October 20


Kaizen Budgeting: The Concept of Constantly Improving Finances

By Raymond Eaddy

October 20, 2017

Budget, debt, personal finance

Kaizen, in Japanese, means “continuous improvement,” that is “changing for the better.” The word Kaizen denotes a principle. It shouldn’t be confused with any specific guidelines or standards. The underlying principle behind the term is that even small and insignificant looking decisions, when effectively taken in business, can bring relatively larger output in terms of efficiency, productivity and thus profitability. The Kaizen principle is basically a systematic approach to business decision making guided by practical and logical metrics. Those companies which wish to adopt Kaizen decision making in business should effectively understand Kaizen budgeting.

In business, there is always pressure from a variety of sources. Consumers demand improvements in the quality of products. The producers of goods and services also compete among each other in order to gain a larger market for their products. They are under constant pressure to improve the quality of the product as well as after sales service so that they can control larger share in that particular product market providing them a leadership role. Even the small business decisions, effectively taken, can provide much-needed continuous improvement. This effective business decision making for continuous improvement is nothing but the Kaizen principle in action.

After the works of Frederick Taylor and Frank Bunker Gilbreth, it’s now very well-known that, not only in production process, but in every aspect of business there is always room for improvement. As termed by Taylor’s ‘mental revolution’, this improvement can be brought about by a harmonious cooperation between management and workers on the one part and between various divisions of management like finance, personnel, and even high management on the other. The approach of Kaizen budgeting stress cost reduction as a basis of any such improvement.

A businessman needs to be very creative in order to succeed. Habits have no place in effective decision making. Sometimes, we keep working in a similar manner due to customary practices and routine, habitual nature of the work, even though there is no scientific requirement for that established routine. This needs to be done away with. Creativity requires that businessmen search and develop a true science of work by finding best possible methods of doing a work with the same or better output.

The search for a true science of work will force you to be analytical and innovative. The search for one best way to do a job will go a long way to turn you into a performance-oriented leader instead of task oriented one. The urge to improve performance will constantly force you to innovate and experiment with new ideas. You may feel the need to use machines, computers, and better equipment to simplify tasks and increase output. A true science of work will certainly eliminate all irrelevant activities to increase productivity.

This true science of work can be implemented not only at the shop floor level, but at the planning and managerial level as well. You can analyze and remove unnecessary process from all management activities, including budgeting making it an efficient financial system. Subordinates can be encouraged to adopt a ‘true science of management’ not only by effective economic motivation, but by infusing democratic decision-making as a policy as well.

The pedagogy and system of Kaizen is not new. It has long been effectively practiced by management thinkers like Frederick Taylor and Henri Fayol. Japan’s economic strength today stands in testimony of this strategy of continuous improvement. The decreasingly allocated budgets of Japans’ managers force creative thinking for cost reductions much like Wal-Mart which usually expects ten percent cost reduction from its suppliers. This is the essence of Kaizen budgeting that developing a true science of work will require less resources.

Source by Steve Wilheir

Raymond Eaddy

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