Most businesses these are focused on increasing sales; increasing the number of products, customers, and markets. Rather than focusing on cutting costs, focusing reducing labor or making the company smaller, they want to grow as quickly as practical. Despite this, many companies end up doing just that. How? Using the financial decision methodology that is built to allocate costs, not grow sales.
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.
Cost Accounting; Bad for Making 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.
Bigger, divided companies lose the global view and managers are forced to use the method most available; traditional cost accounting. Cost Accounting was invented to overcome this obstacle. Throughput Accounting is proven to be a solid guide to making good decisions.
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.
Cost Accounting; Bad for Making 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.
Bigger, divided companies lose the global view and managers are forced to use the method most available; traditional cost accounting. Cost Accounting was invented to overcome this obstacle. Throughput Accounting is proven to be a solid guide to making good decisions.
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