Prevailing Metrics Insufficient
All about wealth ... no connection with real life
The short answers is simply that prevailing modern metrics are a mess … encouraging all the wrong decisions and there is a need for paradigm shifting improvement
The United States and other countries have governments that are getting more and more indebted on top of societies that are under-performing and organizational structures that are rewarding owners and managers earning high money profits at a huge social cost. The profits are accounted for, but social cost is ignored. From time to time there are scandals that highlight the problems … but little gets done to improve the metrics.
Because the metrics are wrong ... decision making is wrong ... and unfavorable outcomes are the result. TVM aims to change this so that the metrics are right, the decisions are right and there are favorable outcomes. TVM is all about value metrics, but organizing these metrics in an old-fashioned business accounting way with balance sheet and operating statements that are one integrated reporting framework.
Prevailing metrics abundant but inadequate
The world is awash with statistics, investment analysis and academic study … but in spite the volume, many key metrics that are missing and decision making is mainly about money profit metrics in ubiquitous use … those that are about profit performance, stock market prices and GDP growth.
In broad terms there are two main issues with the prevailing metrics: (1) they have a singular money focus; and (2) the primary reporting entity is the organization. TVM is based on the premise that there needs to be a “value” dimension; and (2) the reporting entity should be the society … specifically the community where people live their lives and work.
TVM has been created because something much better than the prevailing system of corporate profit, stock market prices and GDP growth is needed. National, government, corporate and social metrics are all inadequate. They do not help with understanding of the dynamics of society. Because the metrics are wrong ... decision making is wrong ... and unfavorable outcomes result. Something is needed that goes beyond the money metrics that are prevalent today.
Triple bottom line … a complete system
The corporate 'triple bottom line' idea … that is 'People, Profit and Planet' … has been introduced recognizing that people and the planet, that is environment are dimensions of performance that should be taken into consideration would be worth having. In he prevailing metrics methodology the mainstream accounting system provides data for profit reporting and management information systems provide business performance data, while people and planet data are more or less ad hoc and out of the mainstream!
Money accounting metrics facilitate the allocation of resources to create profitable economic entities and profitable activities. There need to be reliable metrics so that resources get allocated to activities that have socio-economic value … whether or not they generate profit. This is what TVM does. TVM changes the paradigm for resource allocation because its metrics are about value as well as about money. Though money accounting is insufficient for effective management everywhere in society, at the national level, in government, in corporate business organizations and not for profits … it is presently the only one that is widely used.
TVM adds the missing component. Science and technology provide some amazing possibilities … but decisions about allocation of resources need to be made by people who are aware of both money profit and social value … and accountability needs to be not only to the owners of wealth but also to all the stakeholders in the society.
Not more metrics … better metrics
Modern information technology makes it easy to have more metrics … more mathematical manipulation of data … more statistics … and ultimately more information overload. TVM is about breaking this information overload spiral … a few meaningful metrics that are clear and just sufficient to get good decisions made reliably.
Many people seem to appreciate that better metrics are needed … but the efforts to get better metrics seem to be based on the idea that more metrics will improve the situation when what is needed is a quite major rethink about what metrics are needed and how may they be obtained efficiently, affordably and in a timely manner.
The TVM initiative changes this aspect of metrics from more to less … rugged and reliable but maybe not academically rigorous. TVM starts from the premise that the changes needed are not 2% or 3% but 200% or 300% … and for this rather clumsy measured may serve perfectly well. Bluntly put … people in abject poverty to not need a 2% improvement in their condition, but a 200% improvement … and World Bank reports on global development where they have identified a 2% improvement in the GDP of a country with endemic poverty would be laughable if the issues were not so serious!
Good metrics are not free
Good metrics are not free … there is a cost that must be paid in order to have good metrics. The design of the data and the analysis must respect the fact that they must be cost effective … producing more value than they cost.
More expensive metrics are not necessarily better … more data about some things is a complete waste of money. The aim of TVM is that decision making is better, and everyone is accountable for socio-economic performance
But might cost less than prevailing metrics
The prevailing systems of metrics are a “hodge-podge” of dataflows and analysis that has grown up over years with every interest group “doing its own thing”. There is duplication at the data acquisition stage and in analysis … and gaping holes in both. The idea that data may be used for multiple purposes is not widely practiced … and too much data disappears into private archives never to be seen by any interested public.
Simply making better use of existing data has the potential to reduce data acquisition costs and increase the amount of relevant analysis. And … bluntly put … having accountants doing more data acquisition and less academics could produce an impressive improvement in data acquisition and analytical performance!