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Real Numbers: Management Accounting in a Lean Organization
Are your accounting data and reports providing a true and timely picture of your company's performance? Are your lean operations personnel complaining that the numbers "lie"?This explosive issue and its implications are fully explored in "Real Numbers." Traditional "accountingese" is not used, and it is written for all professionals desiring an understanding of the application of lean accounting and the results that can be achieved from its use. The authors, each a former chief financial executive, describe how management accounting evolved to this point and how simplicity and clarity can be restored -- particularly in a lean organization. The anecdotal presentation from their personal experiences vividly illustrates the "Whys" and "Hows" of lean accounting. The management accounting model illustrated in "Real Numbers" points the way to unlocking the true profit potential of lean.Real Numbers is required reading for SME Lean Silver Certification. It was the first lean accounting book and remains the ideal starting point for investigating this methodology.
200 pages, Paperback
First published March 25, 2003
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Displaying 1 - 14 of 14 reviews
February 3, 2010
This is a great book on creating a lean organization and it's impact on the accounting function. The first part of the book concentrates on "What is lean?" and "How does it change things?" The second part of the book looks at how the accounting function changes from one of bean counter to one of high value business partner.
An important concept is the idea of accuracy vs. precision. While much information is both, accountants tend to spend a great deal of time making information precise, while being accurate is good enough. As a past accountant for over 20 years, I myself have fallen into the precise trap. This book helped me understand why accuracy is to be preferred over precision: Precision can eat up valuable resources with little to show for it.
An important concept is the idea of accuracy vs. precision. While much information is both, accountants tend to spend a great deal of time making information precise, while being accurate is good enough. As a past accountant for over 20 years, I myself have fallen into the precise trap. This book helped me understand why accuracy is to be preferred over precision: Precision can eat up valuable resources with little to show for it.
June 4, 2009
good practical advice for leaning accounting
March 21, 2021
Complexity can be a form a secrecy. It can also be a subsidy. This is what has happened to accounting. One-third of MBA students said they were pursuing it so they could understand the numbers. Wow. Even with our language, we have created a Tower of Babel, obfuscating the economic reality of organizations. In Real Numbers, Jean Cunningham wants to replace the 100-year old outdated accounting model whose primary purpose was tracking inventory value. She argues we must change the reports, not the people. With Lean, this has become much less relevant. Does accounting teeter on the brink of irrelevancy? I’d answer yes. See The End of Accounting and Relevance Lost, both reviewed herein. The information it produces arrives late and is often misleading. Cunningham dismisses Activity-Based Costing (ABC); Goldratt said “ABC is a new way to be wrong.” I like her point that accountants must change their focus from Cost Accounting to Cost Management. So true! See Reginald Lee’s books reviewed herein: Lies, Damned Lies, and Cost Accounting, and Strategic Cost Transformation. Accountant’s obsession with developing a unit cost for each product (or service), and the resulting variance analysis, has serious deleterious effects, and covered by the books mentioned, as well as Profit Beyond Measure by H. Thomas Johnson. Cunningham also warns “mind what you measure.” Couldn’t agree more, there are many moral hazards with measurements, as I discuss in my book, Measure What Matters to Customers. She’s cognizant that it’s the process that needs to change, and then the results will take care of themselves (what Johnson calls Management by Means, as opposed to Management for Results). Productivity cannot be improved through financial engineering.
Disagreements
Cunningham writes this equation and says it’s a key economic principle: Productivity = Wealth. But it’s not an economic principle, because what if you’re productive at doing the wrong thing? Then you are simply wasting society’s resources, which is wealth destroying. The real concept is: Wealth = Knowledge and Growth = Learning, as so eloquently explained by George Gilder in his book, Knowledge and Power. This is another problem with Lean: it has no coherent theory of value and is way too focused on waste reduction (I wonder what it would think of Google’s 20% time, seems like pure waste, doesn’t it?). She also writes that customers need to become educated on the benefits of lean. Really? Why? Customers could care less. They only care about the results, and value in their minds. This is why I think Lean pays lip service to customer value, and the voice of the customer. It’s not guided by a coherent theory of value.
Cunningham asserts: “We have long since passed from an environment where Cost + Profit = Selling Price. Now, Selling Price – Cost = Profit. For most companies, selling prices are set by the market and profit is determined by how cost effective we can be.” This is nonsense. How, then, does Apple (among many other companies) achieve superior pricing? It’s not cost management, it’s better pricing. I agree with her that “Target Costing forces the selling price be determined at the beginning of the product development process and a desired profit, which is set by management.” But surely this is only useful for a minimum price. I will cut her some slack because her book is not focused on pricing, but she seems to be unaware of the pricing revolution that has been happening across businesses since the mid-1980s, where value, behavioral economics, psychology, etc., all intersect to align price with value, not markets, or costs.
I also disagree with this: “…must take a longer-term view and put meaning into the phase “our people are our most important asset. The reluctance to ensure employment is a major barrier to successfully implementing lean…” But people aren’t assets, since you cannot own a person. Ultimately, they are volunteers, or human capital investors. And how can any company ensure employment, since all value is subjective.
She even falls into the “unit cost” fallacy by attempting to calculate the cost of creating a financial statement, by adding up accounting employee salaries. But this is a non-cash cost, meaning that if those employees weren't doing financial statements, they'd still be paid, so no difference in cash spent.
All that said, this is still a very worthwhile book for CPAs to read, if for nothing more than putting another nail in the coffin of standard cost accounting.
Disagreements
Cunningham writes this equation and says it’s a key economic principle: Productivity = Wealth. But it’s not an economic principle, because what if you’re productive at doing the wrong thing? Then you are simply wasting society’s resources, which is wealth destroying. The real concept is: Wealth = Knowledge and Growth = Learning, as so eloquently explained by George Gilder in his book, Knowledge and Power. This is another problem with Lean: it has no coherent theory of value and is way too focused on waste reduction (I wonder what it would think of Google’s 20% time, seems like pure waste, doesn’t it?). She also writes that customers need to become educated on the benefits of lean. Really? Why? Customers could care less. They only care about the results, and value in their minds. This is why I think Lean pays lip service to customer value, and the voice of the customer. It’s not guided by a coherent theory of value.
Cunningham asserts: “We have long since passed from an environment where Cost + Profit = Selling Price. Now, Selling Price – Cost = Profit. For most companies, selling prices are set by the market and profit is determined by how cost effective we can be.” This is nonsense. How, then, does Apple (among many other companies) achieve superior pricing? It’s not cost management, it’s better pricing. I agree with her that “Target Costing forces the selling price be determined at the beginning of the product development process and a desired profit, which is set by management.” But surely this is only useful for a minimum price. I will cut her some slack because her book is not focused on pricing, but she seems to be unaware of the pricing revolution that has been happening across businesses since the mid-1980s, where value, behavioral economics, psychology, etc., all intersect to align price with value, not markets, or costs.
I also disagree with this: “…must take a longer-term view and put meaning into the phase “our people are our most important asset. The reluctance to ensure employment is a major barrier to successfully implementing lean…” But people aren’t assets, since you cannot own a person. Ultimately, they are volunteers, or human capital investors. And how can any company ensure employment, since all value is subjective.
She even falls into the “unit cost” fallacy by attempting to calculate the cost of creating a financial statement, by adding up accounting employee salaries. But this is a non-cash cost, meaning that if those employees weren't doing financial statements, they'd still be paid, so no difference in cash spent.
All that said, this is still a very worthwhile book for CPAs to read, if for nothing more than putting another nail in the coffin of standard cost accounting.
April 24, 2024
Great for Intermediary accountants but outdated a bit
This stands up great to time except the portions of tech which have drastically improved. For instance, accounting is no longer done through fax, or written down statements, programs and enterprises are developed that have enhanced and almost forced analytical accounting to be more important than the traditional accounting methods mentioned. However, obviously this seems to be a preamble to what has actually taken place in the accounting world as opposed to a guide to transformation.
This stands up great to time except the portions of tech which have drastically improved. For instance, accounting is no longer done through fax, or written down statements, programs and enterprises are developed that have enhanced and almost forced analytical accounting to be more important than the traditional accounting methods mentioned. However, obviously this seems to be a preamble to what has actually taken place in the accounting world as opposed to a guide to transformation.
October 22, 2022
I absolutely loved this book. It’s incredibly stimulating for any accountant/bookkeeper/cfo. Reimagining accounting practices through lean lenses opens up new possibilities for more transparency and less work (day-to-day and month end closes).
So much of accounting has been carried through without proper vetting as to its importance or necessity to a well operated business.
So much of accounting has been carried through without proper vetting as to its importance or necessity to a well operated business.
November 30, 2022
I’m not an accountant but I love Lean. This book was great to read and stimulating. It makes me wonder and have some many questions about accountants and the financial district of business. Ultimately, this seems fresh and able to look at what truly brings financial value. Definitely worth a read.
November 6, 2017
Written by a CFO for Accounting/Finance folks, but even I could follow the book!
January 31, 2021
Obviously a bit of a different type book to read.
I think crucial to understand the financials in businesses and the improvements that could be made
I think crucial to understand the financials in businesses and the improvements that could be made
Read
May 11, 2021This book is very good.
June 29, 2013
The world of accounting has never really provided numbers that were meaningful to those who make decisions about how to run a business. This book helps accountants, bookkeepers, controllers and CFO's shed that albatross. This books gives a good outline of how to install an accounting system that is understandable and will help produce results in companies.
Too often I wander into a company where traditional accounting methods are used and the numbers lie. They don't help management see what is really going on in the company. I think it's time the accounting world gets away from compliance reporting and provides information that is useable and accurate for management.
The authors point out that precise is not usually needed, but accurate is. Lou Mobley once taught me that the only number that makes sense is the one to the 4th digit. If you have a company with $1,000,000 in sales this means anything less than $1,000 is really not something to pay a lot of attention to. Getting the 5th or 6th digit right doesn't make sense. Getting the 4th digit right does.
Getting rid of allocated costs is another gem in this book. An allocated cost is just another excuse to make things look better than they really are. Using real costs in a manner that real people can understand will help business managers understand what changes they can make to improve the effectiveness of their operation.
Remember Lean is a whole company operation that never gets done. This book points out why this is true.
I gave the book 4 stars because the beginning was a rehash of what lean is and didn't help move my knowledge base forward. The second half of the book more than made up for my disappointment in the first half.
Too often I wander into a company where traditional accounting methods are used and the numbers lie. They don't help management see what is really going on in the company. I think it's time the accounting world gets away from compliance reporting and provides information that is useable and accurate for management.
The authors point out that precise is not usually needed, but accurate is. Lou Mobley once taught me that the only number that makes sense is the one to the 4th digit. If you have a company with $1,000,000 in sales this means anything less than $1,000 is really not something to pay a lot of attention to. Getting the 5th or 6th digit right doesn't make sense. Getting the 4th digit right does.
Getting rid of allocated costs is another gem in this book. An allocated cost is just another excuse to make things look better than they really are. Using real costs in a manner that real people can understand will help business managers understand what changes they can make to improve the effectiveness of their operation.
Remember Lean is a whole company operation that never gets done. This book points out why this is true.
I gave the book 4 stars because the beginning was a rehash of what lean is and didn't help move my knowledge base forward. The second half of the book more than made up for my disappointment in the first half.
March 12, 2025
2025.... It's been close to a decade a since I've last read this book and this time if the audio version.
The book was loan to me initially by a controller who would run two sets of numbers each month, one that corporate expected and one lean accounting method. I recall her ability to talk endlessly about the merits of what lean accounting can do for an organization. She always wanted to be part of kaizen events and in my memory never missed a single kickoff meeting. When asked for financial information for events, she always quickly provided simple data to help us.
Since I've left that company, I've heard no mention of lean in accounting. I've also grown to appreciate that the company I was with did a three-day close, as opposed to the week to 10 days in the company I've been with since.
Accounting to me is not one of the areas that I have a strong sphere of influence over at this time. Rereading this book reminds me of what to look for if that does become an area of my influence in the future.
The book was loan to me initially by a controller who would run two sets of numbers each month, one that corporate expected and one lean accounting method. I recall her ability to talk endlessly about the merits of what lean accounting can do for an organization. She always wanted to be part of kaizen events and in my memory never missed a single kickoff meeting. When asked for financial information for events, she always quickly provided simple data to help us.
Since I've left that company, I've heard no mention of lean in accounting. I've also grown to appreciate that the company I was with did a three-day close, as opposed to the week to 10 days in the company I've been with since.
Accounting to me is not one of the areas that I have a strong sphere of influence over at this time. Rereading this book reminds me of what to look for if that does become an area of my influence in the future.
Want to read
July 17, 2009Lean Accounting Techniques for a real world.
June 27, 2015
I am officially a geek. I read this. I liked this. Loved the challenge at the end....."Rediscover your relevance". This is a must read for financial people. Shake it up!
April 11, 2017
If you can drudge your way through it, it's probably useful.
I took about six months to read this because I could only motivate myself to read about 10 pages at a time but i'm glad I did.
It really makes you wish that your company did all of these things because the appear very useful but you would really need top level influence to implement this.
I took about six months to read this because I could only motivate myself to read about 10 pages at a time but i'm glad I did.
It really makes you wish that your company did all of these things because the appear very useful but you would really need top level influence to implement this.
Displaying 1 - 14 of 14 reviews