1. MULTI DIMENSION IMPACT ACCOUNTING
File: MDIA-p3-02-The-PROFIT-Dimension-150420.odp Peter Burgess (c) All rights reserved
MDIA
The
PROFIT
Dimension
2. PROFIT
➔Every business measures performance
using PROFIT as the measure
➔Conventional double entry accounting
is the system used for measurement
➔PROFIT and expectation of PROFIT
determines the value of a business
➔Only money transactions are taken into
account
➔Externalities are ignored
MULTI DIMENSION IMPACT ACCOUNTING
3. PROFIT
There are two ways of determining profit:
1 … Aggregating all the Profit and
Loss Account transactions for
the period
2 … Comparing the changes in the
Balance Sheet for the period
MULTI DIMENSION IMPACT ACCOUNTING
4. IMPROVING PROFIT
There are two ways of improving profit:
1 … Increase Revenues
2 … Decrease Costs
MULTI DIMENSION IMPACT ACCOUNTING
5. INCREASE REVENUES
There are two ways of increasing
revenues:
1 … Sell more product
2 … Sell at higher prices
MULTI DIMENSION IMPACT ACCOUNTING
6. DECREASE COSTS
There are many ways of decreasing costs:
1 … Design a lower cost product
2 … Improve labor productivity and reduce payroll
3 … Reduce research and development
4 … Outsource to lower cost producers
5 … Relocate to lower tax regimes
6 … Relocate to avoid environmental regulations
7 … Relocate to avoid workplace safety and other
worker welfare issues.
MULTI DIMENSION IMPACT ACCOUNTING
7. DECREASE COSTS
There are many ways of decreasing costs:
1 … Design a lower cost product
2 … Improve labor productivity and reduce payroll
3 … Reduce research and development
4 … Outsource to lower cost producers
5 … Relocate to lower tax regimes
6 … Relocate to avoid environmental regulations
7 … Relocate to avoid workplace safety and other
worker welfare issues.
MULTI DIMENSION IMPACT ACCOUNTING
8. Modern management information
systems (MIS) based on the principles
of conventional double entry
accounting are very powerful.
1 … They enable simple aggregate reporting of
very complex organizations
2 … They enable deep drill down to great detail
about every aspect of the operations
MULTI DIMENSION IMPACT ACCOUNTING
9. MULTI DIMENSION IMPACT ACCOUNTING
Sun
FINANCIAL
ACCOUNTS
Financial Accounts describe Economic Activity
REVENUES
Products Sold X Price
Products Bought X Price
BOP EOP
Energy Bought X Price
Employee Benefits
Employee Payroll
Other expenditures
Asset use costs
Depreciation
Financial expenses
Pro-good expenditures
Taxation
ProfitSun
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun SunSun
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun
10. The problem is that PROFIT is only
directly relevant to OWNERS and
INVESTORS.
The impact on every other stakeholder
may or may not be positive.
This is why MDIA is important!
MULTI DIMENSION IMPACT ACCOUNTING
11. MULTI DIMENSION IMPACT ACCOUNTING
Sun
FINANCIAL
ACCOUNTS
ADD positive impact not accounted for
REVENUES
Products Sold X Price
Products Bought X Price
BOP EOP
Energy Bought X Price
Employee Benefits
Employee Payroll
Other expenditures
Asset use costs
Depreciation
Financial expenses
Pro-good expenditures
Taxation
Profit
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
What value to society?
POSITIVE
IMPACT NOT
ACCOUNTED
FOR
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun Sun
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun
12. MULTI DIMENSION IMPACT ACCOUNTING
Sun
FINANCIAL
ACCOUNTS
DEDUCT negative impact not accounted for
REVENUES
Products Sold X Price
Products Bought X Price
BOP EOP
Energy Bought X Price
Employee Benefits
Employee Payroll
Other expenditures
Asset use costs
Depreciation
Financial expenses
Pro-good expenditures
Taxation
Profit
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
Structures
& Systems
Natural
Capital
Sun Sun
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun
13. MULTI DIMENSION IMPACT ACCOUNTING
Sun
FINANCIAL
ACCOUNTS
ACCOUNTING FOR EVERYTHING
REVENUES
Products Sold X Price
Products Bought X Price
BOP EOP
Energy Bought X Price
Employee Benefits
Employee Payroll
Other expenditures
Asset use costs
Depreciation
Financial expenses
Pro-good expenditures
Taxation
Profit
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
What 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
Structures
& Systems
Natural
Capital
Sun Sun
Financial
Capital
Human
Capital
Man Built
Structures
& Systems
Natural
Capital
Sun