Kaizen Budgeting Definition – Meaning, Example and Importance

kaizen budgeting definition

Kaizen Budgeting Definition, Example and Importance

Kaizen Budgeting Definition – “A process of continual improvement which is applied to budget and budget forecasting “.

Basically Kaizen is a concept which is taken from Japan. It is a concept which stresses on a continuous improvement in the activity which is chosen. Its not necessary that businesses go for continuous improvement, it could be gradual development.

According to Kaizen budgeting, companies closely evaluate each and every activity, cut off the unnecessary one. It is also concern with finding the right way of doing that activity. The main purpose behind this is to reduce the cost of production.

In addition to this, this method of budgeting can also be used to produce a product rather than just reducing the cost of the producing a product. Managers should evaluate each and every activity and make budget on the basis of it. At the same time, they should also try to meet the standards set within the budgeted standards.

Kaizen Budgeting Example

In order to understand the Kaizen Budgeting definition more clearly, let’s discuss an example. ABC Ltd is a car servicing firm. Now, the managers examines the hours that servicing of car takes. Than the budgeted hours are set on the basis of it . If the actual hours are more than the budgeted hours, then manager will again closely examine each and every activity while servicing a car so that cost of production can be cut.

Importance of Kaizen Budgeting

Well, Kaizen budgeting is more of activity or process oriented. After examining the process, the managers can easily examine which is the problem area and needs improvement. Ultimately it leads to eliminate all the redundant activities and decreasing the cost of production.

The need for inspection reduces. As in advance all the process are critically examined so there is very less space of errors. In addition to this, long term and short term goals of the company are easily identified and managers works to achieve them effectively and efficiently.

Related Financial Terms of Kaizen Budgeting

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