The Practicing Lean Accounting Blog Series are excerpts from a new book, Practicing Lean Accounting by Nick Katko and Mike De Luca. For updates on publication and purchase, please sign up for the BMA mailing list at www.maskell.com.

Waste is any action, activity or process that does not add value in the eyes of the customer. Waste consumes resource time and in the long run increases costs. In lean accounting this means always being on the lookout for waste and incorporating continuous improvement practices into all of accounting’s work to eliminate the waste and serve customers better. 

Being able to identify waste in accounting requires being able to look at any activity, whether it be the process step or tasks within the process step, and identify it as adding value or not adding value. Non-value added activities can be further broken down into two categories – necessary activities and unnecessary (or wasteful) activities. Being able to distinguish between value added and the two categories of non-value added activities is a learning process in lean accounting. It requires objectively studying a process, through the eyes of its customers. 

Accounting Activities: Value Added

Value-added activities for accounting processes are  the required, essential activities to transform information received in accounting to complete financial transactions or provide the quality information to both internal and external users. 

Accounting Activities: Non-value Added but Necessary

Non-value added, but necessary accounting activities don’t create value, but must be performed due to policy, technology or regulatory requirements or current thinking. From an accounting customer’s viewpoint, these activities create no value, thus they are categorized as non-value added but necessary activities in lean accounting.  Because these non-value added but necessary activities cannot be eliminated, the goal in lean accounting is to spend less time on these activities by identifying and eliminating the wasteful tasks and seeking other methods to minimize the amount of time spent on these activities. 

Accounting Activities: Non-value added and Unnecessary

Non-value added and unnecessary activities, can be considered pure waste. It’s pretty easy to remember the 8 types of process waste using the acronym DOWNTIME:

D: Defects

In accounting, defects can be:

• missing or incorrect information which prevents accounting work from being completed. 
• accounting transactions with other parties which are incorrect
• information delivered to internal and external user that is of poor quality (from the user’s viewpoint) or a transaction which is incorrect.

O: Overproduction

Overproduction is producing more, sooner or faster than required by the customer. In the case of overproduction, the customer can be the recipient of the output or process steps within a process. To better understand overproduction, let’s look at an example of recurring reports. 

Tom, a budget analyst in accounting, produces key indicator reports each month for the executive team’s review of current performance. The reports include trended financial and non-financial metrics at the total company, division and department level. For each indicator, there is a tabular and graphical representation, as well as text analysis and commentary. 

After listening to the executive team – customers of the report, Tom was able to reduce the content in the report by 75% which also reduced the time to prepare the report by 30%. The end result was improved customer satisfaction – making it easier for executive team to find the information they wanted and reducing their searching waste (sifting through all the content to find the specific information they were interested in), which we’ll explain more below.

W: Waiting Time

Waiting is any delay or queue in a process which interrupts the flow of the process. Waiting time usually occurs at the hand-off points in a process. Waiting time is really one of those hidden wastes because of the way those who work in a process think.  From an employee’s viewpoint, if they are waiting on something it may not necessarily be considered a problem as they can work on something else. Waiting time tends to become a problem for an employee when a deadline is fast approaching that the employee must meet. Not caring about waiting time is also often a management problem. Since employees can work on something else, management doesn’t consider it a waste of the employees time. 

N: Neglect of talent

This waste is the failure to appropriately utilize the talents and skills of employees. Many things can contribute to the neglect of human talents and skills:

• Traditional management models which reserve problem solving for managers rather than allowing the people who do the work and therefore understand it best, to solve problems.
• Educated, experienced and capable professionals are often relegated to work that doesn’t maximize the use of their skills and doesn’t directly connect their daily work to the success of the organization. 
• Not taking advantage of existing accounting software capabilities and not properly training the accounting team on these capabilities.

T: Transportation

The waste of transportation is defined as unnecessary movement. The key word here is unnecessary. The goal is not to eliminate all forms of movement, but only the unnecessary. 

Transportation waste in accounting can also manifest itself in non-value added but necessary accounting activities like approvals and reviews, which are hand-offs. Multiple approvals or reviews create multiple hand-offs. 

I: Inventory

Inventory waste in accounting is simply information which is sitting idle and not being actively processed. The primary cause of inventory waste is batch processing. Whether it is multiple documents or pieces of information, they accumulate into a “batch” that then are processed as a batch. The challenge in accounting processes is to better understand the causes of all batches and queues and continually reduce batch sizes. 

M: Motion

The waste of motion is the unnecessary movement of employees. Motion can exist in the daily activities of accounting processes. The keystrokes of manually inputting information is motion. Poorly designed software can cause too many clicks to find or process information. Poorly designed workspaces can also cause unnecessary motion. Think about all the files and data stored in shared file locations and data warehouses. It’s more challenging to see this waste but it still impacts accounting in terms of the cost of the storage as well as the way it may complicate searching for the actual information that is needed.  

E: Excess Processing

Excess processing waste is:

• producing something a customer does not want
• process steps or activities that do not add any value to a product or service a customer wants. 

The great part of excess processing waste is that eliminating it is not difficult. Simply stop producing what the customer does not want or stop activity that isn’t adding value. The difficult part is identifying it, especially in accounting because a great deal of what is excess processing is embedded in non-value added but necessary activities and these activities are usually part of accounting’s routines. 

Practicing Identifying Waste

In lean accounting, practicing identifying waste means developing habits to learn how to recognize it, understand its impact and have a constant awareness of its presence, especially in daily work activities. Practicing identifying waste allows employees to distinguish between the activities which add value for the customer, and those that do not. Seeing waste and understanding it’s negative impact also creates the opportunity for improvement, and to connect to proven methods of improvement to reduce waste. How is waste made visible? By using lean measurements.