The Value Add Accountant

By Jean E. Cunningham

Accounting delivers a lot of indecipherable reports. Finance rarely addresses the business leader’s need for a greater understanding of the complete financial impact of decisions made as well as decisions to be made. Both functions also have a lot of internal process waste. The Value Add Accountant can provide solutions to all of these issues.

Jean Cunningham and Orest Fiume wrote about their experience as CFO’s creating this role in the 2003 seminal Lean Accounting text, Real Numbers: Accounting for the Lean Organization. In the years since, Jean has traveled the globe, consulting on Lean process improvement and waste reduction in accounting and other office processes for numerous companies great and small.

This book expands the Real Numbers message by providing detailed examples of how to reveal accounting waste, start a personal value add transition, and get buy in on these pivotal accounting changes. This book also describes how accounting can effectively evaluate corporate waste reduction and improvement activities.

You will learn how adopting this new role can enable accounting and finance to proactively support business decision making and impact improved outcomes. This expanded role has both accounting operations and company-wide elements. It is initiated by applying Lean principles and tools to everyday processes to minimize mind-numbing transaction work and other waste from accounting processes. Those improvements increase available accounting capacity. This capacity is then applied to impacting the future with more time spent on internal customer-based, value adding activities for the organization.

Your Value Add Accountant journey starts here.

• Language: English
• Publisher: JCC Press
• Release date: Jul 1, 2018
• ISBN: 9780999380123

Book preview

Accountant.

SECTION I

Lean is The Best Way to Drive Organizational Value Creation

1

The Profit Model

When most people are asked what Lean is, they respond that it is a way to reduce waste or reduce costs. Some people who are focused on reducing employee costs regularly joke that Lean is an acronym for Less Employees Are Needed. As negative and cynical as that sounds, it is not entirely wrong, though it does ignore all the growth opportunities—and employees needed—that are created by all the waste reduction. That attitude is terribly misplaced and ironic since employees are actually the source of all waste reduction improvement results in a sustaining Lean culture!

Lean activities create value. You might think only about creating value as related to direct product or service creation. Lean tools and events do, in fact, enhance a product directly in cost reduction, higher quality, shorter delivery time, etc. But additionally, conducting Lean activity across every company function and process favorably impacts these same issues since all activity in a well-run company ultimately should be taken to improve the product and customer experience.

Cost reduction is one aspect of creating value, and obviously, one primary motivation for reducing costs is a desire to reduce loss or increase profits. So, if not solely on the tossed-out backs of ex-employees, how else can value be created and profits increased?

This chapter discusses the relationship between value, profit, employees, and Lean activities.

As in any economic evaluation of business performance, there are five main drivers of value creation.

Each of these drivers is positively impacted by well thought out Lean efforts. As a Value Add Accountant, it is important and sustaining to drive efforts to connect the Lean activities with value creation.

Figure 1 shows a view of the Profit Model, that is a key tool for evaluating Lean efforts in your company, and, which, reveals the relationship between the value creation drivers.

Figure 1 The Profit Model

In the Profit Model, there are two main dimensions. First, the thick horizontal line, Resources, represents the costs of a company. It is the total of all costs based on management decisions. These are the costs that do not vary with volume. This view is far different from the traditional ways of categorizing costs in financial statement (as discussed in the next chapter). In later chapters, we will go at length about how to evaluate if a cost is direct or shared.

The second dimension, Revenue Contribution Level, is the solid, sloped line, and represents the variable or contribution margin of items sold. The angle of the line is equivalent to the variable margin percentage of products at different levels of volume.

An example calculation of the variable margin is:

To plot this on the profit model you would move right to a volume level of $100,000, and then move upward to a variable margin of $75,000.

Also keep in mind, the total operational capital for most companies is the total of fixed assets, inventory, and accounts receivable (Figure