Calculating the Financial Benefits of Lean using Lean Accounting – Part 1

Well run businesses make business decisions that make financial sense. Executives want to know the financial impact of business decisions on revenue, costs, profits and stock price. Chief financial officers, controllers and the entire finance team have the responsibility of analyzing business decisions and the financial impact of such decisions.

For companies considering the adoption of a lean business strategy, the role of the finance team is the same. However, the financial analysis requires financial people to understand the impact a lean strategy will have on the company’s production capacity and be able to produce a financial analysis that does not rely on traditional standard costing analysis.

A lean business strategy is a business growth strategy. How this strategy works can be best summarized as follows: lean practices, tools & methods are adapted to create a culture of continuous improvement, which reduces and eliminates wasteful activities, creating available productive capacity. Lean companies make money by increasing sales to use that productive capacity and developing other sound business practices to reallocate and eliminate unused resources.

Calculating the financial benefits of lean is an initial part of a lean business strategy that forces company management to begin addressing the success of a lean implementation before the success occurs. The role of finance is to lead a cross functional effort (e.g. a Lean Steering Team) to address how the company will create programs and actions to address the productive capacity that will be created as lean implementation proceeds.