Learn the skills of a powerful, yet simple financial management approach that maximizes profit. Throughput Accounting (TA) is a principle-based and simplified management accounting approach that provides managers with decision support information for enterprise profitability improvement. It identifies the critical factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizational goals.
Designed to swiftly equip you with throughput accounting knowledge, you’ll be able to apply the concepts within hours.
If you’re getting the wrong indicators from traditional costing methods, such as Absorption Costing, Standard Costing, Activity Based Costing, etc, then TA provides you with a simple, powerful alternative to decision making. Also referred to as Constraints Accounting or Theory of Constraints Accounting, TA can help you improve your productivity and make your profits soar to new heights.
The Decision Maker’s Challenge
Managers and executives need a way to predict and accurately measure the effect of local decisions on the global enterprise. The challenge is to get local managers to make good decisions that optimize performance of the organization as whole, rather than optimizing the local performance of their organization or department.
Often, in an effort to manage the dollars in an organization, the local managers manage budgets, which, while important, do not mimic the decisions of the business. Most importantly, budget management assumes a fixed revenue source, over which local managers have no control. The result is that local management decisions become one dimensional – based on expenses and local optimization. The reality is that every local manager, being part of the system, can have a significant impact on the revenues of an enterprise.
Secondly, managers often use their judgement to shape financial decisions. This results in decision analysis, that on the surface seems objective, but can hide assumptions about the decision being evaluated. This results in varying decision criteria through the organization, making it difficult for senior managers to evaluate the quality an analysis.
To overcome these problems, managers use cost accounting information to support decision making. Modern costing systems have one thing in common: allocation of total costs to products and services. Although systems of allocation vary, they all share this flawed assumption.
The Throughput Accounting Difference
TA was proposed by Eliyahu M. Goldratt as an alternative to traditional cost accounting to support management decision making. As such, it is neither accounting nor costing because it is focused on cash flow. It does not allocate fixed costs to products and services sold or provided by an enterprise. It is also unique in that it for many decisions, direct labor is treated as a fixed expense.
TA forms the business intelligence used to maximize profits emphasizing those decisions that generate more throughput. The singular uniqueness of TA is the identification and respect of the organization’s Constraint.
Throughput Accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables: throughput, investment (AKA inventory), and operating expense.
Constraints; the Secret to Improved Performance
Every organization has at least one constraint that limits it from achieving better performance. We know this is true, because without constraints, organizations would be achieving infinite performance! These workshops will show you the difference between internal and external constraints and how taking the right action with a combination of historical and proactive data will yield huge gains in performance.
Our courses are not just theory, but are based on real-world experiences over the last 20 years. We teach you how to avoid making the common errors that inexperienced people often make, so you’ll get it right the first time. Whether you have in-depth knowledge or you’re a novice, our workshops will cultivate the proper thinking and improve your decision making capabilities.
Begin now. Identify a champion to implement, and empower your team with the tools to get started measuring performance the TA way.
What We Do
We’ve developed the workshops to transfer the essential knowledge; knowledge that includes throughput accounting’s unique abilities to:
Quantify the financial results by focusing internal resources
Refocus current efforts to improve performance
Our in-house workshops use the best instructional methods and techniques to ensure a positive experience.
Who Should Attend
These workshops are taught from a global perspective. Ideally, a team from finance, sales, operations, and distribution with strategic and profit making decision abilities will benefit the most. A team can collaborate on planning and implementing what they have learned. Of course, individual participants are welcome, too.
Each module is approximately 4 hours in length, but may taught in a single day in a compressed format
Module 1 = The Global Organization
- Learning Objectives
- How throughput accounting is different from traditional accounting
- How business process is linked to financial decision making
- The basics of the Theory of Constraints
- Theory of Constraints
- Making Better Decisions
- How We Got Here
- Making Throughput #1
- A Better Model for Decision Making
Module 2 = Flow
- Learning Objectives
- How decisions about flow affect the bottom line
- How the absorption measurement leads to lower profits
- How daily capacity decisions can affect the organization’s throughput
- The most common batch sizing method is flawed
- The plant’s problems
- The value of flow
- Batch sizing decisions
- The value of time
Module 3 = Performance Management
- Learning Objectives
- Recognize that measurements drive behavior and thus, business results
- Identify how inventory dollar days and throughput dollar days measures can create aligned behavior
- Recognize that earned value can create the undesirable behaviors
- How measurements drive behavior
- Performance evaluation measurements
- Project performance management
- Supply chain performance management – dollar-days
Module 4 = Sourcing & Inventory
- Learning Objectives
- Learn the inventory management conflict built into most organizations
- Show how inventory affects competiveness
- Learn the concept of Flush
- How to get your components sourced for practically free
- Issues in Inventory Management
- Making Decisions about work in process
- Impact of inventory on statement accuracy
- Capital acquisition
- Evaluating Investment Decisions – Flush
- Make / Buy – Outsourcing or In-sourcing?
- These Measurements Must Die
Throughput is defined as revenue minus totally variable expenses, generally, the cost of raw materials or services incurred to produce the products sold or services delivered (T=R-TVE).
The Theory of Constraints is based on the premise that the rate of goal achievement by a goal-oriented system (i.e., the system’s throughput) is limited by at least one constraint.
The argument is as follows: If there was nothing preventing a system from achieving higher throughput (i.e., more goal units in a unit of time), its throughput would be infinite — which is impossible in a real-life system.
Only by increasing flow through the constraint can overall throughput be increased.