Constraints Determine Performance

Even if profit is the main objective of business transactions, it’s seldom known exactly how much the business’s profit figure is, until all the administration has been completed.

It takes time to reliably determine profit. Delayed decisions result in less profit. Eventually, when the profit figure has been determined, it’s often too late to take those decisions.

Throughput Accounting provides swift KPI² metrics for decisions that achieve goals.

Throughput Accountants know that constraints determine the performance of an enterprise, so they measure and improve the Throughput generated by constraints. Improving the performance of constraints improves the performance of an entire enterprise because more Throughput correlates directly with Net Profits.

Throughput¹ is the velocity of money (from net sales and totally variable costs) flowing through an enterprise. So, exploiting the constraints that limit an enterprises Throughput, improves the ability to generate Throughput, adding more money to the bottom line.

Companies flourish when they start to measure the things that affect profits.

¹ Throughput is used in  the Theory Of Constraints (TOC) as developed by Dr EM Goldratt. TPACC are experts in TOC.

² KPI=Key Performance Indicators are Throughput/Constraints based.


 

Throughput Accounting doesn’t just require a management decision to implement it. A complete commitment from everyone involved to implement it is required. Implementing Throughput Accounting means that a system becomes based on collaboration and shared purpose, functioning with total goal congruence in order to achieve its goals.

Is your enterprise ready to accept Throughput thinking?

Throughput Accounting

Products do not have profits, systems do

Performance measurement is systems based

Constraints determines systemic performance

TA drives behavior focused on global performance

Traditional Costing

Products have profits

Performance measurement is cost center based

Efficiency determines department performance

TC drives behavior focused on local performance

 


Uses of Throughput Accounting:

• Improve the mix of products and services your organization offers to the market.

• Learn how constraints determine the performance of organizations.

• Build achievable budgets, forecasts, plans, & strategies.

• Improve customer mixes.

• Easily model the system’s Throughput.

• Improve productivity.

• Improve investment in non-constrained resources.

• Develop achievable financial goals.

• Design products that customers demand.

• Monitor distribution channel Throughput.

• Make a significant impact on wealth creation.

• Improve ROI (Return on Investment).

• Improve the productivity of entire supply chains.

• See why inefficiencies don’t always loose money.

• Combine LEAN principles with the Theory Of Constraints

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