Tag Archive | Lean accounting

In it for the money

dollar_crash

Simply put, Lean thinking focuses on creating as much value as possible for the customers in the simplest, more efficient way. This work must be visible in the company metrics. In other words, lean must get results that make the company more competitive (=customer oriented). Of course, some lean initiatives might fail, and “trial and error” is a fundamental method of solving problems. The point here is that “applying lean principles and tools” is a means, not a goal.

One typical problem is that Lean ideas do not always fit well with classic accounting. Typical 5s projects get rid of many things you don’t need, but when you eliminate them from the balance sheet, it looks like the 5s project decreased the company value.¬†Lead time reduction in a service process inside the company can mean no benefit at all in $$ using classic accounting, since the same number of people is present, although they might deliver the work twice as fast as before.

This misalignment between classic accounting vs. lean does not have to be a problem, but it could potentially be a serious issue if senior management just measure the goodness of things counting $$ using the classic rules. Financial experts must be brought on board as soon as possible in any improvement initiative to help evaluate real improvement fairly. After that, senior management must be informed and trained on how to really evaluate improvement to avoid misunderstanding.

For more information on lean accounting, this book can be of great help: “Real numbers: management accounting in a lean organization”

 

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