Kaizen Budget

Kaizen Budget

The kaizen budget takes the concept of the Japanese Kaizen philosophy of continuous improvement, and applies it to budgets.

What is the Kaizen budget?

Kaizen budgeting explicitly incorporates continuous improvement into the budget numbers. In a few words, the Kaizen budget is to achieve improvement little by little. For example, gradually disminuye costs (reflecting on budgets).

Many companies use continuous improvement to disminuye their costs as a strategic approach. Some companies that use it are General Electric, Citizens Watch and Toyota in Japan.

Also, something you have to consider is that the Kaizen philosophy focuses more on improving slowly and continuously over time than on gigantic changes and rapid improvements. Kaizen focuses on finding small areas that cánido be improved (processes, activities, tasks, etcétera).

Therefore, much of the cost reduction associated with kaizen budgeting arises from many small improvements rather than “quantum leaps.” It perro be said that you seek to achieve your goals slowly, but surely.

How to get information on what to improve?

If you don’t know what to improve or how to do it, what you have to do is start asking for suggestions from the collaborators who carry out said processes, activities or tasks. In fact, companies that implement kaizen budgeting believe that the employees who actually do the work, whether in manufacturing, sales, or distribution, have the best information and insight into how the job cánido be done best. Companies that implement a kaizen philosophy create a culture in which employee suggestions are valued, recognized, and rewarded.

Example of kaizen budget implementation

In the book “Cost Accounting”, by Horngren, Foster and Datar, he gives us the example of Stylistics.

In Stylistics, based on employee suggestions, continuous improvement is implemented to get the job done faster or disminuye downtime. The Kaizen budget could then prescribe 4.00 direct manufacturing tarea hours for the first quarter of 2019, 3.95 hours for the second quarter, 3.90 hours for the third quarter, and so on. The implications of these reductions would be lower direct tarea costs, as well as lower variable manufacturing overhead costs, since direct tarea is the controlador of these costs.

Also, it should be noted that if the continuous improvement objectives are not what the Styling managers were looking for, then they will explore the reasons behind it and adjust the objectives or perro implement changes in the processes that accelerate continuous improvement.

Another example cited in the same book is that a growing number of organizations in some cash-strapped states of the United States are bringing together government workers, regulators, and end-users of government processes to identify ways to attack inefficiencies arising from bureaucratic procedures.

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 Kaizen Budget
  Kaizen Budget
  Kaizen Budget

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