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Burgess Manuscript
Basic Concepts for TrueValueMetrics
Version of 2010
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CHAPTER 1
Introduction and Context
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This chapter sets out to introduce the writer, establish his credibility in this subject area and the set the context for the development of True Value Metrics TVM) or something like it. Though the book is very critical of established metrics and global socio-economic performance, the book aims to be optimistic about a future that uses better metrics!
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Chapter 1 / Section 1
Context … The World We Live In
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Extreme Complexity
The many elements of society
There are many elements of society that make it complex. The following graphic shows
some of this complexity ... in a very simplified manner. There is complexity at the
national level and the international level (not shown) and all sorts of complex detail at the
community level.
Society and economic activity are complex … with many different organizations and
structures that make up the whole.
More understandable at the community level
In the community where life is live there are all sorts of activities and organizations. The
complexity is real, but on a scale that is understandable.
- There are people and families and communities.
- There are people and activities and projects and organizations
- There are buildings, blocks, neighborhoods and communities
- There are activities and sectors.
- There are no simple relationships … there are many variables.
An aggregate or average is not very useful for decision making ... what is needed is
granular data that reflects a real reality ... not a distant derivative of reality! The
community is where people live ... and a lot easier to understand. The complexity at the
community level can be understood in a granular manner ... with cause and effect tightly
linked. At the community level people have names, and are not merely part of a statistical
pool. Activities are tangible, and data about costs and results much more easy to
understand.
But there are complexities in a community … and there are a zillion different ways in
which simple analysis can go wrong. Every human being is different … and this has the
potential to be useful or to be a constraint in making progress happen. A place where
there is progress is one where people have been able to organize so that there is progress,
and other places where there is limited progress, it is because the human energy is getting
wasted in one way or another.
This is a major simplification … maybe somewhat simplistic. The point is that at the
community level it is possible to use very simple observation … “management by
walking around” … to understand what is important and what is not. Progress is going to
be achieved when resources are applied to priorities that have a high relevance in the
specific community and decision makers are held accountability for performance …
using objective independent metrics.
What gets measured gets done!
Governments, multilaterals and others
The overhead structure of the world's governance is big and complex … and a big reason
why it is difficult to make progress. The World Bank and the regional development banks
that work in ways that are very similar to the World Bank have procedures and processes
that are very “Top Down” and, in the main, very inflexible. The same goes for the United
Nations and the various bilateral agencies.
Non-governmental organizations (NGOs) were intended to bring more private sector
innovation and enterprise into action … but where they get their funding from the public
sector, they soon become the paid servants of the of the government, devoid of much
enterprise and initiative. They maintain the “top down” way of working much to the
detriment of potential beneficiaries.
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Chapter 1 / Section 2
Pursuit of Happiness
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Progress Is More Happiness
Different from the pursuit of wealth.
The Founding Fathers of the United States saw fit to write about “pursuit of happiness”
but they did not make mention of any of the common measures being used today to
describe economic performance like profit or GDP.
It is likely that they recognized that there were many different versions of happiness …
that happiness was subjective, and would depend on many different elements.
In TVM happiness is a big part of the value profile … more important than either money
profit or money wealth per se.
Profit and GDP not good measures
The business community uses profit as its main measure of success, and probably has
done since the beginning of human history. But profit ignores the value flows associated
with the business that impact community and society. Modern accountancy has become
very sophisticated about the reporting of profit and the business world as a whole
understands the metric and all the reporting associated with it. Maybe this is less true for
the general public, and there are unfortunate distortions in the reporting of profit caused
by laws, rules and regulations that make it possible to report inappropriately. Taxation
rules, for example, are one area where distortions get incorporated into profit reporting.
In the modern era an important proxy metric for progress has been growth, and the
dominant measure of growth is the economic metric Gross Domestic Product (GDP).
This is a dangerous metric for society and the planet if ever there was one since it is
based on the idea that more is always better. GDP has little to commend it as a measure
for progress, except, perhaps that it is has a long history and is an reasonably easy metric
to compile and publish, though it can be argued that even this is wrong because of the
corrections and adjustments that are now incorporated in the measure to account for
anomalies.
Progress is NOT more and more and more
Progress in quality of life is NOT more and more and more, but enough of some things
and access to all sorts of other things. Quality of life is made up of many different sorts
of things … some is “stuff” … some is services … some is intellectual … some is
spiritual … some is emotional. Beauty is positive … ugly is not. Friendship and love are
positive … hate is not.
Happiness … quality of life … needs … wants
More people, more need
Basic needs must be satisfied at a minimum level in order for the poor to live … and far
too many people are dying because even these basics are unachievable. Quality of life is
a mix of needs and wants … a mix that is not at all uniform between individuals and
cultures … nor indeed among different age groups within a culture. The diversity of
needs and wants that constitute quality of life makes quantification more difficult, but not
impossible.
Needs originate with people … no people and there are no needs. The more people there
are the more needs there are.
There are some basic human needs ... the basics that are needed for survival. Beyond that
there are other needs and wants that define who we are and how society recognizes
progress and status. TVM recognizes that there is a difference in the value of a small
amount of potable water required for human survival ... and the multi-gallon flows of
water associated with high end flushing water closets and showers ... not to mention
watering the lawn and washing the car!
More is good until basic needs are satisfied. In a shortage economy, more is a reflection
of better … but the global “North” produces more than it “needs” and more merely
means that there is a bigger surplus. In a shortage economy, a bigger crop means that
there is less shortage, and people are able to eat more and be in better health. In a
shortage economy … more is better.
Needs are not the same as wants … though more and more a money focus society is
trying to convert wants into needs. The purpose of advertising is to create demand …
wants that feel like needs.
Advertising … misinformation
Advertising and misinformation is a part of the problem. Madison Avenue
… the world hub of advertising and promotion has done a great job of
creating demand where there really is none. They are masters of spin so that
people with almost everything still feel the need to go out and buy! GDP is
driven by the amount that is spent … about consumption … no matter how
silly the consumption and how little it is needed! Nothing wrong with
enjoyment … but not at the expense of others.
TVM includes information about needs in the metric framework ... including needs
associated with the very poor, needs associated with the high consumption middle class
and the commerce associated the very wealthy.
Basic needs
Perhaps as many as 2 billion people are struggling to meet their basic needs for food,
water, sanitation, shelter and clothing. Healthcare and education are highly desirable but
in most cases beyond the means of the very poor.
Poverty … the $1 a day metric
This absolute measurement of poverty serves little purpose … other than to
employ researchers and analysts. How many people are in the $1 a day
economy and how many are in the $2 a day economy is not of great
consequence. What needs to be known is how fast the progress in getting
quality of life to be better is in a specific place … a focus on the progress of
people from their very poor status to something that is better.
The metrics should help to show what works and what does not ... and who
are making good decisions and who are not … and what issues most need to
be addressed so that people know what to do.
For TVM, a better question is about the activities that result in abject poverty and what
are the needs that poor people have so that (1) they may survive; and (2) they may
progress.
Middle class quality of life
Most of what might be thought of as middle class needs are merely wants ... but they are
the driving force of the modern consumption economy. There is a big service industry
that has the singular job of convincing ordinary people that they “need” all sorts of things
that are profitable to provide ... and are really not needed at all. In fact the consumer
would be better off if much of what they are buying was never produced.
The conventional wisdom for many decades has been that socio-economic success is
about the achievement of a middle class life style ... like the Americans. The problem
with this is that middle class consumption using the American model cannot be achieved
without rapid loss of the earth's natural wealth. With only 5% of the worlds population
achieving this level of consumption ... natural resources are already stressed and it is
difficult to imagine what will happen if 50% of the population were middle class .
For the global middle class, it is imperative that needs are redefined so that the ultimate is
not simply “more and more” but something that reflects more quality and less quantity …
more happiness less “stuff”.
Luxury ... not needs at all
The world has a super-rich class and though small in number they can buy whatever they
want using money from their very deep pockets. This big buying power supports a big
luxury sector. Much of the commerce associated with the luxury sector does not satisfy
need at all ... but serves high end wants ... more the satisfaction of ego and confirmation
of elite status in society!
Poor and Hungry
Far more than there should be
Out of a total world population of more than 6.5 billion, it is estimated that more than 4.5
billion are poor and hungry. In a world where global surplus production is now possible,
the fact of so many poor and hungry is a global disgrace. The decision makers and the
leaders of society … corporate, government and the economic elite … should be
ashamed of themselves.
Broad-based progress is possible. Better and better quality of life is a reasonable goal …
but better cannot merely be more and more consumption of goods and services and more
and more accumulation of money wealth, but must be more and more of value creation
and the accumulation of what might be called “value credits”.
Over the past century some people … relatively few … have been able to benefit from
the abundance that has become possible because of advances in technology and in
consequence productivity. But many more have continued to struggle to satisfy basic
needs .. and the absolute number of people now poor and hungry is more than two
decades ago … more than five decades ago.
The prevailing money accounting metrics of economic performance associate growth
with success. This is a fallacy … way too many people are in situations where quality of
life is totally unacceptable. In order to improve performance … the first step is to get the
metrics that measure the right things in the right way.
Top job: change the way the game is scored … and we will change the
way the game is played
Aggregate demand … value destruction
Aggregate demand is a big metric in the modern money economy … aggregate demand
is the driver of corporate business volume, which improves profitability which in turn
makes stockholders happy. But what does aggregate demand do for society as a whole. In
some situations more aggregate demand would be a great indicator of progress out of
poverty … in other economic situations more aggregate demand may well end up
facilitating more obesity. There is a difference and the metrics should be very clear which
is which.
When community needs are satisfied by the community buying things, the community
economy is on its way to being sustainable.
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Chapter 1 / Section 3
The Sustainable Society
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Many Dimensions of Sustainability
Value construct is universal
TVM is about metrics … that is data and analysis of what is and what could be, or should
be. What something is called is less important than what something is … and the data
will show as clearly as possible what something is, what it was, and what it could be …
all in the context of what should be.
A lot of issues are subjective, but this does not matter for metrics that aim to report
simply the factual reality. With TVM the issue of subjectivity and its variability is a part
of the system.
TVM aims to be of utility whether the version of sustainability relates to:
- a green initiative for a building or community;
- the exploitation of mature tropical forest;
- the mining of minerals;
- fishing;
- carbon footprint;
- public transport;
- or anything else.
Sustainable … what does it mean?
In many modern settings the word sustainable is almost meaningless … it has become a
“fashionable” word, and is applied to anything and everything and means leas and less
the more it is used.
Sustainable … used everywhere meaning nothing!
A conference (back in October 2010) at Columbia University in New York had “Sustainability and the Extractive Industries” as its theme … arguably an oxymoron if ever there was one! Surprisingly this did not seem to bother anyone … sustainability was very fashionable!
That is not to say the idea of sustainability should be discarded … rather to be very clear about what is going on.
In the case of the Columbia University conference the issues were very important but related to how best to use the revenues generated by extractive industries in the best possible way … starting off from the premise that what has been going on for a very long time is essentially unacceptable … although profitable, having unacceptable impact on society and the environment.
An engineering metaphor
TVM uses an economic model for socio-economic progress that is based on the very
solid realities of science and engineering. It is a very mechanical model of how an
economy works ... not very sophisticated, but based on the observable connections
between activities and outcomes at the the community level and very macro outcomes at
the national and global levels.
In the main ... finite resources
TVM respects the fact that the world has a finite store of every economic input ... with
the exception that energy from the sun is on an the astronomical scale.. In the global
scheme of things, science, engineering and technology are all connected through
ubiquitous laws of nature ... and economic laws have some similarity. The principles of
Newtonian mechanics and engineering thermodynamics apply universally and preclude
perpetual motion as an engineering outcome. TVM has a similar perspective about the
dynamics of socio-economic progress.
Wealth … origins are miraculous … sun and life!
Wealth has its origin with the creation of the solar system including the planet earth ... a
sun with astronomical amounts of energy, earth with finite amounts of many valuable
natural resources and life.
Over time planet earth has accumulated more valuable resources by converting the
energy of the sun into more resources ... what is today the deposits of coal, petroleum,
etc. For millions of years the world was getting wealthier ... accumulated wealth
converted from sun's energy and storing it.
This has all changed in the last dozen or so decades. In this recent period the world has
started to consume its wealth at an accelerating rate ... and people have not been paying
much attention. The accumulation of wealth by people and organizations has become a
critical metric ... and the consumption of wealth once possessed by the planet is ignored.
Up to now the broad outcome of developing more human intellectual capacity has been
to facilitate more rapid exploitation of the deposits of accumulated solar energy ... and
more and more activities that consume these deposits. In the process we have used
metrics that suggest that more and more consumption is the goal … that more and more
and more is a better quality of life, All of this is fundamentally wrong.
What are the limits on wealth?
Wealth … using money metrics is finite and quite limited
If the process of transforming the wealth of the planet into the wealth of the people and
organizations was efficient ... and reversible ... the matter would be less serious than it is.
But in fact the conversion is very inefficient and not easy to reverse ... maybe even
impossible to reverse . Fossil fuel energy that took millions of years to be accumulated
on the earth by conversion from solar energy will get consumed in a few hundred years ...
and the prevailing metrics for wealth only account for the accumulation of wealth by
people and organizations while ignoring totally the consumption of wealth associated
with irreversible consumption of the world's resource wealth.
More and more “stuff” hits limits
At what point does a “more and more” economy hit a brick wall … or go over the cliff …
or become an economic train wreck? The money economic growth over the past two
centuries has been very impressive … but few see the practical ways in which this
economic model will be working well in another two hundred years. Analysts worry
about the model coming apart by 2020 … in ten years … or 2050 … in 40 years.
What happens when the oil runs out? What happens when naturally occurring potable
water is a distant memory? The answers are missing! The TVM engineering metaphor
accepts that material and money wealth is finite … and value based socio-economic
performance has a whole lot more potential
Quality of life does not need to be limited
Value … better quality of life … may be created without the depletion of the earth's
natural accumulated wealth. Value creation may be substantial merely with the use of
human energy and intellect. Human intellect ... brain power ... has enabled people to
make use of tools to do amazing things. Maybe ... just maybe ... the value creation
associated with this could replace money wealth creation that has driven economic
analysis for several hundred years.
There is a limit to exploiting the accumulated energy that has flowed from the sun over
millions of years and is now stored in fossil fuels, soils and tropical forests. Money
metrics do not take this into account, but it is accounted for in TVM.
In TVM human intellectual energy, quality of life and well being are assets … good
deeds, creating happiness and improving quality of life are as important as products and
services. People and organizations should accumulate value wealth as well as money
wealth and there should be improving quality of life without drawing down the natural
wealth of the planet.
Will the planet's socio-economic system implode?
This is a big question … and the answer is that, based on recent global leadership, that it
almost certainly will. The idea that the big banks would become near broke was
completely unanticipated by all the highly educated experts … many of whom now seem
to think that the problems have been fixed. These people are not residing in the real
world but live in gated communities and work on the top floor of high rise banking
towers totally out of touch with all reality!
Too big banks went broke!
“The big lesson from the financial sector meltdown of 2007 and 2008 is that
organizations that are too big to fail do fail ... and only survive when they
get humungous amounts of life support from somewhere. Big government
provided the support pulling from ordinary people who had nothing to do
with what the banks did to make themselves fortunes. Running the global
economy in the same way that big banks were run is too big a risk and
absolutely has to be changed. New metrics must be a top priority!
TVM is only metrics … with a limited role. The aim is to good relevant metrics that are
useful. This role is to get the metrics in place so that the major key issues are being
measured ... and then it is up to others to take the steps to reform the activities and
organizations involved with socio-economic activity so that there can be positive
outcomes ... value wealth accumulation ... for people (quality of life) , organizations
(profit) and the planet (replenishing nature's bounty)!
There is a sustainable dynamic
There is a sustainable dynamic for socio-economic progress. It is one where progress is
funded by the surplus production of society … that is the value adding of society is
surplus. Nothing that is like welfare and dependent on those that fund welfare can be
sustained for very long … but there can be … and must be investment in the future on a
scale not often seen. Maybe this happened at the end of World War II … but the world
population is now much larger.
A sustainable society is one where there is an equilibrium between what is consumed and
what is created. The dynamic of more and more “stuff” cannot be sustainable unless only
a few have the right to have the “stuff” … and this wrecks the business model that is all
about more “stuff”. There is socio-economic progress when the activities of the
community generate a surplus. The role of development assistance in providing subsidy
for inefficiency must be converted to funding investment that results in improved
productivity.
In most cases, socio-economic progress that results from external intervention is fragile
because there are external factors that detract even though they are often undocumented
and overlooked. In most cases external intervention is also based on a welfare construct
about development aid, and unsustainable idea. On the other hand, funding that facilitates
the capitalization of business that can supply all the needs of society both capital
reconstruction and operational services is a sustainable approach.
The virtuous cycle of sustainable development
A dynamic planning framework with people at the center of everything creates value in
the community and the broader economy. When people are the key resource, everything
is possible at an affordable cost. People are both the beginning and the end … they work
to create value … and they live to enjoy value. In a community where there is a positive
value dynamic there can be sustainable socio-economic progress.
The question “Who is going to pay for healthcare?” for example, has less negative impact
when healthcare are jobs in the community and the benefit is good health in the
community. The community economy fails when the only investment ever made is to
enrich outsiders … and the community always succeeds when the investment adds value
for the community.
The virtuous value chain works this way:
- A workers gets paid wages for doing work;
- If the work is valuable, there is more value after the work than before;
- The worker can buy what his/her family needs with the wages;
- The vendor of goods and services purchased has revenue; and
- In turn the vendor can purchase what is needed to provide the goods or service.
Note that for the value chain to result in a virtuous cycle of sustainable progress, the relationship between the amount of the wage remuneration and the amount of the socioeconomic value adding … in other words, productivity is important. The same analysis applies as the wage money moves through the community … the better the productivity, the better the progress.
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Chapter 1 / Section 4
Why True Value Metrics Is Needed?
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Prevailing Metrics Insufficient
Need value as well as money
Need connection with real life
The short answers is simply that prevailing modern metrics are a mess … encouraging all
the wrong decisions and there is a need for paradigm shifting improvement
The United States and other countries have governments that are getting more and more
indebted on top of societies that are under-performing and organizational structures that
are rewarding owners and managers earning high money profits at a huge social cost. The
profits are accounted for, but social cost is ignored. From time to time there are scandals
that highlight the problems … but little gets done to improve the metrics.
Because the metrics are wrong ... decision making is wrong ... and unfavorable outcomes
are the result. TVM aims to change this so that the metrics are right, the decisions are
right and there are favorable outcomes. TVM is all about value metrics, but organizing
these metrics in an old-fashioned business accounting way with balance sheet and
operating statements that are one integrated reporting framework.
Prevailing metrics abundant but inadequate
The world is awash with statistics, investment analysis and academic study … but in
spite the volume, many key metrics that are missing and decision making is mainly about
money profit metrics in ubiquitous use … those that are about profit performance, stock
market prices and GDP growth.
In broad terms there are two main issues with the prevailing metrics: (1) they have a
singular money focus; and (2) the primary reporting entity is the organization. TVM is
based on the premise that there needs to be a “value” dimension; and (2) the reporting
entity should be the society … specifically the community where people live their lives
and work.
TVM has been created because something much better than the prevailing system of
corporate profit, stock market prices and GDP growth is needed. National, government,
corporate and social metrics are all inadequate. They do not help with understanding of
the dynamics of society. Because the metrics are wrong ... decision making is wrong ...
and unfavorable outcomes result. Something is needed that goes beyond the money
metrics that are prevalent today.
Triple bottom line … a complete system
The corporate 'triple bottom line' idea … that is “People, Profit and Planet” … has been
introduced recognizing that people and the planet, that is environment are dimensions of
performance that should be taken into consideration would be worth having. In he
prevailing metrics methodology the mainstream accounting system provides data for
profit reporting and management information systems provide business performance
data, while people and planet data are more or less ad hoc and out of the mainstream!
Money accounting metrics facilitate the allocation of resources to create profitable
economic entities and profitable activities. There need to be reliable metrics so that
resources get allocated to activities that have socio-economic value … whether or not
they generate profit. This is what TVM does. TVM changes the paradigm for resource
allocation because its metrics are about value as well as about money. Though money
accounting is insufficient for effective management everywhere in society, at the national
level, in government, in corporate business organizations and not for profits … it is
presently the only one that is widely used.
TVM adds the missing component. Science and technology provide some amazing
possibilities … but decisions about allocation of resources need to be made by people
who are aware of both money profit and social value … and accountability needs to be
not only to the owners of wealth but also to all the stakeholders in the society.
Not more metrics … better metrics
Modern information technology makes it easy to have more metrics … more
mathematical manipulation of data … more statistics … and ultimately more information
overload. TVM is about breaking this information overload spiral … a few meaningful
metrics that are clear and just sufficient to get good decisions made reliably.
Many people seem to appreciate that better metrics are needed … but the efforts to get
better metrics seem to be based on the idea that more metrics will improve the situation
when what is needed is a quite major rethink about what metrics are needed and how
may they be obtained efficiently, affordably and in a timely manner.
The TVM initiative changes this aspect of metrics from more to less … rugged and
reliable but maybe not academically rigorous. TVM starts from the premise that the
changes needed are not 2% or 3% but 200% or 300% … and for this rather clumsy
measured may serve perfectly well. Bluntly put … people in abject poverty to not need a
2% improvement in their condition, but a 200% improvement … and World Bank reports
on global development where they have identified a 2% improvement in the GDP of a
country with endemic poverty would be laughable if the issues were not so serious!
Good metrics are not free … but very valuable
Good metrics are not free … there is a cost that must be paid in order to have good
metrics. The design of the data and the analysis must respect the fact that they must be
cost effective … producing more value than they cost.
More expensive metrics are not necessarily better … more data about some things is a
complete waste of money. The aim of TVM is that decision making is better, and
everyone is accountable for socio-economic performance
The prevailing systems of metrics are a “hodge-podge” of dataflows and analysis that has
grown up over years with every interest group “doing its own thing”. There is duplication
at the data acquisition stage and in analysis … and gaping holes in both. The idea that
data may be used for multiple purposes is not widely practiced … and too much data
disappears into private archives never to be seen by any interested public.
Simply making better use of existing data has the potential to reduce data acquisition
costs and increase the amount of relevant analysis. And … bluntly put … having
accountants doing more data acquisition and less academics could produce an impressive
improvement in data acquisition and analytical performance!
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Chapter 1 / Section 5
What Impact Will TVM Have?
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Data are Very Powerful
The impact will be huge!
The impact of TVM is going to be a better world that has a hope of being sustainable and
has a better quality of life worth several hundreds of trillions of dollars!
The impact of good metrics is huge. When high profit value destruction is changed to
lower profit value adding, there is an order of magnitude swing in the performance of
society and in socio-economic progress. If the world adopted TVM true value metrics,
there could be more rapid progress out of poverty and better decisions about important
infrastructure improvement … potential value swing several trillions of dollars.
Management information rarely uses academic rigor … but is cost effective and reliable
for its limited purpose. Good metrics can substantially improve productivity. This is an
example in a factory setting simply resulting from the use of better metrics.
Timely data ... almost triple the production
A company changed its production reporting from “next day” for review
and analysis to something that approximated real time. Instead of “fixes”
never getting done, fixes were done almost immediately a problem was
identified. With no more resources, the factory produced almost three times
what it did before. This is an example of basic control theory in practice …
and an example of the potential for paradigm change in the way resources
are managed to improve performance and quality of life!
The efficiency of the use of resources in most socio-economic activities has never been
measured … it is difficult to know how badly resources are used. From time to time
there are studies and it is common for observers to conclude that government
performance is an order of magnitude less efficient than equivalent privately managed
operations. Part of this is the lack of meaningful metrics almost everywhere for
measuring performance.
With better metrics … better everything
Some people are quite happy to manage “by the seat of their pants”, but that is not the
way best performance is going to be achieved. Even where there are detailed metrics as
in the case of major corporations and the stock markets, the results for society may not be
good because the metrics are about money more than they are about value. When value
metrics are as prevalent as profit metrics a lot is going to change for the better.
Change the way the game is scored, it changes the way the game is
played.
Paradigm shift will change everything
TVM can facilitate paradigm change … and through this there will be impact ... if for no
other reason than an improvement in the way socio-economic scorekeeping is done will
also change the way socio-economic decisions get made. It is a an accepted reality of
management that metrics are important.
What gets measured gets done!
The money measure scale of the modern global economy is several hundreds of trillions
of dollars. All of these resources are flowing because of money profit decision that are
made with most of the decisions ignoring totally all the negative value destruction
associated with the earning of returns.
There is a record number of money billionaires in the world … and at the same time a
record number of people who are poor and hungry. A socialist agenda to give the rich
peoples' wealth to the poor is fatally flawed … but a social agenda to have decision
making based on both profit return and value return could add trillions of dollars to the
profit and value creation that improves quality of life for everyone.
When value is measured as much as profit, then decision making will change and quality
of life will improve. The capacity of technology to be a partner in progress will be
realized more rapidly when profit potential is supplemented by value potential.
With TVM, good decisions are recognized … while decisions that destroy value are
identified and the reasons for this ascertained. Experience suggests that the difference
between an environment where good decisions are being made and one where “anything
goes” is not a percentage point or two … but an order of magnitude or two. In other
words, if good data and facts are used for decision making, and resources are properly
allocated and deployed, the value adding can be improved by between 10 and 100 times.
The elimination of poverty called for by leaders like Professor Muhammad Yunus is
possible … but it requires way better decision making and allocation of resources than
we are normally seeing.
Profit is often value neutral or value destroying … modest changes in how profits are
made can make a huge difference in the value adding of profit making.
TVM is not the old EVA
EVA … Economic Value Adding, a trade marked initiative of a US based
consulting firm in the 1980s helped the corporate business world to mobilize
its resources so that there would be the maximum of money profit value
from the business activities. TVM is different in that the aim is for resources
of business and society to be used so that there is both money profit value
and value value for the society as a whole and a community in particular.
TVM changes the way activities get measured. It is not simply about how much has been
done, but what impact there has been and what value has been added as a result of doing
something. Good managers have known this for a very long time … but many big
organizations have adopted systems of management and accountability that have put
focus on measures … quantification … without a deep understanding of what is
happening to deliver results to intended beneficiaries. Other organizations have evolved
their systems so that donors are informed while the work being done goes without
meaningful metrics.
The goal of TVM is not merely to deploy a value based accounting system … but for a
TVM based system to change the way major resources are allocated … and for this to
result in an improvement in productivity and quality of life.
NGO performance reporting
Presently, as much as 90% of the data being reported back to donors in the
NGO and not for profit world relates to how much has been done. Almost
no data are reported about the impact and value adding that is being
accomplished. Rather NGOs tell stories about a single individual … often
heart rending … and add images … but these are not meaningful data about
anything. It is PR that is available for both highly effective organizations
and those that a high performance scamming operations and no way to tell
the difference.
In theory, the reason for allocating resources and doing the work is to get a result. The
result has a value ... money profit performance and a social value which may be
quantified and translated into some money equivalent.
In the case of health interventions the impact should be more good health ... and good
health has value.
In the case of education, the impact is better educated students and then the population …
with a high incremental value. In the case of education, the value may only be realized if
there are limited economic opportunities for employment or profitable business. With no
opportunities, the value of education is largely wasted.
Potential huge impact
When the leaders of the capital markets are using value as much as they use profit, then
there will be major changes in the way global capital market resources are allocated.
Social investment potential huge and untapped!
The organizer of a recent major conference on Social Capital (SOCAP10)
made the observation that the social capital market may be a $1.5 billion
market already in 2010 … even before formal value reporting goes into
effect. People know the importance of value … but cannot do what they
would like to do simply because the metrics are inadequate!
The progress of modern science and technology has been far greater than most would
have predicted fifty years ago … and it is clear that much of the potential of this progress
remains unrealized.
When decisions are made in a timely manner using meaningful data, decisions can be
very much better.
Example: Timely production reporting
When the factory reporting system at Southern States Inc., a manufacturing
company in Georgia USA, was modified to provide performance data very
rapidly … in fact 20% into the day shift today rather than 24 hours later
tomorrow … factory problems were identified in time for them to be fixed
before they caused lost production. Simply changing the timeliness of
important data and factory started delivering consistent record production
with not other changes or investment.
The potential for better metrics to change the paradigm of performance means that
several billion people in abject poverty today should be emerging from this state in a few
years … at the same time the middle class becomes happier if not money wealthier …
and in the economic totality the rich elite can stay rich and elite, but no longer holding the
world to ransom!
Difficult to quantify
It is not easy to quantify these outcomes, but it can be done using a system of standard
values for the value of outcomes in the community setting. Some outcomes have a money
cost and a price when they are purchased … but many do not.
Example: Standard value … a 25 year old
A 25 year old with a good education, in good health and ready to work in a
high paying job in the United States for several decades has a huge value …
maybe something like $4 million just in future earning power. A 25 year old
with little or no education, undernourished and in poor health in a poor
village in a developing country with no work prospects has little value based
on economics and future earning power … and represents some millions of
dollars of lost opportunity!
Hundreds of millions of children will grow up to be of little economic value unless good
decisions are made about socio-economic investment. Every child that grows up without
education and skills, and with compromised nutrition and health is a multi-million lost
opportunity. Add it up and the impact of good decisions is trillions of dollars of better
socio-economic performance.
Any community stands to benefit when good decisions are made for the community …
whether the decisions are being made by local leaders, local citizens, local organizations
or outsiders. Most communities are missing opportunities because poor decisions are
being made.
TVM does not constitute a benefit … TVM is not in itself of value … but good decisions
that result in good activities is where the value lies!
Community micro-up decision making
TVM helps to change the framework for economic activity and specifically the locus of
decision making … a paradigm change so that the concentration of economic money
wealth and power in very large centralized entities will be offset by local decision
making and local implementation of economic activities. People who are near a problem
often have an understanding of the problem and how it might be solved most effectively.
When people solve their own problems, amazing progress can be made. Small things can
have huge leverage.
Decision making done to optimize local impact may be an order of magnitude better than
any decision made by centralized decision makers, no matter how well intentioned.
The Shenge Project … A Great Success
The Shenge community in Sierra Leone has the modest support of a small
multi-sector integrated community development project of FAO funded by
UNDP. The project facilitated training, acquisition of materials and ideas
about business organization so that with timely decision making and modest
allocation of resources, socio-economic progress was enormous and very
rapid. The projects removed constraints … gave nothing away … and
created a self sustaining progressing community.
The project was a great success … but then the country failed! A great little
success was overtaken by a global economic system that accepted mayhem
as as an acceptable cost to satisfy demand for diamonds and a willingness of
international profit seekers to supply weapons.
Removing constraints on possibilities
A society that matches the needs of people and quality of life with the potential of people
to satisfy needs and improve quality of life has unlimited potential. While material
resources are finite … the human resource is abundant, and human intellect has reached a
point where big problems can be solved as long as the goal is properly defined.
TVM can contribute to progress and performance … to improve quality of life by helping
to provide meaningful metrics about what is the “state” and what “progress” is being
achieved and the performance of society in making this progress … the cost efficiency
and the cost effectiveness.
All winners and no losers is not an impossible dream … but it does take work to optimize
the use of resources. With TVM all segments of society will progress better than will be
possible without the deployment of TVM … many times better. Everyone! Meaningful
metrics that include the value dimension makes it possible to demonstrate that socioeconomic progress can be win-win for everyone rather than being a zero sum proposition
where one group wins at the expense of the other groups.
Perhaps, most important TVM has the potential to stop stupidity … and to limit the
abuses of greedy people and corrupt organizations. If ordinary people knew how bad the
decision making is in major organizations handling millions if not billions of dollars,
they would be appalled.
A paradigm change is possible! A paradigm change is essential
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