And that brings us to the seventh aim of Lean Accounting, which is to create strategic growth by planning by value stream with the focus on improvement. Let's look at that. Now. Why should we plan by value stream? Well, we've just seen that improving customer value generates more demand from customers, which will lead to higher profitability. And if we improve the rate of flow of work through the business process, this creates the capacity to do more profitable work.

So greater demand plus more capacity equals increased profitability. Because we're able to do the more work meet the higher demand with the same resources in the same time frame. Lean increases profitability, because it improves customer value, which delivers higher demand and improves the process and the flow of the process to create more capacity to handle that demand with the given resources increased profitability is the inevitable outcome of that. And how does Lean Accounting help you plan? Well, by collecting the data for the in process metrics and the process output metrics weekly, will soon have a large bank of data which will help us analyze trends and identify issues in the process. analyzing that data as a time series will show trends and anomalies to investigate, and it will also help us to determine the stability of the process.

Where the spread of data is close to the mean, the process is relatively stable, and that means that its operating costs will be relatively stable. By contrast, a wide spread of data indicates an unstable and variable process with variable performance and therefore variable operating cost. How do we plan in Lean Accounting? Well, first we need to identify what your customers value and you should speak to them today. To find out what they really want from your process. using that information, you should then set performance measures that reflect customer value and flow as they've specified.

Thirdly, you should map and analyze each process to identify where that value is created, where it's lost, plus the other constraints, risks and problems in the process. Then work with a process team to identify improvement ideas, and the process team may need training and problem solving and in the lean philosophy, that's good, and that will help get them engaged in process improvement. Fifth, we should implement easy improvements immediately give people a boost, give make them feel that their ideas are contributing. And then we prepare a business case for those ideas which require further investment in terms of time or money. And of course, some problem solving and decision making creatively may help you With some of the problem solving tools, and skills that are needed in process improvement, Lean Accounting, and particularly the box core can also help in investment decisions. Although investment decisions are more complex, and obviously require a much larger number of elements to be modeled over a longer period, the box clock still provide a good dashboard for making the decision.

And here we see on the screen, a box score modeled in six monthly periods over three years. And we see the performance measures the capacity and the financial performance as in the weekly box score, but modeling and investment decision over these three years, and we see the impact on contribution and the value stream contribution percentage over that period of time. What does this book score shows, it shows us that the investment is used to acquire more capacity. in year one there we see 50% available capacity, and over time as investment takes hold in terms of increasing sales. We see that reduce, but at the end of year three, we still have 30% available capacity. So a great deal of space for further opportunities further revenue making ventures.

Second, we see that Sales are expected to grow considerably as investment allows this business to become established in a new market. So sales grow from 2 million pounds in the first six months, up to 4.8 million in the final six months of year three. The third thing that we see is that it seems that staff costs energy and facility costs, and other costs have been estimated at a fixed proportion of the sales. But the improving performance indicators suggest that these should actually fall in proportion to sales. So whoever's prepared this forecast has been excessively cautious. And finally, we see that the performance indicators the end to end flow time, the finished goods inventory days, and scrap rework number of items, they're all projected to improve substantially over the period.

And that would indicate that the costs of operating this process should actually reduce in proportion to sales, where they've been forecast as a fixed proportion of sales. And I've listed all this information on the next slide there using the box score for investment analysis, if you want to study that picture further, and also to note for the fifth point in there, that exchange rates, inflation, taxes, and other complicating factors have been ignored to keep the model simple