Profit Maximization requires knowledge of a system’s limitations. Knowing what limits a system enables decisions that improve it, instead of decisions that only affect a part of the system.
TPACC’s approach to Profit Maximization leverages the entire system’s improvement and prioritizes decisions in the following order:
1. Maximizing Throughput,
2. Minimizing Investment, and
3. Minimizing Operating Expenses*.
The above order of priority is was developed by Dr EM Goldratt, developer of the *Theory Of Constraints. The priorities are generally, but not necessarily, applied in for-profit systems, and not for-profit systems such as healthcare providers. There are only nine fundamental concepts applied to maximize profitability, so things are kept very simple. Throughput Accounting Profit Maximization starts with Concept 1, which emphasizes that performance measurement is focused on measuring things that affect the holistic system’s performance, and ends with Concept 9, which determines whether the system is moving closer, or, further from its goal.