Kaizen budgeting One way to set kaizen budgets for continuous improvement is to use learning curves, discussed in Chapter 9. The magnitude of budgeted improvement would decline overtime, recognising that it is more difficult to achieve improvements in later periods, after the easy improvements have been made. Another way is to link expected improvement to the life cycle of a product. In the early stages, higher importance is expected. Much of the cost reduction associated with kaizen arises from many small incremental improvements, rather than quantum leaps. The success of kaizen budgeting depends on the quantity and quality of employees suggestions. Some Japanese companies require each of their employees to contribute suggestions everyday. Kaizen budgeting is often used in conjunction with target costing, where the company estimates the price customers will pay for the product and then subtracts the desired profit margin to determine target allowable cost (see Chapter 12).
