One of the primary differences between traditional management accounting and lean management accounting is lean management accounting focuses on creating conversations, while traditional management accounting focuses on drawing conclusions.
In traditional management accounting, information about past performance flows upward in a company to accounting and executives, who draw conclusions about performance and dictate “changes” that need to be made. It is then up to the managers to implement the changes dictated.
Lean management accounting focuses on creating cross-functional, collaborative conversations about current operating and financial performance and how to improve both over time. These conversations focus on understanding the true cause-effect relationships between lean operating practices and financial performance. Box Scores drive this conversation.
The effectiveness of lean operating practices are measured by the Box Score’s lean performance measurements. Capacity measures how effectively a value stream is “spending its time” on productive, value-added activities or nonproductive, non-value added activities. Capacity also measures how much capacity is created by improvement activities – available capacity. The value stream income statement in a Box Score reports the actual revenue and actual costs of a value stream.
The three components of a Box Score create conversations around questions such as:
- What level of improvement is necessary to actual serve customers better and drive sales growth?
- What is the financial impact of improving quality, delivery and lead times?
- If we want to improve financial performance, what operational changes and improvements are necessary?
- How do lean practices manage costs?
- How can we increase capacity without increasing costs?
- What is the operational and financial impact of a business decision we have to make?
The relationships between lean operating performance and financial performance are dynamic, not static. Understanding these dynamic relationships requires using PDCA to understand the root causes, and PDCA requires the right people to have a conversation and draw the right conclusions about root causes.
Want to ensure the success of a lean management accounting transformation? Don’t think of a Box Score as a method of reporting, think of it as a conversation piece to be discussed.
