Monday, April 5, 2010

Value ... What is it? How to you quantify it?

Dear Colleagues

Whenever I explain that Community Analytics (CA) is like accounting, except it includes value as well as money accounting, I am usually asked "How can you do that? Value is subjective and cannot be quantified!"

My quick response is that value is subjective, that the fact of its subjectivity is part of its importance, and that while value may be difficult to quantify it can be done. These facts about value do not make value any the less important ... merely that establishing meaningful metrics about value is not going to be easy.

For CA the elements of value are all those things that make up quality of life and prospects for the future. Value changes when prospects change. Value changes when anything that goes into quality of life changes.

Value is not like most money wealth that has a quantification that is fixed ... or so we used to think. The rules for much of the measurement of money wealth was changed over the last 20 or 30 years to allow for price increases in a general market to be translated into appreciated money wealth on a balance sheet. This sends a wealth increase message to the general public when the markets are rising ... but is the driver of disaster when the prices are dropping. Old fashioned accounting recognized this problem and had a simple rule ... to value things on a balance sheet at the lower of cost or market value. When this rule was replaced ... wealth seemed to go up ... but it really was nothing more than a huge game that is now being played with a less onerous scoring system.

The subjective characteristic of value means that the perception of quality of life is going to be different for every individual ... but it is possible to get a sense of the elements by establishing a norm for every element that goes into making quality of life.

Everything in quality of life has value ... and everything can be quantified and incorporated in a matrix of standard values. It takes time ... but it can be done!

Peter Burgess

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