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Finance & Measures Application Exam

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    Introductory Comments:

      This is a four part exam the fourth part being an integrated case. Each segment is 4 hours (8 HOUR EXAM TOTAL)

      Upon successful completion of the Applications Exam the applicant must become a fully paid TOCICO Member to receive the full endorsement of the TOCICO, the TOCICO Certificate of Expertise and have their accomplishment recognized on the TOCICO Website.
  1. Finance and Accounting Fundamentals (2 hours)
    Objective:
    Demonstrate a practical knowledge of the fundamentals of both managerial and financial accounting and there underlying economic principles. Demonstrate the ability to compare and contrast the differences between The Theory of Constraints Throughput Accounting and the above.
    1. Understanding "rules” and terms of GAAP financial statements
    2. Understanding "Contribution or Direct Costing financial statements
      1. Create financial statements from a common set of data elements under the rules for standard costing/gross margin vs. direct costing/contribution margin a. Proper placement of standard variances.
      2. Timing differences on balance sheet recognition and statement of cash flows recognition.
    3. Understand and contrast full absorption accounting
      1. Traditional and Activity Based Costing
      2. Direct (or variable) costing vs. throughput accounting
      3. Product profitability analysis as well as financial statement reporting
        1. Problem set deriving product profitability from common data set using:
          1. Full absorption costing with various drivers
          2. Direct costing vs. TOC product profitability
          3. Lean Accounting vs. TOC accounting
          4. Compare and contrast logic for use of 3a1, 3a2 and 3a3 (above)
            1. Possible distortions resulting from use of each:
    4. Understanding standard cost allocation methodologies
      1. Impacts on unit costs
      2. Product profitability,
      3. Capital budgeting and investment planning decisions
  2. TOC Thinking Process-Finance & Measures (2 hours)
    Objective:
    Demonstrate the ability to analyze any environment’s finance, measures and decision making system using the four fundamental question of the thinking process.
    1. Why change?
      1. Understand and explain the UDE linkages to the core problem associated with external accounting requirements that overlap the internal decision making system and measures.
      2. Understand interdependencies of fundamental building blocks of return on Investment and the possible dysfunctions when they are used as KPI (key performance indicators)
    2. What to change?
      1. Understand and explain the core conflicts in finance and measures in any type of organizational system through the cloud format:
      2. Demonstrate the ability to surface the erroneous assumptions that underlie the core conflicts in finance and measures in any type of organizational system.
    3. What to change to?
      1. Know how to link the ROI key components system subcomponents to a decision making system synchronized with a constraint focus.
      2. Be able to create the necessary injections:
        • that overcome the erroneous assumptions that underlie the core conflicts in finance and measures in any type of organizational system
        • build the logical connections from the proposed injections to their predicted effects
        • Add the additional injections necessary to round out solution to mitigate the risk and create the necessary buy-in.
    4. How to cause the change?
      1. Create:
        • injection maps,
        • IO maps (focused on understanding the integration of new finance and measures in overall solutions)
        • Pre-requisite trees
        • Transition trees to ensure a realistic, time sequenced implementation plan to implement your solution sets.
      2. Understand and communicate the obstacles and intermediate objectives that predictably arise across the organization/supply chain from changes in finance and measures to any level in the organization.
  3. Finance and logistical solutions (2 hours)
    Objective:
    Demonstrate the ability to understand and design the new measures and decision making system to successfully support a Process of On Going Improvement using the logistical solutions of the Theory of Constraints.
    1. Finance and Metric Requirements to support the decision making system for Supply Chain Logistics (Drum Buffer Rope and Replenishment Inventory Management). Requirements include being able to:
      • Demonstrate the TOC methodology to design the buffer management reporting information system. (All types of buffers (stock, time and capacity): size, expedite, relevant data feedback loop, improvement)
      • Understand the use of measures to align all levels of the organization with corporate long term goals.
      • Contrast traditional accounting "measures” and "Rules” that reinforce "push” vs. "pull”, in product environments.
      • Understand implementation of buffer management reporting for planning, process improvement and investment decisions.
      • Understand the role of budgeting in a TOC environment.
      • Know the role of measures and how they are used throughout the organization/supply chain in a Theory of Constraints Organization.
    2. Critical Chain Project Management (CCPM) B. Critical Chain Project Management (CCPM)
      • Demonstrate the TOC methodology to design the buffer management reporting information system (project buffers, feeding buffers).
      • Understand the use of measures to align all levels of the organization with corporate long term goals.
      • Contrast traditional accounting "measures” and "Rules” that reinforce "push” vs. "pull”, in project environments.
      • Demonstrate the ability to use Portfolio management to prioritize projects and investments in a Theory of Constraints Organization.
      • Contrast traditional project risk measures for individual project planning and execution that reinforce re-planning Vs buffer management.
      • Understand the role of Earned Value Analysis in both traditional and TOC environments.
    3. The integration of all enterprise logistical systems (DBR, Replenishment, CCPM) and the appropriate reporting and measures to create a portfolio management decision making model to tie their tactics and investments to the organization’s short run and long run strategy.
  4. HOLISTIC Decision Making CASE (2 hours)
  5. Objective:
    Demonstrate the ability to synthesize, analyze, make decisions and implement the solution set as well as to identify and mitigate the risks associated with the decision.

       
V.  Recommended Finance & Measures Books
  1. The Haystack Syndrome: Sifting Information Out of the Data Ocean, Eliyahu M. Goldratt, North River Press,  1990.
  2. Reaching the Goal: How Managers Improve a Services Business Using Goldratt’s Theory of Constraints (especially Chapter 7), John Arthur Ricketts, IBM Press, 2008.
  3. Throughput Accounting: a guide to constraint management, Steven M. Bragg, John Wiley & Sons, Inc., 2007. [Caution: Chapter 4 has some mathematical errors.]
  4. Approximately Right Not Precisely Wrong: Cost Accounting, Pricing & Decision Making, Yoram Eden and Boaz Ronen, The North River Press, 2007.
  5. Throughput Accounting, Thomas Corbett, North River Press, 1998.
  6. Management Accounting Best Practices: A Guide for the Professional Accountant, Steven M. Bragg, John Wiley & Sons, Inc., 2007.
  7. The Measurement Nightmare: How the Theory of Constraints Can Resolve Conflicting Strategies, Policies, and Measures, The St. Lucie Press/APICS Series on Constraints Management, CRC Press, 2000.
  8. The Theory of Constraints and Throughput Accounting, Janice Bell, Monte Swain, Jan Bell, Shahid Ansari, McGraw-Hill, 1998.
  9. The Theory of Constraints Handbook (especially Chapter 13), James Cox and John Schleier, Editors, McGraw-Hill, 2010.
  10. Any recent Management Accounting textbook.  Familiarity with the following concepts is a minimum requirement:
a. Cost terms, Concepts, and Classifications
b. Job order costing
c. Process costing
d. Cost-volume-profit relationships
e. Variable costing
f.  Standard costing
g. Relevant costs for decision making