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|Date: 2022-07-07 Page is: DBtxt001.php bk0004100|
The Basic Concepts of True Value Metrics
Why Do Decisions Get Made? The simple answer is that decisions are made to get the best possible results! This is also the “right” answer. The problem is that the prevailing metrics for measuring performance are “wrong” and accordingly most decisions are giving the wrong outcomes … or are they?
Heading for an economic train wreck? It can be argued that the decisions that have been made by the economic elite and political leadership over the past several decades has ended up with the global economy headed for a catastrophic train wreck … maybe one can argue that global poverty eradication has been at a historic high … or again that poverty itself is at a historic high. The metrics are a mess!
Dig deep … understand the money flow!
Who benefits from the decision?
A good decision is one that benefits society AND benefits decision makers and all the other stakeholders associated with driving interventions that improve society. There is no reason why the stakeholders of enterprising organizations cannot benefit at the same time that society benefits. Making everyone happy is never easy … some compromise is needed … but compromise is easier when there are data to help.
History suggests that it is decision makers and their friends that benefit the most from decisions that get made, and this is maximum when there is weak accountability … which is the norm. TVM uses data to help decision makers make good decisions and for these decision makers to be held accountable for subsequent performance.
Use value chain and other analysis
Value chain analysis is a way to identify where it is that there is profit and value adding … and where in the chain there are constraints of some sort, or maybe excessive profits. A fair value chain is one where the return on asset employed at each stage is reasonable related to the risk.
Use various comparison techniques. It is possible to estimate what the costs “should be” for any activity anywhere. If actual costs are significantly different and there is no reasonable explanation, there is a problem. This is a basic technique of analytical accounting and should be applied throughout the value accounting system.
Causality more helpful than correlation
Academy is mainly about correlation
Data have great value when analysis helps identify causal relationships. Most systems that are influenced by humans are complex, but good data and analysis can help to understand something of how the system works.
Large scale datasets and complex multivariate analysis may make it possible to discern relationships within complex systems ... but it is also possible to figure out some of the most important causal factors by simple observation. Good observation and common sense should be used to the maximum.
Community decisions need cause and effect
Quite brief observation of a situation where performance is very bad may be sufficient to identify a practical solution ... a low cost analysis giving a high value outcome. People with good technical instincts, a capacity to observe and experience can get very workable solutions without substantial research and study. The following is an example:
Considerable care needs to be taken in drawing conclusions using sophisticated statistical methods on top of small observations. This is a big problem in the official relief and development assistance (ORDA) arena, and in many areas where academic study is supporting long distance decision making.
In many cases material improvement can be achieved by getting data simply by “walking around” and making observations. Common sense is a surprisingly powerful methodology, but not used frequently enough!
People with experience often know a lot more than is accessible through academic research and peer reviewed papers. Some of this knowledge cannot become part of the academic knowledge because the data are not designed to satisfy the prevailing criteria for academic data analysis.
Data for Decisions: Vector Control
A successful US vector control organization goes through a complete data collection, analysis, planning and operation cycle every 24 hours. The success or failure of an intervention is known within hours … and steps taken to have success in the next cycle. For fast moving vector disease transmission this is the right way to operate. The goal is zero transmission of disease by insects. The data used to drive decisions is timely and geographically detailed.
Some data are voluminous … but essentially not very helpful in facilitating allocation of resources based on value criteria. Much of the data associated with the financial sector and the capital markets is giving the wrong guidance.
Stock prices are reported as a continuous stream ... indexes of capital market valuation are also reported in real time. Why? Bloomberg News and others facilitate some knowledge about economic activity ... but rather little of the totality of what is required for an informed public. The socio-economic behavior of society would be changed substantially if more understanding of cost was in the public debate.
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