Review: Throughput Accounting vs. Throughput Accounting

Been to busy to blog again, but I have been reading. For some time now, I have been studying whatever material I can lay my hands on about Throughput Accounting (TA). TA is a management accounting system that is based on the Theory Of Constraints (TOC).

Who needs another accounting model? Just about everyone, it turns out, because the standard model, GAAP Accounting (Cost Accounting), is so fraught with problems it is positively dangerous. Though GAAP accounting works sometimes, it does not always come up with the right answers. TA is a more reliable alternative.

This review covers not one, but two TA books, the recently published Throughput Accounting by Stephen Bragg, and Thomas Corbett's Throughput Accounting, from 1999. (Yes, they have the same title.)

In the book Throughput Accounting: A Guide to Constraint Management, Stephen Bragg explains how TA works, and he does it very well. The focus is on accounting for manufacturing companies. Thus, some of the specifics are not directly applicable to the software industry. However, all the principles are.

The book discusses not only the basics of TA, but also how to use TA for performance measurement and reporting. Bragg also discusses the differences between TA and GAAP Accounting financial statements, and how to construct an accounting system that uses TA for reporting to management, and GAAP Accounting for external reports.

If there is one weakness in the book, it is that Bragg asks the reader to just accept the TA view of a company. He does not prove GAAP Accounting wrong, at least not from the start.
For me, this was not a problem. I have read up on TA before, and have used it in my work when doing financial analysis, and when I have modeled project value streams. For a reader with a background in GAAP Accounting, it might be harder to make the switch to the TA system.

Nevertheless, this is my favorite TA book, though I would advice anyone without previous TOC or TA experience to also read Throughput Accounting, by Thomas Corbett. Corbett spends a lot more energy describing what is wrong with standard GAAP Accounting before offering TA as an alternative.

Corbett's book does not cover quite the range that Bragg's book does, so I'm glad I have read both. Even if you have read one, the other will contribute something of value. When working through the examples in Corbett's book, I found one minor error, but as the end result was correct, I believe it is a typo, not an error in the calculations.

Both books are worth longer reviews, but as both are fairly short, there is an alternative to reading a comprehensive review: read the books!


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