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Meaningful Metrics for a Smart Society
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Date: 2021-03-05 Page is: DBtxt001.php list0300-Economic-activity-1

Definitions for TrueValueMetrics
Economic Activity

In the TVM system an economic activity:

  • Uses resources to do something, and
  • By doing something, has some impact
Use of resources has two components:
  • Use of resources that are normally accounted for in the money accounting of an organization
    • Together with resources used by an organization that are not fully accounted for in the money accounting ... as for example in cash based systems, and
  • Use of resources that are part of society's commons and not included at all in an organization's money accounting of activity costs.
Impact also has two compnents:
  • There is the impact on the organization, and also
  • The impact on the broader society and the impact on the commons.
Impact within an implementing organization is relatively easy to measure. It is a normal part of the management information for an organization and the accounting used to report financial performance.

However, the impact on society and the commons is not usually measured with much formality. It is usual for the measure to be deduced from some statistical data that has very low reliability, and worse, excessively influenced by many different externalities.

It is a common practice to look at 'impact' from the viewpoint of the implementing organization and what it sees as its impact on the 'beneficiaries' of the activity. This is usually very different from the perspective of the community relative to the activity,

In the TVM system the core of the measurement is change in the state of the community. The state of the community comprises both state of society, that is people, and the state of the commons comprising everything not within the implementing organization itself.

Economic activities are the origin of value adding ... or value destruction. Data about activities may be used to explain why some aspect of the community balance sheet has changed ... but it might be quite obvious without much need for detailed data.

In corporate accountancy there is an integration between the balance sheet, the operating statement and the cash flow. The data in the accounts is the same ... and each of these reports shows a part of the whole. The data in each are coherent. The changes in the balance sheet are explained by the performance reported in the operating statement. The cash flow statement reconciles with the operating statement and the balance sheet.

These ideas translate well to the TVM system. They may be used to deduce information that is not easily obtained. While it is relatively easy to collect balance sheet data, it is much more difficult to get all, or nearly all of the data to report reliably about activities. Using the inherent integration of balance sheet and operating statement, it is possible to use the changes between two balance sheets to deduce the result of economic activities without actually having all the details of the activities.

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.
TVM also uses time series of key items to gain an understanding of what is happening in the community. Market prices are a leading indicator of market conditions and other broader issues in the community. For example, high food prices and low livestock prices are a reliable indicator of emerging famine conditions.

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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