The Seven Principles of Total Value are a principle based framework for accounting for, measuring and managing total value. They have been drawn from principles underlying social accounting and audit, sustainability reporting, cost benefit analysis, financial accounting, and evaluation practice. They are generally accepted social accounting principles.
Total Value is the value that stakeholders experience through changes in their lives. Some, but not all of this value is captured in market prices. An account of total value is a story about these changes. It includes qualitative, quantitative and comparative information, and also includes environmental changes in relation to how they affect people’s lives. By applying the Principles, it is possible to account for all or most of the value that is being created or destroyed.
The Seven Principles are:
1. Involve Stakeholders
Stakeholders are those people or organisations that experience change as a result of the activity and so are best to describe the change. They need to be identified and then involved throughout the analysis.
2. Understand What Changes
Value is created for or by different stakeholders as a result of different types of change; changes that the stakeholders intend and do not intend, as well as changes that are positive and negative. We need to understand what changes and how these different changes are created, which is informed by stakeholders and supported by evidence.
3. Value the Things that Matter
Making decisions about allocating resources between different options needs to recognise the values of stakeholders. Value refers to the relative importance of different outcomes and measurability means expressing the outcome in terms that are measurable, rather than finding one that is easy to measure.
4. Only Include What is Material
Determine what information must be included such that stakeholders can draw reasonable conclusions about the value created. The basic judgement to make is whether a stakeholder would make a different decision about the activity if a particular piece of information were excluded.
5. Do Not Over-Claim
We only claim the value that activities are responsible for creating. Reporting on and managing the outcomes that have been determined will enable other people or organisations to better understand how they can contribute to creating value, avoiding negative outcomes and encouraging a system or collective approach to achieving outcomes.
6. Be Transparent
Report and discuss the analysis with stakeholders. Each decision needs to be explained and documented. This will include an account of how those responsible for the activity will change the activity as a result of the analysis. For credibility, reasons for decisions have to be transparent.
7. Verify the Result
An appropriate independent assurance is required to help stakeholders assess whether or not the decisions made by those responsible for the account were reasonable.
Adopting the Principles will sometimes be challenging as they are designed to make invisible value visible. Value is often invisible because it relates to outcomes experienced by people who have little or no power in decision making. Applying the Principles will help make organisations more accountable for what happens as a result of their work, which means being accountable for more than whether the organisation has achieved its objectives.
We believe that organisations should seek to maximise the total value created with the resources they have available, so that inequality and environmental degradation are reduced as fast as possible, and because society’s current approach to maximising financial value does not account for all the material social and environmental outcomes which leads to increasing inequality.
We see that whilst organisations can be held accountable for the financial value they create by those who receive the financial returns, people who benefit (or lose out) from social and environmental returns cannot hold those organisations accountable. The only way to ensure that organisations will be able to maximise their value is if they are accountable for their impact. By measuring total return on investment, organizations can be held accountable for more than just the financial value they create. They can be held accountable for the non-financial value they also create or destroy.
Organisations should therefore be held accountable to the people who experience all the value they create or destroy which will also help organisations maximise their value.
The Principles of Total Value ensure that our Total Return on Investment report is accurate, robust and adds value.