Slides 10 1 determine the purpose and motivation for contin

Determine the Purpose and Motivation for Continuous Improvement Intermediate Cost Analysis and Management... Terminal Learning Objective• Task: Determine the Purpose and Motivation for

Determine the Purpose and Motivation

for Continuous Improvement

Intermediate Cost Analysis

and Management

Which Would You Rather Have?

• A million dollars today

-or-• A penny today plus twice the previous day’s

input for a month?

(i.e 2 cents tomorrow, 4 cents the next day, etc)

Terminal Learning Objective

• Task: Determine the Purpose and Motivation for

Continuous Improvement

• 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:

• Describe the benefit of Continuous Improvement

• Describe the process of stimulating Continuous Improvement and creativity

The Power of Continuous Improvement

Day Two’s two cents + Day One’s one cent = three cents

The Power of Continuous Improvement

Day Three’s four cents + Day Two’s two cents + Day One’s one cent = seven cents

The Power of Continuous Improvement

The Power of Continuous Improvement

we have $1.27

By the end of the first week

we have $1.27

The Power of Continuous Improvement

$163.83

By the end of the second week we have

$163.83

By the end of the month the total is more than

$10 Million!

By the end of the month the total is more than

$10 Million!

The Power of Continuous Improvement

Consider a 3%

Annual Improvement

• For a $250 billion organization over ten years:

• The Army you save may be your own!!!!

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74% savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

Consider a 3%

Annual Improvement

• For a $250 billion organization over ten years:

• The Army you save may be your own!!!!

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74% savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

©

Consider a 3%

Annual Improvement

• For a $250 billion organization over ten years:

• The Army you save may be your own!!!!

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74% savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

Consider a 3%

Annual Improvement

• For a $250 billion organization over ten years:

• The Army you save may be your own!!!!

©

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74% savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

Continuous Improvements:

Lots of Small Victories

• Continuous improvement’s success based on:

• Many, many small initiatives

• Widespread employee involvement

• The long term power of accumulation

• The AAR is the forum to monitor progress

in generating initiatives

How Do You Get Continuous Improvements?

• You ask for them

• (Why did the chicken cross the road?)

• You reward them

• You expect them

• You build a team that knows continuous

improvement is expected

You Will Be Amazed

• “What you have done is unleash the creativity of your people”

• HQDA staff officer after CSA review

• Who knows best how to fix a problem?

Opportunities for Creativity

• Shedding activities no longer needed

• Resizing service levels to current needs

• Eliminating redundancies

• Redefining service levels provided

• Challenging inefficient guidance

• Removing deadwood

Shedding Activities No Longer Needed

• Organizational inertia tends to

institutionalize services once started

• No clear mechanism exists to reassess the

requirement for service

• Results in continuance of non essential tasks while sometimes cutting essential

• Example from Fort Huachuca

Title: Contractor property accountability

Status: (Achieved or in-progress) IN-PROGRESS

Responsible Manager:

Forecasted annual cost reduction: $ 23K

Number of positions (FTE): 1

Target date for cost reduction: February

Share the Wealth

• Garrison Commander:

• “You know those computers you’ve wanted for

the warehouse that we couldn’t afford? Well,

thanks to your action we can now afford them Take $6K of the savings and get them I’ll take the other $17K for unfunded requirements that I have

at the Garrison Level Great job!”

Resizing Service Level to Current Needs

• Many missions have downsized

• Many support functions have not

• Examples:

• Hours of airfield operation at Fort Huachuca

• Staffing for ammunition issue point at Fort

Huachuca

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Eliminating Redundancies

• Organizations often generate a “stove pipe” approach

• Consolidating across institutionalized

boundaries can improve efficiency

• Beware the danger of creating non-responsive monopolies

• Examples: Fort Detrick and Fort Huachuca

Fort Detrick

• Initiator: Maintenance Supervisor

• Description : Cross train monitoring,

preventive maintenance, and emergency response personnel

• Result : Save $600K per year while

increasing uptime

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Title: Fire Watch Station Consolidation

Status: (Achieved or in-progress) IN-PROGRESS

Responsible Manager:

Forecasted annual cost reduction: $ 87K

Number of positions (FTE): 3

Target date for cost reduction: May

Fix Problems, Not Blame

• But it is Instructive to consider: Why this had not been done already, when:

• Budgets had been reduced for the previous four

or five years?

• Internal Review Audit in 1992 had suggested it?

• What’s different here?

• Productivity oriented culture driven by leadership that expects creativity

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Redefining Service Levels Provided

• Support services are free goods to users

• Free goods have infinite demand

• Redefining basic “free” service level can

lead to more efficient consumption

• Beware of the danger in creating costly

accounting cross charges that don’t create desired behavior modification

Cutting Non-Productive Employees

• All organizations and leaders find it difficult

to cut non-productive workers

• Relatively abundant resources allowed

avoidance of the issue in the past

• Could your organization operate as effectively

as now without bottom 5%?

• Could you use 5% more funding?

• How important is it?

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The Long Term Power of Continuous

• A 4% annual productivity increase will not

solve current crisis or get much attention

• Ten years of 4% annual productivity increases will

Learning Requires Teaching:

Leadership Has KEY Role

• Government organizations can learn

• Who is responsible for teaching?

• Support exists and provides training materials like this but

• “Effective training requires the personal time,

energy, and guidance of commanders

Commanders must personally observe and assess training at all echelons.”

– United States Army Field Manual FM 25-101

The Payoff: New Source of Funding

• After six months of pilot, Ft Huachuca

Garrison Commander disclosed that he:

• Had cost reductions greater than worse case

budget cut for the next fiscal year

• Could now afford key spending initiatives that were previously unaffordable in:

• Information technology

• Quality of life

FY98

85 30

FY03

$ Millions

FY03

Learning Check

• How does Continuous Improvement differ

from the “kill it or keep it” mentality?

• Who is responsible for ensuring that learning occurs?

How Can You Motivate Continuous

Improvement?

• The Army motivates soldiers to do much harder things

• Under threat of great personal risk

• For limited monetary compensation

• Under often adverse conditions

• Is it patriotism?

• Is it for the money?

• Is it to win a medal?

Why Soldiers Fight

• Possible reasons:

• Expected by peers

• Demanded by leader

• Trained by the institution

• These are the ingredients that define an organization’s culture

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Cold War Cost Culture Will Lose the Cost War

• Performance management is not important when resources are plentiful

• Budget management dominates actions

• Spend 99.9%

• Work on defining “needs” to get more

• Never give any back

• Result: “Why should I reduce cost - we

don’t get to keep it?” culture

Battlefield Culture Needed to Win the Cost

War

• Good commanders are inherently cost

conscious in achieving missions

• Minimize cost in soldiers lost

• Minimize cost in resources and capabilities

• Winning the Cost War requires the same

cost conscious mentality

• Excessive casualties and excessive costs are unacceptable

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