Need to understand the following formulas

TH=R-TVE
NP=TH-OE
ROI=NP\I

In addition
In case of a portfolio management what would be the financial metrics that would demonstrate the portfolio health? Great thanks

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Hi Cherifa,

One campfire that addressed Portfolio was the one with Daniel Plourde … I am sure there must be at least another one but memory fails me this morning : https://www.youtube.com/watch?v=0dbep4ddJIk&t=1757s

Hi Cherifa,

I have done a livestream with JC on Throughput Accounting a week ago … Here is the link : https://www.youtube.com/watch?v=h-uKfKzvymQ&t=2130s

Basically — TH = Sales - Totally Variables Expenses (TVE) — Most often times called TVC

There are two kinds of expenses/costs in Throughput Accounting. Those which vary in a correlation of 1:1 with Sales which are called Totally Variables Expenses and those who do not — Those are called Operational Expenses and are period costs.

Net Profit is equal to your sales (TH) minus Operational Expenses for the period.

ROI - Return on (I)nvestment is NP divided by (I). (An important note here is the notion that Net Profit under GAAP and TA are not the same)

Also missing and more important than ROI is Operational productivity = TH/OE.
And another ratio which is less often use, Capital productivity = TH/I

When reasoning in terms of Throughput Accounting those equations apply across the board. So even when considering a portfolio of projects, initiatives, products.

The beauty of Throughput Accounting is that with only 3 equations you can make all management decision, on the basis on their economic significance.

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Thanks Daniel! Will check
C

Good to know! At the portfolio level, I guess the predictions are articulated in a Lean business case as benefits hypothesis?
Thanks

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The primary measure is always the delta in financial throughput. (The Goal).

Secondary measures (Critical Success Factors, Necessary Conditions) are expressed in terms of Expected Effects which are either clearly observable, or measurable - preferably measurable.

If measurable, then we take the lessons from Tom Gilb on how to quantify requirements, etc. Note that next Tuesday’s campfire talk will have Tom Gilb as the guest, and the topic will be about quantification!

Remember that in the TameFlow the smallest unit we manage at the Portfolio level is the MOVE - and by definition a MOVE is a Unit of Business Outcome and/or a Unit of Throughput Value. So unless you have identified such outcomes or values, the Full-Kitting of the MOVE is not complete.

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