Cost management training day2

Budget AccountingPublic Sector End User Presentation Layer Enterprise Resource Planning ERP Cost Planning Cost Controlling Cost Analysis Cost Accounting Cost Management Process ERPs e.g

Training Agenda/Objectives

– Understanding of why managing costs are important, Army’s overall objectives, the process of Cost Management, how it differs from Budget, and key cost terms

– Understanding of an ERP, how to build a Cost Model, and the various cost objects within a Cost Model (e.g organization, products, job orders, etc.)

– Understanding of cost allocations/assignments, how to chose which to utilize when, how to valuate the results of the

assignments (Std vs Actual), and rate creation

– Understanding of the results of the Cost Model and how various

Day 2 Objective & Agenda

Day 2: Cost Object Definition

• Understanding of an ERP, how to create a cost model and each of the cost objects supported within the cost model

Design

- Lesson 5: Cost Elements

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I FOUND A WAY TO SAVE

A MILLION DOLLARS BY

SPENDING ONLY

$10,000.

THE $10,000 WOULD COME OUT OF MY BUDGET BUT THE SAVING WOULD GO INTO SOMEONE ELSE’S BUDGET IT’S NOT

THE CHIEF OF STAFF MIGHT NOT AGREE.

THAT’S WHY

HE IS NOT INVITED TO THE MEETINGS FEASIBLE.

(Modified)

Lesson 1: ERP Enabler

Objective(s):

how it can support the Army’s Cost

Management culture

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Enhanced Ability to Capture

X UA

X

Heavy

Light Stryker FCS

X UA

Heavy

Light Stryker FCS

X UA

• Support to Olympics

• Army’s Purpose is to Provide Operational Managers with Relevant

“True” Cost Information to Make Sound Economic Decisions

• Methodologies to Measure Cost (FASAB #4)

- Activity Based Costing

- Job Order (Event) costing

- Project (with WBS) costing

Traditional view (Inputs) Cost View (Process)

Supplies 44K Receive/Turn-In Property 72K

Transportation 19K Administrative Support 99K

Traditional vs Cost View (example)

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ERPs Help to Streamline & Integrate the Processes & Systems Providing the Following Benefits:

• Increases Productivity Across Organizations

• Improves Standardization & Efficiency of Processes

• Increases Access, Consistency & Transparency of

Data

• Provides Collaboration Across Business Domains

• Provides IT Economies of Scale

• Enhances Analytics & Improves Accuracy of Data

Enterprise Resource Planning (ERP)

ERP Benefits

End User Presentation Layer

End User Presentation Layer

End User Presentation Layer

Enterprise Resource Planning (ERP)

• ERP Functionality Integrates Management Accounting (Cost

Management) with the Financial & Budget Accounting

Cost Management Integrated with Finance &

Budget Accounting

Budget Accounting

Public

Sector

End User Presentation Layer

Enterprise Resource Planning (ERP)

Cost Planning

Cost Controlling

Cost Analysis

Cost Accounting

Cost Management Process

ERPs (e.g GFEBS) Enable The Cost Management Process

Cost Management Integrated with Finance & Budget Accounting

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BI – Business Intelligence

• Optimized for Data Extraction

Cost By Report

Unit Cost Report

Detailed Labor Report

FI – Financial Acct & Mgmt.

FM – Funds Acct & Mgmt.

CO – Cost Acct & Mgmt.

MM – Materials Mgmt

and Procurement

PPE – Property, Plant &

Equipment [PM, PS, RE, AA]

SD – Sales & Reimbursables

ECC – Enterprise Central Component

• Optimized for Data Input

GFEBS System Components

Simultaneous Update

FI – Financial Acct & Mgmt.

FM – Funds Acct & Mgmt.

CO – Cost Acct & Mgmt.

MM – Materials Mgmt

and Procurement

PPE – Property, Plant &

Equipment [PM, PS, RE, AA]

SD – Sales & Reimbursables

ECC – Enterprise Central Component

• Optimized for Data Input

Lesson 1: Wrap-Up

• An ERP is an enabler to Cost Management

“Culture” by providing the technology necessary

• The Army Cost Model is being designed into

GFEBS which utilizes the SAP ERP application

• The ERP application has a transactional

component and an analytical component

• The transactional component has real-time

integration for the various value

streams/modules

Lesson 2: Costing Conceptual Design

Objective(s):

the costing conceptual design to support the Cost Management Process using the GFEBS ERP application.

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Costing Conceptual Design

End User Presentation Layer Where the information is entered,

Cost Planning

Cost Controlling

Cost Analysis

Cost Accounting

Cost Management Process

How the information is entered, stored, used, and presented

What/Why information is entered, stored, used, and presented

SSPA: Manage OCIE Inventory

SSPB: Issue OCIE to Soldier

SSPC: Issue Clothing to Initial Training Soldier

SSPD: Accept OCI Turn-Ins

SSPE: Receive & Process Shipments

SSPF: Manage Chemical Defense Equipment

Central Issue facility

CIVHR

CNTHR

Civilian Employees Contractors

Brigade XXX

TRADOC

YYY

Brigade ZZZ

Etc

Military Labor

Depreciation

Director of Logistics)

MILHR

Full Cost Organizations Product/Services Full Cost Customers Full Cost

Military Labor

• The translation of the business objectives, needs,

and requirements into a management decision

support model (Cost Model)

• A monetary valuation of the economic goods and

services of the organization – full burden cost flows

• “The Continuum” – maturation over years (ex from

Ft Jackson go-live through all roll-outs and beyond, increased accuracy of cost flows through better

data)

The CCD influences/defines the set-up of tools providing cost management information, e.g GFEBS, GCSS, Data Warehouses, etc

What is the Costing Conceptual Design?

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• Management information requirements – What type of

decisions to support, when, for who, etc (e.g

Insource/Outsource, Contract/OT, etc.)

• Cost objectives necessary to support the informational

needs (SSP Focused, Brigade, etc.)

• The Cost Objects – What does it cost to/for/if….?

• Cost Object Relationships – flows of goods and

services from/to/between

• Various Techniques for reflecting the relationships - %

based, quantity (Plan/Actual, such as ATAAPS Hrs), variances, etc

What Influences the CCD

Developed?

Central Issue facility

CIV

HR

Cost Center/Resource Pool

CNT HR

Civilian Employees

MIL

HR

Full Cost Organizations

CCD – Cost Model

Military

SSPA: Manage OCIE Inventory

SSPB: Issue OCIE to Soldier

SSPC: Issue Clothing to Initial Training Soldier

SSPD: Accept OCI Turn-Ins

SSPE: Receive & Process Shipments

SSPF: Manage Chemical Defense Equipment

SSPs Provided

Full Cost Product/Services

Brigade XXX

TRADOC YYY

Brigade ZZZ

Etc

Cost Center

Full Cost Customers

The translation

of the business objectives, needs, and requirements into a management decision support model (Cost Model)

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Central Issue facility

CIV

HR

Cost Center/Resource Pool

CNT HR

Civilian Employees

MIL

Full Cost Organizations

SSPA: Manage OCIE Inventory

SSPB: Issue OCIE to Soldier

SSPC: Issue Clothing to Initial Training Soldier

SSPD: Accept OCI Turn-Ins

SSPE: Receive & Process Shipments

SSPF: Manage

SSPs Provided

Full Cost Product/Services

Brigade XXX

TRADOC YYY

Brigade ZZZ

Etc

Cost Center

Full Cost Customers

CCD – Cost Model

Military

A monetary valuation of the economic goods and services of the organization – full burden cost flows

maturation

Army Cost Model Concept

Cost Center Asset / Equipment

Project / Program Internal Order WBS / Work Order

Organization - Labor, Materials, Supplies

Plant, Property & Equipment

Building Project, Weapon System

Services, Events (SSP, Course)

Job (Set of Tasks) – Maint & Repair

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• Results Centric

– Results Segments (Customers of your products/services)

• Identification of Subject Matter Experts from each

of the core business providers

• Schedule meetings with each area’s key

stakeholder(s) and SME representatives

• Conduct Analysis workshops

• Gather Results and Evaluate

• Translate the business objectives, needs, and

requirements into a management decision support model, i.e the CCD

• Feed information to system supporting

management model (e.g GFEBS)

How is the CCD

Developed?

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• Review of IMCOM stated objectives on web site

and already identified products/services (CLS)

• IMCOM HQ Interviews of CLS representatives

• Select and visit bases and conduct analysis

workshops [Ft Jackson, Ft Lewis, Ft Polk,

Aberdeen Proving Grounds]

• Gather and review org charts, TDA, etc

• Work with Installation RM representative to

collect information required

• Recognize all installations are different

How is the CCD Developed

for IMCOM?

• Inputs into the Analysis

– Organizational Structure

– List of Locations

– List of Data Feeds and Input

– List of Operational Systems

– Current Cost Reports

• Analysis Outputs

– Organization

• Revamp Org Structure

• Conceptual Design – Process

• Organizational Business Process

• Management Accounting Processes

Central Issue facility

CIV

HR

Cost Center/Resource Pool

CNT HR

Civilian Employees

MIL

Full Cost Organizations

SSPA: Manage OCIE Inventory

SSPB: Issue OCIE to Soldier

SSPC: Issue Clothing to Initial Training Soldier

SSPD: Accept OCI Turn-Ins

SSPE: Receive & Process Shipments

SSPF: Manage

SSPs Provided

Full Cost Product/Services

Brigade XXX

TRADOC YYY

Brigade ZZZ

Etc

Cost Center

Full Cost Customers

CCD – Cost Model

Military

Results of the Analysis Workshops are aggregated and utilized to

Lesson 2: Wrap-Up

• GFEBs is the technology to support Cost Management and where the information is captured, stored, used, and displayed The Cost Management Process defines how Cost Management is supported The CCD (Cost Model)

is what cost Management information will be provided to support management decisions

• The CCD is the translation of management objectives, with the valuation of the goods and services, and

matures in scope and accuracy over time

• The output of the CCD and Analysis Workshop findings

is a Cost Model to be built into GFEBS

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Question # 1

ERPs Help to Streamline & Integrate the Processes & Systems Providing the Following Benefits:

• Increases Productivity Across Organizations

• Improves Standardization & Efficiency of Processes

• Increases Access, Consistency & Transparency of Data

• Provides Collaboration Across Business Domains

• Provides IT Economies of Scale

• Enhances Analytics & Improves Accuracy of Data

Question #2: What are the three Components of a Costing Conceptual Design

Budget Accounting

Public Sector

End User Presentation Layer Where the information is entered,

stored, used, and presented

Cost Planning

Cost Controlling

Cost Analysis

Cost Accounting

Cost Management Process

How the information is entered, stored,

used, and presented

What/Why information is entered, stored,

used, and presented

SSPA: Manage OCIE Inventory

SSPB: Issue OCIE to Soldier

SSPC: Issue Clothing to Init ial Training Soldier

SSPD: Accept OCI Turn-Ins

SSPE: Receive & Process Shipment s

SSPF: Manage Chemical Defense Equipment

Central Issue facility

CIVHR

CNT HR

Civilian Employees Contractors

Brigade XXX

TRADOC YYY

Brigade ZZZ

Etc

Military Labor

Depreciat ion

Director of Logistics)

MILHR

Full Cost Organizations

Full Cost

Military Labor

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Lesson 3: Cost Centers

Objective(s):

object represents, key definition criteria (guiding principles), uses, and how

defined for the Cost Model

Fund Center = ASN

Performs Funds Management Cost Centers

Cmdr Ofs. Special Staff

Cost Center Groups

Costing Starts with Cost Centers

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SAFM-CE Army Cost Model

Cost Center Definition

Cost Center Definition:

A cost center is a responsibility center that incurs costs and has a manager

who is accountable for those costs.

• This definition lends itself to multiple varied utilizations of the cost center object to reflect the costs of an organization

• Further criteria/principles along with the Cost Center’s purpose must be utilized to better indicate when a Cost Center is appropriate

• The purpose of the Cost Center object is to serve as the base for the management optimization model – the model utilized to reflect the

business, it’s inputs, conversions, and outputs in order to support

management decisions

• The Cost Center is the first cost object to be defined for the Cost Model

• To support the appropriate definition of a Cost Center within an entity, Guiding Principles should be considered

SAFM-CE Army Cost Model Guiding Principles for Cost

Centers

Principle #1:

Materiality  cost center costs needs to be significant in relation to all costs to be captured

 seemingly insignificant costs could be represented within its own cost center if required by external regulations

Principle #2:

Life Span  The life span of a Cost Center crosses multiple years

 short term life spans indicate a project or event versus a Cost Center

Principle #3:

Control  there must be a manager who is responsible for controlling the cost of the Cost Center and

the cost management processes: planning, performing, decisions support and corrective actions, measurement of efficiency/ effectiveness of the outputs of the Cost Center

Principle #4:

# Employees

(if Labor

Related)

 ideally 5 to12 employees based on industrial psychology research

 sensitive personal information may be apparent for cost centers with only one employee, such as payroll To date, within the government, display of payroll related information has not been highly guarded However with the introduction of Pay Banding, it will eventually become necessary to protect salary information

 a cost center could have tens to hundreds of employees if the costs represented a small portion of total costs unless aggregated, employees performed the same type of work, follow-on cost assignments accuracy is not impacted by the aggregation, and management transparency at a sub-level is not required for corrective actions

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SAFM-CE Army Cost Model

Cost Centers Uses

• People Related: e.g RMO office

• Facilities Related: e.g

Warehouses, Hospitals, Office Space

• Equipment Related: e.g Citrix

farm accessing GFEBS, Cranes/Trucks

• Blended: e.g mix of resources

within a organization, e.g

Vehicles and Mechanics

Cost Center Creation

• SGO used as start for defining Cost Centers per Installation

• Review of TDA and interviews at each base reveal branches and sections that are also added to the list of Cost Centers

• Tenant organizations and RPAs (e.g buildings) are also

defined as Cost Centers to develop the final Cost Center list to

be loaded to GFEBS

Building 1….N from

ASCIPS

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Cost Center Information

GFEBS Cost Center Attributes

Person Responsible (SGO Symbol) Region Department (PD Major/Minor) Language Key

SAFM-CE Army Cost Model

Cost Center Hierarchy

• In addition to defining the Cost Centers and the attribute information for each individual Cost Center, the Cost

Centers need to be identified on a standard hierarchy

• There is a single standard hierarchy which every Cost

Center will reside on to ensure that all costs can be

reported from a single hierarchy

• Alternative hierarchies can be defined as needed to meet management objectives

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Cost Center Hierarchy

Creation

• Start with SGO structure

• Expand to accommodate lower

levels identified specific to the

installation

Cost Center Hierarchy

• Complete lower level hierarchy and generate into GFEBS load sheet

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Cost Center Hierarchy

Cost Center Hierarchy

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