Nick Katko, Owner and President of BMA, joined Jamie Flinchbaugh on the People Solve Problems podcast to discuss lean accounting systems and their role in problem-solving. With over 30 years of experience in practicing lean accounting, Nick coaches companies on how to leverage these systems to improve their operations and decision-making processes.

Nick explained that lean accounting is more than just debits and credits; it’s a comprehensive system that encompasses both financial and management accounting. In the financial accounting realm, lean accounting focuses on creating continuous improvement within the accounting function itself, eliminating waste and boosting productivity. On the management accounting side, it’s about transforming the information used to run the business, ensuring it’s relevant and reliable for lean operations.

The conversation highlighted how traditional management accounting practices have largely fallen by the wayside, but lean accounting is bringing them back in a more effective form. Nick pointed out that as companies became leaner in their operations, they realized that traditional management accounting information wasn’t helpful for decision-making in a lean environment. This realization led to the development of lean accounting systems.

One of the key aspects Nick emphasized was the importance of thinking about lean accounting as a system rather than just an exercise. It involves people, analysis, decision-making processes, and operational practices, all working together to establish cause-and-effect relationships. Nick stressed that improving financial performance requires operational changes, and lean accounting provides the tools to make these connections.

The discussion touched on the role of lean accounting in both problem identification and problem-solving. Nick explained that it depends on the situation – sometimes you start with a problem in the numbers and need to find the operational root cause, while other times you’re making operational improvements and need to quantify the financial impact. He emphasized the importance of understanding operational performance and making connections beyond just the financial figures.

Nick also addressed the common dilemma of “hard” versus “soft” savings in continuous improvement programs. He explained how lean accounting avoids the pitfall of soft savings by focusing on tangible outcomes, such as time saved, and then exploring how that time can be utilized to create value.

When it comes to initiating a lean accounting transformation, Nick noted that it often starts with operational and continuous improvement teams, followed by small business owners, and then finance people. He stressed the importance of finance teams developing a learner’s mindset and being open to understanding lean principles and their potential financial impact.

For organizations considering a lean accounting journey, Nick outlined a general approach: start with education for key stakeholders, conduct a pilot project to prove the concept, develop standard work, and then replicate the process across the organization. He emphasized that it’s an ongoing journey of improvement, not a one-time implementation.

To learn more about lean accounting and its applications, Nick Katko has authored “The Lean CFO” and co-authored “Practicing Lean Accounting.” Those interested in connecting with Nick can visit www.maskell.com or find him on LinkedIn

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