Monthly Archives: August 2017

Do You Practice Lean Processes? How About Lean Accounting and Finance? – Part 2

lean accounting

In the first installment of this article, I wrote:

If every iteration of the budget requires many hours or even days of work to recompile the budget and its derived forecasted reports and financial statements, you are not practicing Lean Budgeting!

Here’s why:

If your budget model is overly complex and you’re using spreadsheets or even purpose designed software with spreadsheet-like modeling, every little change requires hours or days of programming, troubleshooting errors (those detected) is a major and frustrating, possibly futile undertaking and each time you need to produce a slightly different version of the budget or do a quick what-if analysis it takes hours or days to deliver – you need to implement a Lean Budget.  I’m willing to speculate that many organizations without proper planning and budgeting tools simply don’t perform the required number of iterations or what-if analyses for the reasons above.

Another characteristic of a “Non-Lean” budget process is the limited or lack of proper collaboration among budget preparation participants across the enterprise. This is where consolidation of disparate sets of budget data (worksheets) becomes cumbersome, time consuming and often error prone. This in turn discourages performing adequate iterations of the budgets and testing various scenarios using what-if analysis.

These companies must realize they need to transform this process or they will lose their competitive advantage and experience shrinking market share and deteriorating financial health. Sadly, some of them will ultimately fail.

Going Lean means that all waste must be identified and eliminated. This typically starts in manufacturing and other operational areas of the company but must extend to all functions of the enterprise, including marketing, sales, finance and accounting. We saw that Lean also very much applies to non-manufacturers and even companies that do not buy, store and sell inventory.

How can waste be eliminated?

To practice Lean Planning, Budgeting and Analytics, you should implement a process supported by a software solution designed for such lean and streamlined operations.

I’ve been fortunate to work with Budget Maestro from Centage Corporation. To me, this is the ultimate Lean Planning, Budgeting, Re-forecasting and Analysis system, especially appealing for SMBs (Small and Medium Size Businesses).

I particularly like that Budget Maestro is delivered (either on premises or in the Cloud) as a turn-key, self-serve solution. This means that all business logic and accounting rules are already built into the solution and there is absolutely no programming needed when implementing the system or when making changes to the budget model. With Budget Maestro there are:

  • No formulas
  • No links
  • No macros
  • No other custom programming
  • No expensive external consulting work

Not only can you implement this system in days or weeks instead of the usual months or years, you can maintain the system in house, and as stated above, with no or minimal help from outside consultants, while delivering the exact, up-to-date data that management needs, regularly, consistently and quickly.  This means that data can be immediately evaluated and decisions made in response to current financial events or anticipated results as communicated by future-period forecasted financial statements and other reports.

How Lean Accounting and Finance processes can support manufacturing or other company operations:

A Lean Accounting and Finance operation, once implemented, tested and perfected (recall that the Lean concept requires continual monitoring and improvement of processes in all areas implemented), must reduce waste in finance and accounting while more importantly supporting all other areas in the company and especially manufacturing.

Finance, freed from the tedious maintenance of a cumbersome planning and budgeting process, and with a robust analytics process, can finally focus on analysis without sacrificing quality or delivering key data to decision makers far behind the conclusion of business and accounting events.

Finance and accounting can now devote much-needed time to establishing metrics and KPIs (Key Performance Indicators) that must be used to measure current performance and establish future goals, communicated through an agile plan and budget. The ability to use such metrics and KPIs by employing Drivers, Based Upon Sources and Methods can make the difference between an effective plan/budget with integrated, real-time analytics, and a cumbersome, hard-to-maintain and error-riddled system, discouraging users and managers from making changes, trying different scenarios or experimenting with multiple sets of inputs.

Since analysis of actual accounting data versus budget can be performed as soon as an accounting period is closed and is very quick and simple to perform, this approach encourages finance to consistently monitor actual results and apply necessary changes or perform reforecasting, almost in real time. Management is now equipped with all the right data to make timely, informed decisions. These constant improvements are a very powerful concept of Lean and now can be practiced in finance using a software solution such as Budget Maestro.

And best of all, whether your organization is practicing Lean or is in the process of introducing these concepts, or perhaps not even contemplating Lean at this time, using a solution like Budget Maestro is a captivating example of how planning, budgeting and integrated analytics can become a streamlined, agile and effective process, without the common waste and limitations inherent in many other solutions.

To me, this is the ultimate Lean solution in the CPM (Corporate Performance Management) space for SMBs. You can use a fraction of the time previously spent on programming and troubleshooting to perfect your plan and budget and use the rest of your time to perform all the analytics you desire while supporting operations with the data and metrics they need to improve.

Who says that accounting and finance must always be overworked?

Do You Practice Lean Processes? How About Lean Accounting and Finance? – Part 1

lean accounting

See what Lean accounting and finance can do for your company

We’ve heard the buzzword “Lean” as it pertains to an organization’s transformation into a more efficient set of operations for a while now. Often perceived as radical, it promises great results and endless opportunities for incremental improvements.

The concepts originated in Japan, led by an extraordinary transformation at Toyota Motor Corporation, with its Toyota Production System (TPS), started in the mid-to-late sixties and perfected in the seventies.  The premise of TPS is continual improvement in all areas of the enterprise with the goal of increasing efficiencies and reducing waste while always maintaining respect for workers in all areas and on all organization levels.

While the Lean transformation lends itself best to manufacturing operations, its concepts apply to non-manufacturing industries as well, so if you aren’t a manufacturer, please don’t stop reading here.

The reality is that most companies in the US don’t practice Lean, at least not yet. The main reason is lack of discipline and proper direction from upper management, even though many US companies that implemented Lean report remarkable changes in all areas of the company, evidenced by improved financial statements and cash flow.

Another reason Lean transformations aren’t as popular as they should be, is that it really only works if you sustain the effort. Many of the failed attempts at Lean are attributed to not being able to maintain the Lean mindset and make it work consistently across the entire enterprise.

A popular goal sought with first Lean implementations is inventory reduction. The idea is to reduce inventory on hand and only bring in material and parts that are needed for customers’ orders or for a specific forecast, if the company makes products to stock. The result is higher inventory turns (I’ve heard of manufacturers achieving 15-20 inventory turns a year) and noticeable improvement in cash flow.

To make a Lean transformation effective, companies should also transform other areas in the organization, particularly their accounting and finance departments. Borrowing concepts from manufacturing, accounting and finance departments can also eliminate a lot of waste and focus only on value-added activities.

Each company should evaluate its own accounting and finance workflow. When activities that don’t add value are reduced or eliminated, accounting and finance personnel can focus on collecting and translating data into highly informative and useful reports that managers can really use—instead of the monthly or quarterly report packets (more like stacks of paper) that managers hardly even skim through without getting confused.

Of the many opportunities to transform accounting into a Lean organization, some companies find that doing away with vendor invoices for inventory purchases results in great savings in time and other resources. They simply rely on internal control over the purchase order process, and by using blanket POs with agreed-upon prices and release dates driven by true demand, they depend on the receiving process that automatically vouchers these receipts, which creates AP transactions that are paid according to vendor terms. The three-way match, vouchering and posting to AP of individual invoices is eliminated. Similarly, other areas in accounting can be streamlined in a Lean environment.

It’s hard to discuss Lean accounting and finance without mentioning the planning, budgeting and analysis processes, a core set of functions usually owned by finance. What is a Lean budget? Can that work even if the rest of the organization isn’t Lean? Can the process be called Lean Budgeting?

Erroneously, to the uninitiated in Lean concepts, when thinking of Lean Budgeting, the first thing that may come to mind is taking shortcuts in strategic and operational planning or perhaps reducing the number of budget iterations and their approval process. The truth, however, is that Lean Budgeting means only to reduce or eliminate wasted time and resources in the budget preparation and approval process. Of course, with reduced waste, certain pieces of the budget can be reduced while improving profitability and overall financial results.

Strategic and operational planning is the most important phase in the budget process and should never be compromised, even when transforming the company to a Lean environment. However, many existing planning and budgeting processes and their reliance on traditional technology promote much waste and complexity that can be eliminated or greatly reduced with a proper Lean implementation.

Waste in planning, budgeting and analytics processes may include:

  1. Spending an inordinate number of hours developing a model that requires programming of formulas, functions and links to other worksheets or workbooks files.
  2. Endless troubleshooting of budget models for errors resulting from bad or missing formulas, broken links or other issues which stem from unsuccessful changes or additions to the model.
  3. Excessive time spent by finance to create modified versions of the base budget or “what-if” versions in response to requests by management.
  4. Unnecessary wasted time in analytics, especially the monthly analysis of actual results against the approved budget for the period.
  5. Use of a “Zero-Based Budget” except for rare occasions where required and justified.
  6. Limited collaboration among budget participants using traditional, cumbersome solutions where consolidating the budget is extremely inefficient and time consuming.

If every iteration of the budget requires many hours or even days of work to recompile the budget and its derived forecasted reports and financial statements, you are not practicing Lean Budgeting!

In the next installment in this series we’ll learn how a company can achieve true Lean Budgeting while supporting manufacturing and other areas of the enterprise and providing real insight to management.