. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24 COST MANAGEMENT JANUARY/FEBRUARY 2019

To really capture the current sce-nario in the lean community, weturn to this age-old maxim: Tobe of use is useful; to show your-self to be of use is doubly useful.

Lean pract it ioners are useful w ithout adoubt, but when it comes to ar t iculat ingthings, such as the alignment to strategy, thequantification of operational gains in finan-cial terms, or the value of the improved stateversus previous levels, they struggle to trulyshow themselves “being of use.” Lean practi-tioners can greatly benefit from a stream-lined business casing process that accuratelyand clearly captures value, aligns with strat-egy, and articulates financial gains.While many people are currently sold

on the operat ional gains of lean, pract i-

t ioners often st i l l struggle with translatingthose operational gains into financial ones.Furthermore, lean endeavors should alignto the hoshin of a g iven organ i zat ion ,business unit, or corporate entit y, and aswe know, not al l lean act ions clearly al ignwith business strategy goals.This ar t icle describes the act ions lean

practit ioners can and should take to verifya clear and crisp al ignment of lean workwith the business s t rateg y and w ith theappropriate levers of organizat ional im-provement. These improvements must bewell articulated into the levers that comprisea classic business case so that they are defen-sible and their inherent value is all the moreapparent. Likewise, the business case processitself needs to be streamlined and robust.

MUDA IN THEBUSINESS CASE:

TRANSLATING LEANINTO SAVINGS AND

AVOIDANCEGARY KAPANOWSK I AND BENJAMIN B. BENSON

G A RY K A PA N OWS K I i s a Ce r t i f i ed Lean S i x S i gma Mas te r B l a ck B e l t and Ce r t i f i ed ASQ Bronze Lean p ro f e s s i ona l ,co s t a c countant f o r Moe l l e r Manufac tur ing , a l ead ing a e ro space par t s supp l i e r, and a Lean S i x S i gma Mas te r B l a ckBe l t L e c ture r a t Law rence Techno log i ca l Unive r s i t y P ro f e s s i ona l De ve l opment Cente r. Ut i l i z ing exp e r i ence w i thmet r i c s and the Ba lanced S core card , Gar y ear ned the 2006 F inanc i a l Ex ecut ive o f t h e Year award f rom Robe r t Ha l fInte r nat i ona l and In s t i t ute o f Management Accountant s . Gar y ha s b een a f eatured s p eake r a t ove r 170 p ro f e s s i ona lannual con fe rences and l ean work shops in ove r 37 unive r s i t i e s w i th ove r 3 , 700 profe s s ional and unive r s i t y at tendees .Hi s re c ent work p roduced the f i r s t rede f in i t i on o f l ean a s a bu s ine s s s t rateg y and b e yond an op e rat i ona l e f f i c i enc ytoo l f o r imp l ementat i on .

B E N JA M I N B . B E N S O N , P h . D. , i s t h e ex e cut ive d i re c tor o f p ro f e s s i ona l de ve l opment f o r Law rence Techno log i ca lUnive r s i t y in S outh f i e ld , Mi ch i gan , and owne r o f Corax Bu s ine s s S o lut i on s , a wor ldw ide con su l t ing f i rm . He ha s33 year s o f con su l t ing and t rain ing expe r i ence a s a CEO and a s an execut ive at f i rms such a s Accenture and Spher ionTechno log y, work ing f o r g l oba l o r gani zat i on s and For tune 250 c l i ent s .

Lean practit ioners can benef it f rom a streamlined business casing process that captures

value, al igns with strategy, and ar t iculates f inancial gains.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

This article discusses business case outcomesthat are rapid in preparat ion, obv ious invalue, and clear in their ease to calculate,track, and refresh.

Showing the value of lean and theimportance of a business caseUnl ike s ix s igma and other cont inuousimprovement methods, lean does not require

a charter, business case, or synopsis of thecost of poor quality (COPQ) to be initiated.However, without these, lean’s value becomessomewhat of an oral narrative and certainlyharder to translate into financial gains.Concepts such as activ ity-based costing

and the balanced scorecard suggest thateach revenue gain or operat ional cost bedocumented to clearly show the profit profileand draw attent ion to any items that are

25LEAN BUSINESS CASE JANUARY/FEBRUARY 2019 COST MANAGEMENT

SSTSTRSTRASTRATSTRATESTRATEGSTRATEGYSTRATEGY

BBABALBALABALANBALANCBALANCEBALANCEDBALANCED BALANCED SBALANCED

SCBALANCED

SCOBALANCED

SCORBALANCED

SCOREBALANCED

SCORECBALANCED

SCORECABALANCED

SCORECARBALANCED

SCORECARDBALANCED

SCORECARD

BBUBUSBUSIBUSINBUSINEBUSINESBUSINESSBUSINESS BUSINESS CBUSINESS CABUSINESS CASBUSINESS CASEBUSINESS CASE

LLELEALEANLEAN LEAN I

LEAN IN

LEAN INI

LEAN INIT

LEAN INITI

LEAN INITIA

LEAN INITIAT

LEAN INITIATI

LEAN INITIATIV

LEAN INITIATIVE

LEAN INITIATIVE

Set the strategy

Calculate benefit

Input (resources)

Output(lean results)

Review

Reporting

Revise and adjust

business case

EXHIBIT 1 Aligning Lean with Strategy Flowchart

EXHIBIT 2 Value Levers That Impact Lean

Which levers does lean impact?

RevenueNew cl ientsCross-sel l ingCustomer segmentat ionCustomer sat isfact ionCustomer prof i tabi l i ty

Speed to capitalInventoryRiskQual i tyEff ic iencyThroughputAsset ut i l izat ion

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26 COST MANAGEMENT JANUARY/FEBRUARY 2019 LEAN BUSINESS CASE

EXHIBIT 3 Business Case Questionnaire

Lever or area of business case consideration

Appliesto

businesscase?(Yes/No)

If yes, has beencalculated and

added to businesscase? (Yes/No)

1. How does the lean ini t iat ive al ign with strategyprior i t ies?

2. How is revenue affected?3. How can this lead to new cl ients? 4. How can this lead to cross-sel l ing?5. Wil l this effort enhance customer segmentat ion

to gain new customer types?6. Wil l i t aid in customer sat isfact ion? 7. Wil l i t enhance margin and prof i t?8. Wil l i t speed up cash inf low or return on capital

employed?9. Wil l i t lower inventory, expedit ing, or material-

carrying costs?10. Wil l i t lower company r isk levels? How? Which?11. Wil l product or service, or by-products, be

improved to enhance qual i ty? What is the f inan-cial benefi t?

12. Are there eff ic iency gains in steps removed orwaste (muda) removed?

13. Are there throughput gains in terms of yield,speed to market, acceptance rates, reduct ion ofwaste? Quanti fy hours and materials savedover volume.

14. Can assets be removed from the del iveryprocess or repurposed (freed up and reappl ied)to make money? Which assets (e.g., f ixed,direct, energy, f loor, or human) and how much?

15. Is the as-is operat ional and f inancial picturecaptured? Are there actual reports, statements,and pictures to val idate?

16. Has the root cause of the current state prob-lem/waste been ident i f ied?

17. Are costs captured in terms of loss, one-t imeexpenditures (to produce improvement), as wel las improved steady state? What is the netimprovement?

18. What is the internal rate of return, the net pre-sent value, and the depreciated cash f low? (Getf inance help i f needed.)

19. Is the steady-state solut ion more automatedand technology-enabled? What is the deltabetween the to-be state and the as- is state?

20. What are the inst i tut ional costs to implement, i fany? Have training, documentat ion, softwareupdates, and lean project team costs been cal-culated?

21. What is the staging, sequence of moves, di ffer-ent iat ion, scope, and economic logic ( in sum-mary) of the to-be state?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

suboptimized.1 Yet, for most lean efforts,a cogent business case is not prepared. Thismay be due to the assumption that businesscases primari ly relate to projects in needof operational or capital expenditure, andlean is not tradit ional ly capital-intensiveand in need of seed money. 2 Sti l l , the bestway to secure buy-in for lean is to prov idea clear snapshot of its costs and benefits aswel l a s i t s a l ignment w ith s t rateg y ( seeExhibit 1).

Preparing a business case that alignswith strategy and value leversEssent ia l ly, the business case w i l l comedown to a question of what levers are moving.Looking at the levers l isted in Exhibit 2,remember that these are only broad cate-gories (e.g., inventory may be further definedby turnover, expediting, work-in-process,outages , s t ag ing , or obsolescence) , anddozens of specific subcategories exist foreach lever.3Also, additional levers may comeinto play in specialized situations, but thoselisted in Exhibit 2 make a good first start.

A pragmatic lean business casetemplateA hard and fast form may not exist to guidethe business case narrative; for this reason,we prov ide Exhibit 3 as a template to use.

It s purpose i s to be provocat ive to leanpractit ioners and their teams as wel l as tofiduciaries and executive sponsors.

The muda often faced in preparing thebusiness caseSince lean is in ever y facet of the business— not just the core processes, but in eachtransaction and artifact as wel l — how canits presence (or absence) not be felt in thebusiness case? The current state of businesscases, in terms of alignment to lean projectsand their general use and function, is sub-optimal to say the least.4What, then, makesfor a lean business case in terms of efficiencyand effect iveness? Exhibit 4 shows someconsiderat ions for your organizat ion inpreparing business cases as seen throughthe lens of the common types of muda , orwaste.

Business case improvement logCollecting the information regarding businesscases is important to understand your currentsuccesses, the possible future state of yourbusiness, and how to reach your desiredfuture state. Exhibit 5 wil l assist with or-ganizing the data.5 By learning from pastbusiness cases, the organization can improvethe overall process and identify tasks thatcan derail successful business cases.

27LEAN BUSINESS CASE JANUARY/FEBRUARY 2019 COST MANAGEMENT

EXHIBIT 3 Business Case Questionnaire (continued)

Lever or area of business case consideration

Appliesto

businesscase?(Yes/No)

If yes, has beencalculated and

added to businesscase? (Yes/No)

22. Can the lean solut ion be extended to otherprocesses or business l ines?

23. At what junctures wi l l the business case berefreshed so that the solut ion can be comparedto the or iginal improvement project ions?

24. How does this lean project rank in relat ion toother lean projects regarding strategy ful f i l l -ment and value?

25. What cognit ive and affect ive gains (e.g.,morale, brand reputat ion, ease to suppl iers) arepresent in the lean solut ion, i f any?

26. Are there gains not covered in this l ist thatshould be addressed?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 COST MANAGEMENT JANUARY/FEBRUARY 2019 LEAN BUSINESS CASE

EXHIBIT 4 Common Types of Waste

Category Type of waste present in business caseDefect - No business case provided

- Inaccurate business case- Incomplete business case- Based on ROI only - Not al igned with strategy - Cases are not ranked or quanti tat ively scored- Business case is not modif ied or refreshed duringproject tenure

Transportat ion - Back and forth to f ield, f loor, corporate, or plant- Trips to faci l i t ies, suppl iers- Fly- ins not needed- Lit t le use of vir tual meetings

Inventory - Backlog of business cases to review- Docket that is too ful l- Turnaround t ime reduces stated value

Motion - Undo meetings and carbon copy on emails- Too many signatures- Too much t ime and effort goes into both self-evidentcases and long-shot ones

- Approval levels are too lowWait t ime - Deadl ines missed

- Too much t ime between meetings- Reviews are too t ight or too lax in turnaround

Overproduct ion - Prel iminary and ref ined cases add complexity- Non-standard formats used- More cases generated than funding avai lable

Overprocessing - Unneeded research, meetings, review- Too many approval steps- Printouts and drafts too numerous- Too many members in meetings

Savings vs. avoidance - True savings vs. cost avoidance not dist inctDepreciat ion and net present value

- Cost of capital not considered both posit ively andnegatively as impact on case

Compound considerat ions - Throughput savings after business case are not factored in

- Areas where business case can be extended are notdocumented

- Life cycle breakeven analysis not included- Internal rate of return threshold not met when compound costs are considered

One-t ime costs - Team cost and analysis cost not documented inhours and materials and lost opportunity cost

Employment of capital (capital employed/return oncapital employed)

- The cost of capital is not considered in scoring- Al ignment with strategy ( in terms of capital con-sumption) not considered in business case

Financial translat ion of operat ional metr ics

- Ful l - t ime equivalent and part- t ime equivalent hourssaved from task are not closely calculated

Associated costs - Operat ion impacts, r isks, and other associatedcosts are overlooked that are sympathet ic costs orsavings to business case

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exhibit 5 is an example of a log to helpassess the business case process and areasfor improvement. The Before column indi-cates that the business case passed the stagegate for implementation within the organi-zat ion ; the Af ter column indicates thebusiness case passed the stage gate for imple-mentation in the market. When the accuracyrate is below optimal performance, a reasonfor the defect is presented for future improve-ment.Starting with a customer focus, we identify

our customer and validate the performanceof the business case process. By focusing onthe customer, the business case can be devel-oped to make the process better, easier, faster,safer, and cheaper for the customer.6 Successor fa i lure i s a s soc iated w ith the overa l lbusiness case implementation. The goal isto identify what the business case is tr yingto solve.The business case should relate to the

organ i zat ion’s over a l l focus and goa l s(hoshin). As we rev iew the business case,we identif y the value stream with which itrelates to see how it is categorized and pri-

orit ized within the organizat ion, based onits hoshin reference. Future work potentialis identified to determine if there wil l beany cascading effects from the case’s success.Specifying the financial impact will providescale and accuracy to the proposal. Totaldollar amounts and percentages wil l verifythat the organization is assisting both largeand small programs for future successes.Identif y ing the origin of the business casewill also gauge the levels of lean throughoutthe organizat ion. Over t ime, a l l levels ofthe organizat ion — from the executive tothe ground level — wil l contribute ideasfor future growth.The creat ion date and submission date

of the business case indicate how long ittakes to complete the business case process.Reducing this t ime wil l improve the t imeto market (and therefore improve focus onthe customer). The acceptance and rejectiondates indicate how long the process takes,and if a promised date is assigned, promised-date tracking indicates how well the processis working (i.e., variance indicates waste).The completion date for the business case

29LEAN BUSINESS CASE JANUARY/FEBRUARY 2019 COST MANAGEMENT

EXHIBIT 5 Business Case Improvement Log

Level# Business Case Descript ion Before After Accuracy% Reason1 Customer associat ion2 Success/fai lure3 Goal4 Connect ion to organizat ion’s goal (hoshin)5 Value stream6 Future work7 Financial impact8 Origin of business case concept (executive/managers/general)9 Business case creat ion date10 Business case submission date11 Acceptance/reject ion date for business case12 Complet ion date for business case13 Projected start t ime for business case implementat ion14 Business case implementat ion date15 Durat ion of business case16 Business case complexity (hard/medium/easy)17 COPQ identi f ied18 Waste was ident i f ied19 Waste was el iminated20 Charter signed21 Cost-benefi t analysis results22 Lessons learned

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

wil l prov ide the earl iest t ime for imple-mentation, which then determines the timeto market for the customer. The overa l lduration can be used to assign a metric ofunderstanding to the amount of t ime tomarket by calculat ing the amount of t imefrom business case creat ion to implemen-tat ion.Acknowledging the complexit y of the

business case wil l prov ide the proper cat-egorization and allow for appropriate com-parison and analy t ics for future improve-ment s . As the bus ine s s c a s e proce s s i sfollowed and completed, the identificationand elimination of waste is important forcontinuous improvement and adding valuefor the customer. Identifying waste enablesprocess improvement, as well as COPQ cal-culations. As we review the approved businesscase, ut i l izing a signed charter and cost-benefit analysis will show how well the processperforms under best practices. Finally, lessonslearned are recorded in the log to assist withfuture business case success.

ConclusionIt comes down to approaching business valuewith a clear sense of change in mind and amechanism to track the current problemand optimal solution.7 Indeed, a key part oflean is the hoshin kanri alignment that declaresthe value of each tactical move.8 Leading

organizat ions do a great job quantif y inglean savings, and often it is the business casethat helps articulate the value.The next t ime your operation, qualit y,

functional, or even financial counterpartsengage in a lean endeavor, ask them, “CanI see the business case that goes with this?”If one is not avai lable, you can be doublyuseful to your organizat ion by leading thecharge w ith a cogent, s tandardized, andlean business case. n

NOTES1 Kaplan, R.S. and Norton, D.P., Using the balancedscoreca rd as a s t ra teg ic management sys tem,Harvard Business Review (July/Aug 2007): 96–109.

2 Benson, B.B., Change management as an acceleratorof the lean transit ion, Cost Management 32, no. 1(2018): 1–5.

3 Benson, B.B., Lean: Adapting to changing strategiesand market condit ions, Cost Management 31, no.1 (2017): 6–10.

4 Benson, B.B., Hoshin kanri: The fundamental startingpoint for lean success, Cost Management 30, no.1 (2016): 15–18.

5 Kapanowski, G., Continuous improvement projectlog, Cost Management 30, no. 2 (2016): 6–9.

6 Womack, J.P. and Jones, D.T., Lean Thinking: BanishWaste and Create Wealth in Your Corporation. (NewYork: Free Press, 1996).

7 Benson, B. and Popis, K., “Change management’srole in reengineering,” In Action Series: LeadingOrganizat ional Change . Phi l l ips, J.J. and Holton,E. (Eds.) , (Alexandria, V.A.: American Society forTraining and Development, 1997).

8 Benson , B. and End res , A . , “Organ i z a t i ona ldeve lopmen t and change ,” Manag ing HumanResources in the 21st Century: From Core Conceptsto Strategic Choice . Kossek, E.E. and Block, R.N.(Eds.) , (Cincinnat i , O.H.: South-Western Col legePubl ishing, 2000).

30 COST MANAGEMENT JANUARY/FEBRUARY 2019 LEAN BUSINESS CASE

Lean Accounting & Management Summit Bridge the Gap Between

Accounting & Operations

Lean Accounting & Management Summit

September 12-13, 2019 // Austin, TX

The Lean Accounting & Management

Summit (AKA Leadership Week) has long

served the accounting community by exploring

accounting’s unique and critical role in the lean

enterprise. The goal of the Summit is to align

Accounting and Operations to better measure

and motivate lean thinking across the organiza-

tion. Further, the Summit seeks alignment across

all business functions by running simultaneously

with the Lean HR & People Development Summit

giving participantsmore, and diverse, learning

options.

Join your accounting and management peers

September 12-13, 2019 in Austin, TX. You

will literally meet the “who’s who” list of lean

accounting and management practitioners.

Many of them current and former CEOs, CFOs,

and COOs in some of the world’s most respected

lean organizations.

www.leanfrontiers.com/leadershipweek

w w w . l e a n f r o n t i e r s . c o m

Austin, T X • September 12-13, 2019

Lean Practices for the

Accounting Department

Nick Katko

Life Cycle of Lean Accounting

Jean Cunningham

The Lean Profit Model

Mike DeLuca

High-Performing Kaizen System

Hal Macomber

Does Lean Reduce Cost? YES!

Nick Katko

Improvement Kata

for Accountants

Gary Kapanowski

Communicating Financial

Information: Talking about

dollars in a way that makes sense

Tamara Koopman

BlockChain, IOT, 3D printing, &

Other Emerging Technologies in

the Lean Enterprise

Rebecca Morgan

Bridging the Gap Between

Accounting & Operations in a

Lean Enterprise – Simulation

Jerry Solomon