Theory of Constraints Handbook - James Cox Iii [258]
Behavioral Aspects of Decisions
Several aspects of the behavior of decision makers can be influenced by the motivation and reward structure established by an organization’s performance evaluation system. A study of the unintended effects of performance evaluation and how to structure a system that does not encourage dysfunctional behavior48 such as that reported by Austin (1996) in Measuring and Managing Performance in Organization would be a significant contribution.
Because TOC requires teamwork, should evaluation be made only on the team’s performance? How can a team address conflicts in local measures early in a change process? Should a team evaluate individual team members? Are team decisions superior to ones made by individuals? Always? Are certain decisions best made by an individual? How should decisions be evaluated?
Supply Chain Accounting
With all the changes being made in the structure and behavior of supply chains, it would be most interesting to see an accounting/finance solution to the problem of risk- and profit-sharing among all supply chain partners. Other issues, such as required quality, speed, and who benefits from reduced costs or other improvements, also need to be addressed.
Part of the charge for management accounting includes providing a comprehensive internal information system. During the recent global recession, supply chain partners several steps away from the final customer were shocked when markets suddenly dried up with no warning. Sometimes a supply chain member did not even know the final use of their component (Dvorak, 2009). The communication and presentation of information, both frequency and mode, merits further study.
Summary and Introduction of Remaining Chapters in This Section
Chapter Summary
To explain our current accounting and finance environment, the first part of Chapter 13 describes a short history of cost accounting and the massive changes in the business environment during the 20th century. Management accounting’s response, while lagging changes in business, includes the development of direct (variable or contribution margin) income statements to more closely tie income to sales, activity-based costing to more “accurately” trace all costs to cost objects (products), balanced scorecards to stress the importance of nonfinancial metrics, Lean accounting to match the value stream flows in manufacturing, and updated budgeting concepts that permeate all of these methodologies. Both the advantages and disadvantages of these approaches are reviewed.
The remainder of the chapter covers TOC concepts of planning, control, and sensitivity analysis. Figure 13-1 establishes a simple example that is used to demonstrate both planning and control concepts. The negative impact of inventory reduction on GAAP accounting income is demonstrated and compared with TA results. Throughput value days is discussed and applied to inventory control, delayed Throughput, and potential investments. Additional TOC metrics are mentioned. Three files containing multiple spreadsheets, available online, provide supporting data for examples used in the chapter.
Finally, the chapter addresses possible reasons for the lack of TOC literature in accounting and finance and issues a call for further research.
Other Chapters Dealing with Performance Measures
In Chapter 14, Debra Smith and Jeffrey Herman further describe desirable logistic measurements and demonstrate a framework to pull required information from an operation. They use TOC Thought Processes (TP) tools to defuse conflicts and deal with potential negative outcomes before they occur. A nice case study shows the application of these elements.
In Chapter 15, Alan Barnard establishes