Performance Management

Performance Management Share

Whilst a recent PQ article warned young professionals to ‘lay off the booze’ it would seem that when it comes to performance management ‘bottlenecks’ are not something you are so familiar with!

After the December exam your F5 examiner stated that candidates did not really understand what a bottleneck activity is and warned future candidates to read through the suggested answer carefully so let’s see if we can make it clear in this article.

The term bottleneck literally refers to the shape of a bottle and as the bottle’s neck is the narrowest point it slows the progress of liquid from the bottle because it arrives faster than it can be poured. The idea of a bottleneck is central to the concept of throughput accounting and simply put is a constraint that limits all of the other activities of a business. At bottleneck activities, batches of products arrive faster than they can be completed therefore these activities are binding capacity constraints which limit output.

For example, if a product has to pass through all three processes A, B and C, before it is completed which of these three processes is a bottleneck activity?

Time per unit
Process A 2 hours
Process B 5 hours
Process C 0.5 hours

 

It is tempting to suggest process B is the bottleneck as it takes the longest time but this is the wrong way to make the decision.  The question is which process limits output?

Time available Time per unit Maximum output units
Process A 1,000 hrs 2hours 500
Process B 5,000 hrs 5hours 1,000
Process C 200 hrs 0.5hours 400

 

Using this information, process C limits output for the business.  This is the bottleneck and the business needs to maximise return on this bottleneck to maximise its profits.

Now have a look at question 2 from the December 2014 F5 exam which is available to download from the ACCA website.

Cheers!!

Jan Weston

Professional Manager and Tutor

Reed Business School

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