Peter Burgess ... Ideas
Reform of Metrics

A draft about metrics prepared in September 2013

Dear Colleagues

The dominant metrics in organizations is double entry accounting, a system invented more than 400 years ago to help merchants account to their investors. It has worked well to keep control of business assets ... primarily money and inventory and to calculate profit.

Beyond that, double entry money profit accounting falls short.

Others have argued for a system of metrics that includes not only profit, but the impact on people and planet ... the so called Triple Bottom Line (TBL). This is a step in the right direction, but, in my view, is not enough.

I envision a multi dimension impact accounting system that uses one set of data to report the progress and performance of organizations, places (communities) and products. The data will embrace money metrics (revenues, costs, profit) and impact on people and planet.

Impact on people has many elements. In total progress is improvement in quality of life (QoL). Jobs that have wages and benefits are a big part of QoL. Money enables the purchase of things that are needed. Things like health, education, availability of housing, critical infrastructure, etc. are all components of QoL. People may be investors, executives, workers, customers, suppliers, etc. People impact is complex, but people impact is at the core of everything.

Impact on planet has two parts: (1) the depletion of finite resources; and, (2) the damage to the environment / ecosystem as a result of solid waste, liquid waste and gaseous waste.

In traditional money profit accounting, the impact on people and planet are ignored. The size of these impacts is now bigger than the profits, but not accounted for in the prevailing scorekeeping systems.

Of course, there is a need to quantify impact in a way that is widely accepted. This can be done using a system of standard values rather like the systems of standard costs that are used in manufacturing business cost accounting.

The way in which data are organized is fairly basic. The data starts out associated with an economic activity run by an implementing organization in a place. There might be other organizations associated with the financing. The economic activity is also associated with products that it uses as inputs and products that are outputs.

Another aspect of the data comes from the double entry idea in accountancy and the difference between a balance sheet account and a profit and loss account. In accounting, the profit or loss in the profit and loss account is the same as the difference between the balance sheet at the beginning and the end of the period.

The same idea can be applied to impact ... both for impact on people and impact on planet.

Progress is change in state ... change in the value balance sheet associated with people and change in the value balance sheet associated with planet.

Performance is the relationship between progress and the consumption of non-renewable resources to facilitate this progress. The good news is that many resources (including human resources and some energy resources are renewable).

Product is important for two reasons (1) products are the link into the buy or not to buy decision by people which determines behavior; and (2) products flow through the economy in a variety of ways all the way from the start of the supply chain, through use to the post-use waste chain. Products may have a small difference in price, but an enormous difference in total life value chain impact.

I argue that when this rather complex data framework is operated with the same sort of rigor associated with money profit accounting, the data may be summarized reliably so that it becomes possible to summarize simply and use to determine which organizations in the not-for-profit world are operating well and which are not ... just as is possible with companies that focus on making profit.

Peter Burgess TrueValueMetrics