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Throughput Accounting

Page 19

Throughput Accounting is a lot of things:

an accounting system,
a financial application,
an improvement initiative – POOGI – Process of On-Going Improvements and,
the decision-making arm of Dr Eli Goldratt’s Theory of Constraints.
Decision making arm of ToC

Δ Throughput

Δ Investment

Δ Operating Expenses

Decisions are linked to causality,

Throughput Accounting first saw the light of day around 1984.

In 2019, the biggest Financial Accounting body in the world, the AICPA, included the topic of Throughput Accounting in its syllabus.

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Financial Accounting and Management Accounting are different

Financial Accounting

The Past & Reliability

Owners
Security Exchanges
Creditors
Accuracy
Precision

Earnings
Taxation
Valuations
GAAP & IFRS

Management Accounting

The Future & Relevance

Decisions
Relevance
Strategy
Planning
Resource Allocation

Investment
Control
Approximation
Segments
Operations
Profits

Note: Data from Etienne Du Plooy from the book ‘Throughput Accounting Techniques’ – page 7

Page 19

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Excess

(Performance)

Protective

(Necessary for FLOW)

Productive

(Mandatory for Throughput)

THE CAPACITIES

DEMAND

CONSTRAINT

SLACK

Page 26

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The non Constraints must have excess capacity

Constraint is BUILD

DESIGN

UAT

ARCHITECTURE

BUILD

CAPACITY

----------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------

A

B

C

D

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4

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2

5

2

1

FULL�KITTING

Waiting for

In Process

DEVELOPMENT

INTEGRATION

UAT

DEPLOY

Waiting for

In Process

Waiting for

In Process

DONE

Waiting for

In Process

Flow Time in Hours per Feature = 10

The constraint has the highest Flow Time !!!!

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5

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Cash paid for output

Output

Cash paid for availability

Output created

Suggests that the more output you create, the more you have to pay for it !

Suggests that capacity is a variable CO$TS

The input capacity you paid for can be used to produce, or not, all that �you need!

Without hesitation

Costs per unit is irrelevant in marginal decision making.

Getting a low Cost per unit entails burning a lot of cash by maximizing production.

(required for GAAP carrying cost)

Cost Accounting

Throughput Accounting

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Airport Example - CFD

Time

Number

of Planes

Departures

Arrivals

When the departure rates of planes is less than the arrival rate, instability occurs.

Number of planes

at the Airport!

Things are getting

out of control!

Page 47

7

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TAKE HOME – at work and over the last 18 months?

Time (18 months)

Number

of Projects

Projects

Finished

Projects

Started

When the finish rate of projects is less than the starting rate, instability occurs.

Number of active projects

is getting out of control!

Page 47

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A Kanban Board

4

15

4

9

Done

∞

Phase B

Phase C

Doing

Done

Doing

Done

Ready

Phase A

Done

5

Phase D

Doing

Page 56

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Flow Efficiency Board

Phase B

Phase C

Phase A

Phase D

Waiting for

In Process

Waiting for

In Process

Ready

Done

In Process

Waiting for

Page 56

10

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TRADITIONAL KANBAN BOARD – Parking Spaces

Prod

4

6

4

6

∞

5

Ready

Doing

Development

Done

UAT

Doing

Done

Demo

Doing

Done

Merge on master

Doing

Ready for UAT

Ready for Build

Waiting for External

3

6

Note: The items in RED are not conducive to Flow Efficiency.

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HEURISTIC FOR IMPROVEMENT

Page 56

Wait time first — Touch time second

�a) Limit WIP + postpone commitment

b) Reduce wait time for better flow efficiency

c) Reduce touch time at Constraint

�

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Expansion vs Growth – How to get 5 times sales with TA !!!

5

Exploiting The Constraint

No impact on Investments
No impact on Operating Expenses

Exploit the Constraint

2

Elevate the Constraint

4

Page 73

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Expansion vs Growth – How to get 5 times sales with TA !!!

5

Exploiting The Constraint

No impact on Investments
No impact on Operating Expenses

Exploit the Constraint

2

Elevate the Constraint

4

Page 149

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Mafia Offers

Mafia offers have characteristics of their own:

The offer must be explicit, detailed and targeted to the customer
The offer must be built to mitigate risks for the customer
The right customers must be pursued
You must short circuit your competitors’ lead time – when they are on a month’s scale, you go on a week’s scale
You must destroy their DDP – Due Date Performance
The offer must improve operations almost immediately

“A mafia offer is an offer that is so good that your customers can’t refuse it and your competition can't or won't offer the same.” Dr Lisa Lang

Page 153

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According to Donald Reinertsen – 2009

Common Causes have a greater impact than in manufacturing. Therefore, common causes should be taken into consideration especially for finding improvements opportunities …

Page 182

Note from Daniel Doiron : The way we work, the tools we have, the processes and people we interact with never change from day to day … They have nothing to do with complexity … This is where the goose with the golden egg thrives

16

🙶

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From an exchange with Donald Reinertsen

Page 188

‘’Today’s orthodoxy (PMI) constrains the scope of work and drives variability into timing. The new paradigm (Scrum) constrains timing and drives variability into the scope of work. These two approaches are fundamentally different.’’

Note from Daniel Doiron – Time has one degree of Freedom .. Scope has an unlimited amount of degrees of freedom …

The key is to do agile target scope plans that are chewable but can slip on time … Being late or early in SCRUM creates and amplifies complexity

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% Buffer Used

% Project Complete

BUFFER FEVER CHART

Page 191

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GEMBA - According to Donald Reinertsen

Page 200

‘’So, if product development is your game, don’t think that going to gemba is going to solve your problems – it won’t even identify them. Almost nothing that is truly important is visible in the physical environment of engineering. Critical issues like batch size, overlap of activities, sequencing of tasks, margin in the design, architectural partitioning choices, and risk management strategy are not apparent by observing the physical objects.’’

Daniel Doiron : My personal message to you is this: be the gamba. Let people come to you. Show them your know-how to ‘do’ agile. Then become a leader. You won’t become a leader unless you know how to ‘do’ agile. Don’t fall for mastering procedures, roles, rituals, ceremonies and responsibilities. Learn instead how to hit the ground running.

I can see a connection with Lucas’ critique in importing the manufacturing ‘Gemba’ practice blindly to Knowledge-Work. Can’t you?

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Define

Build

Analyse

Design

SLACK lives here by design!

Produce

Implement

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---------------------------------------------------------------------------------------------------------------

Constraint is BUILD

Page 256

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Constraint is BUILD

Define

Build

Analyse

Design

All managerial activities have no costs but at constraint

Produce

Implement

Note: Do not create red tape on that account. At the constraint, make sure all activities are aimed at keeping the constraint busy

Setup Costs

Coordination & Transaction Costs

Inspection Costs

Inspection

Page 256

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Define

Build

Analyse

Design

All managerial activities have no CO$TS but at constraint

Produce

Implement

Setup Costs

Coordination & Transaction Costs

Inspection Costs

Page 256