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Lean Accounting Summit
About this article: The following article, What’s Lean Accounting All About?, appeared in the Association for Manufacturing Excellence’s Target Magazine in its first issue of 2006. The work, written by Brian Maskell and Bruce Baggaley, is a culmination of an entire groups’ collaborative efforts stemming from the inaugural Lean Accounting Summit in September 2005. For moreinformation about the Lean Accounting Summit, visit… www.leanaccountingsummit.com

Lean Accounting: What's It All About?
Brian H. Maskell and Bruce L. Baggaley

hat is Lean Accounting?" is an oft-asked question. Everybody working seriously to implement lean thinking in their company eventually bumps up against their accounting systems. It soon becomes clear that traditional accountingsystems are actively anti-lean: • They are large, complex, wasteful processes requiring huge amounts of non-value work. • They provide measurements and reports like labor efficiency and overhead absorption that motivate large batch production and high inventory levels. • They have no good way to identify the financial impact of the lean improvements taking place throughout the company. On the contrary,the financial reports will often show that bad things are happening when very good lean change is being made. • Very few people in the company understand the reports that emanate from the accounting systems, and yet they are used to make important and far-reaching decisions. • They use standard product costs which are misleading when making decisions related to quoting, profitability, sourcing,make/buy, product rationalization, and so forth. Almost all companies imple-

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menting lean accounting are making poor decisions: turning down highly profitable work, out-sourcing products or components that should be made in house, manufacturing overseas products that can be competitively manufactured here at home, etc. While there is good understanding of the problems, there is notwidespread understanding of the solutions. In September 2005, at the Lean Accounting Summit in Detroit, co-sponsored by AME,1 a group of the conference presenters got together and decided to create a definition of Lean Accounting as it stands now. We decided to succinctly document the Principles, Practices, and Tools of Lean Accounting. Lean accounting has developed over the last ten years or so andalthough it continues to evolve, we felt it would be helpful to docu-

In Brief
This article reviews the framework of principles, practices, and tools of lean accounting being developed by a group of lean accounting thought leaders as a result of the Lean Accounting Summit in September 2005. A brief overview was presented at the 2005 AME annual conference. The principles are accompanied by anillustration of financial and non-financial analysis using "box scores," one of the generic techniques being employed.
35 First Issue 2006

ment the current "state of the art" as seen by a group of both consultants and practitioners in this area. The purpose of this article is to briefly describe the principles, practices, and tools of lean accounting developed thus far.

Vision for LeanAccounting
We started with a vision statement and then drilled down to the practical tools used to make the vision a reality. Our vision is that Lean Accounting will: 1. Provide accurate, timely, and understandable information to motivate the lean transformation throughout the organization, and for decision-making leading to increased customer value, growth, profitability, and cash flow. 2. Use leantools to eliminate waste from the accounting processes while maintaining thorough financial control. 3. Fully comply with generally accepted accounting principles (GAAP), external reporting regulations, and internal reporting requirements. 4. Support the lean culture by motivating investment in people, providing information that is relevant and actionable, and empowering continuous improvement at...