The Goal: Performance Measurement

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After Jonah explains to Alex the significance of local and global business measurements, and gives Alex a new set of measurements (T, I, OE), Alex faces the decision of how to measure performance in his plant.

D: use Jonah's TOC measurements
D': use traditional cost accounting measurements
B: get a better understanding of how actions work towards the goal of making money
C: show plant progress in a way top management will understand and accept
A: effectively evaluate and monitor plant progress
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In order to effectively evaluate and monitor plant progress I must get a better understanding of how actions work towards the goal of making money and in order to get a better understanding of how actions work towards the goal of making money I must use Jonah's TOC measurements. But, in order to effectively evaluate and monitor plant progress I must also show plant progress in a way top management will understand and accept and in order to show plant progress in a way top management will understand and accept I must use traditional cost accounting measurements. I can't both use Jonah's TOC measurements and use traditional cost accounting measurements.
RelationAssumption(s)Injection(s)
D-D'only one set of data can be presented to management in progress reportsAlex could employ TOC measurements for his own personal use in running the plant, and present data to managers in the cost accounting manner they expect.
B-D1. the assumptions behind cost accounting measurements are wrong
2. we have always measured the plant in the traditional way, and profits continue to decline
3. maximizing local optimums does not maximize global optima
1. if the goal of a company was to cut costs, many of the assumptions behind cost accounting would actually be correct. changing the goal changes the measurements
2. perhaps the measures themselves are not what is causing declining profits
3. if local and global optima were the same, maximizing the former could maximize the latter
C-D'1. management does not understand the logic behind the TOC measurements
2. managers are set in their ways and will be hesitant to change the way progress is evaluated
3. we are required by law to follow traditional accounting standards in public reports
1. management could be open to new measurement suggestions
2. managers could accept the TOC measurements for internal purposes, but present a different set of data to the public in financial statements
A-B1. the cost accounting measurements we have used in the past have not helped stimulate any progress towards the true goal of making money
2. working towards achieving local optima has in fact moved our bottom line further into the red
perhaps the measurements themselves are not causing company losses
A-Cif top management does not trust the data and measurements presented to them, the plant is at risk to being closed down