While lean projects deliver definite savings in time and resource requirements, the same lean projects may fail to reflect these improvements in the new costs and quotes being sent out to buyers because a staggering amount of procedural debris chokes a company’s financials.
Money is the language of business so it is really important to have an understandable language where operations and finance come together.
Lean Accounting, fully compliant with Generally Accepted Accounting Principles, is a tool which provides accurate, timely, and understandable information to motivate the lean transformation throughout the organization. Moreover, Lean Accounting supports the lean culture by motivating investment in people, and empowering continuous improvement at every level of the organization as it organises the entire factory into value streams. Once organised as value streams, each of the streams are assessed to account for the resources being used, and thus is one of the most accurate methods of calculating cost of utilities.
Key Characteristics of Lean accounting
Cost and profitability reporting is achieved using Value Stream Costing, a simple summary direct costing of the value streams. The value stream costs are typically collected weekly and there is little or no allocation of "overheads.” Any organisation looking at adopting Lean Accounting must
- Separate variable from non-variable costs
- Separate direct from shared between value streams
- Separate accounting transactions for labour and overhead
- Use easy to understand language
It must also be understood that organisation can’t practice lean accounting without practicing lean operations, and deploy value stream mapping and spaghetti diagram.
Lean Accounting vis-à- vis Traditional Accounting
As compared to the monthly statements of traditional accounting, lean accounting firms produce weekly value stream income statements. More frequent income statements give better understanding, better control, and timely lean improvement activities. Lean Accounting statements are wider in scope as they focus on full revenue and costs without allocations. Traditional Accounting focuses only on the cost side of the ledger, not on revenue or value.
Moreover, Lean Accounting abandons the weaker controls (due to the monthly cycle, historical orientation, and narrow focus) of the traditional accounting for effective controls with more frequent statements. Moreover the value stream focus creates excellent financial and operational control for the value stream. Subsequently, Lean Accounting leads to more systematic improvement as Value Streams truly embody lean flow and waste elimination.