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Throughput Accounting for General Systems

Throughput Accounting [Corbett 1998] is a management accounting process that grew out of the manufacturing production application of the Theory of Constraints [Goldratt 1984]. Throughput Accounting can be generally applied for the management, control, and reporting of any system. It is a useful technique for management systems based on the Theory of Constraints, Lean Production [Womack 1991], Six Sigma [Tayntor 2002], or the Toyota Production System [Ohno 1988]. Throughput Accounting is appropriate for managing general systems because it focuses on Throughput, which is the desired adaptive behavior of the system.

02fig02.gifFigure 2-2. Throughput Accounting for a general system.

Figure 2-2 demonstrates how to assign the basic financial measurements of Throughput Accounting to a general system. Throughput Accounting treats the value of the input at the time of arrival as Investment (I). The costs of operating the system are treated as fixed costs. It is assumed that the system is a continuous process and that after it processes an input, it goes on to process another and so on. The only marginal (or direct) costs are those associated with delivering specific units of output as they leave the system, that is, packaging, delivery, and installation. The fixed costs of operating the system are defined as Operating Expense (OE). The value attributable to the output is known as Throughput (T). Throughput is the value of the output less any direct costs. Throughput Accounting isn't necessarily about money. Value can be measured in other ways, as will be shown in the forthcoming education system example. Value, in the general case, is an abstract term.


Throughput Accounting is at odds with the traditional form of management accounting practiced in western business — cost accounting. The differences between cost accounting and Throughput Accounting will be examined later in this text. At this stage it is sufficient to realize that Throughput Accounting focuses on the desired adaptive behavior of the system (Throughput), while cost accounting focuses on the cost of the energy expended in the system (Operating Expense). As the energy expended in the system has a nonlinear relationship to the desired adaptive behavior, cost accounting is a method that seeks to control the output of a system using an often inaccurate nonlinear mapping of cost against result.

Example: The Education System2

Figure 2-3 shows a simplified, but valid, model for the education system. A pupil arrives at a school for a new term (the input). During the term the school expends energy teaching, and hopefully, the pupil learns. At the end of the term, an assessment of learning is made through examinations. The test results are then used to determine the level of learning achieved and whether the pupil can pass to the next grade. The output from the system is a pupil with an enhanced level of knowledge.

02fig03.gifFigure 2-3. The education system (simplified).

The education system can be described using complex adaptive systems language. It can be stated that a higher level of knowledge is the desired adaptive behavior and that test results are emergent properties of the system.

Throughput Accounting the Education System

Figure 2-4 shows the same education system diagram and demonstrates how to assign the basic values for I, OE, and T.

02fig04.gifFigure 2-4. Throughput accounting for education.

In this case, the value of Investment and Throughput and the Value Added by the system are all measured in terms of knowledge. Throughput Accounting does not need to be about money.3 Throughput Accounting is a method of management reporting that adapts to the units of the desired adaptive behavior of the system.

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