are an asset, they are an important part of the value balance sheet and
state of the community.
People are a resource
People are a resource and as a resource they are included in the balance sheet. The
valuation is based on a standard value and the profile of the population of the
community. Individuals make a very big difference … individual people are the decision
makers whether they are working for their own account or for an organization. Ordinary
people working hard can make a very big contribution to progress … and with guidance
the outcome from this work may be enhanced substantially.
People have needs
People have needs … and the socio-economic system should function so that these needs
may be satisfied as part of the normal workings of the system.
Socio-economic system dysfunction
While global production capacity could satisfy all basic needs, the way the
system works has resulted in some 4.5 billion people are poor and hungry.
Muhammad Yunus, founder of the Grameen bank system has observed that
when poor people work hard and remain poor … this is a failure of the
system itself. The idea that some 4.5 billion people around the world are
poor and hungry is an absolute disgrace reflecting a serious failure of the
analytical models that are used for the assessment of economic performance
and responses by decision makers and leadership!
Without people there is no demand. Aggregate demand is one of the important
parameters in the money profit based global economy … and depends on people and
their affluence.
Unmet needs
In rich societies most needs are satisfied with a surplus to increase the wealth of society
… but in poor societies the available resources are inadequate to meet the needs. Society
must address the problem of unmet needs in the optimum way.
Satisfying unmet needs may be urgent. In humanitarian emergencies unmet needs are
addressed by using donated resources. This serves an immediate purpose, but usually the
longer run effects are detrimental. Unmet needs are better addressed by a mix of
emergency donations and initiatives that will improve the productivity of the community
and facilitate an increase in surplus production.
Range of people interactions in community
There are many ways that people interact with society and the components of the
community as set out below:
- People are the drivers of organizations.
- People are the decision makers in communities
- People do things … these are activities
- People make up families
- People have needs … that must be satisfied
- People have wants … that are part of quality of life
- People are a resource to satisfy needs and wants
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