Throughput Economics – answering a troubling question

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How to evaluate a new opportunity, its financial contribution, the generated cost and the involved risk, when quantitative information is, at best, partial?

Managers have to make decisions no matter what. They combine considerable intuition with various tools like cost-per-unit and forecasts that are usually not more than wishful thinking.

Is there another way that would lead to superior decisions?

Complexity and uncertainty seem like huge obstacles to any decision making process. An additional obstacle is that managers are human beings with their own interests, concerns and fears. So, every decision maker has to assess the odds for the organization and also for his/her own safety. This leads to extra care in deciding to go for any bold move, even those with lots to gain and much less to lose.

Getting consensus on key decisions could work well if, and only if, a reliable picture of the range of what the actual results might be can be created.

Another key recognition is:

The same deal/opportunity could be sometimes great and at other times disastrous, depending on what else the organization is already committed to do.

There are two reasons why the same deal could lead to very different impacts on the organization. One is that the new deal could impact existing business, for instance, by agreeing to a low price for a specific deal, existing clients might demand lower price for them as well. Another example is when the new deal compromises the image of the organization in the market. The other reason is that the additional deal might exhaust the capacity of certain resources or materials. This could harm performance in the eyes of customers.

Our book uses fictional stories to demonstrate both the difficulties with current practices and the way to deal with problems without just closing the eyes to reality. The easily applicable generic logic is presented and demonstrated through various non-trivial cases.

We’d be glad to be involved with discussions on the problems and suggested solutions offered by the book.  We’ll do our best to keep open mind to any reservation that might come.

Throughput Economics: Making Good Management Decisions, by Eli Schragenheim, Henry Camp and Rocco Surace. The publisher is Routledge, which is part of Taylor & Francis Group, and it belongs to their Productivity Press, ISBN 978-0-367-03061-2. The book appears also in eBook format.

Amazon and other retailers offer the book and you can always go directly to: