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The Burgess Method for Value Accounting

Dear Colleagues

Accounting is very powerful ... but in the prevailing situation, it is only used to record money transactions and report on the money performance of organizations. The Burgess Method for Value Accounting (BMVA) is taking the basic framework for money accounting and using it also to account for value transactions. This is a major paradigm change.

The economy works with value consumption, value creation and the net which is either value adding or value destruction. There are many situations in modern society where profits are being made while society ends up with value destruction ... and in the end, this is a formula for disaster.

One area of change is that BMVA uses both money and value constructs. Another is that BMVA uses community as the primary reporting entity rather than the organization. This is because quality of life depends not only on one single organization, but on the behavior and performance of all the organizations in the community ... and it depends not on one sector alone but many sectors.

There are many ... perhaps hundreds ... of initiatives intending to improve reporting and evaluate social impact more effectively. All of these initiatives would benefit from the adoption of concepts along the lines of the BMVA.

My experience in this field is substantial. I read engineering and economics at Cambridge. I have worked in heavy engineering and large scale construction. I am a professionally trained Chartered Accountant with Coopers and Lybrand in the UK and have been a VP Manufacturing in the USA. I was also the CFO of an international fishing company based in the USA. I have been a consultant to the World Bank and the UN on and off since 1978 ... with many assignments to assist development country initiatives from government financial reform and national level development planning to refugee emergencies and community development.

My views regarding the performance of the international relief and development assistance community are well known ... and especially my concern that without accounting and accountability it is impossible to manage anything ... let alone very large complex projects.

The BMVA is paradigm change ... hopefully it will become widely used quite rapidly.

Sincerely

Peter Burgess

Tags: social business, social performance metrics, value accounting

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Permalink Reply by Peter Burgess on September 28, 2010 at 3:22pm

Dear Liza

The quick answer to the question "Where do you see your method applicable?" is "Everywhere"!

The Burgess Method (TBM) for value accounting is designed to work everywhere ... just like money accounting is used in practically every organization that exists, whether it is in the private sector, the public sector (government), the for profit organization or the not-for profit organization. Profit performance derived from money accounting is used to drive stock market decisions ... and so much else. In many situations metrics of value and impact on society would be far better ... but for all practical purposes they are not in play!

The rather poor link between accounting principles and the methods of analysis used in economics was already problematic in the 1950s ... and around 1955 Dr. Stone, a Chartered Accountant on the staff of the Cambridge economics faculty came up with what subsequently became known as National Accounts ... and adopted by the UN in the early 1960s, the UN System of National Accounts (UN SNA). The big deal in the UN SNA was the explicit idea of balance sheet accounts and transaction accounts, something that is key to the power of accountancy and missing in most economic analysis.

TBM may be thought of as a "drill-down" of the UN-SNA idea to the Community Level rather than merely being a National Level analysis and reporting system. TBM is both more simplified in some ways and more detailed in others, because of its focus at the community level.

One of the "lessons learned" in my career is that integrated multi-sector development initiatives have much higher chances of success than single sector initiatives which are rarely, if ever, capable of any sustained value. Furthermore, that most of the academic studies about development performance MUST fail to get useful conclusions simply because there are way too many variables for academic statistics to give meaningful results.

TBM is not a system to satisfy the academic community ... it is a system to help get better decisions made, including better decisions about the allocation of resources, and to facilitate better oversight and accountability. TBM builds on the ideas of corporate "management information" including the idea that information for decision making needs to be easy, timely and reliable ... and undated fast so that decision makers can monitor the results of their own decision making as fast as needed.

Different versions of TBM should be used in different situations ... a community, an organization, a (sector focus) government office, an activity office (perhaps a project) and so on. The ideas are the same ... the perspectives are different.

Value is a challenge! Most people consider value to be subjective and impossible to quantify. TBM argues that value is very important, and while it is difficult to quantify, it can be done. In many cases price may be used as a proxy for value ... but many important matters are never priced for sale. The life of a child hardly has a price ... but the life of a child does have value ... and the value is substantial. Beauty has value. Politeness has value. Education has value. All the components of quality of life have their separate values. TBM uses the concept of standard value to get some order and organization into this.

At the moment the value standard concept in TBM is fully developed, but the building of the value standards has a way to go!

One day ... hopefully relatively soon ... people should be talking as much about the value adding performance of their philanthropic donation portfolio as people do about the return on their investment portfolio. One day, there might be a value accounting profession that is a well known as the money accounting profession. I would like to do all I can to make this happen!

Hope this is helpful

Peter Burgess
http://communityanalyticsca.blogspot.com/

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Permalink Reply by Jeff Mowatt on September 29, 2010 at 2:18am

Hello again Peter,

I came across both this thread and the following discussion on Social Edge last night.

http://www.socialedge.org/discussions/success-metrics/nonprofit-ana...

I'd be interested to learn how for example BMVA could be applied to the work we do in Eastern Europe and how it might help relate the outcome.

For example, it could be expressed in one instance in the consequences of sourcing a microfinance initiative, in the number of businesses created but perhaps not precisely what effect this has had on the lives of the local stakeholders. .

Jeff

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Permalink Reply by Peter Burgess on September 29, 2010 at 10:04am

Dear Jeff

Small world ... great to be in contact again.

Or is it that there are really very few people who have any interest whatsoever in things like Peace and activities that produce social value and help to improve quality of life rather than just money profit.

You know that I have been pushing forward in the area of metrics about social impact for several years ... and while I am not yet in any position to claim "victory" I am happier now about the method and its potential than at any time so far.

I think you are aware Chris Macrae introduced me to Professor Muhammad Yunus back in January 2008 and at that time I committed to this work on a system of accounting that would include both social benefit and money measures knowing that I had been working on many of the elements for a very long time. If you recall the Yunus book "Creating a World Without Poverty: Social Business and the Future of Capitalism" talks about the need for such a system of accounting that goes beyond just the money dimension of the transactions.

In the past, my follow up with you and others has been "patchy" ... but I would very much like to work with you to apply this method of value accounting to your work in Eastern Europe in parallel with other modest efforts to apply the method in some other locations ... currently in Africa, Haiti and the Middle East.

My impression is that there are now a large number of dialogs / initiatives about value metrics. The socialedge discussion you referred to is in the middle of these ... and I will try to get engaged with it. Time is, however, a limiting factor!

All the best ... and thank you for being in contact.

Peter Burgess

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Permalink Reply by Jeff Mowatt on September 29, 2010 at 12:46pm

Hi Lisa and Peter,

I'd been introduced to the concept of pro-social business in 1999 when founder Terry was working in Russia on the Tomsk initiative. At the core of this was a community microfinance bank based on the Grameen loan circle approach, in this case managed by Finca.

An interesting variant was that although women were to be the majority of borrowers, more than 80%, the scheme was open to men as well and had been able to achieve the same rates of loan repayment typical of this type of microfinance. Around 10,000 businesses were created in a city of 600,000 with a 12 month survival rate of around 99%. It was replicated by USAID in several other cities and the model was to become the standard for the Russian Microfinance Centre in 2002.

When the project in Tomsk ended it left behind a flourishing community bank Terry described the outcome in a 2004 interview in the context of applying the same approach to an Islamic communiity at risk of civil conflict in Crimea. In his proposal he'd reasoned that we had spent millions every time a Tomahawk cruise missile had been fired to quell conflict in the Balkans and that it was increasingly apparent that the equivalent of smart weapons was needed in development aid efforts, ie an economic 'smart bomb'.

The economic "weapon" which followed in 2006 was described as a 'Marshall Plan' since it had the same targets as the original - hunger, poverty, desperation and chaos.

Revenue was to be derived from a "more than full cost recovery" broadband component which would underwrite the cost of childcare reform and social enterprise investment.

In the second part which describes the concept of a centre for social enterorise and social investment fund, the case for applying capitalism for more than monetary gain.

Since publication, childcare reform recommendation have become policy, leading to a 40% increase in domestic adoption. Affordable wireless broadband has been deployed on a national scale and the US have responded to the call for assistance "in any way possible" with the creation of a new foundation which supports sustainable community business.

I don't know how we can begin to measure the impact of this.

I was struck recently by a comment from Muhammad Yunus describing the social business Danone has created in it's "bottom line" being seen as the number of children removed from malnutrition.

Our primary bottom line would be measured in the number of children removed from the streets appalling institutional conditions.

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Permalink Reply by Derek Poulton on October 27, 2010 at 4:28pm

I have almost zero prior knowledge of this, but my first impression is that it is a very valuable endeavor, but with an unclear final outcome.

I think value accounting would be a great way to measure the impact of an organization on achieving (or not) its mission. The problem is that, whether or not you believe in universal values, some more precise/specific values are relative. Each organization has its own mission, its own values, its own approach. So it would be difficult to compare values accounting across organizations or communities in a way that is possible with money accounting.

Not saying we shouldn't do this, but it's good to recognize limited utility.

Unless we can somehow get everyone to agree on some fairly basic, core values!