Copyright: 2003
Publisher: Managing Times Press
ISBN: 0-9728099-0-2
Real Number: Management Accounting in a Lean Organization would be considered by some to be a "dry read". Personally, I found it a fascinating read as my interest in Lean principles has been piqued over the past year and a half or so. Jean Cunningham serves as CFO at Lantech, Inc. and Orest Fiume retired as VP of Finance and Administration of Wiremold. Fans of Jones & Womack, authors of Lean Thinking and The Machine That Changed The World, will recognize these two companies as having been case studies in Lean Thinking.
Measure The Important Stuff
A few things jumped out at me that are practical and useful for my situation as a software developer. The notion of cost based accounting is firmly entrenched in the business world. I remember as I earned my business degree, taking accounting classes and having to sit through long sessions as my professors intoned on and on about how to get these numbers. In a nutshell it involves a lot of guessing about how much time, effort, overhead and material cost should be assigned to each unit that is sold.
Lean thinkers have a different approach to calculating costs. They suggest, shockingly, that you simply assign costs based on what it actually cost. If you are using Lean Manufacturing principles, you should have a very clear picture of the costs of each unit as it passes through your flow.
For me, this translates into a simple principles in the planning portion of Lean Software. If it's important enough to measure... it's important enough to truly measure. We do a lot of "guess work" in our planning and often that is good enough. We used to spend a lot of time trying to measure how quickly we could produce things. What we finally discovered was that we were really just guessing. So rather than measure our guesses... we just stopped measuring.
In the near future I hope we can find some truly measurable metrics that will be useful to us, but in the meantime we have decided that guesses aren't important enough to be measured.
How Much Does That Measurement Cost?
Another high level principle that I gleaned from this book is the notion that it is expensive to measure things. Accounting is ostensibly all about measuring. In the section on "closing the books", the authors go through an exercise in which they calculate how much it costs companies to close their book every month, quarter or fiscal year. It's a lot of money! They strongly suggest that you reconfigure the process so as to reduce costs.
For me, this translates into a desire to make sure that the value I gain from making a measurement is greater than or equal to the cost of the measurement. The two components of this of course are a) the value and b) the cost. The value of a measurement can be increased by timeliness and accuracy as well as focus.
The cost of a measurement can be decreased by focusing only on the relevant information. You should also continually refine the process of collecting the data and performing the calculations. Apply Lean Principles to the measurement process itself and you should see some pretty amazing gains.
Conclusion
Honestly, I love this kind of book. Intensely practical, full of good meaty Lean Principles and sufficiently geeky to get me excited. Unfortunately I have to admit that unless you are an accountant in a Lean Company or just have a very strong interest in all things Lean, you probably won't have much fun with this book. If you are involved in Accounting at a Lean Company and this book isn't on your bookshelf... shame on you!