Throughput Accounting - Is Traditional Cost Accounting Bad?
Today, companies are focused on increasing throughput - the rate at which a company generates money through sales. They want to expand products, customer base, markets, and so on. They want to grow as much as possible, as quickly as possible. They do not want to focus on shrinking their company or labor force. Yet, the most commonly used financial tools tell companies to focus on cutting costs in order to maximize profits, making expenses the focus of companies, not sales generation. This often leads management to make decisions that actually harm a company.
Businesses are required to use financial models that move them towards their objective. Throughput accounting, focused on cash flow, provides one that that is transparent and focused on moving the organization forward. By making better decisions, such as which products to outsource, which processes to improve, and what pieces of equipment to buy, managers are better able to help the organization reach its goal of making more money.
Is Tradition Bad for Making Good Decisions?
How can a manager tell how a decision he makes in his area of responsibility affects the organization as a whole? Often, he is unable. This problem comes sharply into focus for a manager in the middle of the organization, who does not have a global view of the organization. He can only see his area and those near him.
For a business leader in an enterprise, the issue is more troublesome, because he or she must concern themselves with the decision making of multiple managers involved in many aspects of the enterprise. We know from experience that local managers often make decisions that are counter to the purpose of the enterprise. A single person periodically making a bad decision is usually not significant, but if there is a systemic error in many managers' understanding of the enterprise's functioning, many poor decisions will be made, which could create significant, long lasting damage.
Larger, subdivided enterprises lose their system-wide perspective,the bigger the enterprise, the bigger the problem. Managers are forced to rely on decision rules that are interpret this disconnect, typically based on Traditional Cost Accounting. Throughput Accounting solves this problem.
Businesses are required to use financial models that move them towards their objective. Throughput accounting, focused on cash flow, provides one that that is transparent and focused on moving the organization forward. By making better decisions, such as which products to outsource, which processes to improve, and what pieces of equipment to buy, managers are better able to help the organization reach its goal of making more money.
Is Tradition Bad for Making Good Decisions?
How can a manager tell how a decision he makes in his area of responsibility affects the organization as a whole? Often, he is unable. This problem comes sharply into focus for a manager in the middle of the organization, who does not have a global view of the organization. He can only see his area and those near him.
For a business leader in an enterprise, the issue is more troublesome, because he or she must concern themselves with the decision making of multiple managers involved in many aspects of the enterprise. We know from experience that local managers often make decisions that are counter to the purpose of the enterprise. A single person periodically making a bad decision is usually not significant, but if there is a systemic error in many managers' understanding of the enterprise's functioning, many poor decisions will be made, which could create significant, long lasting damage.
Larger, subdivided enterprises lose their system-wide perspective,the bigger the enterprise, the bigger the problem. Managers are forced to rely on decision rules that are interpret this disconnect, typically based on Traditional Cost Accounting. Throughput Accounting solves this problem.
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