Slides 11 1 determine the purpose and motivation for leader

• Standard: with at least 80% accuracy • Describe the history of rule-driven cost control processes • Determine the difference between budget management and cost management • Identify be

Determine the Purpose and

Motivation for Leadership Driven

Cost Control Processes

Being Out of Control Isn’t Good

Terminal Learning Objective

• Task: Determine the Purpose and Motivation for

Leadership Driven Cost Control Processes

• 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 history of rule-driven cost control processes

• Determine the difference between budget management and cost management

• Identify benefits of Cost Managed Organizations

Program of Instruction

Overview

Applying the Process

Week Three

Applying the Process

• We have so far talked about tools

• Measurement, analysis, CBA, planning, AAR process,

continuous improvement

• The goal of Week Three is to give you greater

practical insight into applying them

• Using real examples of successful government cost

management and control cases

• Extrapolating to Army opportunities

• While building sensitivity to change management

There is a Long History of Trying to Improve Management

Waste, Fraud and Abuse

Anti-Deficiency Act Budgetary Control

Enhanced Reporting

Presidential Initiatives Performance Measurement

Limited Fiscal Resources

Winning the Cost War Theses

• The Cost War is the struggle to accomplish the mission in

an environment of constrained fiscal resources

• Combatant Commanders are inherently cost (casualty) conscious

• Command and Control is a cost management paradigm

• After Action Review is a continuous improvement process

• Continuous improvement is always possible by everyone

• Cost measurement is an intelligence input to Cost Warriors

• Adapting proven Command and Control technique offers

an aggressive approach to Winning the Cost War

Status Quo: Highly Developed

Rule Driven Processes

• Rule-driven management

• Provides many barriers (and excuses) that

diminish creativity

• Results in a compliance centered behavior

• Rules work best when they provide

boundaries rather than prescriptions to

behavior

(“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)

Bob Stone Anecdote

• While visiting Ft Bragg on a hot summer day he

asked a young soldier how the restricted thermostat was being received

• “No problem sir – all we have to do is leave a lamp light bulb burning next to the thermostat and we can drive down the temperature very nicely”

Leadership Driven Management

• Recognizes that there is always a better way to

Goals Follow the Rules, Obey the Law Increase Mission Effectiveness

Financial

Accountability Don’t Overspend the Budget Achieve Challenging, but Flexible Plans Motivation Negative – Avoid Punishment Positive – Achieve Recognition Information

Systems Comply Reporting Requirements Inform Management – Internal Reporting

Rule Driven Leadership Driven

Contrasting Managerial Dimensions

Learning Check

• What three acts of Congress targeted

improved government financial management?

• What constitutes success under a rule-driven management approach?

Group 1-6 Assignment

• Design a set of rules, monitoring, and

enforcement measures to:

1 Eliminate unnecessary car trips

2 Ensure good food consumption

3 Eliminate excessive phone minutes

4 Promote good TV watching and reading

5 Ensure proper amount of exercise

6 Ensure good night’s sleep

The Increased Importance of Leadership Driven Management

• Leadership driven management means

making the best of what you've got

• Leadership driven management is not

needed or important if resources are

plentiful

• Limited fiscal resources make leadership

driven management critically important

Leadership’s Roles in the Leadership

Driven Management Process

• Publish clear commander’s intent

• Enlist, train, motivate, and lead a cost conscious,

aggressive management team

• Personally lead the cost after action review

• Identify and reward the best performers

• Give them more important cost management

missions

• Identify those unable or unwilling to engage and

motivate or replace

Cost Planning Comparison

to Budgeting

• Budgeting provides resources

• Infrequently and based on strategic priorities and user defined needs

• With statutory requirements to spend

• Cost planning helps manage resources

• Continuously and based on tactical

opportunities

• With cost warrior mandate to save

Budget Management is Not Cost Management

• Takes too long to get feedback cycle

• Eighteen months to see results

• Results don’t stimulate learning

• Organizations spend 99.9%

• Creates spending entitlement and mandate

• Even when reduction is possible and needed

• Discourages cost reduction

• Creates “Why save if I don’t get to keep it”

culture

Budget Execution Forces Impacting

Mission Effectiveness

$

This is the budget Where will we

be at the end

of the year???

Budget Controls Anti-Deficiency Act

Budget Controls Anti-Deficiency Act

Organizational Pressures

We are reluctant to spend less

Budget Execution Forces Impacting

Mission Effectiveness

Budget Controls Anti-Deficiency Act

Organizational Pressures

Drift

There are lots

of things dragging down performance

Budget Execution Forces Impacting

Mission Effectiveness

$ Leadership

Budget Controls Anti-Deficiency Act

Organizational Pressures

Only Cost Management & Control can offset drift and/or improve performance

Drift

Budget Execution Forces Impacting

Mission Effectiveness

New Management Approaches

are Needed

• The budget process

• Creates entitlements

• De-motivates continuous improvement

• Spends enormous resources defining,

defending, and ultimately in denying “needs”

• “Needs based” funding culture must

change to one of “needs reduction”

• Paying your subordinates on basis of their self defined needs

• How would their motivations change?

• How much effort would they spend arguing

needs?

• Why would they ever reduce needs?

• Why would they ever produce work?

• Who would want to change?

Needs Emphasis Has Been Tried

and Failed Before

• Needs emphasis was USSR’s core economic philosophy

• “From each according to ability”

• “To each according to needs”

• It’s ironic that government management

process has drifted into this mode

• Government’s transition likely to be as difficult as USSR’s

• How does the timing of the budget cycle affect its usefulness as a cost control mechanism?

• What two forces exert pressure on the dollar amount spent in a budget cycle?

Learning Check

Cost Management & Control Offers Mission

Efficiencies

 Recognizes that spending, not budget, drives mission

 Values efficiencies as budget multipliers

 Commands and controls cost

 Self supplements through continuous improvement

The Cost Managed Organization

Cost Managed Organization

Cost War Cost War High

Insurgency Intensity Conflict

Bureau of Engraving Navy Research Lab

Cost Managed Organizations

Observed Cost Managed

Organizations

• Fort Huachuca Garrison

• Used organization chart to drive

cost accountability

• Navy Research and Development Lab

• Created mechanism to drive better

use of support functions

• Bureau of Engraving and Printing

• Developed detailed cost views of its

products

Org Based Control

Role Based ControlOutput Based

Control

Case Study Summary

The Payoff

• Promises better achievement of

organization’s mission

• Provides an aggressive, forward leaning

alternative to defensive reaction

• Reaction to budget cuts

• Reaction to A-76 (outsourcing) studies

• Reaction to staffing limits

• Reaction to action and behavior controls

• What is the desired ratio of mission benefits

to cost of cost management efforts?

• A Cost Managed Organization is an example of

use of cost information

Learning Check