ABSTRACT
In lean decision making, a value stream hurdle rate can be used to calculate a desired price to charge to earn a desired profit. Using a box score with the plan, do, check, adjust process creates a standardized approach to decision making that can be applied to all functions in a lean company. Calculating the actual profitability in pricing and quoting is done by projecting a future state box score. Any company that sells products or services must set prices, which can be published list prices or quoted prices. In professional service companies that invoice customers based on billable hours, the same approach to labor cost management can be used at a job, project or contract level. In some companies, machines provide capacity to perform value added activities, and the box scores are effective for managing these costs. In lean management accounting, material cost management practices focus primarily on managing the quantity of material consumed rather than the price.
