Lean, Kaizen, Six Sigma and Time-Driven Activity-Based Costing (TDABC) share the same foundation: detailed process maps, activity-level analysis, and hard time and statistical data. The difference is where each one stops. Improvement methods tell you the time saved, the waste removed and the defects reduced. TDABC continues the sentence: it converts those minutes into money and tells you whether they became profit, and where. Cut an activity from 240 minutes to 120, and Lean shows the 120 minutes saved. Only TDABC shows whether that saving reached the bottom line.
The shared DNA nobody talks about
It is strange how rarely these disciplines are described as relatives. A Six Sigma black belt and a TDABC analyst do almost identical fieldwork in the opening phase. Both walk the process. Both decompose work into discrete activities. Both gather time data, the black belt to find variation and the costing analyst to build a time equation. Both distrust averages and chase the real distribution of effort.
Lean and Kaizen start from the same place. A value-stream map is, at its core, a process model annotated with time: cycle time, changeover time, wait time, the ratio of value-add to non-value-add minutes. TDABC asks for exactly that raw material. When a Kaizen team has already mapped a process and timed it, they have done most of the data collection a TDABC model needs. The two methods are not competitors. They are consecutive chapters of the same book.
Where improvement methods stop
The improvement disciplines are extraordinarily good at their job, which is making work faster, more reliable and less wasteful. They report in their native units: minutes removed, steps eliminated, defects per million opportunities, first-pass yield. These are real, measurable operational gains.
But those units do not appear on a profit and loss statement. No CFO has a line called “non-value-add minutes.” The improvement project ends with a number the operation understands and the finance function cannot use. This is the translation gap, and it is where most of the financial value of continuous improvement quietly leaks away. A 2014 comparison study in the International Journal of Productivity and Quality Management (Inderscience) examined TDABC alongside the value-stream costing used in Lean accounting, and found TDABC the stronger instrument precisely for connecting operational change to financial consequence at the level of products and orders.
Where TDABC continues
TDABC picks up exactly where the improvement project signs off. It takes the minutes the Kaizen team measured and multiplies them by a capacity cost rate: the fully loaded cost of a resource divided by its practical capacity, expressed per minute. Suddenly the saved minutes have a price. And because TDABC traces those minutes through the product or order that consumed them, the saving does not vanish into a department average. It reprices the specific thing that was improved.
| What Lean / Six Sigma shows | What TDABC adds |
|---|---|
| Minutes removed from an activity | The euro value of those minutes at the resource’s cost rate |
| Waste and non-value-add eliminated | Whether the saving reaches the P&L or stays as idle capacity |
| Defects and rework reduced | The repriced unit cost of the product or order affected |
| A faster, more reliable process | Which products, customers and channels became more profitable |
| An operational dashboard | A defensible financial business case for the project |
The hard truth about a saving
Here is the uncomfortable principle that separates an operational win from a financial one. A time saving is not real money until the freed capacity is either removed or redeployed. This is not our rule; it is the central insight Robert Kaplan and Steven Anderson built TDABC around. If a Kaizen frees twenty hours a week of a machine or a team, and those twenty hours simply become idle time, the cost has not gone anywhere. You still pay the salaries. You still depreciate the machine. The saving exists on a slide and nowhere else.
Freed capacity becomes profit in exactly two ways. You remove the cost (reduce headcount, return leased equipment, give up the floor space) so the spending actually falls. Or you redeploy the capacity to absorb new volume, so revenue rises without a matching cost increase. Until one of those two decisions is taken and executed, the improvement is a potential saving, not a realised one. TDABC is the only tool in this family that forces the decision onto the table, because it puts a number on the idle capacity and makes ignoring it impossible.
A worked example: 240 minutes to 120
Take an illustrative case. A manufacturer runs a quality-inspection activity that consumes 240 minutes per batch. A Kaizen team reworks the standard and the layout and brings it to 120 minutes per batch. The Lean report is clean: a 50% reduction, 120 minutes saved per batch, a genuine improvement.
Now TDABC takes over. Suppose (illustratively) the inspection resource carries a capacity cost rate of 1.20 EUR per minute. The activity’s cost per batch falls from 288 EUR to 144 EUR. With 1,000 batches a year, that is a 144,000 EUR theoretical saving, and the product that absorbs this activity can be repriced: its true cost just dropped by 144 EUR per batch. A product line that looked marginal at the old cost might now clear its hurdle rate. That is information no value-stream map alone could surface.
But TDABC does not stop at the happy number. It also reports that the inspection team now has 120 minutes of freed capacity per batch, roughly half its previous load. If management does nothing, the 144,000 EUR never appears. The model will show it sitting in a “cost of unused capacity” line, fully visible and fully unrealised. The decision becomes explicit: redeploy that team to a growing line, consolidate two shifts into one, or accept that the saving is, for now, only on paper. Lean found the minutes. TDABC put them in front of the people who can turn them into profit.
Bringing the two together
The practical model is simple. Let your Lean, Kaizen and Six Sigma teams do what they do best: find and remove the minutes. Then run those minutes through a TDABC model so every improvement carries a financial verdict and a capacity decision. This is the heart of our Lean Six Sigma and TDABC pillar, and it is why so many improvement programmes that look successful on the shop floor never show up in the annual accounts. The companion question of why these projects fail financially is worth reading next.
If you want to see whether your own improvement gains are reaching the bottom line, start with a free Profit Check, or read how we work and what a ProfitAudit 360 looks at. To scope a Lean-to-TDABC engagement directly, book a scoping call. Lean finds the minutes. TDABC tells you if they became profit, and exactly where.