mdia - presentation b - 140514c (work in progress)

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MULTI DIMENSION IMPACT ACCOUNTING (MDIA)

Peter BurgessMay 2014

[email protected]

www.truevaluemetrics.org

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People (society)

Nature's bounty

People builtconstructs

The FRAMEWORK for Measurement

C:\TVMwebsite\WebsiteTrueValueMetricsOrg\TVM-papers\MDIA-Diagrams\MDIA-Presentation-B-140512b.odp

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This is NATURE'S BOUNTY. It is everything that is on the earth; and is in the earth; and comes from the sun.


NATURE'S BOUNTY is big but it is not infinite


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PEOPLE live on the planet earth.

Everything that people use to live their lives comes from planet earth in some form or other

In the beginning PEOPLE were small relative to NATURE'S BOUNTY


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Over time PEOPLE constructed a complex that enabled a better quality of life

In the beginning the PEOPLE BUILT complex was small relative to NATURE'S BOUNTY.


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… and this PEOPLE BUILT complex grew bigger and quality of life got better …


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… and this PEOPLE BUILT complex grew bigger and quality of life got better … and population gets bigger …

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… until the system looks like this … and …


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… and then like this …


… with nature's bounty being compromised

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… quality of life being compromised …


… with nature's bounty being even more compromised

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… and eventually no human life


… and nature's bounty starting a million year recovery

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The FRAMEWORK for Measurement - II


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Beginning balance sheet

Period transactions

Ending balance sheet


This is the basic construct of money profit business accounting

The same construct may be used for value accounting


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The key idea is that you can measure progressduring a period by comparing the 'State' from the beginning of the period (BOP) to the end of the period (EOP).



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The underlying construct for MDIA is this:


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The purpose of MDIA is to be a system of metrics for EVERYTHING … not just the metrics for business profit, stock prices and GDP growth!

The PURPOSE of MDIA


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The purpose of MDIA is to be a system of metrics for EVERYTHING … not just the metrics for business profit, stock prices and GDP growth!

The metrics for everything must be as rigorous for people and planet (environment) as conventional accounting and corporate management information systems are for profit performance.

The PURPOSE of MDIA


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You manage what you measure


The PURPOSE of MDIA

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When you change the way the game is scored,You change the way the game is played.

The PURPOSE of MDIA


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When you change the way the game is scored,you change the way the game is played.

Consider the case of basketball. There is a simple,rigorous way of keeping score to know who wins.

The coach plans the game before the game starts.

Each play the coach reviews how it went.

Feedback … the coach changes the play to getthe best possible result in the next play.

Doing this … a good coach wins the game.


The PURPOSE of MDIA

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Every sport has sophisticated metrics ...


The PURPOSE of MDIA

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Every sport has sophisticated metrics …

But in the game of life … the only metrics are wrong metrics!


The PURPOSE of MDIA

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This is not the first time!

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At the beginning of my career I worked on the problem of 'computerization' and gettingold line managers to accept and adopt thenew fangled 'management information systemsand budgeting.

50 years later every well managed companyhas very sophisticated MIS, budgeting and control, all based on the central core the company's financial accounting.



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Now the challenge is to get people andorganizations to adopt the metrics that are needed so that the performance of society is improved (optimized) and people have a better quality of life while doing the least damage to the environment.



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Now the challenge is to get people andorganizations to adopt the metrics that are needed so that the performance of society is improved (optimized) and people have a better quality of life while doing the least damage to the environment.

There are advanced mathematical constructsfor all sorts of things: Profit optimization; Capital market behavior; Advertising products and services; Weather forecasting; Selecting players for sports teams.


The PURPOSE of MDIA

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But in the game of life … the state of peopleand the planet … there are very poor metrics


The PURPOSE of MDIA

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But in the game of life … the state of peopleand the planet … there are very poor metrics

Metrics have to be: Easy to understand; Quick to produce; Low cost; Believable; Relevant; And the list goes on ...


The PURPOSE of MDIA

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The PURPOSE of economic activity is to sustain and improve quality of life and standard of living.


The PURPOSE of Economic Activity

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People are at the center … organizations are only a means to this end.



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High performance economic activity delivers progress for people with the lowest possible stresson the resources of the planet and damage to theenvironment and natural ecosystems.



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The purpose of economic activity is to sustain and improve quality of life and standard of living.


High performance economic activity delivers progress for people with the lowest possible stresson the resources of the planet and damage to theenvironment and natural ecosystems.

This is not what has been taught at prestigiousbusiness schools for the past 50 years.



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The core mission of the MBA education is is to get prepared to manage an organizationso that it makes the most profit.



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More and more this has incorporated tools for financial engineering that is so much simpler than real engineering.



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More and more this has incorporated tools for financial engineering that is so much simpler than real engineering.

And so much less valuable for society!



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Conventional accounting is organization centric; It is only about money transactions; It is about impact of transactions on profit; and● It is about how profit impacts stock price.


Limitations of Conventional Accounting

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Conventional accounting is organization centric; It is only about money transactions; It is about impact of transactions on profit; and It is about how profit impacts stock price.

Decision are based on ROI … return on investment



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Conventional accounting is organization centric; It is only about money transactions; It is about impact of transactions on profit; and It is about how profit impacts stock price.

Decision are based on ROI … return on investment

EXTERNALITIES ARE IGNORED



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A big part of conventional accounting has beenturned over to 'gaming' the accounts so that taxes are minimized.

This is a problem which has resulted in almostall government entities on the planet being short of money to do what they ought to bedoing.

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Conventional government accounting is 'cash based' accounting.

This is a system that is far less rigorous thatthe 'accrual based' accounting that is used for private sector businesses.

This system facilitates poor performance, and worse, makes corruption way more difficult toidentify and stop.

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The ignored EXTERNALITIES are big and many:

Impact on PEOPLE

Impact on COMMUNITY / PLACE

Impact on PLANET Resource depletion Environmental degradation

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The ignored EXTERNALITIES are big and many:

Impact on PEOPLE

Impact on COMMUNITY / PLACE

Impact on PLANET Resource depletion Environmental degradation

There is also IMPACT that is associated with PRODUCT

This flows all the way through the supply chain, through use and into the post use waste chain.

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Product cost is only about the money transaction

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Product cost is only about the money transaction

But PRODUCT has a history through the supply chain that is part of the 'trucost' of the productwhich should be brought into account: People impact … good and bad; Taxes paid … or not paid; Raw materials consumed: Impact on resource depletion; Impact associated with energy consumed; Impact on environmental degradation; Resources applied to pro-good initiatives; Profits earned.

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The idea that what is good for business is good for society is fundamentally wrong.

This may have been a reasonable proxy for improved quality of life and standardof living in the past … but that past endedabout 40 years ago.


Business Success -v- Social Success

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LABOR … because of improved labor productivity, more production is possible with less labor, and with less labor the role of labor in delivering quality of life and standard of living is diminished.


We need to look at the world in a very different way

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LABOR … because of improved labor productivity, more production is possible with less labor, and with less labor the role of labor in delivering quality of life and standard of living is diminished.

With more productivity PEOPLE should be havinga better quality of life than ever before.

This will only happen when the 'business model'has people at the center and not profit.

See the Johnson and Johnson business 'credo'



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The Johnson and Johnson Credo.Some things are written in stone …



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The Johnson and Johnson Credo.

EXTRACTS:

'We are responsible to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services …

'We are responsible to our employees …

'We are responsible to the communities in which we live and work …

'Our final responsibility is to our stockholders …

This was written in 1943 just before the company went public!



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COMMUNITY … because of technology it has been possible to have globalization, and the role of thelocal community has been diminished. This has had a detrimental impact on quality of life.



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When issues like energy use are taken into account, some of advantages of technology and globalization are no longer positive.



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When issues like energy use are taken into account, some of advantages of technology and globalization are no longer positive.

When there is a local business payroll, the benefitsin the community are a multiple of the payroll. Thisis sometimes referred to as the 'local multiplier'



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CONSUMPTION … poor people move up the socio-economic ladder when they are able to earn enough to buy things and consume more.

There is a point where more consumption has relatively little impact on quality of life.



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There is more and more consumption, not because it is needed to improve quality of life but because the dominant corporate business model is based on more and more sales to produce more and more profit.



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There is more and more consumption, not because it is needed to improve quality of life but because the dominant corporate business model is based on more and more sales to produce more and more profit.

Whether or not this improves quality of life is of no concern to most business organizations and investors.



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PRODUCTS … it is products and services that arethe 'links' that are the modern economy.



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● Products go around the globe … in the supply chain.● Products get used around the globe● Products become waste and pollute the globe



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Products are the 'node' where decisions are madeabout 'to buy or not to buy' and 'to use or not to use'



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Products are the 'node' where decisions are madeabout 'to buy or not to buy' and 'to use or not to use'

Products are used as raw materials for productionand become finished goods for sale.



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ECOLOGICAL SERVICES … the things that go on in nature that are absolutely vital to the survival of living things on this planet.

Without these, life would disappear.

These services are under stress. The environment is in the process of changing far faster than at any time in history … geological history, that is.

These services are ignored in conventional metrics, both financial and economic. They must be taken into account.



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GDP was introduced as a proxy measure for economic activity in the 1930s. GDP as a proxy for improved quality of life and standard of living in may have been realistic in a world where labor was a critical constraint … but that ended somewhere around the 1970s.


GDP is a wrong measure of performance

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GDP was introduced as a proxy measure for economic activity in the 1930s. GDP as a proxy for improved quality of life and standard of living in may have been realistic in a world where labor was a critical constraint … but that ended somewhere around the 1970s.

GDP growth is even worse as a measure ofsocio-economic performance.



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These are better metrics:

GPI … Genuine Progress Indicator

GNH … Gross National Happiness



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These are better metrics:

GPI … Genuine Progress Indicator


MDIA is a better metric … but it is different from GDP and these indicators.

These are macro indicators, while MDIA isa management type metric.



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GPI … Genuine Progress Indicator+ Personal consumption weighted by income distribution index+ Value of household work and parenting+ Value of higher education+ Value of volunteer work+ Services of consumer durables+ Services of highways and streets- Cost of crime- Loss of leisure time- Cost of unemployment- Cost of consumer durables- Cost of commuting- Cost of household pollution abatement- Cost of automobile accidents- Cost of water pollution- Cost of air pollution- Cost of noise pollution- Loss of wetlands- Loss of farmland-/+ Loss of forest area and damage from logging roads- Depletion of nonrenewable energy resources- Carbon dioxide emissions damage- Cost of ozone depletion+/- Net capital investment+/- Net foreign borrowing= GPI



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The term "gross national happiness" was coined in1972 by Bhutan's King, Jigme Singye Wangchuck.

About 40 countries have embraced the idea, but itremains too subjective for universal use.



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I was schooled in maths, physics and chemistry. At university I studied engineering, and then studied economics. Post university I became a Chartered Accountant;

After audit experience, I have had a variety of corporate management accounting roles, includingcontroller, budget manager, CFO, etc.

After corporate career, I became an international management consultant, working on assignmentsfor World Bank, United Nations and private business clients.

I have worked in more than 50 countries including some of the richest places in the World and some of the poorest. I have 'lessons learned' from all ofthese experiences.


My background

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Some important concepts that drive the MDIA approach to data, metrics and analysis

1) The basic ideas of chemistry … the chemical equations;2) Newton's laws of motion;3) Engineering thermodynamics; 4) Hydraulic flows;5) Economic equilibrium;6) Double entry accounting; 7) The concept of balance sheet and profit and loss account.8) Value chains;9) You manage what you measure; 10) There are limits to everything.


Key concepts built into MDIA

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MDIA is not the only initiative that is working onimproving the metrics used for business andsocial decision making. Some of the these are:

1) GRI (The Global Reporting Initiative);

2) GIIRS (Global Impact Investment Reporting System) launched by the B-Corp Institute;

3) IRIS (Impact Reporting and Investment System) launched by GIIN (Global Impact Investing Network);

4) IR (Integrated Reporting) launched by IIRC (International Integrated Reporting Council);

5) SASB (Sustainable Accounting Standards Board);

6) SROI (Social Return on Investment);

etc.


Other initiatives to improve reporting

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Some of the these are:

1) Trucost

2) CDP (formerly the Carbon Disclosure Project)

3) PUMA's Environmental Profit and Loss Account

4) TEEB (The Economics of Ecosystems and Biodiversity)

5) Natural Capital Coalition (formerly TEEB for Business)

6) ShrinkThatFootprint

etc.


More initiatives

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Most of the initiatives to improve reporting are limited in scope, and almost universally have the organization as the reporting entity.

MDIA has economic activity at the center with people the primary beneficiary, and the naturalenvironment an integral part of the system.


MIDA is accounting … the basis for reporting

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MDIA is a multi-dimension system that accounts for all the impacts of economic activity:

● on profit;● on people;● on planet;● on place; and● on product.

NB The data architecture for MDIA is designed to link efficiently with easily accessible data in conventional accounting and management systems.


MIDA is accounting … the basis for reporting

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Trucost is an organization that has made considerableprogress in quantifying 'trucost'. Trucost, the organization, is based in the UK and has been associated with a number of the ground-breaking studies of the impact of product on the environment.


TruCost

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One of these reports was PUMA's Environmental Profit and Loss Account in 2010 that showed how little PUMA's ownedoperations were impacting environment, but how much impact on the environment was associated with the company's supply chain.


TruCost

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Another TruCost report was prepared for TEEB for BusinessCoalition about the Top 100 Externalities of Business. This report confirms the high natural capital cost that sectors like coal power generation, iron and steel production, cement manufacturing, cattle ranching, rice farming and wheat farming have on the environment.

The TEEB for Business Coalition is now the Natural Capital CoalitionTEEB stands for 'The Economics of Ecosystems and Biodiversity'


TruCost

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ShrinkThatFootprint is an organization that is working to inform society about the impact of ordinary day today decisions on the carbon footprint.

http://ShrinkThatFootprint.com


ShrinkThat Footprint

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Numbering the Triple Bottom Line (TBL) with just three elements of Profit, People and Planetsounds easy, but the reality is that society and the economy are incredibly complex.


MDIA mapping

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Numbering the Triple Bottom Line (TBL) with just three elements of Profit, People and Planetsounds easy, but the reality is that society and the economy are incredibly complex.

In reality, predictive analysis of this level of complexity cannot be done with any reliability at all. There are simply too many variables.


MDIA mapping

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Numbering the Triple Bottom Line (TBL) with just three elements of Profit, People and Planetsounds easy, but the reality is that society and the economy are incredibly complex..

In reality, predictive analysis of this level of complexity cannot be done with any reliability at all. There are simply too many variables.

This becomes apparent in the following maps:1) People at the Center2) Organization at the Center3) Product at the Center4) Place at the Center


MDIA mapping

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MDIA map … People at the Center


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MDIA map … Organization at the Center


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MDIA map … Product at the Center


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MDIA map … Place at the Center


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The MDIA construct applied to malaria:


Note that the performance analysis is being done at the community level where specific interventions and specific impact are easy to measure

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The lowest cost data are data that already exist and maysimply be repurposed.

In an organization there are already conventional financial accounts and a variety of key performance indicators and other operating statistics. These existing data may be linked to MDIA style impact analysis.

A growing amount of data are becoming available about place. Such data needs to be organized so that it may beused for MDIA analysis. Additional data may be needed.

A substantial amount of data are available about productsand services. Much of the data are related to product profitability and advertising initiatives, but similar data maybe accumulated about all the impacts of products throughthe product life cycle.

Social media has a focus on the individual. Some of these data may be repurposed to support needed behavior changeAnd the achievement of better quality of life with reduced lower impact on the environment.

The best data are low cost and high value

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Management by walking around

Early in my career I took part in a Du Pont training program called 'Observation and Perception'. The trainees were amazed at how little we saw before the course and how much more we saw after the course. That was 50 yearsago and I still see a lot more than most people.

I have used 'walk arounds' as a an essential part of how I work and how I learn things that will never appear in formal reports and feedback systems.

A check with reality is very helpful.

Also advanced use of common sense.

The best data are low cost and high value

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A summary profit an loss account is going to have these elements:* Revenues* Cost of sales* Gross margin* Sales, general and admin costs* Financial costs* Taxes* Profit

What do business accounts look like

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It is not easy to determine impact on people and planet from this summary information … but withinthese numbers there is a lot of useful information.


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It is not easy to determine impact on people and planet from this summary information … but withinthese numbers there is a lot of useful information.

This includes items like:* Production / sales of products* Payroll* Purchase of products* Purchase of energy* Purchase of transportation


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Product is a key link that connects everything in themodern global economy.

As product flows one way through the supply chain, money flows in the other direction.

Product is used in an economic activity and newProduct comes out of an economic activity.

People make a 'buy' or 'not to buy' decision for a product … and this, in turn sends a signal to the producers and and the whole of the supply chain.

Product has a supply chain. Product also has impactduring use, and then in the post use waste cycle.

To a great extend use of product is an important determinant of quality of life and standard of living.

Why is product important


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In conventional accounting product purchased and sold is recorded based on a simple money transaction at a price.

The elements of trucost that are included in the price summarize everything that has happened as this product has passed along the supply chain:

* materials* energy* payroll* financial costs* taxes* pro-good expenses* profit

There are also beneficial impacts arising as follows:* benefits associated with payroll* benefits associated with taxes

There are also negative impacts arising as follows:* workplace safety* resource depletion* environmental degradation

What is the impact of product

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Why organizations are importantOrganizations have organization which is missing elsewhere in society. The processes used by organizations are very important in the efficiencyof society and the economy.

Organizations have optimized for profit for the past200 years, and this remains the dominant metric for Performance.

Optimizing for profit (and profit alone) explains why electricity is produced by low cost coal fired generating stations with high GHG emissions rather than lesspolluting alternatives.

This cannot change as long as money profit remains the dominant metric. A cost of carbon pollution needs to be costed into the cost of energy everywhere throughout the energy supply chain.

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Place is important because all living is done in a place, and all economic activity is done in a place.

It is possible to see things in a place. Without accountingIn a place, it becomes very difficult to have any meaningfulaccountability.

Why place is important

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In my own career I have spend a lot of time in differentplaces. What I have seen because of 'walking around'in a place has given me a perspective on the performanceof society that has changed my life.

A specific example that I will never forget is the pollution associated with international oil company operations in the Niger Delta in Nigeria.

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Another example are the places I have visited during the catastrophic drought in the Horn of Africa in the 1980s. I will never forget the impact that water has on lifeitself. Yet rather little has been done to ensure water security for all.

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Quality of life

IndividualFamilyFriendsCommunityNational SocietyGlobal Society

PRODUCTS AND SERVICESFoodWaterShelterClothingEnergyHealthEducationTransportSecurity

PEOPLE BUILT CONSTRUCTS

NATURE'S BOUNTY

Place (cities, towns, etc)Business organizationsIndustrial processesMiningEnergy productionBuilt infrastructureGovernance institutionsRule of lawCivil society organizations

Mineral resourcesEnergy resourcesLandWaterAirAnimal life (fauna)Plant life (flora)

Resource depletionEnvironmental degradation

Supp

ly c

hain

truco

st

PEOPLE

State of Place … impact on people, resource depletion and environmental degradation

Profit of Business … impact on people,Resource depletion and environmental degradation.

Impact of consumptionW

aste chain trucostStandard values

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PEOPLEIndividualFamilyFriendsCommunityNational SocietyGlobal Society


HUMAN BUILT CONSTRUCTS

NATURE'S BOUNTY

Place (cities, towns, etc)Business organizationsBuilt infrastructureGovernance institutionsRule of lawCivil society organizations


MDIA is based on the components shown on the left

Note the hierarchy:* People at the top* It is products and services that deliver quality of life* These are produced via human built constructs* Everything depends in the end on nature's bounty

High performance is having PEOPLE witha high standard of living and quality of life

AND

While making the least possible demand on NATURE'S BOUNTY

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NATURE'S BOUNTY

Place (cities, towns, etc)Business organizationsBuilt infrastructureGovernance institutionsRule of lawCivil society organizationsKnowledge


People are at the top of the MDIA analysis.

There is progress when people get a betterquality of life (QoL) and standard of living.

More income and wealth is an element ofQoL, but it is not the only one.

Other elements are:* Education, skills and experience;* Employment; * Access to job opportunities;* State of health;* Security;* Access to food and other products* Housing; * Family and friends;* Access to infrastructure; * etc

What is the impact of people on theenvironment? This is largely a function ofthe consumption pattern of the people.

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NATURE'S BOUNTY

Place (cities, towns, etc)Business organizationsBuilt infrastructureGovernance institutionsRule of lawCivil society organizations


Note the role of products and servicesIn this framework.

It is products and services that givepeople their quality of life and standard of living.

Income or wealth makes it possible for people to buy products and services.

Income comes mainly from employment.Income may also come from the investment of wealth.

Economic activities produce products and services. These require investment, and require labor.

Getting this in equilibrium in the prevailingoutdated monetary economy is difficult.

Money needs to be complemented by a unit of value

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NATURE'S BOUNTY



Nature's Bounty is the foundation upon which everything rests. It is the origin of allthe 'wealth' that presently exists for thebenefit of humankind.

For most of history economic activity has been quite small relative to the environment.Over the past 200 years growth of economicactivity now strains the natural environment.

* Depletion of natural resources;* Depletion of water resources;* Depletion of land;* Depletion of forests;* Depletion of mineral resources; * Depletion of energy resources* Depletion of biodiversity

* Degradation of the environment;* Water pollution … rivers;* Water pollution … oceans;* Water pollution … aquafers* Land … development* Land … waste land fill* Air pollution … particulates* Air pollution … sulphur, nitrous oxides, etc* Air pollution … greenhouse gases, CO2, methane

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NATURE'S BOUNTY



Note where business organizations are in this framework. They are just one part of the human built constructs

The purpose of such organizations is to produce PRODUCTS AND SERVICES in the most efficient way possible.

Efficient is defined as the most good (that is valuadd, with the least consumption ofvalue.

This is similar to business profit and ROIexcept substituting value units for money

There needs to be a mechanism to rewardinvestors when they invest for good just asthere is when they invest for profit.

Maybe this can be accomplished with a construct like a Social Capital Market.

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NATURE'S BOUNTY



Place is a key component of MDIA becauseit is place where everything of society and theeconomy is located.

All economic activity is located in a place. Theeconomic activity is where people work and get paid. People live in a place.

Pollution occurs in a place, and it may be identified in a place by simple observation.

* Depletion of natural resources;* Depletion of water resources;* Depletion of land;* Depletion of forests;* Depletion of mineral resources; * Depletion of energy resources* Depletion of biodiversity

* Degradation of the environment;* Water pollution … rivers;* Water pollution … oceans;* Water pollution … aquafers* Land … development* Land … waste land fill* Air pollution … particulates* Air pollution … sulphur, nitrous oxides, etc* Air pollution … greenhouse gases, CO2, methane

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You only manage what you measure.

In order to measure, there must be a generally accepted way to quantify value

Up to now the main thrust has been to put amoney value on different elements that go into the making of impact.

While this may be helpful, it introduces all the Issues associated with money.

MDIA simple quantifies ALL values relative to each other, without any reference to how thesequantities exchange into money.


Quantification of Value - Standard Values

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A database of standard values is to be being built.

This database will be updated using a simplecrowdsourcing approach.

Small sets of 'standard values' will be presented to users who will give their version of relativevalues.

The database will be updated with additionalvalues.

Summary benchmark values will be calculationfrom time to time to reflect the updated data



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The 'anchor' for the system of standard valueshas been derived from the following:

A newborn child has a standard value of 1 million (1,000,000) standard value units (SVUs)

A human life has this standard value.

Depending on all the factors that are part ofthe MDIA framework, this standard value adjuststo reflect all factors that go into the quality of life (QoL) of the individual.

A newborn child born to a relatively well-to-do family in (say) Germany, will retain a value of 1 million SVU. On the other hand, a newborn child born in a remote part of (say) Somalia will have much lower value as a result of deficits in almost everything thatis needed to sustain the norm.



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More examples: A newborn child born to a relatively well-to-do family in (say) Germany, will retain a value of 1 million SVU. On the other hand, a newborn child born in a remote part of (say) Somalia will have much lower value as a result of deficits in almost everything thatis needed to sustain the norm.

A person in their 70s is unlikely to have retained a value of 1 million SVUs, in large part because expectation of life is nowquite short. The value may be something like 500,000. On the other hand QoL may be quite good if health is good. However, the moment that health deteriorates, the value drops dramaticallyto (say) 200,000 or lower.

A person going through university has many threads associatedwith their value. As they acquire more learning, the value goes up, But there are expenses associated with the learning so anothercomponent of the value goes down. If the job opportunities are good the value tends upward, but if the job opportunities are poorthe value tends downward.



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My 'ah-ha' moment was when I became clear about the difference between these three ideas:

Cost


Analysis of an Economic Activity

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Cost, Price



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Cost, Price, and Value.



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The way cost and price are used incorrectly in the media is appalling, and as a result much of the discussion of important issues is not at all useful.



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For example: Much of the discussion of the 'cost' of healthcare is really to do with the price of healthcare



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For example: Much of the discussion of the 'cost' of healthcare is really to do with the price of healthcare.

It was back in the 1980s that I first expressed the ideathat the biggest 'cost' in modern business and for society in general and the economy is 'profit'!



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These are the money accounting elements:● Cost …........ cost of sales● Price …........ revenue ● Difference … profit

These are the value elements of MDIA:● Value consumed;● Value produced / realized● Valuadd

Value is, of course, a multi-dimensional idea!



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These are the money accounting elements:● Cost …........ cost of sales● Price …........ revenue ● Difference … profit

These are the value elements of MDIA:● Value consumed;● Value produced / realized● Valuadd

Value is, of course, a multi-dimensional idea!

Work by PwC in the UK is going in the same direction, but broadly from an organization-centric perspective.



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Payroll … a cost for businessEvery business person understands that in the money profit accounts, the cost of payroll is an expense that reduces the profits.



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Payroll … a cost for businessEvery business person understands that in the money profit accounts, the cost of payroll is an expense that reduces the profits.

When productivity improvement makes it possible to reduce the payroll, the the profits go up.



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Payroll … Impact for people and societyBut the benefits derived from payroll are in society as wellas in the business.



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Payroll … Impact for people and societyBut the benefits derived from payroll are in society as wellas in the business.

The impact on the individual when he/she loses his/her job and no longer is earning $40,000 a year is bigger than the impacton the business profit.

The individual and the family are not getting an amountof $40,000 from the job remuneration.

The community does not have this money flowing through the local businesses.

The profit of the organization has increased by some amount… $20,000 (that is $40,000 less (say) $20,000 (the annualized cost of the productivity improvement investment

The negative impact on society is $200,000 made up as follows:* The impact on the individual … $40,000;* The impact on the family … $40,000 ; and* The local multiplier impact on the community (probably between 2 and 4 (say 3) … $120,000



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Purchased materialsFor the organization, purchased materials have a money cost, and this cost reduces profit by the money cost of the purchases. Efficient processes and product design reduces this cost and increases profit.



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Purchased materialsFor the organization, purchased materials have a money cost, and this cost reduces profit by the money cost of the purchases. Efficient processes and product design reduces this cost and increases profit.

But purchased materials also carry within them the whole history of the supply chain which must be taken into account. This may bedone using a trucost standard values. These incorporate the value (supply) chain profile for each purchased material.

For MDIA there is the comprehensive 'value consumption' metrics rather than simply 'money cost'.



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Products soldFor the organization, in the money accounting, the products sold have a price, which translates into revenue. There is also money based cost of sales and a computed gross margin and profit.

These products sold also carry within them the whole history ofthe supply chain to this point.

From this it is possible to determine the impact on people andplanet associated with each product.

There is a positive social impact embedded in the product as a result of jobs and pay. This may be offsets because of dangerous workplace conditions and other issues.

There is a negative impact in the supply chain because of impact on the environment

* Resource depletion … * Environmental degradation … associated with extraction* Environmental degradation … associated with transportation* Environmental degradation … associated with refining* Environmental degradation … associated with burning fuels



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Products boughtFor a consumer, the price paid is the main metric.

The consumer is willing to pay the price because they think that the 'value' of the product is higher than the price.



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Usually a consumer does not give much thought to the 'trucost' of the product. Trucost is a cost that goes beyondjust money transactions, but incorporate externalitiesthat have impact on people and planet.

This is not part of the 'conversation”!



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The perceived 'value' of the product would be different if the'trucost' of the product was easily and generally accessible as easily as everything else associated with selling the product.



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The perceived 'value' of the product would be different if the'trucost' of the product was easily and generally accessible as easily as everything else associated with selling the product.

The key to this is 'easy'. Price is easy. Advertising makes perceived value 'easy'. MDIA's standard values has to makethe 'trucost' value easy!



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Energy usedEnergy is a critical input for the modern economy.

In the United States per capita GDP is around $50,000 and per capita carbon emissions associated with energy use is around 20 tons CO2e.

In Europe the same GDP of around $50,000 is associated with carbon emissions of around 8 tons CO2e.



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This shows: 1) energy is a very important input2) relative to Europe, the United States is wasteful and/or terribly inefficient.

This shows also the importance of energy policy. The UShas had a low price low tax policy for energy. Europe hashad a high price high tax energy regime.



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This shows: 1) energy is a very important input2) relative to Europe, the United States is wasteful and/or terribly inefficient.

This shows also the importance of energy policy. The UShas had a low price low tax policy for energy. Europe hashad a high price high tax energy regime.

In the end, the United States is at a global disadvantage.



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Energy usedWhile energy is a critical input for the modern economy, fossil fuels have a significant negative impact on theenvironment. These include:




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The negative impact on society of renewable energy sources is negligible compared to fossil fuels.

The world needs to embrace a paradigm change forenergy so that renewable energy becomes the norm rather than the exception.



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The negative impact on society of renewable energy sources is negligible compared to fossil fuels.

The world needs to embrace a paradigm change forenergy so that renewable energy becomes the norm rather than the exception.

Enough solar energy hits the planet every hour to powerthe present energy intensive economy for a year!



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Analysis Formulations

For example: This is PwC in the UK

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Components of the PwC analytical framework

Business activities / Financial performance● Suppliers● Employees● Communities● Shareholders● Governments● Customers

Economic Impact● Intangibles● Exports● Investments● Profits● Payroll

Social Impact● Livelihoods● Health● Education● Empowerment● Community cohesion

Environmental Impact● GHGs and other air emissions● Water pollution● Waste● Land use● Water use

Tax Impact● Environmental taxes● Property taxes● Production taxes● People taxes● Profit taxes

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Analysis Formulations

For example: This is Kate Raworth (Oxfam)

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Accounting has been very successful over a very long time in organizing large amounts of financialdata efficiently to manage large businessorganizations.

Transaction information is organized into 'accounts'.

Accounts are either 'balance sheet' or 'profit and loss accounts'.

Reporting for even very large organizations can be summarized in a simple widely understood manner.

MDIA does something very similar for every aspectof the broader society, the economy and theenvironment.

This is shown in the next few slides.


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May 2014

[email protected]

www.truevaluemetrics.org

QUESTIONS?

mdia - presentation b - 140514c (work in progress)

Data & Analytics

purpose of mdia c

measurement c

measurement people

natures bounty c

better c

measurement natures

infinite c

human life c