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BURGESS BOOKS
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Multi-Dimension Impact Accounting
Accounting for ALL the Capitals ... for Society, Nature and the Economy
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Section VI
ACTION INFORMATION FOR ALL OF SOCIETY
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Why is this book being written? What does the writer hope to achieve? What sort of impact will a changed paradigm for development produce?
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
MULTI DIMENSION
IMPACT ACCOUNTING
(MDIA)
The TrueValueMetrics Book
Section VI
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Copyright (c) 2013 Peter Burgess
MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
TrueValueMetrics
ACTION INFORMATION FOR ALL OF SOCIETY
Metrics about the State, Progress and Performance of the Economy and Society
Metrics about Impact on People, Place, Planet and Profit
Background
The conventional wisdom in some circles is that the purpose of business is to make profit, and if
a business makes profit, then there will be an optimization of the economy and the maximum of
benefit for society. This is the basic premise of the Adam Smith argument for a laissez faire
market economy, and it has worked better for most of the last three hundred years than the
alternatives.
The modern version of this argument is that business has to optimize its performance relative to
the interest of the owners … the stockholders. Some executives have argued that to do anything
else is a breach of trust and executives could be held accountable in law for their actions.
This idea has been challenged. Whether or not the law requires optimization of business for the
benefit of stockholders, there are initiatives to make it clear that the 'purpose' of the business is to
make a contribution to society using the resources of the business. One such initiative in the
United States is the B Corp movement, which specifically has articles in the Bye Laws to ensure
that social benefit is a legitimate goal of the business.
Whether or not there is a problem in law to do things that are valuable for society … for people
and planet … the metrics of state, progress and performance may be structured so that it is
possible to see what is going on and understand the implications.
TO DO … Complete this paper
This paper will be complete when it describes the data and the framework with enough clarity to
make it possible for systems architects to use it to design the data flow and analysis processes.
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Copyright (c) 2013 Peter Burgess
MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
Chapter 3
THERE ARE WAYS FORWARD
3-1 MANY WAYS FORWARDS
This chapter shows there are ways forward. The proposition is that there are new
ways to think of development in terms of the four components: people, resources,
process and information. The theme of the chapter is to think of people as being
both the beneficiary and the driver of development, to think of resources as being
abundant but needing mobilization, to think of process as a way to achieve
economic value adding and information as a way to improve development
performance, to measure performance and provide a new level of accountability
in development.
3-1 MANY WAYS FORWARD
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3-2 AMAZING IT
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3-2 AMAZING SCIENCE FOR ENGINEERING
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3-2 AMAZING SCIENCE FOR MEDICINE
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3-2 BIG DATA AND OLAP FOR DECISIONS
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3-3 THE INFORMATION DIMENSION
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3-4 PEOPLE FOCUS INITIATIVES
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3-5 COMMUNITY FOCUS INITIATIVES
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3-6 MULTI-SECTOR INITIATIVES
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3-7 COMPLEMENTARY CURRENCY
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3-8 STOP VALUE DESTRUCTION
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The TrueValueMetrics Book
3-9 PURSUIT OF HAPPINESS
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3-10 THE SUSTAINABLE SOCIETY
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3-11 WHY TRUEVALUEMETRICS IS NEEDED
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3-12 WHAT WILL BE THE IMPACT
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3-19 BETTER WAY FUND FLOWS
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Chapter 4 - MORE MEANINGFUL METRICS
This chapter is about metrics, and how the way the game is scored will change the way the game
is played ... in this case, the game is life itself. Nothing could be more important.
4-1 MEASURE WHAT MATTERS
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4-2 DATA, DECISIONS AND FEEDBACK LOOP
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4-3 FEEDBACK FOR CONTINUOUS IMPROVEMENT
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4-4 COMPREHENSIVE FRAMEWORK
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4-5 REPORTING
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- See more at: http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?
vv1=txt20090003#sthash.fGTc5nrD.dpuf
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
Chapter 5
THE KEY CONCEPTS OF ACCOUNTING
5-1 THE DOUBLE ENTRY PRINCIPLE
This chapter shows
TrueValueMetrics
ACTION INFORMATION FOR ALL OF SOCIETY
Metrics about the State, Progress and Performance of the Economy and Society
Metrics about Impact on People, Place, Planet and Profit
Chapter 5 - ACCOUNTING'S KEY CONCEPTS
5-1 THE DOUBLE ENTRY PRINCIPLE
Double entry ... the central principle of accounting
It would seem that accounting is very old ... there has always
been a need for fairness in socioeconomic affairs, and equitable
transactions must always have had a role in human interaction.
Keeping track has a long history ... and hiding wealth and
covering ones tracks has an equally long history.
While some of the old fashioned principles of accounting may no
longer be the focus of modern accounting and accounting
education, the central core of accountancy, that of 'double entry'
is alive and well and very powerful.
Double entry
Double entry is at the center of accountancy. It is a powerful idea,
now almost 500 years old ... and maybe somewhat diminished in
its importance with the use of computerized accountancy over the
past 40 years. However, it still has an important role to play in
accounting excellence that can also be applied in the area of TVM
Value Accountancy.
There are two sorts of accounts that together balance ...
•(A) Balance Sheet Accounts; and,
•(B) Income and Expenditure Accounts.
In the money profit setting, changes in the balance sheet
accounts over a period is a measure of profit. The difference
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
between total income and total expenditure over the same period
is also a measure of profit.
In corporate accounting the accounting is about the activities of
the organization. In TVM Value Accountancy the accounting is for
the impact of all economic activity on people, place and planet as
well as on the profit for an organization.
Balancing the books
The concept of “balancing the books” has deep significance for
the control of economic resources. It is a whole lot more than the
accountancy done as a step towards filing a tax return or
satisfying a legal requirement imposed by some regulatory
agency. Balancing the books helps to identify problems in the
activities of an economic entity through the simple process of
equating what has been used with what has been achieved ... and
if this is not right, something needs to be addressed.
From very early in my career I have used the balance sheet as a
benchmark for everything to do with the accounts. If the balance
sheet is changing in ways that cannot be explained by the
economic activities that are going on, then something is amiss.
This is a very simple tool ... but very powerful. It disturbs me
that many critical organizations in our modern society including
governments and some major financial institutions like Central
Banks seem to play fast and loose with the double entry idea and
operate on what is essentially a single entry accounting system.
Analytical neutrality
A critical strength of accountancy is that it produces analysis that
is neutral and objective. The use of accounting data may prove a
point or support an opinion ... but the data and results are
neutral. This is a fundamental of good professional accounting
and is key to the system being of value. Old fashioned corporate
accountancy had rules of conduct, both professional and internal
to ensure that data were neutral and correct. Now TVM Value
Accountancy must do the same.
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
In good accountancy the analysis is neutral ... it reflect a reality.
Analysis may reflect a variety of perspectives, and one
perspective may differ from another, but they should all be
computed using an analysis neutral methodology. Taken together,
a variety of different analysis results make a picture. But the
process has to be neutral, and reflect as much as possible what is
reality. This is in stark contrast to the aggressive use of financial
engineering to create the appearance of value merely by representing the reality.
You can fool some of the people some of the time ... but not
everyone all of the time.
Old fashioned accountancy based on certain key principles helped
to keep financial reports reliable and understandable ... but
legislation and rules have sometimes worked to make wrong
accounting legal and allowable. These situations have usual had
the support of powerful interests ... but this does not make the
accounting right ... just legal!
Financial statements
Financial statements are amazing. In large part because of the
double entry construct, in a few short pages, financial statements
are able to convey a huge amount of information about the
financial status and performance of the reporting entity. Many
millions of transactions are condensed into a few summary totals
that are (relatively) easy to understand.
Financial statements comprise balance sheet and operating
statement that together tell the story of the financial state of the
entity and the operating performance of the entity. Most entities
will also report in a cash flow format, and there are various
requirements and reasons for having notes and explanations as
well.
The balance sheet is one of the most powerful analysis tools in
accountancy ... critical for financial analysis, especially in complex
situations. A balance sheet is accountancy shorthand to describe
the financial conditions of an operational entity. It shows assets
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
and liabilities and explains how the difference between hem came
about. A balance sheet is an efficient way of showing with very
few numbers the impact of thousands or millions of individual
financial or economic transactions. Comparing the balance sheet
from different dates makes it possible to measure progress very
tangibly and very easily.
An operating statement helps to show how an operational entity
is functioning. It shows what revenues or income there has been
and what expenditures there have been, and the results of this.
The operating statement is prepared using widely understood
catagories of revenue and expense so that they are easy to
understand and useful for comparative analysis.
Inside a large operating organization there will be many
subsidiary operating statements that will facilitate analysis inside
the organization. In accountancy there are rules about how this
subsidiary analysis is done which may collectively be referred to
as rules of consolidation.
Double entry and incomplete records
The logic of double entry and the framework comprising balance
sheet accounts and profit and loss accounts that describe status,
change in status and the cost and value or revenue of activities
makes it possible to draw conclusions about missing elements. If
the elements of the balance sheet are known for a period in the
past and the current time, then it is possible to deduce the profit
or progress made during this time.
While it is better to have a complete set of data for analysis,
important conclusions can be drawn from only a subset of all the
data. Because of the balancing principle it is possible to prepare a
complete presentation of financial performance without having all
the data. It is also possible to validate the coherence of the data.
In practice this means that TVM Value Accountancy can build a
useful picture of community progress without having all the
details of all the economic activities in the community.
Accounting ... the idea of accounts
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
The origin of an account probably goes back to the idea that a
responsible person had to give an account ... an accounting for
what had happened. In practical terms an account in accounting
is a critical part of the way accounting gets data organized.
Account codes
Account codes identify accounts ... just as account names identify
accounts. Codes can make it easier to process transaction data
automatically, as long as the account code designers have some
understanding of computer logic and sorting.
Depreciation
Depreciation brings together both an economic reality and an
accounting principle. Some things last for a long time, some last
for less time. The time they last and can function economically is
the economic life of the thing. The cost when the thing is new is
the acquisition cost, but the cost or using this thing in any period
is the acquisition cost divided by its economic life.
A basic principle of accounting is that revenues for a period are
matched against the costs of generating those revenues in the
period.
The purpose of accountancy
The purpose of accountancy is to use data that costs as little as
possible to create value that is the biggest possible. This is what
has been central to accountancy for a very long time and has
served the (limited) objectives of profit maximizing business and
capital markets very well.
TVM Value Accountancy has the same central idea, except that
the goal is to create the maximum of social value ... four
dimensions: people, place, planet and profit. Accountancy collects
and organizes data in a systemic way ... data that are neutral and
representative of reality. TVM Value Accountancy aims to do
something similar.
Accountancy ... a system
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
Money profit accountancy is a system, and TVM Value
Accountancy is a variant of this system. Both based on the same
basic principles for record keeping and accounts that have been
used for several centuries. Accountancy has universality, but we
have become accustomed to seeing accountancy being used only
in an organizational setting, whether it is a company, or in
government or an NGO ... and in recent years accountancy has
been used creatively without respect for basic principles.
But the powerful logic of accountancy applies wherever there are
economic transactions and it is logical to apply the principles of
accountancy to the Community and the public in much the same
way that the system applies to an organization and its
stakeholders.
Audit
In old fashioned accountancy ... the audit opinion, the statutory
audit opinion, was simply that the financial report was a true and
fair view of the entity and that the report reflected the underlying
vouchers and records. It was nothing more than this.
Data reliability
The data associated with accountancy are boring ... but the
system does what it can to ensure that the data are reliable and
may be trusted. The techniques used for this include organization
so that there is both internal control and internal check. The
quality of accountancy data are enhanced by the professionalism
of accountants who address the details that is so essential to data
reliability. The data reliability of accountancy is very much greater
than what may be achieved using statistical method on top of
small surveys. While there is a case for the statistical approach in
some limited circumstances, it is not a useful alternative for
financial control and for most accountancy reporting purposes.
Data independence ... accounting independence
There is a need to have data ... and accounting ... independent.
This helps to ensure that the data and the accounting reports
reflect reality and are not merely some fiction desired by
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
operating management. There are many different approaches
that can be taken to have this independence ... it is, however,
usually not enough to have an independent audit to provide this
independent view when the structure itself is deeply flawed.
Modularity
Modularity helps make something manageable ... and makes it
useful more rapidly. This is applied in TVM Value Accountancy to
make little things useful while waiting for other detail. In the TVM
Value Accountancy framework the community data can be worked
on section by section ... bits of the economic activity analysis can
be done. Modularity helps make something manageable ... and
makes it useful more rapidly. This can be applied in TVM Value
Accountancy to make little things useful while waiting for
everything to be deployed.
Efficiency
Efficiency comes more from engineering than from
accountancy ... but the idea is very relevant. Productivity is
something similar to efficiency, as is cost effectiveness. In each
case the amount of output is being related to the amount of input
that went into the activity and its result.
Cost of TVM Value Accountancy
The cost of TVM value accountancy must be small relative to the
economic activities that are going on. Because TVM value
accountancy aims to be useful in low income communities, the
cost of the system is designed to be very very low ... and using
only ultra low cost technology and systems. A good accounting
system does not come free, but it should not be excessively
expensive. Good design especially of analytical codes helps to
reduce cost without sacrificing analytical power. A TVM Value
Accountancy system can be deployed with very low costs making
use of existing available infrastructure. Good design, together
with effective use of the Internet and relational database systems
makes TVM Value Accountancy much lower in cost than its value.
Transactions
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
Transactions are the elemental economic event ... any economic
activity comprises many transactions. Every purchase or sale is a
transaction. Production is a transaction. Consumption is a
transaction. Movement is a transaction. Everything.
TVM Value Accountancy provides a framework so that small
amounts of data can be used to build up a complete picture of the
impact that economic activities are having on the community and
how much resources are being used to give what result ...
whether value adding or value destroying.
Voucher
A voucher is a document or record of some sort that describes
the transaction. It may be a document that describes the sale ...
an invoice ... or it might be a set of papers prepared to evidence
the approval of the the transaction.
Journals ... Books of Original Entry
Journals the the books of original entry are the first step in
traditional accountancy for getting the details of the transaction
organized and on the record. Journals ... or day books ... are
essentially lists of transactions ... with ALL transactions being put
on the record.
IMPACTS
Making value chains benefit community
The end to end value chains tell interesting stories ... and maybe
for this reason are not easy to compile. The value chain works
well when everyone is making money, and it matters less in this
situation that some party is making a lot of money, while others
are making only modest amount.
Things work when everyone is in positive money making territory.
In a situation where one main party is making most of the money
... it is likely that this is reflected in the capital markets as a high
valuation of the company's stock ... but this is dangerous.
When attempts are made to make the allocation of money and
value fairer with respect to the community, the money making by
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
the one main party gets reduced ... and this in turn reduces the
valuation on the capital markets.
Getting equitable distribution of value adding between corporate
enterprise and society is not going to be easy ... and there may
be major disruption of capital markets as this adjustment
proceeds. In corporate accountancy and capital market terms this
will be a bad change ... but looked at through the TVM Value
Accountancy perspective and including community values it is
likely that society will be far ahead.
Making data valuable
There is a wide recognition that knowledge confers power and
therefore has value. There are many organizations that have data
... and knowledge ... but these are little used for social benefit,
rather, they are used to give the organization some competitive
advantage. Community Accountancy aims to make data useful as
management information for development ... in a complete
comprehensive framework. This is the missing element that is
needed to bring the north and the south together for global
benefit.
•Getting data ...
•Getting data organized and into a data store where it can easily be accessed ...
•Mobilizing resource so tat they are allocated effectively ... the north has wealth and the resources to be enormously helpful, but rarely are the resources well used.
•The south has needs ... some are very urgent but resources do not get well allocated for priority needs.
Foreign Direct Investment
Foreign Direct Investment (FDI) is investment from outside the
community ... and while there may be benefit from this
investment in the community, this is going to be some share of
the total benefit arising from the investment. Experience shows
that this share may be quite small, and maybe quite negative
when all the social costs to the community are taken into
account. The split of value added is critical to the success of the
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
local community, and almost always a deep secret probably
because the share attributed to the community is so small.
Sustainability
Sustainability is a fashionable idea ... but with many meanings.
One is that sustainability is to do with damage being done to the
environment by the human race ... and the issues of the survival
of our specie. Another is more pedestrian relating to the ability of
a person or an organization to have enough financial resources to
pay its bills and survive economically. One view of sustainability
relates to the environment. Are economic activities doing
excessive environmental damage or consuming too much of
resources?
COST/ANALYTICAL ACCOUNTING
Cost accounting
Cost centers, profit centers, investment centers, departments, etc
are all rather similar. The key is to understand what they are
doing and what they are costing.
If what they are doing does not seem to have any value ... then
some further questions need to be asked and decisions made.
Corporate accounting systems usually have very effective cost
accounting capability, but getting useful information from these
systems is not always obvious.
Unit costs, prices and values
Unit costs, prices and values are very informative ... they make
comparison easy both over time and from place to place. There
are some challenges because units of measure and currency
exchange rates may confuse ... but when these issues are taken
into account, unit costs, prices and values are very powerful.
Cost, price, value
Cost, price and value are three numbers that describe economic
activity. The relationship between these numbers determines the
performance of almost any economic activity. All of these
measures are important ... any one missing and the
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
understanding of the dynamic of societal progress is
compromised.
Cost, price value and productivity, profit and impact.
Three critical metrics in understanding economic activity are: (1)
cost, (2) price, and (3) value. The relationship between these
numbers determines the performance of almost any economic
activity. All of these measures are important ... any one missing
and the understanding of the dynamic of societal progress is
compromised. These metrics are a part of a further three critical
indicators: (1) productivity ... productivity improves when less
cost produces more goods or services; (2) profit ... profitability
improves when price is increased and cost is decreased; and (3)
impact on society ... impact improves when the value increases
and the cost decreases.
Cost
Cost has multiple components, and one of the most useful data
points for cost is the one that eliminates all the profit elements
from the cost value chain. The socio-economic success of the last
two centuries has been reduction in cost.
Price
Price is a key variable in the performance of society. It is not as
important as cost, but the way price is used in society determines
the way value is shared between the various economic actors.
Value
Value is what the recipient thinks it is worth. These relationships
are key:
•When value is greater than cost there is value adding.
•When cost is greater than value there is value destruction.
Productivity
Productivity is a derivative of cost ... productivity is the most
important single metric for the performance of our global society.
In broad terms science and technology has made it possible for
society to live very comfortably, but leadership has not made the
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
decisions that embrace what is possible for the benefit of a broad
society but for narrow self interest.
Profit
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. Community accountancy explicitly addresses this
matter both at the individual community level and across complex
value chains.
Management accounting
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
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
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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)
The TrueValueMetrics Book
CONTACT
Founder / CEO … TrueValueMetrics
Peter Burgess
Mailing Address:
204 Seaham Court
Bushkill PA 18324 USA
Internet/communications footprint
Telephone: mobile: 212 744 6469 landline 570 431 4385
Twitter: @truevaluemetric @peterbnyc
Blogs: http://truevaluemetrics.blogspot.com http://communityanalyticsca.blogspot.com
Email: peterbnyc@gmail.com
Skype: peterburgessnyc
LinkedIn for Peter Burgess: www.linkedin.com/in/peterburgess1/
Print on Demand Books:
Search Peter Burgess at www.lulu.com
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