Date: 2025-01-15 Page is: DBtxt003.php txt00026114
CORE CONCEPTS
ACTIVITY
'ACTIVITY' is central to understanding how everything works ... or doesn't!
ACTIVITY
'ACTIVITY' is central to understanding how everything works ... or doesn't!
Peter Burgess COMMENTARY
I don't know when I wrote the following ... it was probably around 2000, or maybe even before.
In the TVM system an activity:
- Uses resources to do something, and
- By doing something, has some impact
- Use of resources that are normally accounted for in the money accounting of an organization
- Together with resources used by an organization that are not fully accounted for in the money accounting ... as for example in cash based systems, and
- Use of resources that are part of society's commons and not included at all in an organization's money accounting of activity costs.
- There is the impact on the organization, and also
- The impact on the broader society and the impact on the commons.
However, the impact on society and the commons is not usually measured with much formality. It is usual for the measure to be deduced from some statistical data that has very low reliability, and worse, excessively influenced by many different externalities.
It is a common practice to look at 'impact' from the viewpoint of the implementing organization and what it sees as its impact on the 'beneficiaries' of the activity. This is usually very different from the perspective of the community relative to the activity,In the TVM system the core of the measurement is change in the state of the community. The state of the community comprises both state of society, that is people, and the state of the commons comprising everything not within the implementing organization itself.
Economic activities are the origin of value adding ... or value destruction. Data about activities may be used to explain why some aspect of the community balance sheet has changed ... but it might be quite obvious without much need for detailed data.
In corporate accountancy there is an integration between the balance sheet, the operating statement and the cash flow. The data in the accounts is the same ... and each of these reports shows a part of the whole. The data in each are coherent. The changes in the balance sheet are explained by the performance reported in the operating statement. The cash flow statement reconciles with the operating statement and the balance sheet.Activity reporting is similar to the reporting of the corporate Profit and Loss Account or Operating Statement. An Activity Report may show some of the characteristics of economic activities in the community that have had an impact on socio-economic changes. An Activity Report helps to explain the changes that have taken place in the balance sheet of the community. Thus, for example, an increase in stock levels of grain might be explained by an unusually good harvest ... and explain why there was a good harvest.
These ideas translate well to the TVM system. They may be used to deduce information that is not easily obtained. While it is relatively easy to collect balance sheet data, it is much more difficult to get all, or nearly all of the data to report reliably about activities. Using the inherent integration of balance sheet and operating statement, it is possible to use the changes between two balance sheets to deduce the result of economic activities without actually having all the details of the activities.
TVM also uses time series of key items to gain an understanding of what is happening in the community. Market prices are a leading indicator of market conditions and other broader issues in the community. For example, high food prices and low livestock prices are a reliable indicator of emerging famine conditions.
When I was a student at Cambridge in the late 1950s I learned about both engineering and economics ... essentially a double major. Later I did articles and qualified as a Chartered Accountant in order better to understand what it is that drives business decision making.
Clearly the money dimension of business performance is an important driver, but it is only part of the system. It seems that activities are actually more important than money, but money is the commonly used performance metric.
I am, however, very concerned that the way the modern world has organized itself, there is seriously sub-optimal performance.
It seems that things cannot change because there is a dangerous stranglehold in the hands of big money and high finance. I have called this reality the 'financialization' of the modern world where the investor and financier reigns supreme . This has been a foundational reporting framework in the United States and essentially everywhere in the modern world, but it has serious flaws. Bluntly put it was a useful tool for policy makers in the 19th century, but it should have been seriously updated and improved to suit the 21st century a long time ago. In fact, it is fairly clear that some serious economic thinkers like Maynard Keynes, Joan Robinson and others were advocated for much improved economic metrics well before I was a student back in the lare 1950s!
The singular focus of business on generating wealth for investors is quite ridiculous. A starting point for reform would be to upgrade the metrics so that impacts on society and the environment are taken into consideration as seriously as economic and financial impacts.
This has been talked about for decades ... but nothing much has been done to mainstream these metrics so that thay are in use everywhere with a common set of definitions. There is progress on this front but it is very slow and many ... actually most ... of the big corporate actors in key sectors of the economy are active in push-back against these ideas. I am, of course, referring to inustries like the energy industry and a number of other industries that are big users of energy. The good news is that slowly but surely more relevent metrics are emerging and eventually will win the day.
Of course ... the emergence of ESG as a major talking point is a concern. It makes litle sense that Society, Environment and Governance have been made the three legs of management concern when the the more relevant Triple Bottom Line (TBL) idea emerged more tnan a decade before. I see it as blatant 'greenwash!'. TBL is about Society, Environment and Economic performance ... sometimes referred to as People, Planet and Profit ... and is comprehensive and coherent unlike ESG which completely avoids the key links between E & S and profit that must be addressed.
In conventional metrics, the company ... organizations ... are the main, and really the only reporting entity that is systematically required to report performance ... but this performance reporting is almost exclusively about mprofit performance and not very much else. For all practical purposes impact on society and the environment are secondary (or lower) priorities! In the modern world, it is getting to the point where these secondary issues are getting to be very important for both the future of society and the environment. It has become important for better metrics to become the norm, and, of course, this is what TVM wants to be helpful in getting done!
The ACTIVITY is an essential element in the working of the Socio-Enviro-Economic system. As the ACTIVITY becomes more efficient ... bigger output for less input and less social and environmental damage ... then there can be PROGRESS. Whether that PROGRESS is the maximum it can be depends on a lot of detail ... but that is the broad conceptual idea!
Next generation accounting should be heading in this direction!
Peter Burgess