The Goal of making money

The Goal is a must read novel for every business owner & employee about turning around a production plant on the verge of being shut down.

Key concepts:

• The Goal: Making money
• Productivity: What you do that results in making money
• Bottleneck: The factor that places a limit on reaching the goal
• Non-bottlenecks: Factors that have spare capacity

Objectives - based on system wide measurements:

• Increase throughput - money coming in
• Reduce investment - inventory and inaccessible money
• Reduce operating expense - money spent to make throughput happen

Management - ask these questions for each objective:

• What to change?
• What to change to?
• How to cause the change?

Five step process of ongoing improvement:

• Step one - identify bottleneck
• Step two - exploit bottleneck
• Step three - subordinate entire system to step two decisions
• Step four - evaluate the systems bottlenecks
• Step five - if the bottleneck has been broken, go to step one

Operational Accounting:

• T = Throughput = money coming in
• I = Inventory = money currently in the system
• OE = Operational Expense = money spent to make throughput happen
• NP = Net profit = throughput - operating expense = T-OE
• ROI = Return on investment = net profit / investment = NP/I
• TAP = TA Productivity = throughput / operating expense = T/OE
• IT = Investment turns (IT) = throughput / investment = T/I

Net profit needs to increase along with simultaneously increasing return on investment and cash flow. Operational accounting should be included in accounting and management courses and software solutions.

"I view science as nothing more than an understanding of the way the world is and why it is that way." - Eli Goldrat