Burgess COMMENTARY

Peter Burgess

Dear André

I am working as best I can to rethink what is done in the accountancy profession and by CFOs when they do accounting and report on the performance of an organization. At the moment the mainstream metrics are what I refer to as the terrible trio: (1) money profit for the business organization; (2) stock prices in capital markets for investors; and (3) GDP growth for politicians and pundits. At the present time, the metrics that really matter for people, society, the environment and the ecosystem are not in the mainstream of reporting and media.

The good news is that there are hundreds, if not thousands, of initiatives that are aiming to measure impact in various ways and thus take into account the so called 'externalities' ... but I have not yet found a system that is particularly satisfying, though what is going on today is way better than a few years ago. In the main, these metrics arise from a 'study' of something rather than from a system of data acquisition, organization and analysis.

My initiative with TrueValueMetrics (TVM) is derived from accountancy and starts with accountancy's core concept of balance sheet, profit and loss account and cash flow statements being an integrated set. Of course conventional accountancy only tracks the money flows to come up with the money profit, while in TVM value accountancy we want to address value flow as well to come up with social valuadd.

In order to do 'accounting' around value flow, we have to 'quantify' in some way, the elements of value. Many people say this cannot be done. I do not agree. I have been a user of cost accounting during my career, and in this space there is the idea of a 'standard cost' which might be described as the theoretical cost of an item. There are accounting routines that can be used to validate a standard cost, and in general a standard cost is a good way to manage the cost dimension inside an organization. A 'standard value' is a good way to manage the value dimension in society, and is a far better number than zero which is the default when there is no quantification.

Another feature of TVM is the idea that society revolves around economic activities. We have economic activities to satisfy our needs ... we grow food, produce goods, deliver services, build infrastructure, hold sporting events, etc. In the process we use resources, have people work, create waste and pollution and as a result achieve a quality of life that reflects how efficiently we are able to do things. An economic activity is the base reporting entity in the TVM framework.

The state (balance sheet), progress and performance (change in balance sheet and the profit and loss account) of an economic activity can be 'added up' within an implementing organization and tell the story about the money profits and social valuadd for the organization. The same set of data from an economic activity can be 'added up' within a community or place to tell the story about the money profits (i.e. money flow) and the social valuadd for the community. Because of the relationship in money accountancy between change in balance sheet and the profit it is possible to measure profit not only by 'adding up all the money transactions' for a period but also be comparing the changes in the balance sheet from the beginning of the period to the end of the period. In the big corporate world, there is an expectation that the accountants add up all the money transactions, but this is not the only way ... and, as an aside, there are some major abuses that arise when accountants and their bosses start to play games with the way balance sheet items get revalued, and the changes then reflect in profit performance! But that is another story! In the context of society, quality of life, natural capital and so on ... doing an accounting for transactions is impractical if not impossible ... but looking at change from the beginning of a period to the end of a period is quite manageable. A further level of simplification is possible because in many situations a lot does not change very much over time, while some key issues change substantially. The website ... truevaluemetrics.org ... is a work in progress which documents the journey that I hope will end up with a simple practical way of doing value accountancy using the TVM logic that I have tried to summarize above. My experience suggests that the idea that you can manage what you can measure is absolutely right ... put another way, if you change the way the game is scored, you change the way the game is played. My experience also suggests that when it comes to action and change, the metrics that matter are those that relate to small decisions that 'add up' to big change ... micro-up. In my view management is better served by getting an understanding of cause and effect rather than by the much fuzzier idea of correlation. One more last matter ... I suppose I have to figure out how all of this can work on top of a mobile phone and in the fascinating world of social media! I have probably written at too great a length. I hope this has, however, been a little helpful. Sincerely

Peter /////////////////////////////////// On 04/09/13 12:24 PM, André Schneider wrote: -------------------- Dear Peter Many thanks for your kind message. I would be interested to learn more about your work. Best regards Andre On 04/08/13 3:09 PM, Peter Burgess wrote: -------------------- I'd like to add you to my professional network on LinkedIn. I very much like your commitment to ecological sustainability which I share. Your initiatives are impressive. Behind the scenes I am working on metrics to support your agenda! - Peter Burgess