Slides 9 1 identify similarities between battlefield manage

After Action Review Cost Management Cases Cost Control Theory Org Based Control Role Based Control Output Based Control Change Management... What are You Going to Do About It?• Alternati

Identify Similarities Between Battlefield Management

and Cost Management

Intermediate Cost Analysis

and Management

After Action Review

Cost Management Cases

Cost Control Theory Org Based Control Role Based Control Output Based Control Change Management

Why are We Interested in Cost Management?

• How many brigade combat teams can you

afford if:

• Each costs $2B and you have $30B?

• Each costs $3B and you have $30B?

• Each costs $5B and you have $30B?

Which provides the stronger Army?

Terminal Learning Objective

• Task: Identify Similarities Between Battlefield Management

And Cost Management

• Condition: You are training to become an ACE with access to

ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.

• Standard: with at least 80% accuracy

• Identify symptoms of the Cost War

• Demonstrate understanding and awareness of the purpose and

motivations for managerial costing

• Describe the importance of Commander’s Intent

Cost Management and Control:

National Security Implications

• What if the cost of a BCT could be reduced by one-third while maintaining the same effectiveness?

• Simplify the math by considering Army Budget to be 30 and initial BCT cost to be 3

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ARMY Budget 30 initial

BCT cost 3 = = 10 BCTs ARMY Budget 302/3 initial BCT cost 2= = 15 BCTs

A one-third cost reduction yields a 50% increase in BCTs

“My guess is that a third of the defense budget goes into the friction of following bad regulations – doing work that doesn’t need to be done.” Bob Stone former DASD Installations, Reinventing Government

x x x x x

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Risk to Mission = Cost War

• The Cost War is the struggle:

• To accomplish and enhance your organization’s mission

• With fewer financial resources than you would wish

• While meeting specifications for quality,

customer service, and ethics

Are You in a Cost War?

• Do you need more resources?

• Have your budgets been cut?

• More than once?

• Almost always?

• Is your list of unfunded requirements

increasing?

• Do you have limits on hiring?

• Are you getting unfunded mandates?

Assess Before Continuing

STOP: You need not proceed if your organization is not in a Cost War

GO: Proceed only if your organization is engaged in a Cost War

What are You Going to Do About It?

• Alternative 1: Try to get more budget

• Better define and document “needs”

• Highlight deficiencies and problems

• Contrast funding levels to others’

• React to cuts with downsizing, reduced service levels, personnel cuts

The old way of doing things The old way of doing things

Appropriated $$ AccomplishedMission

Traditional View of Budget

Traditional View of Budget

What are You Going to Do About It?

• Alternative 2: Manage cost better

• Seek, but don’t count on, budget increases

• Develop a cost management paradigm

• Measure costs as needed

• Motivate a culture of continuous

improvement in productivity

• Reprogram/redirect savings to self fund needs

What This Course is All About

What This Course is All About

Budget

Appropriated $$ Management $$ Better MissionExecution

Redirected Efficiencies

$

$

Payoff: Better Execution,

Not Cost Savings

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13

Top 10 Reasons Government Orgs Manage

Cost

1 Enhance Mission Execution

2 Enhance Mission Execution

3 Enhance Mission Execution

4 Enhance Mission Execution

5 Enhance Mission Execution

6 Enhance Mission Execution

7 Enhance Mission Execution

8 Enhance Mission Execution

9 Enhance Mission Execution

10 Enhance Mission Execution

Productivity: Getting More Mission for Less

Cost

• Private sector productivity is the

cornerstone of recent economic success

• National statistics show sustained 3-4%

annual rate of productivity improvement

• What did you pay for your first calculator?

iPod? Cell phone? Computer?

Conclusion: The Cost War

• Period of plenty (The Cold War) is over

• Period of limited resources (The Cost War) has begun

• Losing the Cost War will result in excessive loss of

mission capability or missed opportunities for

enhancement

• Winning the Cost War Requires a strong cost

management process and a culture of continuous improvement

Learning Check

• You know you’re in a Cost War if… ?

• What are the two alternatives for dealing with reduced resources?

Assess Before Continuing

STOP: Do not proceed if you would emphasize resource acquisition or if you don’t want this mission

GO: Proceed only if you wish to more efficiently use the resources you have and you want this job

Can Government Manage?

• Many believe “Government Management”

is an oxymoron

• Do you?

• Academics typically cite:

• Lack of profit motive

• History of government spending

How Important is Profit Motive?

• Most managers in corporations are not profit managers

• Cost center managers outnumber profit center

managers 40 or 50 to 1

• Owner control is typically weak unless an

individual owns a large share block

• Probably not much different than power of voters

in political elections

Can Government Manage?

• History of last 60 years of Government

spending

• Cited as evidence by skeptics of Government’s inability to manage

• Used here as rationale that Government has

not needed to manage

Government Management Improvement

Continuous

Requirements for Cost Management and

Control

• Cost Data: Providing the raw materials needed for decision making and process

• Process: Institutionalizing a method of

stimulating continuous improvement

• Cost Staff: Translating data into information

• Leadership: Driving management, setting and achieving intent

Cost Management & Control Processes Must

• Require frequent management attention

• Stimulate learning: frequent feedback

• Generate goals that challenge

• Encourage performance to meet goals

• Eliminate entitlements

• Create continuous improvement culture

• Emphasize constant reduction of needs

Battlefield Management

• Provides a useful template for cost

management

• Good military commanders are inherently

cost conscious in achieving missions

• Minimize cost in casualty losses

• Minimize cost in resources and capabilities

• Good financial managers must also be cost conscious in achieving their missions

Battlefield Management

• Unique to government management arena

• No profit motive exists

• We’re pretty good at it

• Command, control, and communication

paradigm provides a useful template for cost based management

Cost Command and Control Process

The Role of Cost

Planning

• Provides proactive alternative to annual

budget crisis

• Stimulates learning/training in financial

consequences of alternative actions

cheaply

• Provides a basis to evaluate mission success

• Clarifies short term assignments

Cost Command And Control

Cost Planning

: Cost Projection

: What- Iffing

: Ad Hoc Analysis

The Role of the

Cost After Action Review

• Document and explain performance

• Evaluate performance and create

Cost After Action Review

È Performance Measurement

È Fixed Accountability

È Continuous Improvement

The Role of

Cost Warrior Pull

• Specify managerial costing requirement

• Perform intelligence prep of the battlefield

• Determine essential elements of info

• Lead the cost management process

• Set the agenda

• Negotiate and approve plans

• Critically review execution

• Signal the importance of cost management

Cost Command And Control

The Role of

Managerial Costing

• Develop needed intelligence for the cost

manager fighting the cost war

• Needed: credible measurement of true costs of

resource consumption

• Provide information to the cost management

process

• Needed for decision making, planning processes,

and after action reviews

Costing Systems Differ

Internally Specified Require- ments

Externally Specified Require- ments

Users:

Managers

Methodology:

Situation Dependent

Financial &

Regulatory Managerial

Cost Command And Control

Managerial Cost Accounting

• Seeks to understand true economic cost

• Based on cause-effect relationships

• Reflecting drivers of resource consumption

• With reasonable, but not precise, accuracy

• Enables cost based management for

continuous improvement

• Enables better decision making

• Enables rational consumption behavior

Cost Command And Control

Why Do Managerial

Costing?

1 Enhance decision making

2 Provide reconnaissance necessary for

Cost Based Management process

3 Influence resource consumption behavior

Cost Command And Control

1 Cost Measurement’s Role

in Decision Making

• Which Metal is Best for Transmission?

Conductivity + ++ +++

Cost Command And Control

2 Cost Managed Orgs

Need Cost Measurement

• Cost managers must have cost measurement

to fight Cost War

• Cost measurement

management decisions

Cost Command And Control

Not Knowing Cost Makes

Everything Appear Free

• Cost influences consumption

• Quantity demanded rises as cost falls

• Free goods have infinite demand

• Things that aren’t free, but appear free, get

overconsumed

• Attempts to prevent overconsumption lead

to rules, regulations, restrictions

Cost Command And Control

Commander’s Intent

“Commanders must develop and

communicate a clear vision or intent”

United States Army Field Manual FM 25-101

Battle Focused Training (emphasis added)

Why is Commander’s

Intent Important?

• We are in a dynamic environment

• Changing conditions under fog of war

• Unanticipated enemy actions/reactions

• Unforeseen opportunities and threats

• We wish to capitalize on the skills of

subordinates who are best positioned to

Commander’s Intent

United States Army Field Manual

FM 25-101 Battle Focused Training

United States Army Field Manual

FM 25-101 Battle Focused Training

• Command must insure control while

reaping all possible advantages of

A Military Analogy

• Consider the economy of force sector

• Some sectors in the front line are deliberately allocated fewer forces

• This permits concentration of force for

• The main attack

• The secondary attack

• The Cost War now places many government

organizations in the fiscal economy of force

One Way to Think About

Your Options

• Grant Me

• The Serenity to Accept the

Things I Cannot Change;

• The Courage to Change the

Things I Can;

• And the Wisdom to Know

the Difference

Resource Level

Resource Management

How Would You Spend

Your Time as Commander in the Economy of

Force Sector?

• Your time and energy are limited

• You must allocate them between:

• Going to higher HQ to plead for more resources to

increase your effectiveness

• Staying at your sector maximizing the effectiveness of the resources you have

• Would you:

• Spend 80% of your time at HQ?

• Divide your efforts equally between the two actions?

• Spend 80% of your time in your area of operation

Group Activity

• Break into groups

• Address the previous slide’s question

Write a one page PowerPoint slide with your

Commander’s Intent:

Leadership Foundation

• Development of clear vision and intent is

key to:

• Leading the continuous improvement process

• Developing and institutionalizing the cost

based performance management process and needed cost measurement capabilities

The Leader’s Evolution of

Cost Thinking

1 Recognition that continuously reduced

resources have become a way of life

2 Awareness that sound management of

resources has become more important

3 Search for a workable management

paradigm becomes critically important

4 Development of actionable measurement

capability becomes indispensable

The Leader’s Objective in

Cost Management

• Change culture to one which:

• Aggressively seek better ways to operate

• De-emphasize defense of past practice

(assumed best practice at that time)

• Require and expect development of continuous improvement initiatives

• Today, tomorrow, next week, next month, next year, forever

Learning Check

• Why is Commander’s Intent important?

• What does it mean to be in the fiscal economy

of forces sector?