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Date: 2024-06-19 Page is: DBtxt003.php L0700-CC-KPI

KEY PERFORMANCE INDICATORS (KPI)
MUST BE AT THE CENTER OF MANAGEMENT METRICS

These metrics must be applied to society, the environment and the economy.
TVA - Key Performance Indicators (KPI)
Peter Drucker, the fabled management guru, famously said 'You manage what you measure'. In the modern world we measure almost everything in terms of money, and if it is not easy to measure, then it is ignored. If Drucker is right, then we manage everything that is about money and we ignore everything else. This means that important things like parenting, and caring, and simple enjoyment are treated as unimportant and ignored. There is an ideology that the 'market' left to its own devices will identify what matters and what does not, and give a price that relates to value. This may have worked in the era when Adam Smith lived (the 18th century) but in the modern economy of the 21st century it does not. Is it any wonder that there is a high level of dysfunction in modern society, the state of the environment and the economy?
KPI for the Business Enterprise
Conventional accounting does an excellent job of measuring the money dimension of business enterprise performance. With relative ease, a conventional accounting system is able to report the financial performance of a large organization to interested parties, and the related internal management information system can drill down to show performance at a detail level, whether it is by product, or department, of line of business. For profit and everything to do with money, such as system is very powerful. On the other hand, when it comes to issues like impact on people, and planet, the other components of the Triple Bottom Line (TBL) conventional accounting falls short and can do nothing.
KPI for Investors
The financial reporting derived from conventional accounting tells an investor a lot about financial performance, and to the extent that investors on capital markets are only interested in financial performance, this might be enough. Increasingly, however, investors are concerning themselves with issue that might become important in the future, and represent a risk to the future performance of the economy and the organizations making up the economy. KPI based on conventional financial measures are well developed, but KPI to reflect future risks and the behavior of the whole complex socio-enviro-economic system are only now starting to emerge.
KPI for the Economy
The conventional wisdom ... and mostly wrong ... is that GDP growth is a good indicator of the health of the economy. Robert Kennedy make a speach in 1968 that lambasted GDP as a measure of economic performance ... but almost 50 years later the GDP measure still dominates economic policy making at the highest levels.
KPI for People
When people are asked what are the important things in their lives, the top choices seem to be related to health, happiness, family and friends. Enough money not have to worry excessively about making ends meet is in the list ... but is a means to an end, and really not an end itself. The challenge is to measure things that really matter for people ... things that are very subjective ... but at the same time very important.
KPI for Planet ... Natural Capital
We depend on nature ... natural capital ... our planet, and indeed the sun, in order to survive. Yet we behave with total disregard to the impact our activities are having on the state of the planet. We have metrics about almost everything to do with money, but there are not metrics in common use that have anything to do with impact of our activities in resource depletion, environmental degradation and the functioning of natural ecosystem services.
KPI for GOOD and BAD
We have a measure for money transactions, and we have banks for money so that what we don't need today may be stored for use tomorrow. There is no similar measure and no storage infrastructure for GOOD and BAD. Is it any wonder that all the focus is on MONEY and rather little on GOOD. Worse, when BAD produces MONEY the measures make it appear to be GOOD. Everything will change when we start to measure GOOD and BAD as rigorously as we presently measure money.

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