Post on 13-Jul-2020
ASMC PDI
Cost Management Strategies
Session 47
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- Morris Treadway, KPMG Global Head of Financial Management and
Global Enterprise Performance Management Center of Excellence Lead
“CFOs have a golden opportunity to help CEOs with the issues
that keep them up at night. But today’s CFOs need to rise to the
challenge and close the gap between the expectations of CEOs
and the reality on the ground. This means turning numbers into
actionable intelligence and showcasing strong leadership qualities,
collaborating with operations and thinking and acting globally.”
High bar, low confidence
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
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Taking the leadTo succeed, today’s CFO needs to excel in four key areas:
© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such
authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.
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Enterprise Managerial Cost Accounting
OUSD(C)/DCFO
American Society of Military Comptrollers
(ASMC)
Professional Development Institute
OFFICE OF THE UNDER SECRETARY OF DEFENSE
June 2016
Agenda
• Overview: Challenges, Objectives, Principles, and Approach
• ECM Model Design and Reporting Capabilities
• ECM Future Analysis and Planning Capabilities
• Long Term Strategic Initiatives
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DoD
Challenges
Objectives• Enables Audit Readiness - SNC by program and PP&E valuation
• Identify cost levers that are driving actual cost, budget, and performance
• Improve mission support efficiency and better align costs to mission needs
Enterprise Cost Accounting Overview
• Lack of enterprise view of budget, cost, and performance
• Data standardization
• Time-consuming, unverifiable data calls
Enterprise Cost Management (ECM) provides timely, granular, and accurate cost information that helps better inform budget, resource allocation, and performance management decisions
Guiding Principles
• Federal GAAP - Costs tie to DoD Financial Statements and General Ledger
• Leverage existing data and improve over time
• Accurate, Consistent, Reliable, Repeatable and Scalable
Approach • Use cost and budget sources that tie to DoD Financial Statements
• Leverage existing data sources analogous cost drivers to distribute costs to activities
• Rapid prototyping using Commercial Off-the-Shelf (COTS) Software
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ECM Design and Reporting Capabilities
Statement of Net
Cost – Multi-
Dimensional
Cost Model
Design
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ECM Future Analysis and Scenario Planning
Financial
Analysis
Forecasting &
Scenario
Analysis
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Enterprise Cost Management and Accounting
Enterprise Cost Management and Cost Accounting provides critical inputs to three key initiatives and challenges facing the Departments today.
• Auditable at BS and SBR levels • Auditable SNC by Program• Auditable Asset Valuation (e.g.
PP&E, Inventory)
• Historical Actual Costs • Cost Drivers and Levers• Economic Choices• POM estimates based on
historical actual costs
• Readiness levels• Operations/ Capabilities• Mission Support• Performance Management
Informs
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General Ledger
$640B /$730B
SNC / SBR
$640B / $730B
WCF and Appropriation
Goods and Services
Civilian Labor by Level 2 Org. (MAJCOM)
Military Labor by Level 2 Org. (MAJCOM)
$78B
$360B
$141B
$60B
$640B / $730B
WCF by Org. and Appropriation
Grade (e.g., ES-1, GS-15), Occupation Series (e.g., 503)
Pay Grade (e.g., O-1, E-2),Occupational Specialty
Information Technology
Non-IT Goods and Services
$24B
$336B
$78B
$141B
$60B
Cost Categories
All Other LoBs / Activities
Enterprise Financial Management
Contract Audit Services
Transaction & Payment Processing
Financial Management LoB
Budget
$6.9B
$1.4B
$2.9B
$1.9B
$633B
$717M
$640B / $730B
Lines of BusinessCommand / Location
Drive
rs / Levers
Drive
rs / Levers
Drive
rs / Levers
Starting with each Department and Agency’s GL/Sub-ledger balances, assign cost and budget values by command, location, lines of business, End Items, Readiness, Operations, and other dimensions.
ECM Model Design Walkthrough
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Other Dimensions
$640B / $730B
Drive
rs / Levers
Payroll
Accounts Payable
Manpower Data
$640B/$730B
All LoBs /
Activities
$640B
End Items &
Services
Capabilities /
Readiness
Operations
$640B
$640B
$640B
Other
$640B
Army Cost Management
Brian S. Jacobs
Chief, Cost & Performance Management Division
Deputy Assistant Secretary of the Army
(Cost and Economics)
“Standardized cost management processes and business practices will transform
relevant cost and performance information into knowledge for improved leadership
resource informed decision making and provide the foundation and capabilities for
managing business operations more efficiently and effectively at all Army levels, and
spans of control and influence.”
Honorable Robert M. Speer, Assistant Secretary of the Army Financial Management & Comptroller *
* Resource Management. Cost Management Edition. PB59, 3rd Quarter. 08/21/2015
PDI 2016
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Laws, Regulations, Policy
Authoritative Sources & Governance: Title 10, 5, 32
DoD Financial Management Regulation (FMR)
Government Performance and Results Act (GPRA) 1993
GPRA Modernization Act of 2010
Chief Financial Officer (CFO) Act
National Defense Authorization Act (NDAA) – Multiple Fiscal Years
Government Accountability Office (GAO) Reports
Better Buying Power
Cost Management Steering Group (CMSG)
Army Policy & Regulations General Order (GO)-01 (Directives)
AR 1-1 (Planning, Programming, Budgeting, and Execution System)
AR 5-1 (Management of Army Business Operations)
AR 11-18 (The Cost and Economic Analysis Program)
Army Directive 2016-16 (Changing Management Behavior: Every Dollar Counts)
Cost Benefit Analysis (CBA)
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Army Directive 2016-16 & Cost Management Strategic Plan
Changing Management Behavior: Every Dollar Counts
FY2015-25 Cost Management Strategic
Implementation Plan (CMSIP)
“AIM” for ResultsAligned – Army “Work Outputs” are Aligned in order to Achieve Highest Level of Readiness with Greatest Efficiency
Integrated – World Class Workforce, Standardized Integrated Processes, and Full Utilization of Army ERPs
Measured– Decisions at all levels, Cost Management Organizations (CMOs), “SMART” Performance Metrics
VISIONAn Army that considers, acknowledges, and controls costs across the Enterprise to
provide best value.
MISSIONStrengthen resource informed decisions that optimize available resources to accomplish the Army mission..
GOALS - How to Accomplish our Mission1. Establish an Army-wide GO/SES Cost Management Steering Group (CMSG) to align with and enable the Army Leadership priorities.
2. Enhance analysis capabilities, cost and performance data to make the best informed decisions for the Army.
3. Leverage Enterprise Resource Planning (ERP) systems to support decision making processes.
4. Strengthen cost management capabilities through training, best practices, and knowledge management to achieve a cost culture.
On 15 Apr 16, SecArmy directed: Army commanders and leaders at 2Star HQ level and above will:
Establish & track annual performance measures…focus on the highest level of readiness with the greatest efficiency;
Tie resources expenditures (costs) to outcomes and levels of readiness;
Identify and manage total costs;
Eliminate ‘use or lose’ funding practices;
Reward leaders & organizations who demonstrate exemplary stewardship & innovative ideas.
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Army Financial Management Optimization (AFMO)
LOE 2: Business Process
LOE 6: Army Cost Management
LOE 4: FM Professional Workforce
LOE 5: Internal Controls Environment
LOE 1: Systems Domain
LOE 7: Strategic Management & Communicate
LOE 3: Organizations
AFMO Campaign PlanAFMO Objectives
(1) Achieve and
Sustain Auditability
(2) Deliver FM Operations
Efficiently and Effectively
(3) Improve and Sustain
Readiness in FM Elements
(4) Provide Financial
Information and
Business Analytic
Support for Improved
Decision Making
AFMO End State
• Integrated, Effective andEfficient end-to-end financial management enterprise operations
• Optimized to provide necessary resources to meet the Army’s missions
• proper stewardship and accountability of resources
• Provide accurate and timely financial information and analysisfor actionable decision making
• Achieve and sustain Clean Audit
Integrated plan augments CM DOTMLPF-P Across the Enterprise & uses measures of effectiveness (MOE) & performance (MOP) to achieve the desired end state.
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Scope and Reqs
Business Model
Cost Model
Blueprint
Design Rationale
Implemen-tation Plan
Verification and
Validation
ACF
Methodology
Army Cost Framework (ACF)Methods and Processes
ARMY COST FRAMEWORK (ACF)
Enterprise CFs
READINESS
WEAPON SYSTEM
UNIT
RECRUITING
…
Org CFs
IMC
OM
US
AR
C
US
AR
EU
R
TR
AD
OC
…
ACF REQUIREMENTS
HQDA / PROGRAM EVALUATION
GROUPS (PEG)
U.S. ARMY RESERVE
ARMY RESERVE COMMAND
WEAPON SYSTEM
U.S. ARMY EUROPE
INSTALLATIONS AND INFRASTRUCTURE
TRAINING READINESS
…
CM
SG
Prio
ritiza
tion
INFLUENCERS
ASA(FM&C) CMSG POLICY EXTERNAL
Cost Management Processes
ENABLERS
ARMY WORKFORCE POLICY TRAINING TOOLS
CM
Plan
Account
Analyze
Control
De
cis
ion
Fo
rum
s A
cro
ss
Arm
y E
nte
rpris
e
Pla
nn
ing
, Pro
gra
mm
ing
Bu
dg
etin
g, E
xe
cu
tion
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(6 - 10 Years) (6 Years) (1-2 Years) (Current Year)
HQDA
Strategic Decision-Making:- Cost Benefit Analysis- Analysis of Alternatives- Army Cost Position (LCCE)- Cost Models / Tools
* FORCES Costing Model* Capability Costing Tool
- Cost of Army- Workforce Analysis
Outyear Forecasting:- Cost Factors & Models
* TRM/OSMIS* FORCES Costing Model* AMCOS / Civ Pay Rates
- Army Cost Position (LCCE)- Contingency Cost Model- CBA's, LSS- Incorporate AFBRT Benefits
Formulation / Justification:- Cost Factors
* OPTEMPO Cost Factors* Mil Pay Rates* Civ Pay Rates
- Cost & Spend Plans- Include AFBRT Initiatives- Historical Trend Analysis- Establish Should Cost Goals
Allocation/Funds Distribution:- Cost Analysis to Support
* Cash Management* Reprogramming* Rate of Executution
- Budget vs Actual (Variance)- Monitor Will /Should Cost- Track Cost Savings (ARFIT)- Mid-Year Reviews
Command / DRU
Strategic Planning:- Cost Benefit Analysis- Cocept Plans- Workforce Mgmt- Submit Initiatives to AFBRT- Trend Analysis- Cost Models / Tools- Investment Decisions- Identify Efficiency Initiatives
Outyear Plans / Controls:- Cost Targets/- Annual Efficiency Goals- Assess Cost & Spend Plans - Plan Output (Capacity Mgmt)- Cost Benefit Analysis - Trade Space Analysis- Establish AFBRT Milestones- TRAPS
Measure & Control:- Variance Analysis
(Cost & Output)- Benchmarking Best Practices- Adjust Cost Targets- Mid-Year Reviews- Measure Reduction Initiatives- Adjust Allocation Rules
Operational Activity
Operational Planning:- Establish Annual Cost Plans- Set Output Goals / Objectives- Optimize Capacity- Adjust to Directives
(e.g. TRAPS)- Establish Activity Rates
(Labor / Equip)- Estimate OH Allocations
Continuous Improvement:- Qtrly Cost Mgmt Reviews- Variance Analysis
* Resources (Inputs)* Labor Rates * Output (Unit Cost, Qty)
- Budget vs Actual (Variance)- OH Allocations- Product/Service $, Customer $
CM Aligned to PPBE
Planning Programming Budgeting Execution
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Key Takeaways and Way Forward
Decision Forums / Processes are Difficult to Change
Organizational Vs. Enterprise Cost & Perf. Objectives
Different Levels: Estimates / Funds / Budgets / Costs
Standardization of Cost Objects throughout ERPs
Army-wide Release of the Army Cost Framework Tool (https://acm.army.mil)
Organizations Trained (key positions) in ACF methodology
Standard Labor Time Tracking –Started Business Case Analysis
CM End-to-End process / tasks defined with audit linkage
ERP Cost Objects Standardization
Cost Managed Organizations Model Created
Achievements
AIM for Results Continue Implementation of Cost
Management Army-wide: Changing Management Behavior: Every Dollar
Counts
Actionable AFMO Campaign Plan
Cost Management Strategic Implementation
Plan
Maturation ofCM Training Strategy / GAP Analysis
Integration and Alignment of CM Skills to Existing
Workforce (Financial and Operational)
ERP CM Capabilities
FM Roles, Responsibilities, and Authorities
across Army Organizations and HQDA
Cost & Performance Information used by
Decision Forums at all Levels of Army
Way Forward
Challenges
Align Army “Work Output”
Integrate Workforce, Processes, & ERPs –AFMO as an enabler
Measure Cost Managed Organizations (CMO)
Effective &
EfficientResults
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Contact Information
Send Questions:brian.s.jacobs.civ@mail.mil
Army’s Cost Management (ACM) Portalhttps://acm.army.mil
Register for Access (Requirement is Army CAC)
Army Cost Framework Tool and Repository
Cost Management Knowledge Center (Authoritative Documentation)
“Medically Ready Force . . . Ready Medical Force”
Defense Health Program
Common Cost Accounting Structure (CCAS)
June 2016
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An integrated, efficient funding program that reflects senior leader priorities
Defense
Health
Program
Value focus?
Consistent
health benefit?Consistent
policies &
clinical
practices?
Supportive of
leadership
goals?
Optimum
Direct /
Purchased
Care mix?
Synchronized with Medical Military Construction?
Overlapping
requirements?Transfer of
missions
without
transfer of
resources?
Requirements
consistently
defined?
The Objective:
An integrated, efficient funding program that
reflects senior leadership priorities
The Defense Health Program…is an Appropriation, not an Agency
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“Medically Ready Force . . . Ready Medical Force”
How big is the Defense Health Program (DHP)?
• Pretty big……about $50 billion
• Budget is bigger than the GDP of over 100 nations
• Unified Medical Program budget is bigger than total military spending of Japan, Germany, or South Korea
• Serve more beneficiaries than residents in the state of New Jersey
• As a state, beneficiaries would have 14 votes in the electoral college
• More medical staff in uniform than active duty military of Canada, Belgium and Denmark … combined
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Congress - Appropriates
OMB - Apportions
Comptroller - Allots
Army MEDCOM
Regional Medical
Commands (RMCs)
MTFs and Others
Navy BUMED
Naval Medical Command
(NAVMEDs)
MTFs and Others
Air Force SG
AFMOA
MTFs and Others
DHA Comptroller
DHA Contract
Resource
Management -
Aurora
DHA Business Support Directorate –
Issues Funding Authorization
Documents (FADs)
DHA Facilities issues MILCON FADs to
design and construction agents
USACE NAVFAC
ENGCOM
HQ USAFE
Uniformed Services
University of the
Health Sciences
NCR Medical
Directorate
Defense Health Program Funds Flow
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“Medically Ready Force . . . Ready Medical Force”
A little background on the accounting…..
• Each component in the Military Health System (MHS) has a different accounting system
• There was a high degree of variability in how the components accounted for transactions as a result of the evolution of the MHS
• The MHS requires consistent and comparable financial data across all Defense Health Program (DHP) funded activities for timely, efficient, and effective reporting and decision-making.
• The Office of the Secretary of Defense for Health Affairs directed implementation of a common cost accounting structure across the DHP
• Our vision is a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP
Desired Outcome: Harmonized cost accounting structures, cost management efficiencies, improved standardized reporting, and integration of DHP budget and execution practices
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“Medically Ready Force . . . Ready Medical Force”
The Problem We Are Trying to Solve: Too Much Variability
Each buying the same services and products, but accounting for them differently
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“Medically Ready Force . . . Ready Medical Force”
CCAS Vision
The DHP requires consistent and comparable financial data across the entire system
One Accounting System
Provides an effective approach for data collection, analysis, consolidation, mapping and storage of financial data
One Database
Provides a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP and providing additional transparency through extensions of current accounting guidance
Uniform Accounting
Improved data quality and standardized reporting for leadership and oversight bodies
Consistent Reporting
CCASVision
The DHP on one financial accounting system and
database utilizing uniform accounting practices with
consistent and reliable reporting.
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“Medically Ready Force . . . Ready Medical Force”
Our Approach
The CCAS Framework provides a systematic feedback loop to standardize and continually improve financial & data integrity.
Areas of Standardization
•Budget Structure: Budget Activity Codes, Budget Activity Groups, Budget Sub Activity Codes, and Budget Line Item Codes, Program Elements
Budgetary Accounting
• Agency Initiatives: Agency Initiative Codes and Cost Breakdown Structure Codes
• Defense Medical Information System (DMIS) Codes
Program Management
• Object and Sub Object Class Codes
• Product Service CodesCost
Accounting
Data Quality Analysis• Financial Reporting, Cost and Budget Data
Reporting Analysis• Key Performance Indicators• Compliance & Quality Checks• Technical Solutions Working Group (TSWG)
Policy and Guidance
Standard DataData Quality Analysis
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“Medically Ready Force . . . Ready Medical Force”
Operational Impact
Several activities are required in order to fully implement the CCAS. Such activities will take place during various stages of the CCAS implementation.
Internal Guidance Updates File Layout Structure/Data Transfer
Potential System ChangesCrosswalks
Process and Data Flow Charts
Training/Compliance Checks/Metrics
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