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14 June 2015

information accounting up the big data tree

The information deluge is real. It is all around us. More servers are spitting out more information as the internet is growing and we are all collecting more information on more aspects of every day living.

While some of the initial thinkers around big data is still searching for great ways for big data promises to become real – there is a little discipline that shows potential as a big idea.

Enter information accounting.

A couple of years ago there was some people that talked about the idea of information accounting. A type of “double entry” system for information that would account for the data assets of an organisation. The idea never really took off to the extent that some people today totally reject the notion that there is any value in knowledge management as a discipline.

Lets take a step backwards and look at the invention of accounting.

Luca Pacioli (1445 – 1517), also known as Friar Luca dal Borgo, is credited for the “birth” of accountancy. His Summa de arithmetica, geometrica, proportioni et proportionalita (Summa on arithmetic, geometry, proportions and proportionality, Venice 1494), was a textbook for use in the abbaco schools of northern Italy, where the sons of merchants and craftsmen were educated. It was a compendium of the mathematical knowledge of his time, and includes the first printed description of the method of keeping accounts that Venetian merchants used at that time, known as the double-entry accounting system.

Although Pacioli codified rather than invented this system, he is widely regarded as the “Father of Accounting”. The system he published included most of the accounting cycle as we know it today. He described the use of journals and ledgers, and warned that a person should not go to sleep at night until the debits equalled the credits. His ledger had accounts for assets (including receivables and inventories), liabilities, capital, income, and expenses — the account categories that are reported on an organisation’s balance sheet and income statement, respectively. He demonstrated year-end closing entries and proposed that a trial balance be used to prove a balanced ledger. His treatise also touches on a wide range of related topics from accounting ethics to cost accounting.

There is also hindu mythology that attributes a method for accounting to Hemadrapant who had created the “Bahi Khata” which was both a method of accounting for the family tree and also a ledger system.

Where initial information accounting systems failed is that it took a transactional (vs an asset based) view of information. We wanted to account for the information we had in the system and forgot that this only creates more data.

In approaching the idea of information accounting we have to realize that information is an asset that is either being used or not.

Information at rest is a dead asset or a liability and information in motion – or information that is being transformed using a viable business process, is a profitable venture.

This means that information being collected is an income statement element and information becoming out of date, ads to the ifnroamtion expense line.

There are thus implicit paradigms that can be used to account for the cost of maintenance of information, ethical considerations and “process” capital. The idea of process capital is the ways in which information can be transformed to effectively move from being gathered into being used and would represent the value of management in a traditional organization and is more likely to be similar to BI and analytics in today’s world.

Conceivably it would then be possible to draw up an information balance sheet and its purpose would be to indicate the health and wealth locked in the data sets that we carry. Information managers can then apply specific processes, paradigms or design patterns to the data and this would unlock value.

This all sounds very complex and may only be of limited use.

On a more practical level – we can also ask ourselves to what extent we are carrying around useless information and to what extent existing information sets our there about ourselves is useless. For a lot of us our MySpace accounts are definitely a liability – because most of us have not used it in more than 5 years and it is likely to be still alive? However our LinkedIn and Facebooks accounts are a far more valuable asset. By the principles in a potential information accounting schema we could value these systems in terms of how current it is, what we are doing with it, and to what extent it adds value to our objectives.

This information accounting paradigm would then offset the asset value in the one account vs the liability value implicit in the other account and can develop a workable method for measuring “information value added”.

Another potential use is in CRM systems in which the real question is often to what extent is the information that I collect about people useful. So the essential metric is one that asks – how many of these relationships in this system are being and is potentially useful to maintain, or to what extent does sending another email to this base limit or damage my brand. Careful analysis and an information accounting paradigm would be able to match the statuses to a framework that shows where the leads are in a pipeline and to what extent the in/out flow of information is leading to value being created for the end customer and thus for my business.

Every accounting system needs a fundamental equation – maybe a place to start is to say that

Information + Process = Information Income

Information Income + Accumulated Information Income = Information Assets

Information Decay = Information Expenses

Information Expenses + Accumulated Information Expenses = Information Liabilities

Information Assets – Information Liabilities = Information Value

Change in information value over time is information value added or information value destroyed. There must also be something in the system that allows for measuring the speed of a process and relates it back to the rate of both information income and a natural “depreciation” in all information as no information is really static.

All seems logical for now. The real challenge would be to map these into simple dashboards from complex sets of information at a first level and on a second level to determine the impact of different events in a system to these parameters.

So how does ethical considerations impact information accounting? It does potentially slow down collection of information, but speed up the transformation process.

Initiatives can also be take into consideration based on their potential impact by determining if it adds to the velocity of information being transformed or not.

So it may not be a workable science yet – but there is definitely something to think about in this concept.

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