BETTER METRICS FOR A SMART SOCIETY
About TrueValueMetrics (TVM)
TrueValueMetrics (TVM) is a system that measures socio-economic performance and serves as a way of “scorekeeping” for the community ... for society. TVM is rigorous, easy to understand, independent and reliable. The data acquisition and analysis are derived from techniques long use in corporate accountancy and macro-economics, as well as using mobile technology and social communications that have become ubiquitous.
This book is all about TrueValueMetrics (TVM) ... about what it is and why it is needed.
There has been talk about transparency and accountability for several decades ... but the process for doing transparency or accountability never been developed, or, to the extent that it was developed, never deployed.
TVM has been developed from the corporate system of financial accountancy that has been used for a long time in modern corporate organizations ... and in turn evolving from a system of accounting developed several hundred years to enable merchant adventurers to keep accounts and report to their investors. Double entry is a simple technique that requires both action and response to be recorded ... when money is paid out, it is expected that value comes in ... when some good is delivered, it is expected that money is paid in for the good.
Cost and Elements of Cost
Important that there is good understanding of what is cost, and what is price. If I am the buyer, then the price paid is my cost. If I am a seller, then the price paid is my price. Hopefully the costs are less than the price so I can make a profit.
The issue of ownership is very important to the success of socio-economic progress.
Some commentators attribute the economic success of the United States to the broad ownership of enterprise by millions of Americans ... and the recent failure of the system to a breakdown in this as certain institutions came to dominate the financial markets and concentrate economic power in dangerous ways.
A Difficult Conundrum
It is easy to measure progress when there is agreement about what progress is ... but much more difficult when there are different views about what progress is and how revenues should be used.
Efficiency of analysis and reporting
There are many ways to measure and report performance ... no one way is the “right” way ... but some are better than others. The key concepts of reporting in accountancy are
Powerful ... not voluminous
Corporate financial reporting is very efficient ... making it possible for a huge organization like, for example, General Electric, to report in a very few 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.
Creating value from data
TVM data are used for analysis ... and this has value. It is a useful step towards better decision making and holding people and organizations accountable.
Experience has shown that performance improves when there is active feedback and there are the data that enables people and organizations to be held to account. People may not like it ... but their performance improves. The purpose of analysis is to get a better understanding. The data are neutral ... the analysis then produces results that might suggest some conclusions. It really does not matter what analysis is done as long as the result is better understanding and improved decision making. One value step is moving from data through analysis to understanding ... another is to move from understanding to effective action. In some situations this has been done with wonderful results, but mostly there have been interventions that were more expensive than effective.
The purpose of analysis is to understand the data. The purpose of reporting is to make it possible for others to share this understanding.
For TVM data are neutral ... they do not represent opinions. Data flows into a store and all data are analyzed so that conclusions can be drawn. For TVM the goal is reliable management information so that good decisions may be made. The concept of neutrality also flows through the process of analysis.
TVM is built on the concepts of accountancy, and accountancy is, at its core, a system for recording economic transactions in an organized manner. In the corporate form, all the economic transactions are put into the record ... ALL ... and the analysis proceeds from there. In accounting there is no statistical component to the recording of transactions.
In accounting great care is taken to prepare reports based on all the relevant transactions and not just a subset that may or may not reflect all the data. This is a very different approach to surveys and statistical studies done for research. Financial reports are not research ... they are merely all the data summarized according to the basic principles of accountancy.
Analysis must have clarity
TVM builds on accounting principles, applying them to a reporting unit that is the community and incorporating the double entry of both money and value.
There are many tools available for analysis and reporting included techniques like (1) aggregation analysis; (2) time series analysis; (3) value chain analysis; (4) various forms of cost analysis; and, (5) various way of looking at impact and cost effectiveness.
Revaluation of assets
The practice of revaluing assets was frowned up by accountants until the 1980s when rule making bodies started to allow the practice.
Off balance sheet assets, liabilities and risks
Balance Sheet Analysis
Balance sheet analysis I ...
This method of analysis results in getting an understanding of the strength of the balance sheet and the potential of the organization in corporate accounting analysis or for the community in TVM.
A tabulation and analysis of the balance sheet of a community is an illuminating exercise.
Balance sheet analysis II
This method of analysis results in an understanding of how the organization's balance sheet or the community balance sheet has changed over time.
Behavior of Cost
A TVM Observer is the source of much of the data about society used in the TVM system ... economic and social activities ... and the socio-economic impact.
Data have a simple short format ... and automatically are expanded by relational reference in the TVM database system
A TVM Workbook or Guidebook provides a comprehensive reference for the TVM Observer to use in the submission of the data messages.
Understanding priorities and needs
A good starting point is to recognize that every community is different, and what is a top priority in one place may not be the same in another place. Priority needs are both a reflection of physical and human characteristics at a point in time, but also a reflection of history and what has been done in the past.
Making Key Metrics Simple
Managing where there is complexity requires well designed data and analysis. TVM's primary metric of progress is very simple. Is the community better now than it was in the past? This is not a complex idea. In the image below, the value of the community is the same at the end of a period as it was at the beginning ... ordinary daily activities produce what is consumed ... it is a stable situation.
In this next case the value of the community is more at the end of a period than at the beginning of the period ... ordinary activities produce more than is consumed.
In this last case the value of the community is the less at the end of a period than at the beginning of the period ... ordinary activities produce less than is consumed.
High performance programs integrate data collection, analysis, planning, action, more data collection, more planning, more action in a perpetual process.
What has this got to do with TrueValueMetrics?
TrueValueMetrics (TVM) uses as much easy data as possible.
TVM accepts all of these data points ... as crude as they are, and starts to build the database for the community. These crude data points may not be precise ... but they are usually very accurate ... and they tell a story and define a reality.
Qualitative information is valuable ... but it is difficult to add up and manipulate. TVM uses a system of grading to move the qualitative information into a quantified form. The TVM approach uses two dimensions to quantify qualitative information (1) a grade A to Z about good or bad; and, (2) a numerical weight about level of importance in the community. A second step moves this alphanumeric grading to a simple number grading.
At this point there is a number 100 that is powerfully good and a number -100 that is powerfully bad.
In economic metrics it is normal for quantitative measures to be either indexes or money measures ... usually a local currency or a reference currency like the US dollar. In TVM, there are both these approaches, but also an attempt to move beyond the money metric to one that is similar but actually a value metric. For the moment, money and value may be thought of as measured in US dollars, but in fact, the US dollar may change in its intrinsic valuation ... while value may not.
Profiling the community
Infosnips ... little snippets of of information about a community add up very quickly to tell a lot about a community. With knowledge it becomes very much easier to make better decisions ... but also this knowledge makes it possible to determine whether these decisions are having any impact or not.
Backward look measurement ... or forward looking
The TVM methodology looks backwards and forward.
If you don't know where you are, what makes you think that you can know where you are going?
TVM documents where a community is ... and learns as much as possible about what caused the community to be in the present state ... and what might be possible.
But TVM also facilitates documenting where the community can go ... what assets of the community can be mobilized and what potential the community has. Where there is potential ... what is the reason for this potential not being realized ... and what may be done to remove constraints on success.
Trends can show what works and what does not ... and the system of TVM scorekeeping helps to show when good activities are having little impact. At the community level, it then becomes more or less obvious what it is that might be the key causal factor ... and then, maybe, what might be done about it. What is it that is making good activities ineffective ... and what should be done about it.
Society is complex ... everything is linked together. But some links are more important than other links ... and this is often very obvious at the community level though less obvious in the aggregates that inform national level public policy. What may be done ... must be done ... at the community level so that the links work to benefit the progress of the community.
But what comes first ... is it jobs that come first ... or the reduction in crime ... or the lack of education ... or the lack of banking services ... or poor parenting ... or drugs and prostitution? The answer that may well emerge from a TVM profile of the community is that all come first ... and that the best way for the community to progress is for the organizations in the community that are doing things to improve each and every one of these things should collaborate in fund raising for community action together rather than competing against each other and maybe succeeding as an organization, but failing as a community!
How TVM builds value
TVM builds value from easy data simply through the organization of the data in a way that facilitates scorekeeping of community progress ... and this scorekeeping is as simple as it can possibly be.
In driving a car there are two metrics ... speed and direction. Most of the time it is direction that is more important than speed. Wrong direction and you are off the road ... but the difference between 55 and 60 mph does not matter a lot most of the time.
TVM helps get data that show the direction the community is going in ... is the community progressing ... are specific issues in the community getting better or worse?
What value is this for you?
At worse, TVM data will show something of the performance of the community where you work ... but at best it will enable you to position yourselves so that the work you do ... the resources you use ... get the most value for the community ... and this is on the record in a systematic way. The TVM data may be used to build collaboration and cooperation so that the work you do is facilitated by everyone else ... and the work and effort multiplies for benefit rather than canceling out with wasted competition or duplication.
Infosnips are the foundation of the TVM data acquisition methodology ... little snippets of information that on their own do not say very much, but when organized tell a quite complete and accurate story.
Data and the academic community
The academic community has done some amazing scientific work where the scientists have seen fit to collaborate and share data ... but this is not the general rule. Much data are compiled in the academic arena and never used for anything of public value.
It is not clear why so much data are kept secret by the academic community ... but it is clear that some of these data would have been useful in the analysis of socio-economic progress.
The subject of globalization has been a subject of discussion for many years ... but the dialog is rarely based on much study of data ... or much appreciation of history.
Performance Metrics ... Project Activity
Project activity measurement is widely practiced ... and is central to most monitoring and evaluation exercises ... but this measure is not very valuable.
The team is in motion
Commentators for an American football game often use the phrase ... the team is in motion ... to describe what is happening. Project activity measurement has some of the same characteristics ... something is happening, but the question about usefulness is not addressed. The football team needs yards and touchdowns. The project needs to be delivering the socio-economic impact that was intended.
Profit is the relationship between cost and price, and has an impact on the stakeholders of the organization. Profit measures the performance of an organization, but does not bring into account the costs to society, or on the positive side, the value derived by society. Profit is the key metric for capital markets, and profit drives corporate stock valuation. Unfortunately profit and valuation now has taken on a life that is far removed from corporate operations and the impact of these operations on society with serious consequences.
Value ... impact on society
Impact on society is a function of value and cost, but not only these metrics. Price has a role in allocating how added value is shared between different segments of society and across the value chain. TVM explicitly addresses this matter both at the individual community level and across complex value chains.
The value chain has been a critical factor in organizing development, production and marketing around the globe. The value chain has been structured to maximize profit for the involved organizations with little regard to the optimization of community value. The results have been predictable with favorable profit optimization largely offset by value destruction for society.
Prices are critical in economic analysis and the determination of profit and value to any entity. Transfer pricing is used to put a value on goods and services as they move from one sub-entity to another within an organization, or between controlled entities. They are a tool that can be used to move profit between entities and may have inappropriate consequences.
Management accounting is a subset of accounting that helps to get useful analysis into the hands of decision makers. Management information is sometimes defined as the least amount of information that is needed to make good decisions reliably.
Department costs and the variants
A cost center is one way in which costs can be organized to help understand and control costs. By pulling costs together within a unit called a cost center, it is possible to get information about a company's activities in a simple way.
Responsibility accounting is the name given to accounting where the reports specifically identify the responsible managers. This is a useful technique for getting clarity about who is responsible for what ... and there is rarely much agreement.
Elements of cost
Materials, labor and equipment are the main elements of cost that go into most production activities ... and determine costs.
Fixed and Variable Costs
But these items also determine the behavior of costs and how costs can be improved.
The progress of science and technology has been spectacular over the last century ... but too much of this has been used in ways that have done damage rather than good. Military engineering has adopted new great science faster than civilian engineering ... with predictable results. The application of science has followed financial profit and rarely social value.
Matching revenues and costs
A basic principle of accounting is that revenues for a period are matched against the costs of generating those revenues in the period. This concept has important ramifications because many current community activities have immediate costs and future value. This issue is aggravated when the current costs are money costs and the future value is social value, with no direct way to be monetized.
Social Performance Management
Since around 2005, there has been increased dialog about various aspects of social performance. One of the many initiatives that has emerged is the idea of Social Performance Management.
One of the instances of this is the work of the Grameen Foundation.
This image shows individual houses in a section of Monrovia, Liberia. Images of this sort enable plans to be made for surveillance and for interventions.
The image is a start ... how it is used to plan and deploy interventions depends on the local situation and the staff on the ground.