Supporting Management Decision-making: Cost Analysis in the Lean Enterprise

By Mark Pickering

Lean accounting is evolving to provide information that effectively and efficiently supports management decision-making in lean organizations. Lean accounting practices seek to address long-observed issues with traditional management reporting and costing, which are magnified in lean companies. A significant component of lean accounting is the calculation and analysis of costs.

This article explores lean enterprise costing and, in particular, how costs are analyzed to support different types of management decisions.Cost analysis methods used in lean companies essentially apply and refine general cost analysis approaches that have gained more traction in lean environments than in other companies. Understanding costing and cost analysis in lean organizations is therefore of interest to financial professionals in both lean and non-lean organizations as they seek to better the quality of cost information and analysis to improve management decisions.This article first discusses some of the major uses of cost information. It then provides an overview of the lean philosophy and the attributes of lean that impact costing requirements. How cost analysis is performed to support decisions in lean companies is then identified and compared with cost analysis generally recommended in accounting education. Potential conditions in which this analysis would be most suited and issues to be avoided are also identified.Finally, the relevance of activity-based costing (ABC) in lean enterprises is discussed.


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