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.