Now, let me first explain that “accounting for Lean” is a subset of Flow Accounting (i.e. accounting for Flow) and has been developed to support companies which are implementing that subset of what Demming called the Profound Body of Knowledge known as Lean Process Improvement, as derived from the Toyota Production System. Currently there exist two subsets of Flow Accounting – Accounting for Lean(LA), and Constraints Accounting (CA) (developed in support of Goldratt’s Theory of Constraints). Flow Accounting(FA), is of course a subset of Managerial accounting, as is Traditional Cost Accounting (TCA). TCA of course has subsets including full absorption costing, Activity Based Costing, and others. Flow accounting seeks to provide actionable information at the lowest levels within an organization in order to support decisions that move the organization, at the highest level, toward it’s goals. Traditional Cost Accounting, on the other hand, seeks to distribute all business costs in a clearly defined manner, to each unit of production. TCA is not wrong, per se, in fact for high-volume production systems, like say an oil refinery, TCA is probably better than LA or CA.

But we are here to talk about companies that have adopted a Lean process improvement philosophy and are at some point along the path to becoming a Lean Enterprise. For these organizations, we must recognize a couple of things. First, there is a fundamental truth about people. People will behave according to the way they are being measured. As accountants, we have a unique and awesome ability to effect change within our organizations simply by ensuring that we are measuring the organization appropriately. What is necessary for the accountant is that we must look ourselves in the mirror, and accept that we ARE the problem and the we must change. You are not just some bean-counter that reports results periodically. You are the person everyone looks to to tell them how they are performing and right now, if you are still reporting using TCA as your organization struggles to implement Lean, then your actions are having an adverse impact on the organization. As one of my mentors says “we are all a balance sheet. To our companies we are either an asset or a liability…” If you are not transitioning your accounting & finance organization from TCA to LA, then you have become a liability.

Companies do not become Lean over night. Likewise their accounting and finance organizations do not flip a switch and move from TCA to LA over night. If you are reading this comment, and you’ve found yourself to be a liability, here’s what you need to do – get your ass back on the asset side of that balance sheet!

Costing and Management Accounting text books clearly state that there is no one single system of cost accounting. Different systems exist to serve different needs. Managers use differential costs for decision making, standard costs for control/pricing, full cost for inventory valuation etc.

So why cant lean accounting system exist in parallel with standard costing until all lean efforts stabilize? Such a system can highlight the lean improvements.

I think the problem arises when management accountants and managers start using standard costing measures to evaluate lean improvements.

The Maskellian VS model is just one approach to VS alignment. This article was not meant to be an endorsement, or even a guide, but rather a 30,000-ft. examination of the basic theory and operating assumptions supporting that model. The article is necessarily simplistic; every company’s situation is a little different, so the response details will vary.

I agree that Lean Accounting can/should be embraced immediately, but Accounting for Lean – if implemented before enough enablers are in place – ends up as just another flavor of “wrong”, and may sour further efforts.

ON THE OTHER HAND, as you so appropriately noted, understanding Accounting for Lean can help a company change the way they think about their business and move toward leaner policies and practices. Implementing the simplified accounting practices, though, is better done in coordination with actual changes to the operational aspect (as Maskell himself suggests).

Start executing “Lean Accounting” right now and…
Start understanding “Accounting for Lean” right now.

Lean accounting is a do tommorow proposition. There is no reason not to start eliminating waste from the accounting processes right away. For me, the difference between “lean accounting” and “accounting for lean” is not nearly as black and white as some people make it out to be. In my mind, accounting for lean is a description of the ideal state of accounting.

In manufacturing you can eliminate a lot of waste without a deep understanding of the ideal state for a value stream but the improvements will falter as soon as the low hanging fruit is picked. I think accounting is the same way. You need to start eliminating accounting waste right now but at the same time you need to start putting a vision together for where your accounting systems are going. You don’t wait until the manufacturing processes are all lined up to put this vision together. You put this vision together at the same time you put the vision to line the manufacturing up. These things should be going in parallel, not series.

Like so many things in the thinking production system, lean accounting and lean manufacturing are paradoxical. You need to have good stable lean manufacturing in order to have lean accounting but you also need lean accounting to drive you to good stable lean manufacturing. I think Maskell’s maturity path is one of the best descriptions I have seen of one way to overcome this paradox. It proposes that you need “x” stabilty in lean manufacturing before you do “y” in lean accounting and I have used his evaluator as a great tool to support this. The thing that I always thought was somewhat missing in that equation was how y could affect x. I think anyone who has implemented lean has reached points where the accounting system was holding the culture back from making change. In addition, I think the accounting system could become the driver for change much earlier in an organizational change then Maskell proposes. I actually think that to some degree, Accounting for Lean could drive your lean conversion.

My mental model for these two system (lean accounting and lean manufacturing) is that of race cars with rubber bands tied between them. Lean manufacturing is going to get ahead for periods of time and the accounting systems will eventually hold them back. The manufacturing naturally (but stubornly) pulls the accounting system forward. Then the accounting system can actually get ahead and set the right metrics and goals for the organization that will pull the manufacturing processes forward.

If you can get your CFO and your COO to understand that they are in this type of race, then you win. They should be trying to race ahead of each other at all times while also realizing that they have to pull the other group with them whenever they get ahead. It is a little more subtle then this in reality as portions of accounting will be ahead while other portions will be behind. Fundamentally, this is what we are trying to get to.

I share your overall concerns about reluctance to offer up “prerequisites” to people who are not aligned with the goals of the program. You are getting into core issues of the psychology of organizational change. The technical issues raised (as you point out) often obscure the underlying needs and concerns of the people raising them.

I have actually experienced accountants use every precursor you mention (also from Maskells book) as an excuse not to use Lean Accounting right now. The problem is in the degree to which your ducks need to be in a row. If it was possible to get your ducks into perfect rows without lean accounting, then you wouldn’t really need lean accounting at all. The fact is, traditional accounting is one of the road blocks to implementing lean. At some point it will be the bottleneck to success.

My other problem with this discussion is that changing to lean accounting practices is a huge cultural change that does not occur overnight. In fact, in a large organization it may take a year or more just to get people convinced of its necessity. So if someone waits until their “ducks are in a row” to implement lean accounting, it may be another year or more to use the principles in any meaningful way. In the mean time, your lean implementation may be stalling out because the accounting department isn’t giving you good feedback on your progress. I honestly believe that you have to implement lean accounting in parallel with the rest of your lean implementation.

My take on this is that you have to ask the same questions we ask for every other process in lean. What is the purpose? What is the problem? The purpose of accounting is to assist in managing your business and to drive improvement. If your accounting system is driving the wrong improvement for your area then that needs to change. As long as you keep asking this question as you go through your lean journey, you go to the books to find some answers, then you will implement lean accounting as you need it.