LEAN Accounting and Budgeting - Plan for it!

Today, Rick Feldt and Mike Lewis took the nfpFMA membership through the concept of LEAN accounting as it applies to budgeting. Most of the general public associates LEAN business practices with cost-cutting and layoffs. However, the best way to practice LEAN is to use it to change and streamline institutional practices. For the not-for-profit world, there are few institutional practices as entrenched as budgeting. To start budgeting LEAN, follow these Do's and Don'ts:

Don't

• Forecast to the wall (most budgets provide fewer and fewer projections as the end budget date draws near)
• Confuse forecasts with targets (be realistic with forecasts, optimistic with targets)
• Insist on forecast accuracy in an unpredictable world (forecasts are a best guess at most)
• Rely on Excel spreadsheets (instead, try to find a way to budget/forecast in the accounting software)
• Engage in excessive detail

Do

• Use a rolling 12 month forecast (update every quarter)
• Focus on critical drivers (rather than excessive detail)
• Use different time horizons for different decisions
• Match forecast with ability to see
• Move to advance planning (such as scenario planning)

LEAN budgeting involves changing from a static budget to a dynamic one, and in doing so, shortens the amount of time and resources spent on budgeting.

A good resource for LEAN accounting is, "Real Numbers: Management Accounting in a Lean Organization," by Jean E. Cunningham, Orest J. Fiume, and Emily Adams.