TVA WHAT IS TVA? THE FRAMEWORK WE NEED FOR BETTER METRICS

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TVA is a data architecture and framework for better metrics that will make it easier and less costly to include IMPACT on SOCIETY (PEOPLE) and IMPACT on ENVIRONMENT (PLANET) into integrated reporting in a way that is as rigorous as what is used in conventional double entry financial accounting for PROFIT and the WEALTH of OWNERS. When there is a logical framework, then it becomes much easier to have coherent and meaningful reporting.

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TVA WHAT IS TVA? THE FRAMEWORK WE NEED FOR BETTER METRICS

  1. 1. File: TVA-p3-WHAT-IS-TVA-Framework-for-Better-Metrics-151103.odp Peter Burgess (c) All rights reserved WHAT IS TVA? THE FRAMEWORK NEEDED FOR BETTER METRICS TRUE VALUE ACCOUNTING
  2. 2. CONTEXT This slideset is a Work-in-Progress and will be updated from time to time. It is part of a series that aims to describe the extremely complex socio-enviro-economic system that we live in, and how better metrics will make this system work better. TRUE VALUE ACCOUNTING
  3. 3. The GOAL is to design and deploy a system of metrics for management that accounts for impact on people and planet as rigorously as double entry accounting accounts for money transactions that impact profit MULTI DIMENSION IMPACT ACCOUNTING
  4. 4. MULTI DIMENSION IMPACT ACCOUNTING The first step is to design and develop a data architecture that is congruent with the realities of the modern very complex global socio-enviro-economic system
  5. 5. To manage effectively there must be METRICS for ALL the elements of the system. MULTI DIMENSION IMPACT ACCOUNTING
  6. 6. The following is an old slide that crudely represents the totality of the socio-enviro-economic system showing beginning of period state (BOP), then activities and then the end of period state (EOP). MULTI DIMENSION IMPACT ACCOUNTING
  7. 7. MULTI DIMENSION IMPACT ACCOUNTING STATE - BOP STATE - EOPPERIOD ACTIVITES
  8. 8. The problem is that conventional financial accounting and top level economic metrics only measure this small part of the total system … MULTI DIMENSION IMPACT ACCOUNTING
  9. 9. MULTI DIMENSION IMPACT ACCOUNTING STATE - BOP STATE - EOPPERIOD ACTIVITES
  10. 10. We need a system that tracks impact on ALL the components of the system … MULTI DIMENSION IMPACT ACCOUNTING
  11. 11. We need a system where IMPACT on PEOPLE and PLANET are as important as PROFIT performance of the organization and the WEALTH of owners … MULTI DIMENSION IMPACT ACCOUNTING
  12. 12. We need a system that will enable better management of everything that matters … MULTI DIMENSION IMPACT ACCOUNTING
  13. 13. We need a system that is really easy to use … MULTI DIMENSION IMPACT ACCOUNTING
  14. 14. We need a system that does not cost very much … MULTI DIMENSION IMPACT ACCOUNTING
  15. 15. We need a system that takes full advantage of what we already know … MULTI DIMENSION IMPACT ACCOUNTING
  16. 16. We need a system that allows data to be summarized easily and still be meaningful … MULTI DIMENSION IMPACT ACCOUNTING
  17. 17. We need a system that allows for easy 'drill down' to disaggregated data that can be used for timely decision making and rapid action where it can do the most good … MULTI DIMENSION IMPACT ACCOUNTING
  18. 18. We need a system where ALL the PERSPECTIVES of the system are taken into consideration … MULTI DIMENSION IMPACT ACCOUNTING
  19. 19. The double entry construct of conventional double entry accounting is a good starting point … MULTI DIMENSION IMPACT ACCOUNTING
  20. 20. Double entry accounting enables STATE and FLOW to be accounted for in a very simple and effective manner … MULTI DIMENSION IMPACT ACCOUNTING
  21. 21. State … B/S (BOP) Flow … P&L New State … B/S (EOP) MULTI DIMENSION IMPACT ACCOUNTING BOP … Beginning of Period EOP … End of Period
  22. 22. These 3 slides show how simple and powerful this idea can be … MULTI DIMENSION IMPACT ACCOUNTING
  23. 23. MULTI DIMENSION IMPACT ACCOUNTING
  24. 24. MULTI DIMENSION IMPACT ACCOUNTING
  25. 25. MULTI DIMENSION IMPACT ACCOUNTING
  26. 26. These reflect respectively … ● Steady State; ● Positive Progress; and ● Deterioration of State MULTI DIMENSION IMPACT ACCOUNTING
  27. 27. PROGRESS is measured simply by reference to the CHANGE in STATE over time. MULTI DIMENSION IMPACT ACCOUNTING
  28. 28. No information about ACTIVITIES is needed in order to measure PROGRESS … only information about changes in STATE MULTI DIMENSION IMPACT ACCOUNTING
  29. 29. State, Progress and Performance ● State is the Balance Sheet of the entity at a moment in time; ● Progress may be measured by comparing the Balance Sheet changes between the beginning and the end of the period; ● Performance is a measurement that relates the Progress to the resources consumed. MULTI DIMENSION IMPACT ACCOUNTING
  30. 30. MULTI DIMENSION IMPACT ACCOUNTING EFFICIENCY AND EFFECTIVENESS
  31. 31. This is VERY powerful ... MULTI DIMENSION IMPACT ACCOUNTING
  32. 32. BUT … when this is ONLY done for MONEY PROFIT optimization in the socio-enviro-economic system, the collateral damage to PEOPLE and PLANET may well be substantial and is ignored … MULTI DIMENSION IMPACT ACCOUNTING
  33. 33. Without “numbering” the IMPACT, then the IMPACT on PEOPLE and PLANET will continue to be ignored in mainstream decision making … MULTI DIMENSION IMPACT ACCOUNTING
  34. 34. Peter Drucker famously said: “You only manage what you measure” MULTI DIMENSION IMPACT ACCOUNTING
  35. 35. It can also be said that: “If you want to change the way the game is played, you must change the way the game is scored” MULTI DIMENSION IMPACT ACCOUNTING
  36. 36. SO … back to the 3 segments* … NOT THIS OUTCOME ... MULTI DIMENSION IMPACT ACCOUNTING * See MDIA – WHY?
  37. 37. MULTI DIMENSION IMPACT ACCOUNTING Hum an Capital Man Built Capital Natural Capital
  38. 38. Trajectory to disaster! This must be changed to this … MULTI DIMENSION IMPACT ACCOUNTING
  39. 39. MULTI DIMENSION IMPACT ACCOUNTING Hum an Capital Man Built Capital Natural Capital
  40. 40. There must be: ● PEOPLE progressing ● MBC* efficient ● PLANET healthy MULTI DIMENSION IMPACT ACCOUNTING * Man Built Capital … Man Built Structures and Systems
  41. 41. SO … MULTI DIMENSION IMPACT ACCOUNTING
  42. 42. MULTI DIMENSION IMPACT ACCOUNTING Fundamentals of the Socio-Enviro-Economic System Human Capital Man Built Capital Natural Capital
  43. 43. MULTI DIMENSION IMPACT ACCOUNTING Fundamentals of the Socio-Enviro-Economic System Financial Capital Human Capital Man Built Capital Natural Capital Man Built Capital Natural Capital Human Capital Split out Financial Capital from other components of Man Built Capital
  44. 44. MULTI DIMENSION IMPACT ACCOUNTING Fundamentals of the Socio-Enviro-Economic System Financial Capital Human Capital Man Built Capital Natural Capital SunSun Man Built Capital Natural Capital Sun Human Capital Add Sun … the source of all energy Split out Financial Capital from other components of Man Built Capital
  45. 45. MULTI DIMENSION IMPACT ACCOUNTING Fundamentals of the Socio-Enviro-Economic System Financial Capital Human Capital Man Built Capital Natural Capital SunSun Financial Capital Human Capital Man Built Capital Natural Capital SunSunSun Man Built Capital Natural Capital Sun Human Capital Add Sun … the source of all energy Split out Financial Capital from other components of Man Built Capital Reorder because Financial Capital metrics exist
  46. 46. MULTI DIMENSION IMPACT ACCOUNTING Sun STATE … Beginning of Period - BOP STATE … End of Period - EOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun FLOWS* ACTIVITIES* PROCESSES* * Any amount of complexity … STATE remains simple
  47. 47. MULTI DIMENSION IMPACT ACCOUNTING Sun Fundamentals of the Socio-Enviro-Economic SystemBOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun EOP BOP = Beginning of Period STATE EOP = End of Period STATE PROGRESS is Change in STATE during the period. ALL the elements of the BOP and EOP STATES need to be quantified
  48. 48. MULTI DIMENSION IMPACT ACCOUNTING Sun Fundamentals of the Socio-Enviro-Economic SystemBOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun EOP Any number of activities may take place during a period. They may be extremely complex and interconnected, but PROGRESS is still measured by CHANGE in STATE.
  49. 49. MULTI DIMENSION IMPACT ACCOUNTING Sun Fundamentals of the Socio-Enviro-Economic SystemBOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun EOP PERFORMANCE is measured by relating PROGRESS achieved with the RESOURCES consumed. How much is Human Capital increased and how much are Financial, Man Built and Natural Capital diminished
  50. 50. Conventional money profit accounting works very well for financial performance … that is impact on corporate profits and stock value. MULTI DIMENSION IMPACT ACCOUNTING
  51. 51. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun Financial Accounts describe Financial Impact Financial Costs Financial Profit Financial Revenues Financial Balance Sheet BOP Financial Balance Sheet EOP Balance Sheet Changes
  52. 52. But something more complete is needed … something that embraces IMPACT on SOCIETY (PEOPLE) and ENVIRONMENT (PLANET) in a way that Is both easy and rigorous … MULTI DIMENSION IMPACT ACCOUNTING
  53. 53. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun Financial Accounts describe Financial Impact Financial Costs Financial Profit Financial Revenues Financial Balance Sheet BOP Financial Balance Sheet EOP Impact Accounts reflect Externalities Balance Sheet Changes Impact on Institutions Impact on People Impact on Society Impact on Physical Impact on Knowledge Impact on Resources Impact on Environment Impact on EcoSystem Balance Sheet Changes Balance Sheet Changes Balance Sheet Changes
  54. 54. … the reporting envelope needs to be redefined so that IMPACT is inside the reporting envelope … MULTI DIMENSION IMPACT ACCOUNTING
  55. 55. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun SunSun Financial Capital Human Capital Man Built Capital Natural Capital Sun Financial Accounts describe Financial Impact Financial Costs Financial Profit Financial Revenues Financial Balance Sheet BOP Financial Balance Sheet EOP Impact Accounts reflect Externalities Balance Sheet Changes Balance Sheet Changes Balance Sheet Changes Balance Sheet Changes Impact on Institutions Impact on People Impact on Society Impact on Physical Impact on Knowledge Impact on Resources Impact on Environment Impact on EcoSystem
  56. 56. The financial profit and loss account for an organization has a lot of performance information … MULTI DIMENSION IMPACT ACCOUNTING
  57. 57. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP Financial Capital Human Capital Man Built Capital Natural Capital Sun Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun FINANCIAL P&L ACCOUNT REVENUES Products Sold X Price Products Bought X Price Energy Bought X Price Employee Benefits Employee Payroll Other expenditures Asset use costs Depreciation Financial expenses Pro-good expenditures Taxation PROFIT COSTS FINANCIAL ACCOUNTING
  58. 58. Positive IMPACT not accounted for needs to be added in … MULTI DIMENSION IMPACT ACCOUNTING
  59. 59. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP REVENUES Products Sold X Price VALUE to buyer Equals HUMAN CAPITAL ADD Wages and benefits What value to employee? Pro-good expenditures What value to society? Taxation Funds government. Good value to society. POSITIVE IMPACT NOT ACCOUNTED FOR Financial Capital Human Capital Man Built Capital Natural Capital Sun Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun FINANCIAL P&L ACCOUNT REVENUES Products Sold X Price Products Bought X Price Energy Bought X Price Employee Benefits Employee Payroll Other expenditures Asset use costs Depreciation Financial expenses Pro-good expenditures Taxation PROFIT COSTS FINANCIAL ACCOUNTING PLUS GOOD IMPACT
  60. 60. … and negative IMPACT needs to be brought into account … MULTI DIMENSION IMPACT ACCOUNTING
  61. 61. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP For products and energy bought and this process Free use of the commons and public services & infrastructure Degradation of land Water scarcity and degradation Air pollution: Impact on people Air pollution: Impact on climate Air pollution: Impact on people Solid waste Resource depletion Environmental Degradation Negative impact Financial Capital Human Capital Man Built Capital Natural Capital Sun Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun FINANCIAL P&L ACCOUNT REVENUES Products Sold X Price Products Bought X Price Energy Bought X Price Employee Benefits Employee Payroll Other expenditures Asset use costs Depreciation Financial expenses Pro-good expenditures Taxation PROFIT COSTS FINANCIAL ACCOUNTING LESS BAD IMPACT
  62. 62. MDIA impact accounts include profit performance and impact arising both for PEOPLE and PLANET ... MULTI DIMENSION IMPACT ACCOUNTING
  63. 63. MULTI DIMENSION IMPACT ACCOUNTING Sun BOP EOP REVENUES Products Sold X Price VALUE to buyer Equals HUMAN CAPITAL ADD Wages and benefits What value to employee? Pro-good expenditures What value to society? Taxation Funds government. Good value to society. For products and energy bought and this process Free use of the commons and public services & infrastructure Degradation of land Water scarcity and degradation Air pollution: Impact on people Air pollution: Impact on climate Air pollution: Impact on people Solid waste Resource depletion Environmental Degradation POSITIVE IMPACT NOT ACCOUNTED FOR Negative impact Financial Capital Human Capital Man Built Capital Natural Capital Sun Sun Financial Capital Human Capital Man Built Capital Natural Capital Sun FINANCIAL P&L ACCOUNT REVENUES Products Sold X Price Products Bought X Price Energy Bought X Price Employee Benefits Employee Payroll Other expenditures Asset use costs Depreciation Financial expenses Pro-good expenditures Taxation PROFIT COSTS FINANCIAL ACCOUNTING PLUS GOOD & BAD
  64. 64. REMINDER This slideset is A WORK-IN-PROGRESS. It will be upgraded periodically. It is part of a series of more than 100 slidesets. Navigation to these is available here: FEEDBACK is welcome. Please email to Peter Burgess … peterbnyc@gmail.com … with a catchy phrase in the subject line so that it gets attention, and please identify the specific slideset(s) involved. http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=N1-Slidesets-p3 TRUE VALUE ACCOUNTING
  65. 65. THANK YOU Some links and contact information: Email Peter Burgess … peterbnyc@gmail.com Peter Burgess LinkedIn profile https://www.linkedin.com/in/peterburgess1 Link to TrueValueMetrics.org website http://www.truevaluemetrics.org/ Link to navigation to other resources: http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0100-MainNav#1 TRUE VALUE ACCOUNTING

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