Assumption is the mother of all misunderstandings

This title I picked up from bharani, it is a fantastic phrase and and is quite true. One of the important take ways that I have from my previous employer & people whom I worked with there has been this
“Always Question/Validate your assumptions”.

They were absolute fanatics in doing this step !!

Most of the mistakes that happen in general can be avoided if the assumptions are validated ahead of time. Now what about some assumptions which have had their testimonies from ‘time’ and are age old. I think in those case it would not even occur to question assumptions and if they are being done there will be stiff resistance to that idea( primarily because of fear of change).

I just finished reading the book “The goal” , it is a very popular business book written in the form of a novel which tackles the fallacy behind some of the blatant assumptions made the “cost based accounting” methods.

Eli Goldratt the author introduces an important method called “thoughput accounting”. One of the most important wrong assumption of cost based accounting is to allocate costs to parts of individual steps in a process which thus does a local optimization. For example, inventory appears on the balance sheet of a corporation as an asset. But actually it is a liability, ones wants less of inventory, because it ties up working capital and makes you less lean and agile. The following is the essence from the book

” Throughput accounting focuses on value delivered to the end customers, not on cost reduction. Secondary to throughput is inventory, which includes anything you’ve bought in anticipation of turning it into throughput. Raw materials are one such thing. Inventory could include intangibles like consultancy for product development; it could also include the undepreciated value of machinery as well as product materials. Both of these are deviations from cost accounting. Finally comes operational expense, which is the outlay of turning inventory into throughput.
The goal of throughput accounting is to increase throughput whilst simultaneously reducing “inventory and operational expense.”

Throughput accouting basically offers another perspective of looking at accounting. Traditionally it has been ROI, cashflow & net profit, throughput accounting says what is important is ‘Throughput, Inventory & operational expense.

Well reading this reminded of the course on Soft computing that I had took, where Genetic Algorithms were illustrated to show how they attain a global optimum, one begins with an objective function and then evolutionary operation are mimicked to move towards the objective function within a given set of constraints.