Saturday, December 22, 2007

Value Adding and Value Destruction

Dear Colleagues

The Tr-Ac-Net Organization has a focus on performance in the international relief and development sector. Value adding and value destruction explain how so much money and effort has resulted in so little sustainable development.

Nothing is sustainable unless the resources consumed are less than the value realized. But that is not enough, because an activity also needs to have positive cash as well as positive value creation.

Experience shows that it is not enough to have high profits in the corporate and financial sectors of a society. If resources are not deployed to maintain the infrastructure and the commons of the society, there is a potential problem ... and manifested widely in the modern US economy.

Value adding and value destruction are related ... they are linked quite closely. An activity can be value destroying for a time, and then the activity can be value creating, and the earlier value destruction is justified. The education of a child has some of this characteristic ... it costs money to educate a child, and there are times when the expense seems to be a complete waste ... and then the child grows up and the value of the education is converted into a well paying job, and then the value is realized.

Value destruction is almost institutionalized in the modus operandi of the major institutions of the relief and development sector. They often fund short term projects which do some good ... and then stop. The value created through their work has the appearance of value, but disappears as soon as the project goes away. It is almost 100% waste to do development in this manner, but it is the way almost the whole of the relief and development sector operates.

Spending money does not automatically create value ... the only thing that spending does for sure is to be a cost. The activity that goes on is the source of potential value ... and this depends on what the activity does. If the activity cures a disease, there is value. If the cure is permanent the value is considerable, if the cure last but a short time then the value is much less.

For most of its history, the World Bank (WB) has used disbursement to measure its performance ... and has been continually disappointed at the poor performance of the beneficiary countries, although it has tried to put a good face on the situation in its various (many) publications. The WB has rarely looked at value adding analysis in assessing the performance of its projects, which is not at all surprising since most have been value destruction rather than value creating. This is a serious allegation, but the data do show a large amount of disbursement and rather little of relief and development progress.

In this blog, we will address the matter of value adding and value destruction ... and identify ways in which there can be much augmented value adding.


Peter Burgess
The Tr-Ac-Net Organization