Lean Accounting-Harvard

Lean Accounting 1

Advantages and Disadvantages of Lean Accounting

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Lean Accounting 2

Lean Accounting is a method adopted by lean enterprises with the aim of eliminating

waste throughout the organization. It depicts the accounting system adjustments made by a

company to support lean production and thinking. Lean enterprises seek to eliminate waste, and

in the process, they can reduce the overall cost of production. Experts believe that lean

accounting contributes to profits rather than just calculating it. Lean accounting applies lean

thinking in the organization. It focuses on customer value and empowerment of people within the

company. Additionally, it focuses the management of value streams while encouraging its

continuous motivation. It eliminates waste by incorporating control mechanisms throughout the

production system hence, reducing cost. The introduction of this accounting system brought

various benefits to the organization that uses it. However, there are also disadvantages to the

application of this accounting system. This paper seeks to explore the advantages and

disadvantages of lean accounting (Maskell, et al., 2016, p. 1).

Lean Accounting method has been acclaimed as the most efficient method which focuses

on cost reduction. Application of lean accounting enables organizations to identify waste from

the production to distribution process. This is possible since lean accounting method applies

value stream costing collected on a weekly basis making it possible to point out waste and

eliminate them. Additionally, this technique leads to increase in sales for the company translating

to higher profit margin. This is possible since lean accounting techniques provide better

information for decision making. Lean-decision making and value stream allow timely decision

making. Moreover, this accounting method facilitates long-term lean improvement. This is

possible since this method applies the use of lean-focused information and measurements. These

include the application of visual management in which a single sheet of paper illustrates value

stream pointing out the operational performance, financial performance and the capacity in use.

Lean Accounting 3

This information allows effective decision making leading to the achievement of organizational

goals (Abdulhussien, 2016, p. 12).

Nonetheless, there are limitations surrounding this modern accounting method and its

restrictions its application in today’s organizations. The application of lean accounting method in

an organization requires employee training. The use of this method requires the involvement of

the entire workforce for it to succeed. Therefore, employee training becomes necessary leading

to massive expenditure, reducing profit margins. Additionally, lean accounting necessitates a

shift in management thinking as well as extensive cultural change within the organization. This

becomes a challenge given that organizational culture is the hardest aspect of change that can be

initiated by managers. Moreover, there is a tendency to resist the lean management approach

which comes with lean accounting system (Darabi, 2012, p. 40).

In conclusion, organizations have sought to develop strategies that will enable them to

remain competitive. This move has been motivated by the dynamics and competitive business

environment which keeps companies on toes to stay relevant. It is for this reason that firms have

adopted a lean accounting system that seeks to eliminate wastage in the production process. Lean

accounting has its advantages for its efficiency in information generation enabling effective

decision making. However, it has limitations in its application since it requires massive

organizational change including change of corporate culture.

Lean Accounting 4

Bibliography

Abdulhussien, F. A., 2016. A Study on the Role of Lean Accounting to Reducing the Cost: At

Adani Power Company. International Journal of Research in Business Management, 4(9), pp. 9-

18.

Darabi, R., 2012. Barriers to Implementation of Lean Accounting in Manufacturing.

International Journal of Business and Commerce, 1(9), pp. 38-51.

Maskell, B. H., Baggaley , B. & Grasso, L., 2016. Practical Lean Accounting: A Proven System

for Measuring and Managing the Lean Enterprise. 2nd ed. Boca Raton, Florida: CRC Press.

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