| Article Index |
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| Finance - The benefits of Constraint Accounting |
| Detailed Article |
| Examples |
| Margin v Octane |
| Constraint Accounting for Operations |
| All Pages |
Research suggests that a constraint approach to profit maximisation, leads to a 25% increase in operating profits with significant additional cash flow benefits.
There are two ways one can view the finance function within an organisation: scorekeeper or player. Whilst scorekeeping is a necessary condition of running a business, there is a far more vital role for the finance function, if one subscribes to the view that measurements drive behaviour.
Thus, the finance function cannot abdicate responsibility as player: simply by setting the rules by which the score is kept determines how the game is played.
At both conscious and subconscious levels within the enterprise, the measurement framework implemented will be driving the behaviours of operations, sales and marketing functions. If the measurement framework encourages local optimisation of the division, profit centre, department or work centre, then the behaviour produced will have the effect of isolated functional silos, striving to improve their performance. This local optimisation is often at the expense of the enterprise as a whole.
Research suggests that a constraint approach to profit maximisation, leads to a 25% increase in operating profits with significant additional cash flow benefits.
In order to achieve profit maximisation, companies need to consider the scarce resources (constraints) in their business.
The finance function must drive the management and measurement of constraints in a business, in order to fully integrate Operations, Marketing and Sales in the decision making framework.
