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family members or just not allocating common manufacturing overhead costs such as those for buildings, security, human resources departments, etc. Demonstrating the strong tendency to revert to accountants’ extensive traditional accounting education, however, two Lean accounting books (Maskell and Baggaley, 2004; Huntzinger, 2007, Chapter 17, see especially p. 259) recommend allocating common fixed resources in order to produce a total cost per unit. A fully allocated cost per unit, though, is of dubious value to managers.

Advantages of Lean Accounting

Lean accounting proponents claim that through participating in kaizen events, an attempt to attain continuous improvement and referred to as a kaizen blitz(SM)12 when performed by a focused team over a short period of a few days, the exposed opportunities for improvements can be supported by accounting measures and reports. By understanding and reporting the results of Lean initiatives, Lean accounting supports improvements such as:

Reduction, frequently dramatic, in work-in-progress (WIP) inventory13;

Elimination of non-value-added processes resulting in decreased total processing times;

Increased company productivity;

Reduced setup and changeover times;

Increased on-time deliveries (Womack et al., 1990, 81; Liker, 2004, 3–6; Polischuk, 2009; Shipulski et al., 2009).

These advantages are the result of applying Lean concepts throughout an organization or a supply chain. Even with accounting support, realizing benefits promised by Lean initiatives is extremely difficult.

Disadvantages of Lean Accounting

General lack of success in copying another organization’s strategy has been experienced, if not reported, by many firms. Attempting to reproduce improvement results on other than a short-term basis without supporting behavioral and cultural changes generally has not been successful. Failures of Lean implementations, and Lean accounting, have pointed to the following deficiencies:

Top management does not actively and continuously support Lean initiatives;

Accounting/finance people are not included in Lean training sessions (a not uncommon situation for all improvement initiatives);

Information flows are not adapted to match new Lean flows (value streams);

Publicizing local “successes” creates competition among various units of an organization;

Appropriate performance metrics are not developed (Achanga et al., 2006; Stuart and Boyle, 2007; Pullin, 2009; Shook, 2009).

In addition to the new accounting developments discussed previously, some traditional accounting techniques such as standard costs and master budgets have remained powerfully in place.

Traditional Budgeting, Capital Budgets, and Control Mechanisms

While some organizations disparage the budgeting process (Anonymous, 2003; Hope and Fraser, 2003; Nolan, 2005; Weber and Linder, 2005), most companies still go through the annual angst of budget preparation with all the pomp, posturing, and political maneuvering of a public sporting event. Even if bad behaviors erupt, there are good reasons, such as detailed planning, company-wide coordination, and synchronization of effort, to undergo this process.

Regardless of the particular accounting methodology used to record and report transactions internally, most organizations, including governments, prepare budgets for various time periods, typically for a quarter or annual period, but sometimes for three- or five-year periods. Budgets not only can be for differing time periods, but can be very specialized, such as a budget for a new product introduction or another individual project, an operating budget focusing on expected (or hoped for) operating income, a capital budget for asset acquisition, or a budget covering an entire organization, called a “master” budget.14

Master Budgets

Comprehensive (master) budgets should follow carefully laid strategic plans (although sometimes they proceed, or evolve into, the strategy). This process forces introspection and consideration of underlying assumptions and intended or possibly unintended