SIZE MATTERS 1 ... OVERVIEW
A workshop at MIT to link mathematics with the realities of a very complex global integrated socio-enviro-economic system that has been very badly served by money as a metric and a dangerously simplified financial system.
1. SIZE MATTERS
1- OVERVIEW
File: TVA-p3-01-SIZE-MATTERS-1-160220.odp Peter Burgess (c) All rights reserved
TRUE VALUE ACCOUNTING
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
5. I don't know who drew that image …
and have not figured out all its
content … but we must figure out the
best way to get the best of possible
outcomes!
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6. HISTORY …
HOW THE THREE SEGMENTS HAVE
CHANGED OVER TIME
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7. YELLOW:
The PEOPLE piece … Human Capital (NC)
DIRTY BROWN:
The ECONOMIC piece … Man Built Capital (MBC)
GREEN:
NATURE, ENVIRONMENT … Natural Capital (NC)
COLOR KEY
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8. AT THE START THERE WERE FEW PEOPLE,
LITTLE MAN BUILT CAPITAL AND PLENTY OF
NATURAL CAPITAL THAT WAS AVAILABLE
FOR EXPLOITATION.
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16. Trajectory to disaster!
Over time it looks
something like this.
Period 1-8 past and present
Period 9-12, a future scenario
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17. 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
22. 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
23. 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
24. Fundamentals of the Socio-Enviro-Economic System
Human
Capital
Man Built
Capital
Natural
Capital
TRUE VALUE ACCOUNTING
25. 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
26. 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
27. 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
28. 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
TRUE VALUE ACCOUNTING
29. 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.
TRUE VALUE ACCOUNTING
30. 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
TRUE VALUE ACCOUNTING
31. 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
Financial Capital … virtual masquerading as reality.
Human Capital … PEOPLE … are complex, because we
originated through nature, but our inventions are simple.
Man Built Capital is so simplistic compared to Natural
Capital. While in some part amazing, it is very crude
compared to what is the norm in Natural Capital.
In the end it is Natural Capital that is going to determine
everything. NC is infinitely complex and resilient and will
outlast everything Man Built … and People are unlikely to
survive in a future mass extinction that is quite certain.
The source of ALL energy to drive the system
EOP
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32. TVA builds on double
entry and the concept of
state and flow …
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33. These 3 slides explain the concept of
STATE and FLOW …
or in accounting terms, the
BALANCE SHEET / PROFIT AND LOSS
relationship …
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37. No information about activities is needed in
order to measure PROGRESS
… only measures about changes in STATE
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38. State, Progress and Performance
● State is the Balance Sheet of the entity at a
moment in time;
● Progress is measured by comparing Balance
Sheet changes between the beginning and the
end of the period;
● Performance is a measurement that relates
Progress to the resources consumed.
TRUE VALUE ACCOUNTING
40. A fundamental reality …
All FINANCIAL WEALTH has been created
by human energy together with man built
knowledge, structures and systems and
exploiting NATURAL CAPITAL in an
unsustainable way.
TRUE VALUE ACCOUNTING
41. ELEMENTS OF THE SYSTEM by SEGMENT
Financial
Capital
Human
Capital
Man Built
Capital
Natural
Capital
Sun
Financial
Capital
Human
Capital
Man Built
Structures & Systems
Natural
Capital
Money Food Government Nature (life)
Sun
Nature (life)
Capital Market
Value
Water
Laws. Rules Nature (life)Land
Shelter
Infrastructure WaterClothes
Industry Nature (life)Air
Health
Mining Ecoservices
Education
EnergySkills
Waste
Recreation Retail
Culture
LogisticsReligion
Knowledge
Technology
Security
Energy
Mobility
Profit
TRUE VALUE ACCOUNTING
42. Financial
Capital
Human
Capital
Man Built
Capital
Natural
Capital
Sun
TRUE VALUE ACCOUNTING
FINANCIAL CAPITAL
… virtual masquerading as reality.
As a measure, money is fatally flawed.
The problem is compounded with GDP which ignores almost everything that makes life
worth living. Corporations are high performance in making profit, but issues like social
impact and environmental impact are not measured in a meaningful way and therefore
Ignored.
44. TRUE VALUE ACCOUNTING
Man Built Capital … Structures and Systems
Man Built Capital is simple compared to Natural Capital. It has become very powerful over
the past 300 years but at the expense of natural capital and social capital
Government
Laws
Infrastructure
Industry
Mining
Energy
Waste
Mobility
Logistics
Retail
Knowledge
Technology
Financial
Capital
Human
Capital
Man Built
Capital
Natural
Capital
Sun
45. Financial
Capital
Human
Capital
Man Built
Capital
Natural
Capital
Sun
TRUE VALUE ACCOUNTING
NATURAL CAPITAL
In the end it is Natural Capital that is going to determine everything. NC is
infinitely complex and resilient and will outlast everything Man Built … and
People are unlikely to survive in a future mass extinction that is quite certain.
Nature (life)
Millions and millions of miracles, and we only know a small part of it all.
Land
The place where natural systems function, but also where man built processes and structures
Water
Essential to life, man built processes and the natural cycles that sustain nature
Bio-diversity
That has made nature the miracle it is, and fundamental to the functioning of the complex system
Air pollution
Has impact directly on human health and the functioning of many of the systems of nature
Eco-system services
The myriad of natural recycling mechanisms that serve to keep everything in nature in balance.
Air GHG
Atmospheric processes that regulate climate and the cycles of many critical compounds
47. Managing in a complex
system is a challenge …
The best practice it to drive decision
making with the best / quickest data
about progress and performance and at
the most granular level … this is the
essence of the TVA data architecture.
TRUE VALUE ACCOUNTING
48. To manage change there have
to be METRICS for ALL the
components of the system.
● The next slide is a simplified representation of the
State – Flow – State idea for ALL elements of the
Socio-Enviro-Economic System
● The second slide shows what the conventional money
metrics measure … just a tiny part of everything that
matters.
TRUE VALUE ACCOUNTING
51. Effective metrics will
track impact on ALL* the
components of the system
…
* Not just the money based financial metrics
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52. THE BALANCE OF THE SLIDESET
IS A RECAP USING IMAGES …
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
53. THIS SLIDESET IS 1 OF 5
SIZE MATTERS 1 … OVERVIEW
SIZE MATTERS 2 … KEY CONCEPTS
http://www.slideshare.net/PeterBurgess2/size-matters2
SIZE MATTERS 3 … SYSTEM CYCLES
http://www.slideshare.net/PeterBurgess2/size-matters3
SIZE MATTERS 4 … PERSPECTIVES
http://www.slideshare.net/PeterBurgess2/size-matters4
SIZE MATTERS 5 … IMPACTS
http://www.slideshare.net/PeterBurgess2/size-matters5
TRUE VALUE ACCOUNTING
68. 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
69. 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