COMPLEX WORLD
HOW TO MAKE IT WORK
|
|
|
|
TO DO: Update the images better to reflect the content of the page
|
|
|
|
|
REALITY ... A COMPLEX WORLD!
|
|
PEOPLE FIRST and a SUSTAINABLE WORLD
|
|
CONTEXT
|
GOOD PEOPLE EVERYWHERE
There are good nice people everywhere on the planet
|
Arab Women
|
Arab Men
|
Indian family
|
Nigerian Kids
|
Vietnam factory worker
|
US Construction Worker
|
|
... and some good leaders
|
Paul Polman
|
Norm Chomsky
|
Nelson Mandella
|
Mike Bloomberg
|
Martin Luther King JR
|
|
|
|
|
|
AMAZING TECHNOLOGY
Technological progress has been very rapid and getting faster and faster all the time
|
|
MEDICAL SCIENCE
|
Genetic code / DNA
|
Antibiotics
|
3D Printing
|
|
MATERIALS
|
Composite materials
|
Plastics
|
High strength steels
|
|
ELECTRONICS
|
IBM
|
Microsoft
|
Oracle
|
|
COMMUNICATIONS
|
Apple
|
Print Media
|
Digital Media
|
|
SOCIAL MEDIA
|
Google
|
Facebook
|
Twitter
|
|
PASSENGER TRANSPORT
|
Passenger Rail
|
Passenger Car
|
Passenger Bus
|
|
FREIGHT / LOGISTICS
|
Shanghai new port
|
Container Ships
|
Freight rail
|
|
AEROSPACE
|
Jet engines
|
Passenger Aircraft
|
Satellites
|
BUT ...
MANY TERRIBLE OUTCOMES
|
|
INEQUALITY
|
Obscene Wealth
|
Terrible Poverty
|
Juxtaposed
|
|
STARVATION / MALNUTRITION
|
Africa
|
North Korea
|
Somalia
|
|
WAR / DESTRUCTION
|
Aleppo, Syria
|
Sanaa, Yemen
|
Mosul, Iraq
|
|
... and DEATH ... wanton killing
|
Monrovia, Liberia
|
Darfur, Sudan
|
Rwanda
|
|
Urban degradation
|
Detroit, USA
|
Modern slums
|
Not so modern slums
|
|
Pollution
|
Air pollution
|
Land fill
|
Plastic
|
|
Land Degradation
|
Mining
|
Deforestation
|
Desertification
|
|
Extreme Weather Events
|
Hurricanes
|
Rain events / Flooding
|
Ice Melt
|
|
WHY?
|
|
Some very nasty national leaders
|
Ali Abdullah Saleh, Yemen
|
Charles Taylor, Liberia
|
Bashar al-Assad, Syria
|
Muammar Gaddafi, Libya
|
Robert Mugabe, Zimbabwe
|
Idi Amin, Uganda
|
|
Money making nasty business ...
|
Viktor Bout, Arms Trafficker
|
el-Chapo-Guzman, Drug Trafficker
|
Sex Trafficking
|
|
Oil Industry ... Big profits and big pollution
|
Crude oil in Niger Delta
|
Flaring gas in USA
|
Refinery air quality
|
|
Free enterprise oligarchs
|
Carlos Slim / Grupo Carso
|
Larry Ellison / Oracle
|
Bill Gates / Microsoft
|
|
Too much militarism
|
Atomic Bomb / Mushroom Cloud
|
Powerful Navy
|
Air Power
|
|
Too little development cooperation
|
UN headquarters
|
US State Department
|
UNHCR / UN Refugee Agency
|
ECONOMIC GOALS ARE WRONG
GOOD for owners of financial wealth ... BAD for everyone else
|
|
GDP UP but GENUINE PROGRESS FLAT / DECLINING
|
GDP - v- GPI
|
Since 1955 the US per capita GDP has grown and grown and grown, but GPI, an indicator of GENUINE PROGRESS has been flat, or declining. Social dissatisfaction has been aggravated by an increase in inequality of this period of time.
|
|
Productivity UP / Profits UP / Pay DOWN
|
Productivity -v- Pay
|
from Robert Reich
|
The Post WWII period until 1979 was an era when productivity improvements were shared with workers, but since the 1980s gains from productivity have been allocated almost completely to owners with nothing for workers. WHY has this problem not been addressed in 40 years? A total failure of political and business leadership.
|
|
Correlation: Corporate Profits track GDP
|
GDP - v- Corporate Profits
|
TPB Note: My own experience as a corporate CFO 40+ years ago confirms this. When the economy was growing, it was easy to grow profits, but in the post GoGo years of the 1970s when the global economy was in recession after the oil shock it became much more difficult to grow profits ... more the challenge was to stay in business!
|
|
Correlation: Natural Capital Issues track GDP
|
|
Atmospheric CO2 concentrations, global temperature increases, species extinction and loss of rainforest and woodland ALL track with increase of global GDP for more than 200 years!
A bigger GDP has resulted in a better quality of life for the world's population, BUT there has also been a growing risk of catastrophic collapse at some point in the future because of the environmental inefficiency of industrial processes.
|
SOLUTION: Accountancy MUST take into account external Social and
Environmental Impacts as well as the money profit Economic Impact
|
A HUGE COMPLEX SOCIO-ENVIRO-ECONOMIC SYSTEM
BUT IT CAN BE MANAGED
... more
|
|
|
Single issue solutions will never work ...
The problem is SYSTEMIC
|
Success is not a simple process
Everything is VERY compicated
|
MEASURE WHAT REALLY MATTERS
BETTER METRICS gives BETTER DECISIONS gives BETTER RESULTS
WITHOUT MEASUREMENT, THERE IS NO MANAGEMENT
|
|
FOR REPORTING ... MEASURE PROGRESS
|
ACTIVITIES and FLOWS CHANGE STATE
PROGRESS is the increase in VALUE (of the STATE) from beginning to end of the period
... more
|
FOR MANAGING ... MEASURE PERFORMANCE
Get granular information before the right people at the right time
|
|
Put DATA at the center ... get relevant data rather than a lot of data
|
|
Data Centric
|
Relevant detail data
|
Fast specific feedback
|
|
|
|
MANAGE
FOR
ALL
THE
CAPITALS
NOT JUST THE FINANCIAL CAPITAL
There are 3 main segments of CAPITAL
and any number of sub-segments reflecting ALL of the system
|
(I) SOCIAL CAPITAL
SOCIO
... more
|
(II) NATURAL CAPITAL
ENVIRO
... more
|
(III) ECONOMIC CAPITAL
ECONOMIC
... more
|
HUMAN CAPITAL
Every individual on the planet should have health, education and opportunity
... m
RELATIONSHIP CAPITAL
Relationships make it possible for individuals to be better than they are on their own
. m
LOCATIONAL CAPITAL
Place is where everything comes together and makes a difference
... m
|
LAND
Land has been used to earn profit with little attention to ecological sustainability
... more
FRESH AIR
Fresh air is very good for human health and longevity
... more
FRESH WATER
Without water there is no life, and now becoming increasingly scarce
... m
OCEAN WATER
A huge energy sink, and where all the world's garbage accumulates
... m
MINERALS
The raw materials for most of the useful products we use every day
... m
FOSSIL FUELS
The sources of power that made the industrial revolution possible
... m
CLIMATE SYSTEMS
The essential mechanisms that have kept the climate stable until now
... m
ECOLOGICAL SYSTEMS
The many mechanisms that serve to recycle everything in nature
... m
BIODIVERSITY - FAUNA
Animals, birds, fish, reptiles, insects and other life forms
... m
BIODIVERSITY - FLORA
Millions of species of plants that occupy a complex ecosystem
... m
|
PHYSICAL ... Buildings
Buildings provide shelter and places to work but very inefficient
... m
PHYSICAL ... Infrastructure
Many sorts of infrastructure are essential for a modern economy
... m
PHYSICAL ... Production
Modern production has become very efficient but energy intensive
... m
PHYSICAL ... Transport
Transport and logistics are enabling global trade and sustainable development
... m
FINANCIAL CAPITAL
Money makes the world go round, but it is only a lubricant
WORKING CAPITAL
Managing stocks and supply chains has revolutionized business
... m
KNOWLEDGE CAPITAL
Education is foundational and essential for a better world
... m
INSTITUTIONAL CAPITAL
Organizations, rule of law, etc make an enabling environment
... m
CULTURAL CAPITAL
Dance, music, tradition, religion ... all sorts of good things that make life worth living
... m
|
ACCOUNTABILITY
FOR
ALL
THE
ACTORS
INDIVIDUALS, COMMUNITIES and ORGANIZATIONS
|
|
Steps towards MANAGING this complexity
|
|
PROGRESS is CHANGE in STATE
|
for ALL SEGMENTS of CAPITAL
|
for EVERYTHING
|
|
|
|
|
Consider these trends in SOCIO / ENVIRO / ECONOMIC STATE state over time
|
|
THE ACTUAL PAST
|
PLUS a NO CHANGE FUTURE
|
PLUS a BETTER FUTURE
|
SOCIAL CAPITAL and ECONOMIC CAPITAL have increased but NATURAL CAPITAL has been dangerously degraded. SOCIAL CAPITAL growth has been compromised by increasing inequality.
|
Continuing in this way is an unacceptable existential risk. There is a broad consensus that massive changes are essential.
|
A better way is possible. This requires a system that enables prosperity without growth and very process improved so that production does less environmental damage
|
Key understanding essential to resolving the dangerous
dysfunction of the SOCIO-ENVIRO-ECONOMIC SYSTEM
|
|
Cost / Price / Value
Decision makers in the corporate organization know a lot about the behavior of costs in their products as well as the way their customers respond to price. Price less cost is profit, and decisions are made that maximize profit which means that the value add available to the customer is reduced as much as possible. Publicly available data about cost is small and there is very little thinking about value.
... more
|
|
Value add / Value destruction
Three very different scenarios ... society should be doing very much better!
|
Understanding how MONEY works
Understanding money and liquidity is very important
... more
|
|
MONEY SUPPLY GROWTH: 1970-2008
Most of the population works with M0 (money in circulation) and M1 (M0 + demand deposits) which have grown substantially. The financial institutions work with M3 which has grown even more in the period since 1970.
|
|
Modern MONEY is a mess
Economic theory has it that money is an economic measure, a store of value and a medium of exchange. The US dollar has does none of these things well. See how the purchasing power of the US dollar has declined during the 20th century!
|
|
HOW DOUBLE ENTRY ACCOUNTING WORKS
|
CONVENTIONAL FINANCIAL ACCOUNTING
ACCOUNTS FOR THE PAST, THE PRESENT AND THE FUTURE
Very powerful ... Used in every business
... more
|
HISTORY
... more
History has already happened. We can learn from it, and it is the reason why and how we got to the present time.
|
|
|
Beginning of Period (BOP)
STATE
... more
The Beginning of Period (BOP) STATE is a record at a moment in time of what has gone before
|
ACTIVITIES
... more
Activities CHANGE the STATE from what it was at the BOP to what it gets to be at the EOP
|
End of Period (EOP)
STATE
... more
The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period
|
|
|
|
FUTURE
... more
The future has a Net Present Value (NPV) that is a mix of many factors.
|
BALANCE SHEET (BOP)
A summary of the Balance Sheet accounts at the beginning of the period.
|
P&L ACCOUNT
A summary of the P&L accounts for the period.
CASH FLOW
How P&L accounts change the Balance Sheet
|
BALANCE SHEET (EOP)
A summary of the Balance Sheet accounts at the end of the period.
|
|
|
|
EQUITY VALUATION
A MEMO Balance Sheet that adds in the Net Present Value (NPV) of future profit flows
|
TRUE VALUE IMPACT ACCOUNTING
ACCOUNTS FOR THE PAST, THE PRESENT AND THE FUTURE
All Capitals ... All Impacts ... All Actors
... more
|
Accounting
for everything
|
Conventional accountancy is a very good basic framework to enable the accounting for everything. The same basic concepts can be used but applied in a slightly different way.
|
|
HISTORY
... more
Use a time series of Comprehesive Value Balance Sheets that show changes over time
|
|
|
Beginning of Period (BOP)
STATE
... more
The Beginning of Period (BOP) STATE is a record at a moment in time of ALL the CAPITALS of what has gone before
|
ACTIVITIES
... more
Activities CHANGE the STATE from what it was at the BOP to what it gets to be at the EOP
Activities have multiple impacts on SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL (which includes financial capital)
Positive social and economic impacts are often associated with negative environmental impacts.
|
End of Period (EOP)
STATE
... more
The End of Period (EOP) STATE is a record at a another moment in time ... the end of the period ... of ALL the CAPITALS
|
|
|
|
FUTURE
... more
The future has a Net Present Value (NPV) that is the sum of the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL
|
VALUE BALANCE SHEET (BOP)
A summary of the Value Balance Sheet accounts at the end of the period incorporating the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL
as they were at the Beginning of the Period.
|
TRUE VALUE ACTIVITY ACCOUNTS
A summary of the activity accounts for the period.
TRUE VALUE IMPACT SUMMARY
How activity accounts for the period changed the Value Balance Sheet from the beginning to end of the period.
|
VALUE BALANCE SHEET (EOP)
A summary of the Value Balance Sheet accounts at the end of the period incorporating the Net Present Value (or cost) for all the elements of SOCIAL CAPITAL, NATURAL CAPITAL and ECONOMIC CAPITAL
as of the End of the Period.
|
|
ACCOUNTANCY'S CORE CONCEPTS
|
|
GAAP
|
Generally Accepted Accounting Principles used everywhere in the world
|
More on CORE-CONCEPTS
|
|
B/S and P&L account
|
Accounting differentiates between 'Balance Sheet' accounts and 'Profit and Loss' accounts. This is a key step in understanding cause and effect.
|
|
|
Balance sheet accounts
|
Typically these are segmented as follows: Current assets: Current liabilities: Fixed assets: Other assets: Long term debt: Stockholders' Equity
|
|
|
P&L accounts
|
Typically these are summarized as follows: Sales revenue: Cost of Sales: Gross Margin: General, Sales and Administration expenses: Depreciation and amortization: Research and Development expenses: Taxes: Financial charges; Net profit
A sub total titled EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization
|
|
|
PROFIT
|
PROFIT or FINANCIAL PROGRESS can be measured simply by comparing the EOP Balance Sheet with the BOP Balance Sheet. The Change is PROFIT.
|
|
Externalities
are ignored
|
Conventional financial accounting only accounts for money transactions and those that are within a reporting envelope.
|
|
Accrual -v-
Cash basis
|
Business financial accounting systems are 'accrual' accounting systems. Most government accounting and public sector is cash basis accounting. Accrual systems are far more rigorous. Seems that governments and legislators like the sloppiness!
|
|
ACTIVITY ACCOUNTING
MULTIPLE PERSPECTIVES
.
AND
.
MULTIPLE IMPACTS
|
|
GOALS / OBJECTIVES
|
|
PEOPLE
|
Everyone having a decent and improving quality of life should be main goal for everything that happens in the system.
|
More on PEOPLE
|
|
ENVIRONMENT
|
A decent and improving quality of life should be achieved while also doing no damage to the environment, and indeed remediating the damage already done.
|
More on ENVIRONMENT
|
|
ECONOMY
|
The performance of the economy should be judged by how quickly and efficiently it is able to achieve HUMAN CAPITAL and NATURAL CAPITAL goals
|
More on ECONOMY
|
|
ACTORS
|
|
PEOPLE
|
Decision makers that drive the system are people. They may act for, or through organizations like for profit companies, NGOs, governments, etc. or act as individuals.
|
More on ACTORS
|
|
ORGANIZATIONS
|
Most economic activity is conducted by organizations. It is therefore vital that there is meaningful accountability about the performance of these organizations. Big for profit companies dominate the system. While they are profit efficient and powerful, historically that have but profit performance before social and environmental responsibility, and they are only changing very slowly ... hence the need for scoring their unsustainability.
|
More on ORGANIZATIONS
|
|
PERSPECTIVES
|
|
STREAMS
|
Every economic activity has a string of impacts going backwards and forwards through the system
|
More on STREAMS
|
|
SECTORS
|
Every economic activity has a string of impacts going backwards and forwards through the system
|
More on SECTORS
|
|
PRODUCTS
|
Products ... goods and services ... are the tangible things that have impact on people and the environment
|
More on PRODUCTS
|
|
PLACES
|
Where people live their lives and everything happens. Get the place right and most everything else follows.
|
More on PLACES
|
|
ENABLING ENVIRONMENT
|
|
KNOWLEDGE
|
The enabler of progress. Some people with specialized knowledge. Everyone with ubiquitous common knowledge.
|
More on KNOWLEDGE
|
|
IDEAS
|
Without ideas, progress slows. Not many ideas progress to full scale implementation.
|
More on IDEAS
|
|
GOVERNANCE
|
Leadership, laws, rules and regulations, judicial system, security are all contributors to progress
|
More on GOVERNANCE
|
MANAGING FOR BETTER SOCIO-ENVIRO-ECONOMIC PROGRESS
MANAGING PARADIGM SHIFT IN ECONOMIC PERFORMANCE
DATA / DECISIONS / FEEDBACK / ACCOUNTABILITY
|
|
DATA FOR REPORTING
|
These data should be capable of being easily aggregated and be widely respected and accessible without significant delay. Stock price information is rapidly and easily accessible, and so also should be social and environmental progress indicators.
|
More on DATA-FOR-REPORTING
|
|
DATA FOR DECISIONS
|
Internal corporate management data is as granular as it needs to be for profit performance decisions. The same sort of granularity and timeliness is needed for social and environmental impact information.
|
More on DATA-FOR-DECISIONS
|
|
DATA for ACCOUNTABILITY
|
Massive amounts of data, but surprisingly little accountability. Major changes and systemic improvements are needed
|
More on ACCOUNTABILITY
|
|
UNITS OF ACCOUNT
|
Multiple units of account makes it possible to link to meaningful scientific measures AND report usefully in a summary fashion
|
More on UNITS-OF-ACCOUNT
|
|
STANDARD VALUE PROFILES
|
Similar to Standard Costs, but more complete incorporating cumulative history as well as future impacts for every product
|
More on STANDARD-VALUE-PROFILE
|
|
UNSUSTAINABILITY SCORES
|
Everything in the modern socio-enviro-economic system aggregates to an unsustainable disaster. MEASURE IT / MANAGE IT
|
More on UNSUSTAINABILITY-SCORE
|
|
THERE IS MASSIVE SYSTEMIC DYSFUNCTION THAT NEEDS TO BE FIXED
|
|
SOCIO
|
ENVIRO
|
ECONOMIC
|
ALL
OF THE
SYSTEM
... more
SOCIETY AND ENVIRONMENT should have priority over FINANCIAL/ECONOMY
|
|
PEOPLE / SOCIETY
... more
|
ENVIRONMENT
... more
|
ECONOMY
... more
|
|
FINANCIAL/ECONOMY has been the driver, with SOCIETY and ENVIRONMENT marginalized
|
|
BETTER METRICS / NEW METHODS
|
|
BALANCE SHEET
|
Accounting for ALL the CAPITALS ... CHANGE in the BALANCE SHEET is a measure of PROGRESS
|
More on CHANGEinSTATE
|
|
|
CONTEXT
BACKGROUND / ISSUES / CONSTRAINTS / POSSIBILITIES
SYSTEMIC FAILURES / DYSFUNCTION / HUNGER / HOMELESSNESS / DESTRUCTION / POVERTY / MORALITY / KNOWLEDGE
GOOD PEOPLE STRUGGLING / AMAZING TECHNOLOGY / AMAZING POSSIBILITIES / MISSED OPPORTUNITIES
|
GO TOP
|
|
|
SOCIO-ENVIRO-ECONOMIC SYSTEM
ALL THE CAPITALS
ALL THE ACTORS, ACTIVITIES, PROCESSES
|
GO TOP
|
|
|
METRICS
BETTER METRICS ARE FUNDAMENTAL TO SUCCESS
TRUE VALUE IMPACT ACCOUNTING
ACCOUNTING AND ACCOUNTABILITY FOR EVERYTHING ... EVERY DIMENSION / EVERY ENTITY OF THE ECONOMY
|
GO TOP
|
WHY METRICS ARE IMPORTANT
YOU ONLY MANAGE WHAT YOU MEASURE
|
Open L070-MT-METRICS
|
CONVENTIONAL FINANCIAL ACCOUNTING
VERY POWERFUL BUT ONLY ABOUT PROFIT PERFORMANCE AND FINANCIAL CAPITAL
|
Open L0700-MA-CONVENTIONAL-FINANCIAL-ACCOUNTANCY
|
TRUE VALUE IMPACT ACCOUNTING
ACCOUNTABILITY FOR EVERYTHING USING DOUBLE ENTRY ACCOUNTING
|
Open L070-TVIA
|
CORE CONCEPTS
FROM ACCOUNTANCY, ENGINEERING THERMODYNAMICS AND SCIENCE
|
Open L07O-CC-CORE-CONCEPTS
|
IMPLEMENTING ENTITIES
ORGANIZATIONS, PEOPLE, PLACES, PROCESSES, PRODUCTS, STREAMS
|
Open L070-IE-IMPLEMENTING-ENTITIES
|
REPORTING ENTITIES
ORGANIZATIONS, PEOPLE, PLACES, PROCESSES, PRODUCTS, STREAMS
|
Open L070-RE-REPORTING-ENTITIES
|
UNITS OF ACCOUNT
ECONOMIC VALUE (MONEY) / SOCIAL VALUE / ENVIRONMENTAL VALUE
|
Open L070-UA-UNITS-OF-ACCOUNT
|
STANDARD VALUE PROFILES
ANALOGOUS TO STANDARD COSTS
|
Open L070-SV-STANDARD-VALUE-PROFILES
|
TRENDS / PROGRESS AND PERFORMANCE
FOR ALL THE SOCIO-ENVIRO-ECONOMIC SYSTEM
|
Open L07-TRENDS
|
|
|
|
