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TVA p3 DRAFT B

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TVA-PRESENTATION-DRAFT-B ... This is a working draft of a presentation being prepared to promote the True Value Accounting initiative. This version will most likely change substantially before it is used.

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TVA p3 DRAFT B

  1. 1. WORKING DRAFT - B File: TVA-p3-DRAFT--160414.odp Peter Burgess (c) All rights reserved 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 enable better metrics for the complex socio-enviro-economic system that we all live in. Metrics are powerful, but they must be the right metrics. TRUE VALUE ACCOUNTING
  3. 3. Complex system … competing agendas TRUE VALUE ACCOUNTING
  4. 4. We live in a very complex socio-enviro-economic system … TRUE VALUE ACCOUNTING
  5. 5. Simply put … my position is that the socio-enviro- economic system that we live in, is dangerously dysfunctional TRUE VALUE ACCOUNTING
  6. 6. … and one of the reasons for this is that we are managing the system in the wrong way ... TRUE VALUE ACCOUNTING
  7. 7. … and with the wrong metrics. TRUE VALUE ACCOUNTING
  8. 8. This is a complex system … and CHANGE will only come about if there is a systemic solution. TRUE VALUE ACCOUNTING
  9. 9. TRUE VALUE ACCOUNTING Peter Drucker, a well known management guru famously said: “You can't manage what you don't measure”
  10. 10. My contribution to systemic change is work on design, development and deployment of a better system of metrics. TRUE VALUE ACCOUNTING
  11. 11. TRUE VALUE ACCOUNTING TRUE VALUE ACCOUNTING
  12. 12. I call this … True Value Accounting TRUE VALUE ACCOUNTING
  13. 13. … a system based on the time tested concepts of conventional accounting but expanded to include accounting for IMPACT TRUE VALUE ACCOUNTING
  14. 14. MONEY TRUE VALUE ACCOUNTING
  15. 15. TRUE VALUE ACCOUNTING
  16. 16. A big problem is that MONEY as a measure will never work … TRUE VALUE ACCOUNTING
  17. 17. A measure should not change over time but always be the same! TRUE VALUE ACCOUNTING
  18. 18. MULTI DIMENSION IMPACT ACCOUNTING COMPONENTS OF US MONEY SUPPLY
  19. 19. This slide shows what has happened to M1, M2 and M3 from 1959* to 2007 MULTI DIMENSION IMPACT ACCOUNTING * My formal training in economics ended in 1961 … Peter Burgess!
  20. 20. MULTI DIMENSION IMPACT ACCOUNTING US FEDERAL RESERVE ASSETS
  21. 21. This slide shows the huge increase in the balance sheet (assets) of the Federal Reserve in the USA since the Great Recession MULTI DIMENSION IMPACT ACCOUNTING
  22. 22. MULTI DIMENSION IMPACT ACCOUNTING US FEDERAL RESERVE ASSETS
  23. 23. And this slide shows the changes around the time of the financial crisis in 2007 and 2008 MULTI DIMENSION IMPACT ACCOUNTING
  24. 24. TRUE VALUE ACCOUNTING
  25. 25. The amount of money in the system has increased in a dramatic way since 2008 … TRUE VALUE ACCOUNTING
  26. 26. A good unit of measure does not change based on the decisions of any person or institution! TRUE VALUE ACCOUNTING
  27. 27. … what does this really mean? TRUE VALUE ACCOUNTING
  28. 28. My conclusion is that more than anything else, we are measuring the cumulative stupidity of modern economic norms. TRUE VALUE ACCOUNTING
  29. 29. TRUE VALUE ACCOUNTING
  30. 30. More evidence … There is the problem of GDP … Gross Domestic Product TRUE VALUE ACCOUNTING
  31. 31. The Genuine Progress Indicator (GPI) is a better measure, but hardly part of the conversation … TRUE VALUE ACCOUNTING
  32. 32. GPI (green) has been going down for around 50 years, while GNP (red) has been going up. TRUE VALUE ACCOUNTING
  33. 33. Business likes GDP … its so much easier to make PROFIT when the money economy is growing. TRUE VALUE ACCOUNTING
  34. 34. P TRUE VALUE ACCOUNTING
  35. 35. I thought today I would focus on a the elements of True Value Accounting that start with the letter P TRUE VALUE ACCOUNTING
  36. 36. Components of this Complex System … the set that starts with the letter P TRUE VALUE ACCOUNTING PROFIT PROSPERITY PEOPLE POPULATION PAYROLL PRODUCT PROCESS PLACE PLANET POLLUTION PRODUCTIVITY PERSPECTIVE PROGRESS PERFORMANCE PRICE PLANNING PURPOSE
  37. 37. The challenge is to understand how all these pieces fit together … TRUE VALUE ACCOUNTING
  38. 38. … and then to have units of measure that enable the numbering of all the STATES and FLOWS in the system … TRUE VALUE ACCOUNTING
  39. 39. Complex system … competing agendas TRUE VALUE ACCOUNTING
  40. 40. I see the system as a Socio-Enviro-Economic system … TRUE VALUE ACCOUNTING
  41. 41. SOCIO is about PEOPLE and everything that goes into Quality of Life. TRUE VALUE ACCOUNTING
  42. 42. ENVIRO is about PLANET and everything about the environment and nature TRUE VALUE ACCOUNTING
  43. 43. ECONOMIC is about all the Man Built Systems and Structures (MBSS) and about Man Built Capital (MBC) ... TRUE VALUE ACCOUNTING
  44. 44. YELLOW: The PEOPLE piece … Human Capital (HC) DIRTY BROWN: The ECONOMIC piece … Man Built Capital (MBC) GREEN: NATURE, ENVIRONMENT … Natural Capital (NC) COLOR KEY TRUE VALUE ACCOUNTING
  45. 45. Over time the three segments of this system have evolved like this … TRUE VALUE ACCOUNTING
  46. 46. AT THE START THERE WERE FEW PEOPLE, LITTLE MAN BUILT CAPITAL AND PLENTY OF NATURAL CAPITAL THAT WAS AVAILABLE FOR EXPLOITATION. TRUE VALUE ACCOUNTING
  47. 47. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  48. 48. OVER TIME MORE PEOPLE, MORE MAN BUILT CAPITAL AND EVENTUALLY TOO MUCH PRESSURE ON NATURAL CAPITAL TRUE VALUE ACCOUNTING
  49. 49. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  50. 50. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  51. 51. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  52. 52. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  53. 53. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  54. 54. This is a trajectory to disaster … an existential threat that is being ignored by most of those with power and influence. TRUE VALUE ACCOUNTING
  55. 55. This must be changed to this … TRUE VALUE ACCOUNTING
  56. 56. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  57. 57. PEOPLE progressing MBC* efficient PLANET healthy * MBC … Man Built Capital TRUE VALUE ACCOUNTING
  58. 58. Trajectory to disaster! Over time it looks something like this. Period 1-8 past and present Period 9-12, a future scenario TRUE VALUE ACCOUNTING
  59. 59. Period 1 2 3 4 5 6 7 8 9 10 11 12 HC MBC NC TRUE VALUE ACCOUNTING HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC HC MBC NC
  60. 60. PROFIT TRUE VALUE ACCOUNTING
  61. 61. TRUE VALUE ACCOUNTING
  62. 62. PROFIT is a good place to start … in part because profit is a big piece of the problem. TRUE VALUE ACCOUNTING
  63. 63. Making PROFIT has a role in generating PROSPERITY TRUE VALUE ACCOUNTING
  64. 64. … BUT making PROFIT is only a small part of this complex system. TRUE VALUE ACCOUNTING
  65. 65. PRODUCTIVITY TRUE VALUE ACCOUNTING
  66. 66. … where PRODUCTIVITY is defined as making more product (that is goods and services) for less labor … TRUE VALUE ACCOUNTING
  67. 67. … in other words more PRODUCTIVITY means more PROFIT … which is a plus for PEOPLE who are investors … TRUE VALUE ACCOUNTING
  68. 68. … yet PRODUCTIVITY also means less PAYROLL … which is a negative for PEOPLE who work for a living … TRUE VALUE ACCOUNTING
  69. 69. MULTI DIMENSION IMPACT ACCOUNTING
  70. 70. Over the past 40 years since the 1970s almost all the gains from PRODUCTIVITY have gone to investors and not to working people … TRUE VALUE ACCOUNTING
  71. 71. PERSPECTIVE TRUE VALUE ACCOUNTING
  72. 72. PERSPECTIVE TRUE VALUE ACCOUNTING
  73. 73. … so change in PAYROLL looks very different depending on the PERSPECTIVE. TRUE VALUE ACCOUNTING
  74. 74. … for PEOPLE a bigger PAYROLL is better … while for the PROFIT of the organization, a lower PAYROLL is better … TRUE VALUE ACCOUNTING
  75. 75. Because PROFIT, which is measured in units of money, is the dominant metric of business and economics … TRUE VALUE ACCOUNTING
  76. 76. … it is PROFIT that is the driver of decisions. The main and only PURPOSE of business has come to be the making of PROFIT. TRUE VALUE ACCOUNTING
  77. 77. PLANET TRUE VALUE ACCOUNTING
  78. 78. TRUE VALUE ACCOUNTING
  79. 79. … but the measurement of PROFIT using only MONEY transactions, ignores IMPACT on PLANET TRUE VALUE ACCOUNTING
  80. 80. PEOPLE TRUE VALUE ACCOUNTING
  81. 81. … and the measurement of PROFIT using only MONEY transactions, also ignores IMPACT on PEOPLE TRUE VALUE ACCOUNTING
  82. 82. TRIPLE BOTTOM LINE TRUE VALUE ACCOUNTING
  83. 83. TBL (Triple Bottom Line)* is an initiative to put PROFIT, PEOPLE, and PLANET into business decisions. * An idea promulgated by John Elkington in 1995 TRUE VALUE ACCOUNTING
  84. 84. … and now there is a flurry of initiatives to improve corporate reporting of IMPACT … TRUE VALUE ACCOUNTING
  85. 85. GRI IR SASB TRUE VALUE ACCOUNTING
  86. 86. The Global Reporting Initiative (GRI) is probably the most widely used. TRUE VALUE ACCOUNTING Now based in the Netherlands
  87. 87. Integrated Reporting (IR) is perhaps better, but not as widely used yet. TRUE VALUE ACCOUNTING An initiative from the UK
  88. 88. SASB (Sustainability Accounting Standards Board) is an emerging initiative in the USA. TRUE VALUE ACCOUNTING An initiative from the USA
  89. 89. There are a multitude of emerging initiatives to address different specialized aspects of impact … TRUE VALUE ACCOUNTING
  90. 90. IMPACT INVESTING TRUE VALUE ACCOUNTING
  91. 91. The idea of IMPACT INVESTING has been around for around 20 years … but it has never taken off TRUE VALUE ACCOUNTING
  92. 92. SRI ESG CSR Sustainability Shared Value TRUE VALUE ACCOUNTING
  93. 93. SRI … Socially Responsible Investing TRUE VALUE ACCOUNTING
  94. 94. ESG … Environment, Social and Governance. TRUE VALUE ACCOUNTING
  95. 95. CSR … Corporate Social Responsibility TRUE VALUE ACCOUNTING
  96. 96. Sustainability … TRUE VALUE ACCOUNTING
  97. 97. Shared Value … TRUE VALUE ACCOUNTING
  98. 98. All of these are aiming in the right direction … but are not supported by effective management metrics … TRUE VALUE ACCOUNTING
  99. 99. … and they keep the business organization as the focus of performance. TRUE VALUE ACCOUNTING
  100. 100. BETTER MANAGEMENT METRICS TRUE VALUE ACCOUNTING
  101. 101. There has been massive exponential growth in the amount of data … TRUE VALUE ACCOUNTING
  102. 102. … and this has been used very effectively in the corporate world to improve performance to make more profit … TRUE VALUE ACCOUNTING
  103. 103. I have always argued that the best management information is the least information to make the right decision quickly … TRUE VALUE ACCOUNTING
  104. 104. So how do we start to put management metrics into play for everything in the socio-enviro-economic system TRUE VALUE ACCOUNTING
  105. 105. Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  106. 106. Start with the 3 main segments … TRUE VALUE ACCOUNTING
  107. 107. Fundamentals of the Socio-Enviro-Economic System Human Capital Man Built Capital Natural Capital Hum an Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  108. 108. Fundamentals of the Socio-Enviro-Economic System Human Capital Man Built Capital Natural Capital TRUE VALUE ACCOUNTING
  109. 109. 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 TRUE VALUE ACCOUNTING
  110. 110. 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 TRUE VALUE ACCOUNTING
  111. 111. 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 TRUE VALUE ACCOUNTING
  112. 112. It is must be appreciated that all financial value … wealth … comes from exploiting nature and people … TRUE VALUE ACCOUNTING
  113. 113. Modern MBSS (Man Built Systems and Structures) makes this exploitation very efficient. TRUE VALUE ACCOUNTING
  114. 114. So how to make metrics more effective … TRUE VALUE ACCOUNTING
  115. 115. STATE and FLOW TRUE VALUE ACCOUNTING
  116. 116. This starts with being very clear about what is STATE and what is FLOW. TRUE VALUE ACCOUNTING
  117. 117. This has already been done in corporate business accounting with double entry and accruals. TRUE VALUE ACCOUNTING
  118. 118. The BALANCE SHEET is all about STATE TRUE VALUE ACCOUNTING
  119. 119. The P&L* ACCOUNT is all about FLOW. TRUE VALUE ACCOUNTING * P&L ACCOUNT = PROFIT AND LOSS ACCOUNT
  120. 120. PROGRESS TRUE VALUE ACCOUNTING
  121. 121. PROGRESS is an improvement in STATE TRUE VALUE ACCOUNTING
  122. 122. STEADY STATE TRUE VALUE ACCOUNTING
  123. 123. POSITIVE PROGRESS TRUE VALUE ACCOUNTING
  124. 124. DETERIORATION OF STATE TRUE VALUE ACCOUNTING
  125. 125. To measure PROGRESS, simply measure STATE at the Beginning and the End of the Period … BOP and EOP TRUE VALUE ACCOUNTING
  126. 126. PERFORMANCE TRUE VALUE ACCOUNTING
  127. 127. In general … PERFORMANCE is the relationship between RESOURCES used and PROGRESS achieved. TRUE VALUE ACCOUNTING
  128. 128. PERFORMANCE depends on PERSPECTIVE TRUE VALUE ACCOUNTING
  129. 129. PROFITS and RETURN on INVESTMENT are key measures of corporate performance. TRUE VALUE ACCOUNTING
  130. 130. In general PROFITS and INVESTOR WEALTH have been achieved at the expense of PEOPLE and PLANET TRUE VALUE ACCOUNTING
  131. 131. Progress in improving QUALITY of LIFE should be the main measure of PEOPLE and SOCIAL performance. TRUE VALUE ACCOUNTING
  132. 132. Progress in remediating the ENVIRONMENT should be taken into account … but HOW? TRUE VALUE ACCOUNTING
  133. 133. Progress in reducing existential risks to the functioning of the whole socio-enviro-economic system … again HOW? TRUE VALUE ACCOUNTING
  134. 134. The answer is there has to be quantification of everything that matters! TRUE VALUE ACCOUNTING
  135. 135. PRODUCT and PROCESS TRUE VALUE ACCOUNTING
  136. 136. There must be standard value profiles for all PRODUCTS … goods and services … that everyone buys and uses. TRUE VALUE ACCOUNTING
  137. 137. There must be standard cost and value profiles for all the PROCESSES in the supply chain used to produce PRODUCTS. TRUE VALUE ACCOUNTING
  138. 138. GOVERNMENT ACCOUNTING TRUE VALUE ACCOUNTING
  139. 139. Government accounting is mainly done on a CASH BASIS, something not allowed for business accounting for 100 years! TRUE VALUE ACCOUNTING
  140. 140. … because of this it is easy to game the system, and corruption flourishes. TRUE VALUE ACCOUNTING
  141. 141. … and meaningful reporting of government performance does not exist … TRUE VALUE ACCOUNTING
  142. 142. PRIORITIES TRUE VALUE ACCOUNTING
  143. 143. PEOPLE TRUE VALUE ACCOUNTING
  144. 144. TRUE VALUE ACCOUNTING
  145. 145. PEOPLE … like this baby TRUE VALUE ACCOUNTING
  146. 146. TRUE VALUE ACCOUNTING
  147. 147. PEOPLE … parenting … what we get and what we give! TRUE VALUE ACCOUNTING
  148. 148. PEOPLE … access to EDUCATION … TRUE VALUE ACCOUNTING
  149. 149. PEOPLE … access to HEALTH SERVICES … TRUE VALUE ACCOUNTING
  150. 150. PEOPLE … elder care … something that every senior should be able to access … TRUE VALUE ACCOUNTING
  151. 151. PLACE TRUE VALUE ACCOUNTING
  152. 152. PLACE … where we all live and work and play … TRUE VALUE ACCOUNTING
  153. 153. PLACE … where air and water pollution originates and has to be stopped … TRUE VALUE ACCOUNTING
  154. 154. PLACE … where land use issues can be addressed TRUE VALUE ACCOUNTING
  155. 155. PRODUCTS TRUE VALUE ACCOUNTING
  156. 156. PRODUCTS … that we buy and use to support the quality of life we want TRUE VALUE ACCOUNTING
  157. 157. PRODUCTS … that come through a SUPPLY CHAIN TRUE VALUE ACCOUNTING
  158. 158. PRODUCTS … that have both good and bad impacts during USE TRUE VALUE ACCOUNTING
  159. 159. PRODUCTS … that have further impact during the post use WASTE CHAIN TRUE VALUE ACCOUNTING
  160. 160. PROCESSES TRUE VALUE ACCOUNTING
  161. 161. PROCESSES … that are used to make PRODUCTS TRUE VALUE ACCOUNTING
  162. 162. PROCESSES … and make PROFITS for PEOPLE who are investors … TRUE VALUE ACCOUNTING
  163. 163. PROCESSES … and need PAYROLL which gives income to PEOPLE who work for their living … TRUE VALUE ACCOUNTING
  164. 164. PROCESSES … that use POWER with all its associated impacts … TRUE VALUE ACCOUNTING
  165. 165. PROCESSES … that cause AIR POLLUTION with all its consequences TRUE VALUE ACCOUNTING
  166. 166. PROCESSES … and use WATER and also cause WATER POLLUTION with all its consequences TRUE VALUE ACCOUNTING
  167. 167. PROCESSES … and in too many cases degrade the LAND TRUE VALUE ACCOUNTING
  168. 168. 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: http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=N1-Slidesets-p3 More about the True Value Metrics initiative is at: http://www.truevaluemetrics.org/DBadmin/DBtxt001.php?vv1=list0100-MainNav 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) or webpage involved. TRUE VALUE ACCOUNTING
  169. 169. 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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