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Date: 2022-07-07 Page is: DBtxt001.php bk0003040

The Basic Concepts of True Value Metrics
Chapter 3 ... Data Types and Attributes

3-4 Some Data Distinctions

Transient and Permanent Data

Treat transient and permanent data differently. Some facts change very quickly … some facts change very slowly, if at all. Building a complete set of metrics is done best and at least cost when the difference between transient data and permanent data is taken into consideration.

Permanent and current files in the audit context Data Types and Attributes
In the pre-computer days of audit there was a “permanent file” for each client which carried forward from year to year and a “current file” for this year's audit. All the data that changed slowly was accessible in the permanent file, and the data that changed all the time was handled for audit in the current file.

Permanent data

Much of the balance sheet is permanent data

Much data about community changes quite slowly and should be handled as permanent data. Permanent data should be compiled once, and then over time the accuracy of these data should be checked and the data refined. Permanent data should be correct, and as detailed as it needs to be. To get permanent data that is correct and detailed is not very costly when this iterative improvement approach is used.

Incorrect permanent data

People who do not understand the difference between permanent and transient data tend to start from scratch every time they want data … and they always end up working with first generation data that are notoriously error prone.

The balance sheet has many elements that are permanent in character. Fixed assets are one category of asset that are near permanent … changing relatively slowly over time. In contrast stock (inventory) changes quickly, essentially every day all the time.

Much of the data used to record the “state” of the community or other entity changes quite slowly … some of the data does not change at all over time. These data are known as permanent data. TVM aims to have the permanent data about a community as accurate as possible, as useful as possible and easy to access.

The balance sheet of a community or other entity is a comparatively easy set of data to use for analysis and management. The data is fixed in time … and the period over which comparative change is done may be selected at will.

It is relatively easy to get good permanent data. By getting high quality in the permanent data, everything becomes very much easier and the information rapidly gains credibility. With high quality permanent data it becomes far easier to understand and to put the transaction data into a proper context.

Transaction Data

Change is the aggregation of transaction data

Transaction data is changing all the time … there are a lot of transaction data … millions or billions of transactions within accounting systems everywhere … and socio-economic transactions in society at large. Transient data changes rapidly. In business accounting, all of the profit and loss accounts change quickly … every day all the time … and as these accounts change the stock (inventory) accounts changes quickly as well.

In accountancy, all transaction data are recorded and organized according to account classifications. Review of every every transaction is impossible … the ultimate in data overload … but using a periodic summary of transactions organized by account classification and an impossible overload becomes manageable.

The frequency of the periodic summary is an important determinant of effectiveness. Too frequent and there is data overload … too infrequent and important changes in data may be missed. In a corporate business setting, one solution to this matter is to have monthly management financial accounts, and key operating data that reflect the specific process and its characteristics. Production and inventory records are almost real time review for production purposes … with the financial summary review just once a month. External reporting is perhaps quarterly and full financial reporting once a year.

In money accounting the profit and loss account reflect a lot of transient data … the balance sheet is slower moving with more permanent data. Part of the genius of accountancy is that the change in the balance sheet is the net of ALL the transactions of the profit and loss accounts. This means that in effect performance can be measured simply by using the balance sheet.

Community reporting can have a similar structure. There can be periodic value reporting for the community as a whole using the “state” of the community or balance sheet of the community, and change in state from one time to another to be progress of the community.

Separately there can be analysis of activities in the community that are have impact on the community.

In money accounting all the financial transactions of the organization are recorded in a systematic way with enough coding to facilitate meaningful analysis. In a big organization there may be millions of individual transactions. Modern computers and information technology facilitates the handling of large amounts of data, but the basic architecture of accountancy also makes it possible for a large number of transactions to be organized usefully even without the use of computers.

In accountancy, the operating statement reflects the aggregation of transaction data, and the balance sheet an aggregation of items that change as a result of the transactions. This is reflected in the accounting constructs of balance sheet and operating statement, with the balance sheet representing the more permanent data and the operating statement the more transient data.

In practical terms this translates into an ability to verify balance sheet reports more easily than one can verify transient operating statement transactions. This is a vital matter, because fraud and corruption can easily take place within the activities of an organization and the funding of these activities, but it can easily be detected if there is meaningful oversight of the results and the balance sheet that puts result on the record. Data collection costs are optimized when the data are collected using techniques that are appropriate to the type of data.

Activity data is more difficult to acquire than permanent data. There is more of it ... but not all of it is needed. Activity data are needed about issues that are important in the community and the subject of current analysis and action.

In accounting all economic transactions are recorded ... in TVM all transactions that are of relevance to the measurement and management of performance need to be recorded. Because of the relational architecture of the data, it is simple to record data in a way that is simple and very precise. Where the data are being collected for use in a relational analytical environment, the permanent data are all accessible to any transaction related to this permanent data.

Executive data … summary data

Helps the understanding of large amounts of data

Executive data are summaries of transactions that facilitate analysis and decision making. These data are used to “slow down” the flow of data to decision makers so that “they have time to think!” They are also easier to store and easier to access when needed. Even with very fast computers it takes time to “query” the transaction data warehouse in order to get a response … and frequently the response needed may be anticipated.

In good accounting systems and in TVM there are data that flow all the time with absolutely nothing done in response to the data. However, there is action and decision making when there are changes in the data that indicate that something is “going wrong” or something has changed. Good systems alert decision makers to changes very quickly … in most of society there are little or no data to alert decision makers until it is too late! One form of executive summary data are periodic statements of progress and performance for a reporting entity. This summarization consolidates all the similar transactions for a period into a single datapoint and makes review of these data quick and easy.

Summary data are produced routinely in accounting systems using “accounts”. Transaction data are posted to accounts, and the accounts are periodically totaled to prepare periodic financial statements. Many transactions are able to be summarized into a relatively few summary numbers that have meaning and are useful for analysis and the tracking of performance.



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