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The 'Process' used in these industries requires massive amounts of energy.
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Electricity
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Steel
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Concrete
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Transport
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They are economically important but do substantial environmental damage.
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OVERVIEW OF PROCESS
The efficiency of the economy depends more than anything else on PROCESS. It is process ... the engineering and technical process ... that transforms one set of products into another set of products. The amazing products that have been created in the modern economy are produced using a variety of processes, but as engineering thermodynamics tells us, the balance between input and output includes some things that manifest as waste, some of which have negative impact on the environment and people. In conventional accounting and business analytics the trend is to optimize the process for maximum return on investment and for money profit. With TVM the externalities, the impacts on people and planet are also taken into consideratio.
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HISTORY OF PROCESS
It is improvement in PROCESS that has enabled productivity improvement over time. Almost everything that is a part of the modern enviro-socio-economic system that supports a decent quality of life and standard of living is produced using a process that is more efficient than the process that was used in the past. Take the transport sector for example, the process to convert fuel into energy for transportation has moved from the steam locomotive of the 19th century to the jet engine of the 21st century. Take computing for example, a process that was aided by the abacus, and later various forms of calculator to modern electronics with processors that will do many millions of calculations in a second. In the TVM framework the standard performance of a process will make it possible to understand the truevalue of a product that has flowed through multiple processes in the course of its flow through the supply chain.
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WHY PROCESS IS IMPORTANT
PROCESSES are important because their efficiency is what makes (or not) the aggregate socio-enviro-economic system efficient or inefficient. A better world will be achieved when all the PROCESSES that are used to support our QUALITY OF LIFE are more efficient not only for the making of PROFIT and growing FINANCIAL CAPITAL, but also having a BETTER IMPACT on SOCIETY (PEOPLE) and having a BETTER IMPACT on the ENVIRONMENT (PLANET).
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PROCESS IS EVERYWHERE ...
The efficiency of PROCESS will determine how well the WORLD works
NOTE: The PROCESS is equivalent to the NODE in context / entity / relationship diagrams. PROCESS is the NODE that is at the center of all person built activities
PROCESS uses inputs (labor, materials, energy, knowhow, natural resources, etc.) and in the process degrades the environment;
PROCESS produces PRODUCTS (goods and services) ... outputs ... that enable good quality of life and living standards.
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EFFICIENCY AND EFFECTIVENESS OF A PROCESS
This is more than PROFIT ... it incorporates also impact on PEOPLE and PLANET
The EFFICIENCY of the PROCESS determines the IMPACT on PEOPLE and PLANET.
EFFICIENCY is not only the PROFITABILTY of the PROCESS …
… but also how much GOOD IMPACT there is for PEOPLE …
… and how little BAD IMPACT for SOCIETY and the ENVIRONMENT.
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THE FOUNDATIONAL REASON FOR METRICS LIKE TVM
It is impossible to have meaningful accountability in a very big organization with many different activities. This may suit those that benefit from the performance of big organizations but for society as a whole, this is a problem. Inside the corporate organization there is impressive data collection, analysis and accountability down the level of dapartment, section, individual machine and worker and every product ... but all of this is private and proprietary. From the outside it is possible to get accountability for individual discreet economic activities even though this may be resisted by big organization owners. Specific financial performance may not be accessible, but useful approximations may be made, and judgement about performance relative to the environment in the place and people in the society may be made.
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THE PURPOSE OF ECONOMIC ACTIVITY
The original purpose of economic activity was to improve and maintain quality of life for an individual and the family. For most of recent history there has been a favorable relationship between the profit performance of an organization and the wages of people, which in turn improved and maintained quality of life. This assumption is baked into much of the enviro-socio-economic analysis that is routinely reported to the public. However, in the past 40 years productivity has increased at a fast pace, with the result that less and less people are needed for the same level of production. The dynamic is more productivity leads to less labor and more profit ... in other words a good result for owners of the organization and a bad result for working people and society as a whole. TVM accounts for not only the impact on the organization, but the impact on people and the impact on place (society).
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THE PERFORMANCE OF A PLACE
The performance of a place should be relatively easy to understand. A place does not move. A place is where people live and work. A place is where discreet economic activities are located. People are able to observe what is going on. The data collected may be verified in ways that are not possible when they get merged into larger data systems. Pollution can be observed and tied back to specific economic activities and to the responsible owners. Place is a part of planet ... but place is human scale, while planet tends to be too large for most of us to understand.
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SOME CONCLUDING OBSERVATIONS
PERFORMANCE
- more than anything else improving the EFFICIENCY of PROCESS will change the trajectory of global socio-enviro-economic performance;
- in the past efficiency has simply been about less COSTS and more PROFIT;
- in the future EFFICIENCY has also to be about better QUALITY OF LIFE for PEOPLE with very little of no damage to the ENIRONMENT (PLANET)
INTEGRATED FINANCIAL AND IMPACT ACCOUNTING ...
- integration of financial and impact accounting will make it possible for very much better decisions to be made.
- high efficiency can be rewarded and there can be social accountability for bad practices and low efficiency.
CHIEF PERFORMANCE OFFICER
- Maybe in the near future it will be possible to rename the CFO (Chief Financial Officer) to be the CPO … the Chief Performance Officer, a C-level position that integrates financial performance with impact on society (people) and impact on the environment (planet).
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