Critical Chain - Eliyahu M. Goldratt [97]
"You see, here we have an example of something that can be presented only through a summation of the multiplications between two different dimensions."
"I see," says Don. "And I even vaguely see how it can be tied to the subject of investments. But can you please do it for us."
"Suppose you invest two dollars," Charlene prefers to explain in tiny steps. "After one day, you are invested for two dollar-days. After five days you are invested for ten dollar-days. Does this multiplication of money-time make sense to you?" She is ready to drop the issue in case of a negative response.
"Perfect sense," Don answers. "Please, continue."
"Now suppose that at the beginning of day eleven you invest another three dollars. For how much are you invested at the end of the day?"
"Let me see," Don tries to decipher. "My original two dollars are invested for eleven days, that gives us twenty-two dollardays. On top of it I invested three more dollars for a day, which means another three dollar-days. In total I'm invested for twenty-five dollar-days. You are right, it is a summation of multiplications. But what's the point?"
"The point becomes clear when I tell you that on the morning of day twelve you got your five dollars paid back. Assume no inflation or interest. Are you satisfied?"
"No, I'm not," Don smiles. "I tied up my money for a period of time, I got back my money, but I didn't get any value for the fact that the money was tied up."
"Exactly." Charlene talks to him as if he is one of her students. "You invested twenty-five dollar-days. You got back your five dollars, but you are still twenty-five dollar-days in the hole. As long as this investment is not returned, you rightfully are not satisfied."
"I got my money back and I'm still in the hole?" Don doesn't get it at first.
They all think about it. "You are right," Don says after awhile. "My investment is actually the summation of dollardays. By the way, do you have a name for it?"
"I call it ‘flush,"' Charlene almost giggles. "To be satisfied, you must make sure that you at least flushed out your investment. I stress it because at the end of the payback period, when everybody tells you to be satisfied that you got your money back, that's exactly the point in time that you are invested the most, when you are the deepest in the hole in terms of dollardays."
"Now I also understand your warning about not having the intuition," Don says. "We regard money and investments as almost synonymous, but now I see how vastly different they are. They don't even have the same unit of measure. Money is measured in dollars, investment in dollar-days. I have to think about it, it may change our entire investment program."
He looks at his watch. "It's a pity I have to leave now, but I'm sure we'll have many more fruitful discussions. Johnny, can you please show me the way to your president's office? By the way, what does B.J. stand for?"
Eliyahu M. Goldratt's fascinating work as an author, educator and business pioneer has resulted in the promulgation of TOC into many facets of society and has transformed management thinking throughout the world. He has developed a powerful 8-session educational series that provides a common-sense approach to business that enables any organization to achieve optimal global performance.
For more information on Eli Goldratt and his current projects visit: www.eligoldratt.com
For information on other TOC books please visit our web site: www.northriverpress.com
For more information on the Theory of Constraints go to: www.goldratt.com
Table of Contents
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter