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Meaningful Metrics for a Smart Society
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Date: 2019-09-15 Page is: DBtxt001.php list0300-Better-metrics-1

Definitions for TrueValueMetrics
Better Metrics

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 has 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!
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.



The text being discussed is available at

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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.
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