by Lee Fried, on 30 Apr 2008 08:25 pm
The Journey
Understanding Total Cost
I am currently engaged in a great benchmarking and learning journey that I am taking with the Chief Financial Officer of my organization. Our challenge is a difficult one and I am looking for some of you, the readers of this blog to help me think through our strategy and approach. In return, I promise to share with you all our story over the next year.
Our goal is to redesign our financial and performance measurement systems. As the organization has adopted Lean as an enterprise/management system transformational strategy we have quickly realized that our current financial and performance measurement systems will hinder our efforts for change. The current systems primary purpose is to put controls on spending within our functions with the primary tool being the budget. We know this drives all kinds of waste and does not support our efforts to create continuous improvement within every team with year over year cost and productivity improvement.
Our goal is to develop a total cost framework for the organization that allows us to understand the primary drivers of cost. This will allow us to focus on specific drivers, prioritize opportunities and align resources to our greatest opportunities. Once the framework is created we hope to begin to transition the way we think about cost from vertical to horizontal by organizing our measurement systems around our Value Stream. Additionally, we hope this coming year to deploy cost and productivity targets through our Strategy Deployment process to each of these value streams.
As we have started our learning process we have found it very difficult to find service related examples that translate into our language let alone healthcare examples. We have read some excellent materials like the new book by Orry Fiume called Real Numbers, but are hungry for other stories, tools, examples of frameworks and materials. Please share any information if you can and wish us luck!
on 01 May 2008 at 8:12 am 1.Tom Marotta said …
I have always been partial to Goldratt’s accounting:
(Throughput - Operating Expense) / Investment
It helps you focus on what’s important.
on 01 May 2008 at 10:16 am 2.Bryan Lund said …
You did say that you know that your current structure drives your organization to do the wrong things. The question here to ask is “why”? Another way to ask this question is to test it: if you do the right things, are those improvements not reflected in your financial reporting structure? I think by testing this out, you may find that your organization begins to do two things:
1) understand the gaps between financial reporting and lead-time reduction oriented improvement.
2) most importantly, involve your finance group in a more rigorous, scientific test of the system. This is a sure-fire way for your financial folkls to see the gaps for themselves.
on 01 May 2008 at 11:57 am 3.Paul said …
I would start with your A3 and see if your metrics support your startegy at all levels. Are you providing your service on time?, are your customers satisfied with you service (quality), Your service is no different than a machine that uses OEE top calculate the effiency. If you are billing at 200/hr. and have a forty hour workweek you should benchmark on the history of the resourse utiliztion. if you run seminars start with a target and see how close you come to it. It’s about Quality ontime delivery productivity and innovation.
on 01 May 2008 at 7:53 pm 4.Scott said …
I have been following lean for only a short time. One of the sites I follow is http://www.leanaccountingnews.com.
It seems to be geared towards production environments and takes financial reports towards value streams.
There have been many thought provoking articles on the site, well worth a look in relation to your current endevour.
on 04 May 2008 at 6:47 pm 5.Lee Fried said …
Thanks to you all for the helpful thinking and references. I will keep you all posted as we progress.
Lee