CHAPTER 13
Traditional Measures in Finance and Accounting, Problems, Literature Review, and TOC
Measures
Charlene Spoede Budd
Introduction
This chapter is a basic introduction to Throughput Accounting (TA). To provide historical
perspective, the chapter provides a brief review of both the business environment and the
development of cost accounting methodologies.
Accounting personnel usually are among the last people to be educated in Theory of Constraints
(TOC) concepts. We are constantly amazed at the reported successful TOC implementations that
have not educated accounting and finance people at all. Yet operations people expect that they
can overcome resistance to their improvement plans. One very successful TOC implementation
champion, strongly supported by the CEO, lamented that he could not understand why the
accounting department had hired additional personnel to track the cost of each individual
operation when he had established a seamless flow line. The accountants were doing what they
had been taught to do. Without an understanding of TOC concepts, when they had sufficient
information, they would begin questioning the cost of certain operations, reporting local
efficiencies, and providing other misleading information such as unit costs.
I hope that this chapter will develop an appreciation of accounting and finance personnel—what
they can do for you and what they can do against you—and provide a strong argument for
educating accounting and finance personnel along with those in operations. TOC initiatives need
collaborative partners rather than colleagues who constantly construct a maze of barriers. For
accountants who have a suspicion that traditional accounting methodologies produce internal
data containing weaknesses for decision makers, this chapter will point out where the
weaknesses exist. To accomplish this ambitious goal, the chapter will:
Copyright © 2010 by Charlene Spoede Budd.
• Briefly describe the history of traditional cost accounting and explain why it no longer provides
the information needed to support the improvement initiatives made possible by TOC.
• Survey, classify, and describe the limitations of the profession’s various accepted (published)
solutions to replace traditional internal measurement systems.
• Discuss the breadth of TA and its impact on all TOC initiatives through a continuing case study.
• Identify the need for future research in accounting and finance to support TOC concepts,
including the development of relevant performance evaluation systems.
The final section of the chapter will introduce the remaining chapters in this section of the TOC
Handbook.
Traditional Cost Accounting and Business Environment
Cost accounting is designed and developed to help managers make decisions. When cost
accounting’s assumptions mirror those of the organization, the information provided enables
good decisions. Conversely, when accounting assumptions are not valid, managers make good
decisions only by using their intuition or by chance and not by using the accounting information
provided.
As the environment changes, internal accounting and reporting should be changed to reflect that
new environment and provide information that is more relevant to managers. In most companies,
as we shall see, this adaptation has not occurred or has greatly lagged changes.
Development of Cost Accounting
Accounting has been around since exchanges first began taking place, but until the 19th century,
few people were involved in financial reckonings and internal accounting was mostly conducted
visually by owners and managers. With the onset of the industrial revolution and the growth of
large companies, accounting became more important and cost accounting began to be developed
to control large organization chaos (Kaplan, 1984; Cooper, 2000; Antonelli et al., 2006; McLean,
2006).
Since the industrial revolution began first in Great Britain, their engineers and accountants were
the first to recognize the need for cost/management accounting (Fleischman and Parker, 1997;
McLean, 2006; Edwards and Boyns, 2009), but their accounting developments were not
publicized (Fleischman and Parker, 1997). In the United States, modern cost/management
accounting began in the late 19th and early 20th centuries (Tyson, 1993), especially with the
introduction of mass production.1 The scientific management movement, supported by the
theories of Frederick Taylor2 (1911, 1967), Walter Shewhart (1931, 1980), and Mary Parker
Follet’s enlightened approach to management (Follett and Sheldon, 2003), drove the
development of supporting cost/management accounting by engineers and accountants such as
Alexander Hamilton Church (Litterer, 1961; Jelinek, 1980), who railed against “averaging”
production overhead costs over all jobs or products produced and insisted that all production
costs must be assigned to orders or products (Church, 1908). In a two-stage process, overhead
typically is assigned first to departments and then to jobs or products passing through the
department.
Business Environment, First Half of the 20th Century
Frederick Taylor’s theories, while not universally accepted, were widely believed and practiced
by companies during the early decades of the 20th century (Kanigel, 1997). Business schools,
including Harvard Business School (Cruikshank, 1987) began teaching Taylor’s scientific
management.
By the 1930s, most large manufacturers had adopted some form of manufacturing overhead
allocation, but standard costs and related detailed variance analysis did not come into widespread
use until after World War II (Johnson and Kaplan, 1987). Rather than being developed to control
manufacturing costs, the original purpose of variance analysis was to value inventories and
derive income statement costs (Johnson and Kaplan, 1987). This is because generally accepted
accounting principles (GAAP) require that actual (not standard) costs appear on the balance
sheet and the income statement and standard costs, plus favorable variances or minus
unfavorable variances, equal actual costs.
During World War II, the demand for war supplies fueled widespread implementation of mass
production (Grudens, 1997). Following the war, companies rushed to fulfill pent-up consumer
demand, and some companies used standard costs and variance analysis to control production
costs (McFarland, 1950; Vangermeersch and Schwarzback, 2005).
Business Environment, Second Half of the 20th Century
During the 30 years following World War II, U.S. companies basically followed the same
strategy of cost-conscious mass production. In addition, the premier department in schools of
business, those drawing the most intelligent students and wielding the most political power,
slowly switched from accounting to finance.
During the 1960s and probably much earlier, Harvard Business School began teaching MBA
students how to manage by the numbers, meaning using a company’s financial records and other
formulas and models developed in finance (Peters and Waterman, 1982, 30) to manage the
company. While there were cautions published about the formulas’ complex and fragile treatment
of uncertainty in the development of financial models and the overreliance on the skills of MBAs
(Hayes and Abernathy, 1980, 67; Peters and Waterman, 1982, 31–33; Johnson and Kaplan, 1987,
15, 125–126), the predominance of finance departments over accounting departments in both
academia and industry gradually spread across the United States and throughout the world during
almost the next two decades.3 The focus of the 1980s on behavioral consequences of the
formulistic approach to business decisions lasted about a decade; by the 1990s, though, business
was back to using formulas and models, along with new continuous improvement methodologies
(Dearlove and Crainer) in order to regain ground lost to international competitors.4 This
movement no doubt was inspired and certainly facilitated by consulting firms who found
ingenious ways to convince management that their assistance was required (Stewart, 2009).
Accounting’s Response to a 20th Century Changing Environment
Management accounting, for most companies, barely noticed the changes occurring in business
due to their general absorption with other accounting areas (e.g., financial, tax, auditing) and
most especially GAAP accounting for external reporting (Johnson and Kaplan, 1987, 2–14, 125).
However, it became obvious during the 1980s that traditional accounting and accounting reports
had lost their relevance for internal decisions (Johnson and Kaplan, 1987).5 Fully absorbed
manufacturing costs, including variable and fixed costs of production (whether actual or standard
costs), accumulated for external reporting purposes typically do not provide information needed
by managers for operating decisions.
Some solutions to the irrelevance of management accounting information have been known for a
number of years, but have not been widely accepted and practiced. In addition, newer solutions
recently have been proposed (Kaplan and Norton, 1992; Johnson and Broms, 2000; Smith, 2000;
Cunningham and Fiume, 2003; Oliver, 2004; Van Veen-Dirks and Molenaar, 2009). The most
well-known proposed accounting solutions are discussed in the following sections.
Direct or Variable Costing Income Statement
Direct or variable costing6 (where all costs are divided into fixed and variable components that
are then recorded in separate accounts), however, has been included in textbooks since at least
the 1960s (Dopuch and Birnberg, 1969, Chapter 15) and has been covered in virtually every cost
and management accounting textbook since that time (Hilton, 2009, Chapter 8; Garrison,
Noreen, and Brewer, 2010, Chapter 7). The basic format begins with revenues earned, then
subtracts all variable costs to provide contribution margin (sometimes called gross margin). From
contribution margin, all fixed costs (both manufacturing and general, selling, and administrative)
are deducted to arrive at operating income. This method is not acceptable for external financial
statements, however, and has not been broadly accepted.
Direct or variable costing is presented in all cost and managerial accounting textbooks as a
method of periodic reporting and for providing information for decision makers. The basic idea
is that revenue, minus all variable costs (basically equivalent to out-of-pocket costs), is
subtotaled as contribution margin. Fixed costs, that must be incurred each period, are then
subtracted from contribution margin to find operating income. While contribution margin may be
used to find a contribution margin per constraining unit (discussed later), this topic is treated
independent of the direct costing income statement. In addition, many accountants were taught
that direct labor, the cost of workers actually transforming a company’s product (“hands-on”
work) is a variable cost, as was true when cost accounting was developed at the start of the 20th
century.
Because TA follows the same basic format as direct or variable costing accounting for periodic
reporting, however, this discussion is important.
Advantages of Direct Costing
Advocates for direct costing base their interest on internal flows (Dopuch and Birnberg, 1969,
Chapter 15)7 and providing information for internal decisions. They claim that direct costing:
• Focuses attention on those costs that most closely approximate the marginal (incremental) costs
of production;
• Relates profit to sales, rather than to sales and production, as does traditional accounting;
• Treats fixed costs as a period expense since these amounts must be expended in order to be in
position to produce and must be incurred each period without regard to production quantity (that
is, certain costs must be incurred even when production is at or near zero).
The advantages and disadvantages of direct costing are discussed in every cost or management
accounting textbook when the methodology is introduced. While supporters and distracters at
one time were passionate in their support or opposition, most authors now just list the advantages
and disadvantages.
Disadvantages of Direct Costing
Opponents of direct costing do not accept the benefits claimed for direct costing and point out its
theoretical weaknesses. They claim, as support for their stance, that direct costing:
• Violates the matching concept of accounting where the total unit cost of production (variable
and fixed) must be recognized in the period when units are sold and not match the period in
which they were incurred;
• Does not account for the total costs of producing a product on a recurring basis and that full
(totally absorbed) costing, as in traditional accounting, is a better measure of the incremental cost
of production;
• Is only applicable over a specified output range and variable costs may change outside the
originally assumed range. (Of course, fixed costs are subject to the same claim.)
While it is difficult to know what proportion of companies regularly record variable and fixed
costs in separate journal accounts (companies are not required to disclose this information), the
author’s experience is that most companies do not. Since the separation of costs into fixed and
variable components is required for virtually all internal decisions, this information must be
accumulated in special studies. Unfortunately, most accounting/finance departments have little
time to devote to special projects when relevant information is not readily available.
Activity-Based Cost Accounting
Activity-based cost (ABC) accounting might be considered accounting’s attempt to “return to the
basics” with several new twists. First, overhead is assigned to many pools, not to departments.
Second, since all overhead costs can be changed over time, they are assumed to be variable.
Third, the selection of allocation bases (drivers) used to allocate pool costs depends on whether
costs are incurred at the unit, batch, product line, or facility level. (Facility-level costs include
general manufacturing costs common to all production.)
In practice, companies implementing ABC accounting allocate manufacturing costs as originally
proposed by Church (1908, 1917), but rather than assigning overhead costs to departments, they
are allocated to activity pools. Activity pools are holding accounts where costs for a particular
activity, such as material movement, can be accumulated prior to being charged to users of the
activity. Thus, if one product or product line requires more movement than other products, it
would receive more of the material movement costs (Cooper et al., 1992).
Advantages of ABC Accounting/Management
Besides appearing more precise than traditional accounting, ABC accounting offered several
advantages. ABC accounting:
• Gave companies (and accounting departments) hope that they could do something to reverse
their poor business performance;
• Validated claims by operations people that small runs of “special” products cost more to
produce than did long runs of common or commodity-type products;
• Silenced, for the most part, “fairness” arguments concerning overhead allocations;
• Provided much detailed information that could be analyzed for improvement initiatives, leading
to the development of activity-based management (ABM; Cokins, 2001).
In addition to these advantages, companies that have taken the first step of charting all flows
from purchase of raw materials through production processes to finish goods and shipping prior
to implementing ABC have universally reported benefits achieved from their increased
knowledge of their systems. Making use of all the data collected and updating it to track frequent
changes in the business environment, however, has proven quite difficult and costly.
Disadvantages of ABC Accounting
As originally developed, ABC accounting and ABM required tremendous amounts of
quantitative data on anticipated and actual driver (allocation base) consumption.8 Complex
original implementation efforts and continuing data collection issues resulted in complaints that
ABC accounting:
• Requires too much detailed data collection efforts by operating employees who did not want or
use the information provided;
• Permits subjective selection of pools and drivers;
• Lacks an easy way to identify erroneously reported data;
• Mixes fixed and variable costs in the same pool (by assuming all costs are variable);
• Focuses on reducing costs, not generating revenue;
• Generates costs that greatly exceed benefits attained (Palmer and Vied, 1998; Geri and Ronen,
2005; Bragg, 2007a, 207–209; Ricketts, 2008, 54.).
Even though the adoption of ABC accounting or ABM has been low and scattered (Kiani and
Sangeladji, 2003; Cohen et al., 2005; Bhimani et al., 2007), academics and consultants continue
to support the methodology (Stratton et al., 2009).
Balanced Scorecard
Recognizing the importance of appropriate performance measures to motivate employees to
coordinate their activities (and later to implement company strategy), a performance scorecard
that included nonfinancial metrics was developed by industry leaders.9 “The scorecard measures
organizational performance across four balanced perspectives: financial, customers, internal
business processes, and learning and growth.” (Kaplan and Norton, 1992; Kaplan and Norton,
1996, 2.) While the most well-known advocate of the balanced scorecard has not abandoned
activity-based costing (Kaplan and Norton, 1996, 55–57), a more balanced set of measures is
intended to include the guidance of nonfinancial metrics and provide a more global perspective.
Surveys indicate that balanced scorecard concepts are used in most large companies in the
United States and throughout the world. Despite reported successful implementations, however,
there is little empirical evidence that implementing a balanced scorecard results in increased
earnings (Speckbacher et al., 2003).
Advantages of a Balanced Scorecard Performance Reporting System
One of the major benefits of a balanced scorecard system, its ease of understanding, also may be
one of its biggest flaws. It is entirely possible that managers, easily accepting the basic idea of
balancing metrics across all aspects of a business and therefore prone to implementing balanced
scorecards without outside consultants, have not sufficiently customized their balanced scorecard
systems. Nevertheless, companies expect that a balanced scorecard performance reporting
system will:
• Focus all employees on longer-term goals;
• Clarify the relationships and importance of various strategic goals;
• Align employee behavior with strategic goals;
• Provide relevant and timely feedback to managers;
• Promote better decisions;
• Improve operating performance (Lawson et al., 2003; Buhovac and Slapnicar, 2007;
Anonymous, 2008, 80).
Unfortunately, most of these expectations are unfulfilled for the majority of adopters.
Disadvantages of Balanced Scorecards
It is estimated that up to 70 percent of organizations have adopted balanced scorecards (Angel
and Rampersad, 2005). However, even proponents of balanced scorecards admit that up to 90
percent of adopters fail to execute well-planned strategies (Weil, 2007). For whatever reasons,10
balanced scorecard promises have not been delivered. One author came up with a list of “Top
10” problems with most scorecards (Brown, 2007, 9). Most researchers conclude that a balanced
scorecard:
• Encourages too many measures that divert focus from what is important;
• Gives obvious priority to financial measures; bonuses are rarely based on non-financial metrics;
• Excludes, too often, appropriate measures for learning and organizational growth;
• Provides an unfavorable cost/benefit ratio;
• Produces measures from diversified divisions that cannot be aggregated at the corporate level;
• Neglects to clearly connect strategy with action at the individual employee level;
• Provides lagging metrics that do not produce timely information (Bourne et al., 2002;
Speckbacher et al., 2003; Brown, 2007, 9; Weil, 2007).
Lean Accounting
Borrowing liberally from English translations of Toyota’s development of Lean operations, all
the way from The Machine That Changed the World (Womack, Jones, and Roos, 1990) to The
Toyota Way (Liker, 2004) and The Toyota Way Field Book (Liker and Meier, 2006), Lean
accounting intends to adapt to accounting the basic principles of eliminating waste, reducing
time and cost, and developing value streams.
Lean concepts were developed in the manufacturing industry, but even service industries now are
adopting Lean techniques. For example, in an attempt to reinvigorate its operations, Starbucks
recently introduced Lean techniques in its coffee shops (Jargon, 2009). An executive search firm
(recruiting Lean executives) has begun using Lean concepts (Brandt, 2009), back offices are
implementing Lean (Brewton, 2009), and even hospitals are trying it out (Does et al., 2009).
Connection to Value Stream Analysis (Cell Manufacturing Analogy)
The traditional accounting approach consists of gathering, by department, division, or segment,
direct costs, which include all variable costs of production plus fixed costs benefitting a single
unit, and allocating common costs (shared fixed costs) to all units that benefit from the common
costs. In contrast, Lean accounting, like Lean operations, focuses on establishing, for a value
stream (a production flow for a particular product or family of products), a flow of data that
rapidly produces high-quality information (Maskell and Baggaley, 2004, 9–10). For example, if
processing accounting transactions individually, one by one, speeds up the flow of information to
operating managers, that methodology is preferred even though batch processing of data may be
a more cost-effective process. Most Lean accounting advice, though, applies to operations, not to
activities of the accounting department itself.11
Applying Lean accounting concepts to an operation where costs are aggregated by value streams,
established for each product line or family of products, requires “dedicated” value stream
resources. Each stream is designed to speed the flow of production and minimize arbitrary cost
allocations. Dedicating resources to each stream results in some duplication of resources.
Duplication of resources, of course, increases costs. Production, however, is speeded up and
revenue is earned more rapidly.
Lean accounting recognizes the arbitrary nature of allocating common (shared) fixed costs and
attempts to avoid this issue either by dedicating resources to individual value streams where
allocations are limited to product family members or just not allocating common manufacturing
overhead costs such as those for buildings, security, human resources departments, etc.
Demonstrating the strong tendency to revert to accountants’ extensive traditional accounting
education, however, two Lean accounting books (Maskell and Baggaley, 2004; Huntzinger,
2007, Chapter 17, see especially p. 259) recommend allocating common fixed resources in order
to produce a total cost per unit. A fully allocated cost per unit, though, is of dubious value to
managers.
Advantages of Lean Accounting
Lean accounting proponents claim that through participating in kaizen events, an attempt to
attain continuous improvement and referred to as a kaizen blitz(SM)12 when performed by a
focused team over a short period of a few days, the exposed opportunities for improvements can
be supported by accounting measures and reports. By understanding and reporting the results of
Lean initiatives, Lean accounting supports improvements such as:
• Reduction, frequently dramatic, in work-in-progress (WIP) inventory13;
• Elimination of non-value-added processes resulting in decreased total processing times;
• Increased company productivity;
• Reduced setup and changeover times;
• Increased on-time deliveries (Womack et al., 1990, 81; Liker, 2004, 3–6; Polischuk, 2009;
Shipulski et al., 2009).
These advantages are the result of applying Lean concepts throughout an organization or a
supply chain. Even with accounting support, realizing benefits promised by Lean initiatives is
extremely difficult.
Disadvantages of Lean Accounting
General lack of success in copying another organization’s strategy has been experienced, if not
reported, by many firms. Attempting to reproduce improvement results on other than a shortterm basis without supporting behavioral and cultural changes generally has not been successful.
Failures of Lean implementations, and Lean accounting, have pointed to the following
deficiencies:
• Top management does not actively and continuously support Lean initiatives;
• Accounting/finance people are not included in Lean training sessions (a not uncommon
situation for all improvement initiatives);
• Information flows are not adapted to match new Lean flows (value streams);
• Publicizing local “successes” creates competition among various units of an organization;
• Appropriate performance metrics are not developed (Achanga et al., 2006; Stuart and Boyle,
2007; Pullin, 2009; Shook, 2009).
In addition to the new accounting developments discussed previously, some traditional
accounting techniques such as standard costs and master budgets have remained powerfully in
place.
Traditional Budgeting, Capital Budgets, and Control Mechanisms
While some organizations disparage the budgeting process (Anonymous, 2003; Hope and Fraser,
2003; Nolan, 2005; Weber and Linder, 2005), most companies still go through the annual angst
of budget preparation with all the pomp, posturing, and political maneuvering of a public
sporting event. Even if bad behaviors erupt, there are good reasons, such as detailed planning,
company-wide coordination, and synchronization of effort, to undergo this process.
Regardless of the particular accounting methodology used to record and report transactions
internally, most organizations, including governments, prepare budgets for various time periods,
typically for a quarter or annual period, but sometimes for three- or five-year periods. Budgets
not only can be for differing time periods, but can be very specialized, such as a budget for a new
product introduction or another individual project, an operating budget focusing on expected (or
hoped for) operating income, a capital budget for asset acquisition, or a budget covering an entire
organization, called a “master” budget.14
Master Budgets
Comprehensive (master) budgets should follow carefully laid strategic plans (although
sometimes they proceed, or evolve into, the strategy). This process forces introspection and
consideration of underlying assumptions and intended or possibly unintended consequences. In
addition, budgets can project cash flow shortages in time to acquire bank-lending commitments
at favorable times—before the cash is needed. For convenience, an annual master budget
typically is broken down, somewhat arbitrarily, into monthly or quarterly subperiods and can
require many months of back and forth communications between the finance department or
budget committee and affected departments, business units, or segments (Bragg, 2007a, 30).
Financial planning includes preparing a projection of what the company hopes to accomplish for
the next period. The typical budget process begins with projected sales in units and in currency,
on a monthly basis, for a 12-month period.15 Based on expected sales and certain information
concerning desired inventory levels, production in units, material acquisition (in units and
currency), labor costs, variable overhead elements, and other production fixed overhead amounts
to be incurred are estimated, both in terms of cash outflows and overhead applied, for each
month of the period. At this point, cost of sales, including materials, labor, and applied overhead,
is computed for each month. Next, a schedule of general, selling, and administrative expenses,
usually divided into variable and fixed components, is prepared.
Using the previous information, along with assumptions concerning collections from customers,
payments to suppliers, asset acquisitions, and the timing of other cash inflows and outflows, a
statement of changes in cash is prepared. Only then is sufficient information available for
projected income statements and balance sheets. (See master budget relationships, in the
diagrams, in Hilton, 2009, 350; Garrison et al., 2010, 375.)
Capital Budgets
One of the largest cash requirements involves acquisition of additional assets. In large,
decentralized organizations, capital budget requests are prepared by investment centers that have
responsibility for return on assets as well as profit and loss. These centers require additional
resources in order to fulfill their stretch goals and do not (and probably cannot) predict the
impact of their request on the entire organization. Therefore, executive committees usually
schedule marathon sessions where managers come in and present their cases, using projected
cash flows and net present values, for additional investment. The committee then must decide
which proposals to fund16 based on logical analyses of short, compelling, and often competing
presentations.
Due to the time required to achieve budget agreement on budgets of all sorts, management is
frequently reluctant to revise budget numbers when original assumptions are invalidated. Thus,
the data formulated during the fall for a calendar-year company may be used for the next 12 to
15 months.
Once the budget period begins, large organizations typically prepare periodic flexible budgets,
which are based on actual results of the critical area of the organization on which a master budget
is originated. For example, if a company has excess capacity, the first schedule in a master
budget is sales units, followed by projected sales in the organization’s currency, followed by
production schedules, material schedules, etc. Therefore, once sales are known, expected costs
associated with those sales can be prepared. If a company has more demand than it has resources
to fulfill, however, the master budget must begin with a production schedule featuring the
desired product mix. Then sales, in currency and other supporting schedules can be derived.
Later, actual production and sales of various products, along with expected costs, can be
combined in a flexible budget. Flexible budgets present more meaningful interlocking data once
actual critical area performance is known.
Use of Budget Data
In addition to their planning role, budgets frequently are used in performance evaluation.
Because a master budget contains budgets for each area of an organization, it is easy to engage in
performance to budget, where actual results for each area are compared with budgeted
predictions and favorable or unfavorable variances computed and reported. Flexible budgets, as
reported by every cost and management accounting textbook produced in the last several
decades, control some, but not all, of the damage of this type of performance report.
Advantages and Disadvantages of Traditional Budgets
Advantages of budget preparation include the following:
• Planning for future periods is required.
• Budgets facilitate communication throughout an organization.
• Goals (expectations) are set.
• All areas of the organization have input into the process.
• Upcoming creditor covenants can be met or renegotiated.
• Resource requirements can be established (Hilton, 2009, 348–349; Garrison et al., 2010, 369).
Disadvantages of the budgeting process and its uses are that it:
• Sets an upper bound on performance (diminished incentive to “outperform” the budget);
• Encourages padding of requests (gaming) in anticipation of forced reductions;
• Results in a lack of budget ownership (budget numbers frequently are dictated by upper-level
management);
• Encourages competition between areas for resources;
• Can encourage dysfunctional behavior in order to meet budget amounts;
• Is cumbersome and too expensive (Cunningham and Fiume, 2003, 133–139; Hope and Fraser,
2003, Chapter 1; Hilton, 2009, 375–376).
TOC Approach to Planning, Control, and Sensitivity Analysis
As amazing as it may sound, TOC makes the strong assertion that all the allocation gyrations of
traditional and newer accounting methodologies are not necessary and generally serve to confuse
and obfuscate rather than enlighten. In fact, implementing TOC (or any other management
improvement initiative) without changing the internal accounting and reporting system will send
mixed messages to the troops and eventually, by encouraging people to go back to old and outof-date policies and assumptions upon which previous reporting is based, will un