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Lean Accounting ThinkingNick KatkoBMA, Inc.

The Financial Impact of a Lean Strategy

Changing Accounting Function Thinking

Changing Organizational Financial Thinking

Wrap Up & Questions

Agenda

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Financial Impact of a Lean Strategy

Lean is a People-Centric Learning Strategy

Master work by Learning

Find right problems

Capabilities to solve

problems

Ability to analyze

changing contexts

Organization doing things tomorrow it

can't do today

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Lean is a Financial Growth Strategy

1. Eliminate Waste

2. Create Capacity

3. Create competitive advantage

4. Sell more products or

services

5. Revenue Growth

The Economics of Lean: The Foundation for Discussion

Deliver value & create competitive advantage

Revenue growth rate increases

Demand

Continuously Improve

Manage cost growth rate

Supply of Resources

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Lean Strategy: Financial Benefits are not direct nor immediate

Commitment to Lean Strategy

Learn & Solve

Problems

CreateCapacity

(time)

Use capacity to

delivery value

Achieve Financial Success

$

Revenue

Profit Costs

Time

$ Revenue

Profit

Costs

Time

Traditional Strategies Lean Strategy

Long-Term Financial Impact of Lean Strategy

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Example of the Economics of Lean• Your Value Stream

currently sells 1000 units per month at a price of $200

• Using Lean you free up 20% more capacity & increase sales to 1200 units per month.• What is the new

monthly profit?

Revenue $240,000Materials $144,000Production $60,000 Profit $36,000 (15%)

Revenue increases 20%. Profits & Cash increases 80%

Revenue $200,000Materials $120,000Production $60,000 Profit $20,000 (10%)

Changing Accounting Thinking

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Financial Accounting Thinking

How did we achieve financial results?

Analyze the financial

statements

Ask Operations

what happened

Determine what the numbers

need to be

Financial Engineering

Lean Thinking

What is our current

performance?

Identify Problems &

Issues

Improvement Activities

Permanently Solve

Problems

Sustained Improved

Performance

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Lean Financial Thinking: Solve Tomorrow’s Financial Problems

What is our current

financial performance?

Identify Operational Root Causes

Solve Operational Problems

Deliver Value & Improve

Productivity

Sustained Financial

Improvement

The Role of Management Accounting

•

Strategy

Management Accounting Function

Business ModelInputs, activities, outputs, outcomes

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Management Accounting must change

•

Lean StrategyPeople, Value,

Process

Lean Management Accounting System

Lean Business ModelThinking, Learning, Flow/Pull,

Improvement

Accounting: Recording the Economic Activity of an Organization• Daily operational performance• Problem solving and prevention• Is Performed in Operations

Daily Operational Accounting

• Weekly Box Score Review (performance, capacity, profits)

• Improvement activities identified, managed and completed

Weekly Value Stream

Accounting

• Monthly Financial Statements• Performed by Accounting

Monthly Financial

Accounting

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Changing Organizational Financial ThinkingBreaking the Paradigms

Increasing Profitability:Rate of Flow = Rate of Profitability

Improve Rate of

Flow

Improve Rate of Profitability

Become a Low Cost Producer

Achieve long term,

financial success

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Definition of an Asset

• An economic resource (expenditure)• which can be expressed in dollars• and produces value

Has Economic Value

• Has utility (benefit) over multiple accounting periods

• If this utility in a single period, then expenditure is an operating expense

Economic Benefit

• People • TimeLean “Balance

Sheet” Assets

Changing Financial Thinking

LaborAn expense to be managed;

headcount matters

Most important asset;

productivity matters

Time & Costs

Longer production time = higher costs

2nd most important asset: maximize value-

added time

Overhead Costs

Allocate to understand true

cost of operations

Root cause analysis of spending at

source

Traditional Lean

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Changing Financial Thinking

Financial Goals

Make the Financial Plan

Make the Flow Improvement

Plan

Cost Management

Actual-to-Budget Analysis

Dynamic relationships

between performance,

capacity & costs

ProfitabilityAnalyze by customer, segment,

business unit, product

Value streams are profit centers

of a lean business

Traditional Lean

Wrap Up: Lean Financial Thinking

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Lean Financial Learning SystemDynamic relationships between

• Lean Strategy• Lean Operations• Financial Numbers

Integrated Measurement

System

• Financial analysis based on Economics of Lean• Used by all functions in organization

Lean Financial Management

System• Rate of Flow = Rate of Profitability• Impact of Improvement• Rate of Improvement necessary to achieve

financial goals

Financial Impact of Lean

Dynamic Relationships in Changing Contexts

Operating Performance

CapacityFinancial Performance

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Integrated Organizational Financial Thinking

Financial Performance Daily Accounting

Financial Management Weekly Accounting

Lean Strategy

Lean Accounting: The Flow of Money

• Order Flow• Information Flow

Lean Operational

Flow

• Accounting for the Flow of Money• Revenues & Expenses• Financial Management & Analysis

• Internal Use

Lean Accounting

• Reporting requirements sometimes “mask” the flow of money

External Financial Reporting

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Lean Accounting is a People-Centric Financial Learning Strategy

Master work by Learning new

financial analysis

Find right financial problems

Analytic capabilities to solve financial

problems

Ability to analyze

changing contexts,

situations, risks

Organization doing things tomorrow it

can't do today

BMA Services

• On Site Visit

• Can be combined with on-site training

Training

• On-site Lean Accounting Training

• Public workshops

• Lean Accounting Kaizen Events

• Lean Accounting Pilot for one value stream or location.

Pilot Implementation Assessment

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Want More?

Blogs, articles, books etc. Visit www.linkedin.com and either join or sign in. Go to the Groups tab, search on “BMA Lean Accounting” and join in. Forums, networking, and more.

www.maskell.com nkatko@maskell.com LinkedIn

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2. Send your e-mail address to me at nkatko@maskell.com

Thank you for attending this workshop!