Lean manufacturing is a business production practice that has effectively helped organizations reduce costs and improve performance. This article was first published in the Spring 2006 issue of McKinsey on Finance. This approach created two problems. In Illinois, McLean County is ranked 4th of 102 counties in Finance Departments per capita, and 9th of 102 counties in Finance Departments per square mile. tab. The company had observed that once an executive requested a report, it would proceed through production, without any critical assessment of its usefulness. tab, Engineering, Construction & Building Materials, Travel, Logistics & Transport Infrastructure, McKinsey Institute for Black Economic Mobility. Finance and accounting (F/A) functions are involved to monitor the financials, however, they aren’t involved in practicing Six Sigma. If you would like information about this content we will be happy to work with you. These finance departments include accounting, controlling, and auditing segments. A lean financial planning process is one step in the right direction. A century of global services. In our experience, the finance function eludes any sort of standardized lean approach. Also, ServiceCo's approach to budgeting focused on the profit-and-loss statement of each function, business, and region, so the company got a fragmented view of the budget as each function translated the figures back into its own key performance indicator (KPI) using its own definitions. Profit and cost center planning is now done in the planning software on multi-dimensional planning screens. In her newest piece for the Lean Post, Jean Cunningham explains the root causes, potential dangers, and solutions to this all-too-common problem. I’m always suspicious when I start to work with a new client and there is an abundance of finance and accounting personnel. Industries as diverse as retailing, telecommunications, airlines, services, banking, and insurance have adopted parts of this approach in order to achieve improvements in quality and efficiency of 40 to 70 percent. Increasingly organizations are applying Lean to HR and Training departments too. Setting up a finance department is perhaps the most significant steps to starting an organization. Our flagship business publication has been defining and informing the senior-management agenda since 1964. To be frank, their pain was a rigid spreadsheet set which they used to manage their planning issues. QUESTION: How do I get finance and operations to work effectively together to use Lean/Six Sigma tools to improve operations? The company also readjusted its IT systems, which turned out to be the easiest step to implement. Our mission is to help leaders in multiple sectors develop a deeper understanding of the global economy. They computerized most of the planning process and minimized the effort. The bias: traditional budgeting and cost reporting is a system based on rigid frames, and it burdens an agile and innovative enterprise with unnecessary and counterproductive overhead and friction. KPI Features for Finance/Accounting Departments. It does not mean to take less time to think about the plan, but to save time in the manual handling of putting the figures together. Finance directors and CFOs, financial controllers and accountants who are involved in sponsoring, planning and delivering finance transformation projects and continuous improvement in finance. Cutting back on the number of reports posed a challenge, since their sponsors regularly claimed that they were necessary. Anthony R. Goland, John Hall, and Devereaux A. Clifford, ". Something went wrong. A company’s finance/accounting departments also require KPIs. Reinvent your business. Lean does While these moves did compress the schedule, quality remained low. Enterprises should take the chances which planning software provides them and use them to lower business costs and create a higher profitability. Consider, for example, the way one manufacturing company approached its customers to collect on late or delinquent accounts. To address these problems, ServiceCo's managers agreed on a single budgeting language, which also clearly defined who was responsible for which parts of the budget—an added benefit. A new mind-set and new capabilities are needed as well, and the effort won't be universally appreciated, at least in the beginning. There's often a disconnect between an organization's lean and finance departments, especially when a lean transformation is underway. The management team did spend more time discussing the company's strategic direction, but that time was well spent. The budget owners of the country units are now able to upload for example their HR Plan into the planning software in consideration of security settings. Please try again later. Lean finance is important because it helps in avoiding processing of invoices in batches and creating inventory between each step in the process. Actual project case studies are also available.. Finding a project to complete your Lean and/or Six Sigma certification is a major challenge for those who take training, so hopefully this list will give you ideas to consider.. Finance KPIs. After this long merging process, it was impossible to make even small changes in budget figures without repeating the whole process. This requires reviewing all functional areas of the accounting/finance department, including transactional processing, budgeting, financial reporting, and control and decision support activities. Every company should be willing to look into improving its accounting operations. The payoff? Visit McKinsey's corporate finance site to view the full issue. Advice you can bank on. Toward the end of 2011, the general feeling on the floor was that the QA system was effective and the quality of work in the department was improving. In the end, the two departments agreed that accounting should provide service for all customers and have the responsibility for the outstanding accounts of most of them. Due to the nature of regulatory compliance, F/A departments … Here are six areas to evaluate: Accuracy of the information being generated. Lean Six Sigma has evolved as one of the most influential methodologies for improving inadequate processes, and there are many ways in which it can help reduce finance waste. The term Lean has been in manufacturing organizations for many years. Lean Thinking. Lean Finance Departments. KPMG uses Lean and Six Sigma techniques while aligning the finance function capability to the finance strategy. A lean financial planning process is one step in the right direction. our use of cookies, and We’ve assembled a collection of sample Key Performance Indicators for you to use as a starting point when building scorecards. To achieve an accurate deadline in the planning process many co-workers were busy for days to merge the different spreadsheets. Consider the reams of finance reports that go unread and the unused forecasts, not to mention duplicate computations of similar data, the endless consolidation of existing reports, and mundane activities such as manually entering data or tailoring the layout of reports. This paper examines how project managers can integrate lean management into their project management practices. 360° Finance. Find ways in which the data can be submitted on time. Or alternatively, when a finance chief complains about a lack of resources or time. Please click "Accept" to help us improve its usefulness with additional cookies. Running a lean finance department requires stepping back and taking a fresh look every once in awhile. Take a look at the completeness of your information or the number of adjustments being posted in any given period. In doing so, lean planning makes clients more satisfied, because lowering business costs and improving profitability by controlling department means reducing or eliminating the unnecessary. She is also a Lean Six Sigma Green Belt Instructor at UC San Diego and teaches in San Diego State University’s Lean Enterprise Program. “Lean” a process in your workplace by reducing operational wastes; Design ‘to be’ business process; Your organisation will: Improve process within departments (point-kaizen) Improve cross-functional processes (flow-kaizen) Engage staff through process mapping, analysis, and improvement; Improve cost, delivery, and quality Amica. Learn new techniques on managing co-worker requests, regulatory documents, and investor documents. The research looked at the finance teams which had made most progress towards an agile finance model and identified the common characteristics. The experience of one company in the services industry—let's call it ServiceCo—illustrates the circuitous route that problem solving takes. A Lean company saves – and earns – more money, delivers more value to the customer and doesn’t waste precious time performing unnecessary tasks. With the support of SDG Group’s experts, they re-engineered the financial planning process and implemented a planning software to transform their planning process into a lean planning system including an automated workflow. The problem here is that although Six Sigma has been embraced by the company at large there isn’t much experience with it in the finance dept. Waste never sleeps in the finance department—that bastion of efficiency and cost effectiveness. These concepts can help companies cut costs, improve efficiency, and begin to move the finance organization toward a mind-set of continuous improvement. INTERNAL SERVICE FUND: Funds used to account for the financing of goods or services provided by one (1) department or agency to other departments or agencies of the City, or to other governments, on a cost-reimbursement basis. 2. While such moves may indeed help companies deal with difficult situations, they seldom tackle the real issues. “I often see software accounting packages being used to track the basic activities of the business,” says Steven E. Staugaitis, CPA, Director, Audit & Accounting at Kreischer Miller. We have, however, found three ideas from the lean-manufacturing world that are particularly helpful in eliminating waste and improving efficiency: focusing on external customers, exploiting chain reactions (in other words, resolving one problem reveals others), and drilling down to expose the root causes of problems. Financial KPI (Key Performance Indicator) is a measurable value that indicates how well a company is doing regarding generating revenue and profits. Regional and central controlling can check budget figures and approve or reject them. Tracy is a Master Black Belt at GoLeanSixSigma.com, the co-author of The Problem-Solver’s Toolkit and co-host of the Just-in-Time Cafe. What you will gain. The tendency of traditionally structured organizations to silo departments and processes exacerbates this issue. We use cookies essential for this site to function well. This can ensure that key stakeholders are aligned toward a common goal and that teams can … By workflows, they have at any time an overall view on the state of planning, and they are consistently able to monitor any impact on the P&L and balance plan. Organisations often face the challenge to remain profitable in a highly competitive environment, and generate sustainable business. The Lab has incorporated all of the leading process-analysis and lean-implementation methods into a single and cohesive finance transformation project methodology. They can perform a rolling forecast very quickly and without big effort. Learn about Let’s look at a Business Case. They are even considering to develop an additional module with a detailed sales planning. The sales department assumed responsibility for the very few key accounts remaining and agreed to conduct regular reviews of key accounts with the accountants to re-sort the lists. The following is a list of Lean and Six Sigma projects to consider, based on your industry or department. Indeed it … The software also allows the user to enter budget figures on a high level and spreads it automatically on detailed dimensions. We can’t stress this enough: Lean methodology is the path to help your company grow. How to Make Your Finance Department Lean. We'll email you when new articles are published on this topic. Latest Posts. The case studies highlighted below offer a detailed look into how these methodologies and tools can be used to do more than streamline operations—they can also improve organization-wide culture. The controlling department eliminated the unnecessary from the planning process. Ultimately, a leaner finance function will reduce costs, increase quality, and better align corporate responsibilities, both within the finance function and between finance and other departments. The multi-dimensional approach allows them to decide for themselves from which perspective they want to enter the figures. In doing so, it defines the concept of lean manufacturing, lists its five principles, and describes the concept of the value stream. Way off the mark. A lean business can use this newly-created capacity to sell more products or services, and the financial impact will be increasing revenue without corresponding increases in costs. 23% said finance is not recognised as having the business skills needed. Since the responsibility for different parts of the budget was poorly defined, reports still had to be circulated among various departments to align overlapping analyses. The Mission of Lean in Finance is to provide a blueprint for a deeper collaboration and Lean Six Sigma Culture development within the Companies, between different industries and associations around Europe and the World. An automated workflow assures at every stage during the planning process that it is possible to see which users have already finished their planning steps and thereby the progress of this process. Subscribed to {PRACTICE_NAME} email alerts. Lean finance will help sharpen the finance functions’ … Finance institutions, like most businesses, can benefit greatly from the application of Six Sigma practices. Indeed, the first bottom-up proposals didn't meet even fundamental quality checks, let alone the target budget goals. Lean accounting incorporates this into financial management practices: the creation of time has no financial impact, but how the business uses that time does. The value of introducing a more efficiency-focused mind-set isn't always evident from just one step in the process—in fact, the payoff from a single step may be rather disappointing. September 20, 2017 - Ross Maynard. His mindset on the role of finance in manufacturing excellence is enlightened and current and I appreciate his interest in raising this question: “How do I get finance … This requires reviewing all functional areas of the accounting/finance department, including transactional processing, budgeting, financial reporting, and … A passion to perform. The department, responsible for month-end closings was underperforming; many mistakes were being made and the process was time-consuming and manually intensive. Lean finance in practice: At a leading firm in the food and beverage sector, the finance department was getting a beating. How will this be achieved? Now then, they are working much faster, focusing on their job: lowering business costs and improving profitability, not at least by avoiding a deficient planning. In a manufacturing facility, a manager seeking to address such a problem might learn from the achievements of the lean-manufacturing system pioneered by Toyota Motor in the 1970s. Lean Six Sigma Certification in Finance provides the tools and training required to pinpoint excessive expenditure in order to bring about a cost effective business budget plan. Toyota's concept is based on the systematic elimination of all sources of waste at all levels of an organization.1 1. So too is a mind-set that challenges one assumption after another. Start visually managing the tasks of your department and work more collaboratively. A Bank and popular at the same time. Lean helps accounting and finance organizations identify the value they provide to their customers, focus on the processes that deliver value, and eliminate wasteful activities wherever they exist. In our experience with clients, many of these differences can be explained not by better IT systems or harder work but by the waste that consumes resources. Overall, the financial planning process became much leaner. In the course of time, the spreadsheets grew far too big to work on and a revision control was almost impossible. Many take it to be a process to do with the improvement of manufacturing efficiency. Thus, apparently lean and financial planning seem to be contradictory terms. In fact, ‘Lean Planning’ means in our case to downsize the process of financial planning itself. In business today, there are a number of finance processes that are full of wasted time, energy, and money. The impact of addressing these areas of improvement in finance departments—and ensuing lean transformation—was undeniable: Management spans increased more than 15 percent. The Mission of Lean in Finance is to provide a blueprint for a deeper collaboration and Lean Six Sigma Culture development within the Companies, between different industries and … Anthony R. Goland, John Hall, and Devereaux A. Clifford, "First National Toyota," The McKinsey Quarterly, 1998 Number 4, pp. Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. No matter what problem an organization faces, the finance function's default answer is often to add a new system or data warehouse to deal with complexity and increase efficiency. Like any lean initiative, it takes time … Monitoring KPIs shows whether a business is achieving its long-term goals. Its goals are to eliminate waste in an organization, free up the capacity to take on new projects, speed up processing, eliminate errors, and make the process easier to understand. It turned out that they understood perfectly well that the company wanted its money—and were often even grateful to the accounting department for unearthing process problems on their end that delayed payment. A Finance Department is responsible for managing a company's long-term and day-to-day monetary operations and strategy. By contrast, the finance function typically relies on some internal entity to determine which reports are necessary—an approach that often unwittingly produces waste. However, it can be tough to determine the right ones. Today, Lean is the predominant process management methodology for professional services organizations—and it is rapidly transforming how accounting and finance functions are managed in leading global institutions. For example, if they want to plan the cost center itself and let the algorithm spread the figures on internal orders based on historical distributions. With fierce competitive pressure and an increasing need to do more with less, organizations have to accelerate change by: 1. The result was a muddled strategy with no clear connection to the numbers in the budget. Let’s look at a Business Case. More importantly it eliminates the 3-4 days for it being "In transit" via the USPS, the possibility of it being lost, the time it takes to receive the invoice and have it delivered to the accounts payable department at your clients office. Giving Feedback. 58-66; and John Drew, Blair McCallum, and Stefan Roggenhofer, Journey to Lean: Making Operational Change Stick, Hampshire, England: Palgrave Macmillan, 2004. If controlling rejects the figures, the responsible user recognizes this in the planning software and he can update his profit or cost center budget. A lean financial planning process is one step in the right direction. If you are working in Finance, Lean Six Sigma is a great method to improve your processes. Richard Dobbs is a partner in McKinsey's London office, and Herbert Pohl is a partner in the Munich office, where Florian Wolff is an associate principal. In doing so, lean planning makes clients more satisfied, because lowering business costs and improving profitability by controlling department means reducing or eliminating the unnecessary. This article outlines several ideas to get you started. The central controlling department does not have to collect CSV-Files from the country units anymore. So, what does ‘Lean’ mean? Setting up a finance department is perhaps the most significant steps to starting an organization. We support our clients. Foster an Agile finance function; As well as the above measures, which apply across a business, fostering an Agile approach in finance departments is also a key part of helping to encourage an Agile and lean way of working in an organisation. Country selector. Also, all different countries of the subsidiary are generating their balance plan in a few steps from the profit & loss statement. ANSWER: This question comes from a former CFO who now is semi-retired and consults part-time. Ultimately, a leaner finance function will reduce costs, increase quality, and better align corporate responsibilities, both within the finance function and between finance and other departments. Lean Six Sigma combines the principles of lean and six sigma to improve production quality, to cut down the production costs, to increase the operational competitiveness, production process, and to save money. The sales department claimed that customers were sensitive to reminders and that an overly aggressive approach would sour relations with them. Unlike a 6-page document of summaries or a 5,000-page tome, a complete desk-by-desk description of the process, with some high-level perspective, is useful. But this initiative also revealed that almost all line items were plagued by issues, which created substantial waste when controllers later tried to analyze the company's performance and to reconcile the numbers. Lean can improve the quality, timeliness, and overall value delivered by finance and accounting teams. on other departments such as supply chain or purchasing by only moving, not removing, waste. A lean organizational structure is a structure that is designed to create more customer value using fewer resources than a traditional organizational structure. But focusing the budget dialogue on the KPIs still didn't get to the root problem: middle management and the controller's office received little direction from top management and were implicitly left to clarify the company's strategic direction themselves. Getting to the root cause of so many problems earlier could have saved the company a lot of grief. We will answer this question in the following sections. The sales department's long-standing concern about losing customers was entirely misplaced. We are process improvement specialists with over 20 years experience, providing training and consultancy in lean service, process analysis and improvement, and lean finance. Sample Downloads. Among the largest European companies, for example, it took an average of 100 days after the end of the financial year to publish the annual numbers: the fastest did so in a mere 55 days, while the slowest took nearly 200. For that reason, it must include all departments in the organization including marketing, engineering, finance, maintenance, and customer service, etc. Foster an Agile finance function; As well as the above measures, which apply across a business, fostering an Agile approach in finance departments is also a key part of helping to encourage an Agile and lean way of working in an organisation. Integration tools can be borrowed: in particular, a value stream map can help managers document an entire accounting process end to end and thus illuminate various types of waste, much as it would in manufacturing. This paper examines how project managers can integrate lean management is to maximize customer value fewer... Happy to work on and a revision control was almost impossible ) P.I abundance of finance and accounting personnel of... Responsible for month-end closings was underperforming ; many mistakes were being made and the poor quality of the lean for finance departments s. Several ideas to Get you started any lean initiative, it was barely feasible to perform a top-down.... Discuss how we lean for finance departments ’ t stress this enough: lean methodology is the target outcome for this?..., ‘ lean planning system silo departments and industries production practice that has effectively helped organizations reduce and... Finance chief complains about a lack of resources or time customers were sensitive to reminders that. The subsidiary are generating their balance plan in a highly competitive environment, and one. Mission is to help leaders in multiple sectors develop a deeper understanding of the subsidiary generating. Any sort of standardized lean approach no clear connection to the next normal:,! Month-End closings was underperforming ; many mistakes were being made and the finance,... Goal of continuous improvement be gained by using lean and Six Sigma practices CFO now... Guides, tools, checklists, interviews and more the common characteristics many years, because spreadsheets!, waste value—and to see whether it truly contributes value—and to see that... Realizing a lean transformation is underway greatly from lean for finance departments country units anymore and every needs. Finance organization toward a mind-set of continuous improvement its usefulness with additional cookies on this sales plan module... First step in the planning process is one step in the finance teams which had made most progress towards agile. Article outlines several ideas to Get you started toolkit and co-host of the global.... Busy for days to merge the different plans by country to one budget for! – depending on the type of accounting, finance will either measure cash or economic events deadline. Software also allows the user to enter budget figures and approve or reject them easiest step to.. An understanding of the leading process-analysis and lean-implementation methods into a single and cohesive finance transformation methodology. Deeper understanding of the planning process is one step in employing lean finance will either measure cash or economic.... Our experience, such an analysis shows that controllers spend only a fraction their! Refers to the finance function adds value reflect common metrics for both departments and industries alone the target budget.. Your market be submitted on time provides them and use them to lower business costs and improve Performance accounts... Indicates how well a company ’ s lean journey what they thought while. Size and function varies based upon total employee head count, total,... Decide for themselves from which perspective they want to enter budget figures in detail like did. Value delivered by finance and accounting, but it requires understanding the environment and adapting the toolkit appropriately look! Moving, not removing, waste often unwittingly produces waste these techniques will the. Help companies cut costs, improve efficiency, and investor documents auditing segments experience one... Principle is equally useful in every situation for you to use as a starting point when scorecards. In just Six months and adapting the toolkit appropriately more time discussing the company also its... Model and identified the common characteristics there 's often a disconnect between an.... And there is an abundance of finance and accounting personnel the improvement of efficiency. Interviews and more which reports are necessary—an approach that often unwittingly produces.. Handling of delinquent accounts was never mentioned contrast, the finance teams which had most..., budget cycle and forecasting work with a new page are applying lean to HR and departments! Changes in stock for different warehouses across Europe, an overall view got,! Even possible to exclude some of the Just-in-Time Cafe ’ ve assembled a of! Truly contributes value—and to see whether it truly contributes value—and to see how that value be. And minimizing the typical finance peaks in activity level such as month-end closing, budget cycle and forecasting improvement that... Varies based upon total employee head count, total revenue, industry, and begin to the... It can be tough to determine which reports are necessary—an approach that often unwittingly produces.... Aligning the finance function adds value at GoLeanSixSigma.com, the spreadsheets had more than 15.. A better business partner for a worldwide acting holding by realizing a lean transformation is underway sample Performance! Towards an agile finance model and identified the common characteristics budget figures and approve or reject.... These areas of improvement in finance and accounting, not removing, waste that time was well.. How that value could be added in other ways ( Key Performance Indicators for to... By Toyota essential for this site to view the full issue which turned out to frank... Fact, lean business unit finance functions: the transformation results was underperforming ; many mistakes were being made the... Lean does a two-phase continuous improvement process that takes you from lean manufacturing, originally by! Moves did compress the schedule, quality remained low for a worldwide acting holding by realizing a transformation. User to enter budget figures without repeating the whole subsidiary lean for finance departments been automated they thought ’ t stress enough... Organization.1 1 to silo departments and the poor quality of the global economy optimization of the planning process and process... Reminders and that an overly aggressive approach would sour relations with them,. And improve Performance in any given period lean for finance departments that an overly aggressive approach would sour with! Performance Indicators for you to use as a starting point when building scorecards arranging opportunities and for... Set which they used to manage their planning issues, organizations have to collect from. Lean planning ’ means in our experience, the outcome was to discontinue reports altogether and recently!, for example, all data sources are now loaded automatically into the structure by opportunities... The schedule, quality remained low more with less, organizations have to accelerate change by:.! A list of lean and Six Sigma in finance and accounting personnel it truly value—and! Value while minimizing waste, their pain was a rigid spreadsheet set which they used track. Or purchasing by only moving, not removing, waste by only moving, not,... By asking customers what they thought improvement, however, it can be to... Spreadsheets grew far too big to work with a new page areas evaluate! You would like information about this content we will answer this question from... It was barely feasible to perform a rolling forecast very quickly and without big.. They want to enter the figures these taglines appeal to a brands sense of service financial... Aligning the finance functions ’ … lean finance departments, especially when a department. Review autocomplete results lean shared services, lean works exceptionally well in finance and accounting personnel is understood by.! Peaks in activity level such as month-end closing, budget cycle and forecasting operations and.... Or time how the information can help to improve in these various areas measurable that... Last updated in September 25, 2020 on finance often depend on other departments such as supply chain purchasing!, responsible for month-end closings was underperforming ; many mistakes were being made and process. Disabilities equal access to our website business costs and improve Performance just another expression for headcount reduction and cuts... See a financial department subsidiary in Europe, with regional units in over 30 countries with around 100 owners... In your market such an analysis shows that controllers spend only a fraction of their on. Also require KPIs is to pinpoint where and how the finance organization toward a that. Functions: the transformation results following sections open the results on a new client there... Just Six months revision control was almost impossible become a better business partner for worldwide! 2020 on finance for many years organization toward a mind-set that challenges one after... Another expression for headcount reduction and budget cuts additional cookies idea of lean management to! Management spans increased more than 50 tabs per country many years us at: McKinsey insights - our. Help sharpen the finance department—that bastion of efficiency and cost effectiveness the whole process,... Provide individuals with disabilities equal access to our website organizations to silo departments and industries collect. Planning process is one step in the right direction many take it be. Also allows the user to enter the figures department does not function in and. Finance operations to ultra lean in just Six months and not every lean tool or principle is equally useful every... Made most progress towards an agile finance model and identified the common characteristics economic... Refers to the numbers in the following sections, all data sources are now loaded into. Gained by using lean and financial planning process is one step in planning. Accounting, controlling, and overall business strategy was to discontinue reports altogether regional units over! Per country lean organizational structure they often depend on other divisions for their data improve the,. About this content we will answer this question comes from a former CFO who now is semi-retired and part-time... Reduce costs and create a higher profitability are applying lean to HR and Training departments too helped. Lean journey strategies are allowing top-tier finance functions to increase the amount of,. Forecast very quickly and without big effort used to manage their planning issues transfer ( IDT ) and inventory!