Date: 2024-05-19 Page is: DBtxt003.php bkTVM009040400
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Burgess Manuscripts
TrueValueMetrics ACTION INFORMATION FOR ALL OF SOCIETY Metrics about the State, Progress and Performance of Society, the Environment and Economy Metrics about Impact on People, Place, Planet and Profit |
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Chapter 4
EFFECTIVE MANAGEMENT METRICS 4-4 STRUCTURE FOR DATA AND ANALYSIS The sector perspective should not be ignored ... ... ... |
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Quality, Quantity, Money AND Value
TVM uses many different data types, not only quantity and money. Four of these are:
This includes text, images and video information. Quality … qualitative or analog information is important. It is not only the type, but also the form and the “architecture”. Non-numeric information can be very useful, especially when the data have the architecture to be organized. Text, images and video presentation makes it possible to describe situations and activities. It is particularly useful if the data are organized in ways that enable trends to be easily identified … time … and comparison made with other locations … place. This is done by having all, or as much as possible, of the data identified by time and place. Various ways are available to facilitate using qualitative data with some form of quantification. The goal with most of these data is to organize them for use in decision making, oversight and accountability. Quantity information … numbers The scale of anything is measured using some form of quantification … and some relevant unit of measure. With this quantification it becomes possible to understand the scale of things, and appreciate how much the activity is doing relative to the broader surroundings. In the corporate management information arena the use of “key item control” made it possible to put the performance of each part of the company into perspective and improve allocation of resources to address the critical issues as a priority. Money Money measures are everywhere, especially in business and economics with analysis based on cost, price and profit. For all practical purposes almost all the organized data are about money metrics … very little based on value. Money accounting is the basis for most of the performance metrics associated with corporate performance, stock market prices, GDP measures and wealth. Almost all the metrics about corporate performance are based on money profit, which is a derivative of money costs and money revenues … in turn a derivative of price. Most of the decision making in corporate organizations and the capital markets is based on profit achievement and profit expectations … with the impact on society of corporate activities almost totally discounted. When people talk about something being wrong with the way the global socio-economic system works … this is one of the elements of the global market economy that is causing dysfunction. There is no simple way to measure value from the perspective of the organization … yet it is the creation of value that makes an organization's activities worthwhile for a community. A purpose of TVM is to have metrics about value a part of the analytic framework. Value Value is subjective, difficult to quantify … but immensely important. The consumption and creation of value that result in the adding or destruction of value is the core process in the socio-economic system. Value is far more important than any of the money metrics but not part of the prevailing continuous chatter about money economic measures. Value is subjective ... and difficult to quantify using a single number. The problem can be resolved using a system of standard values and quantification that puts everything into the correct position “relative” to other things. This approach is relatively simple and very practical with modern technology. The Double Entry Construct
Using it for value accounting
The double entry construct of old-fashioned accountancy is a very powerful way of organizing data in a way that gives it a lot of meaning. People need to know “Where they are!” and “How well they are progressing!” and this is what the business money profit accounting system does very well. The balance sheet informs about the state of affairs … and it does this in a very efficient way. In TVM this is expanded to include both the money perspective and the value perspective. A comparison of two balance sheets at different times informs about change over time … informs about progress or not. In the case of TVM it is the value change that is of interest. In money profit accounting there is a profit and loss account which informs about the activities of the reporting entity. In the case of TVM the value flows of activities are the equivalent of the business profit and loss account. Other financial reports like the cash flow statement are interesting and serve a big purpose in organization management … less in the value accounting for community. There are many other metrics and reports … economists, stock market analysts and others use a wide variety of financial reports and statistics … but they are mainly related to the money dynamics of the organization and the economy. Every move in the underlying economic data are routinely translated into what impact this is going to have on money investors … it is an impressive capacity for analysis. The followers of capital markets are deeply analyzing the correlation of all the supporting statistics with movements in the capital markets, but none of these measures has anything to do with the society's quality of life. State, Progress and Performance
Metrics for State
TVM makes much use of the accounting idea of balance sheet … a simple way to put “state” on the record. Unlike money accounting, TVM includes not only the money cost of resources, but the value of the resources. TVM includes value assets like human capital, and all the components that go into making for quality of life. The money balance sheet is a summary of the assets of the organization, the liabilities of the organization, and how these are financed. State is a recording of the situation at any given time … in business money accounting, it is the balance sheet … in value accounting it is a variant of the money balance sheet to include also the value components. Value at a moment in time is a proxy for quality of life … and all the many elements that go into making up the quality of life. Central to value in this context is the value associated with the people population and human capital. Knowing facts about a community should be the norm and not the exception. Data about the “state” of the community should be commonplace. If you do not know where you are … how do you know where you are going. A balance sheet has both assets and liabilities. In value accounting the basic money concepts are modified so that resources and possibilities are considered as assets while lack of resources and constraints are considered as liabilities. The assets are of different classes … the current assets and the long term assets. There are also intangible and other assets. The liabilities are also current liabilities and long term liabilities. Current assets include items like cash, accounts receivable, inventory and items like prepayments. Long term assets include the fixed assets and the provision being made for depreciation. The class may also include long term investments. Intangible assets are items like intellectual property and goodwill. The “state” of the community is similar to the balance sheet of the organization. TVM value balance sheet not only has the money assets and liabilities of the community just like the money assets and liabilities of the organization, but also has the value elements of the community that are elements of the quality of life in the community. The value balance sheet for the community has value liabilities that reflect lack of essential resources and constraints that impede progress. TVM has community as the primary reporting entity compared to the prevailing money accounting that has the organization as the primary reporting entity. But the concept of “state” and the value balance sheet may be used for any reporting entity. Metrics for Progress Progress in value accounting is like profit in money accounting. The activities of the reporting entity … the community of the corporation … produce the progress or produce the profit. The double entry accounting construct means that the progress or the profit may be measured either by assessing the performance of all the activities and then aggregating them, or by looking at the way the state or balance sheet has changed from the beginning of the period to the end. Progress … balance sheet change over time is determined by comparison of two balance sheets at two points in time, The change is a measure of change … hopefully progress, but not always. Socio-economic progress is the improvement of the community value balance sheet over time. It is the difference between two value balance sheets … similar to profit when it is defined as the difference between two money balance sheets for a business organization. Henry Benson, later Lord Benson, when he was the Senior Partner at Cooper Brothers & Co in the UK in the 1950s and giving expert testimony in the British High Court, defined profit in this very simple way: “Profit, My Lord, is the difference between two balance sheets” … a most elegant definition that incorporates everything and ignores nothing! In corporate accountancy, the progress of an organization may be measured by comparing two balance sheets. Similarly the progress of a community is the difference in the state of the community between two times. The progress of the community as measured by the community balance sheet is a proxy for the quality of life of the community. TVM uses the concept of “difference between two balance sheets” as the core method for ascertaining progress. In practice this makes it possible to focus on “what is changing” because what is not changing is having no impact on the values in the balance sheet from beginning of period to the end of period. Metrics for Performance The way in which accounting organizes data into transaction data that impact the profit and loss account, and the data that impact the balance sheet is both elegant and powerful. This framework to measure performance is illustrated in the following graphic where the community value at the beginning of the period increases to the value at the end of period … with various implementation activities taking place during the period. Progress is the difference between the value at the beginning of the period and the value at the end of the period. The primary metric of progress is very simple. Is the community better now than it was in the past? This is not a complex idea, and there is no reason why there cannot be quick, easy and useful data about this. 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 steady state situation. Progress may be fast or slow depending on how much resources are allocated to the activities for the period. The performance of society is about the way in which the activities are conducted … whether or not the activities are being done using an amount of resources that is technically correct, or whether resources more resources are being used. Another question about performance is whether or not the activities are using resources and achieving impact and progress in the community. Because state, progress and performance metrics are integrated in a coherent manner, it is difficult to “fudge” the numbers to get desirable but phony results. This is part of the power of business accountancy, and therefore TVM. There are no good reasons why TVM cannot be deployed for value in the social and community setting, just as money accountancy is used in the corporate environment. |
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