Arrgghh. It’s NOT About Changing Your Accounting System

IMG_1256I work with companies that are serious about being lean organizations. Most of them use Lean Accounting. It is not about changing your accounting system. It’s about embracing lean principles and methods. Lean changes the way they look at management accounting. Here’s 10 things to think about.

1. The Accounting Systems Do Not Control the Business.

Don’t look at the accounting system as the primary method of business control. Build rigorous controls into the operational processes. Financial people are not “controllers”. They provide important information, but they do not control the business or the value streams.

2. Identify Issues and Problems As They Occur.

Don’t use financial variance reporting. Use the operational information for short-term problem fixes, and longer term continuous improvement to prevent the problems occurring again. Catch the issues where they are and when they happen.

3. Give People Information They Can Understand.

Provide frequent financial information to the value stream managers and present financial information that is immediately understandable to everyone in the company. This “frequent and understood” creates real and actionable financial control and improvement.

4. Mini Companies Within the Company.

Develop value stream organizations. The value stream manager has full control and accountability for this “mini company within the company”. Include sales/marketing thru production, purchasing, and all required support functions.

5. Don’t Ever Use Product Costs for Decisions.
Routine decision-making does not address the product costs. Decisions are made by understanding the impact on the value stream as a whole. This means that decisions are made with knowledge of the real, “in-the-bank” financial impact of each scenario.

Many decisions of course have multiple issues to take into account, but the operational, capacity, and true financial impact give real numbers, not artificial ideas of product costs.

6. No Need To Waste Your Time Calculating Product Costs.
There is not much need for calculating product costs. Certainly none for using product costs within the operation.

7. The Accounting System Is Not A Cop.
Use lean thinking & methods to bring your processes under control. Your accounting system now becomes useful. Do not use accounting to catch people out. Provide frequent and dynamic information for understanding and improvement.

8. Financial Results Get Better When The Business Gets Better
Financial results are merely the outcome of excellent products and processes. Focus on measuring the processes and the financials will take care of themselves.

9. Where Do I Go To Find An Accountant?
Larger lean companies often take the accountants out of the accounting office and into the value streams. The management accountants become a part of the value stream team and use their skills to improve the operations and the financial results; short term and long term.
In the 1980s academic studies declared forward-looking Japanese companies had very few accountants. They were dead wrong. They only counted heads in the accounting office. Real management accounting occurs in the value streams.

10. Make It Happen. It’s Not That Difficult
To traditional companies these kinds of changes often seem impossible. To lean companies these methods seem normal because they match clearly with lean thinking.