Post on 02-Jan-2016
Identify Similarities Between Battlefield Management And Cost Management
Principles of Cost Analysis and Management
© Dale R. Geiger 2011 1
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?
© Dale R. Geiger 2011 2
Unit Cost Total Cost Units
$2B $30B 15 BCTs
$3B $30B 10 BCTs
$5B $30B 6 BCTs
Which provides the stronger
Army?
Terminal Learning Objective
• Task: Identify Similarities Between Battlefield Management And Cost Management
• Condition: You are a cost advisor technician with access to all regulations/course handouts, 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• Describe the importance of Commander’s Intent
© Dale R. Geiger 2011 3
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
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 xx
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x x x xxx x x xx
© Dale R. Geiger 20114
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
© Dale R. Geiger 2011 5
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?
© Dale R. Geiger 2011 6
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
© Dale R. Geiger 2011 7
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
© Dale R. Geiger 2011 8
The old way of doing things
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
© Dale R. Geiger 2011 11
What This Course is All
About
$
BudgetAppropriated
Management
Better MissionExecution
$ $
Reprogrammed Efficiencies
$
Payoff: Better Execution,Not Cost Savings
© Dale R. Geiger 201112
Top 10 Reasons Government Orgs Manage Cost
1. Enhance Mission Execution2. Enhance Mission Execution3. Enhance Mission Execution4. Enhance Mission Execution5. Enhance Mission Execution6. Enhance Mission Execution7. Enhance Mission Execution8. Enhance Mission Execution9. Enhance Mission Execution10. Enhance Mission Execution
© Dale R. Geiger 2011 13
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?
© Dale R. Geiger 2011 14
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
© Dale R. Geiger 2011 15
Check on learning
• You know you’re in a Cost War if…..?• What are the two alternatives for dealing with
reduced resources?
© Dale R. Geiger 2011 16
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
© Dale R. Geiger 2011 17
Can Government Manage?
• Many believe “Government Management” is an oxymoron• Do you?
• Academics typically cite:• Lack of profit motive• History of government spending
© Dale R. Geiger 2011 18
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
© Dale R. Geiger 2011 19
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
© Dale R. Geiger 2011 20
Government Management Improvement Strategies
© Dale R. Geiger 2011 21
A-76 Business Process Reengineering
Budget Mgmt PART
Cost Management & Control Processes
Centralized Decentralized
Discontinuous
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
© Dale R. Geiger 2011 22
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
© Dale R. Geiger 2011 23
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
© Dale R. Geiger 2011 24
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
© Dale R. Geiger 2011 25
Cost Command and Control
Process
Battlefield Intelligencebecomes
Managerial Costing
Warrior Pullbecomes
Cost Warrior Pull
Modeling and Simulation
becomes
Cost Planning
After Action Reviewbecomes
Cost After ActionReview
Command, Control, and Communication of Cost
© Dale R. Geiger 2011 26
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
© Dale R. Geiger 2011 27
Cost CommandAnd Control
Cost Planning
:Cost Projection:What- Iffing:Ad Hoc Analysis
The Role of theCost After Action Review
• Document and explain performance• Evaluate performance and create
accountability• Stimulate learning for:
• Better reconnaissance• Better planning• Better execution
© Dale R. Geiger 2011 28
Cost CommandAnd Control
Cost After Action Review
È Performance MeasurementÈ Fixed AccountabilityÈContinuous 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
© Dale R. Geiger 2011 29
Process
Cost Warrior Pull«Command Specification
«Command Review
«Command Goal SettingCost Command
And Control
Cost CommandAnd Control
The Role ofManagerial 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
© Dale R. Geiger 2011 30
Managerial Costing
$Relevant Costs$Customized Views$True Resource Use
Check on learning
• Why is “lack of profit motive” not an excuse for not managing cost in government?
• What is the role of the Cost Warrior?
© Dale R. Geiger 2011 31
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)
© Dale R. Geiger 2011 32
Why is Commander’s Intent Important?
• Dynamic environment• Changing conditions under fog of war• Unanticipated enemy actions/reactions• Unforeseen opportunities and threats
• Capitalize on the skills of subordinates who are best positioned to make decisions
© Dale R. Geiger 2011 33
Commander’s Intent
34
--United States Army Field Manual FM 25-101 Battle Focused Training
© Dale R. Geiger 2011
Why is Commander’s Intent Important?
• Commander physically cannot make all decisions
• Commander is not best qualified to make all decisions
• Command must insure control while reaping all possible advantages of decentralization
© Dale R. Geiger 2011 35
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 sector
© Dale R. Geiger 2011 36
What if You are in Command 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
© Dale R. Geiger 2011 37
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
Þ Resource Level
Þ Resource Management
Þ Your Decision
© Dale R. Geiger 2011 38
Group Activity
• Break into groups• Address the previous slide’s question
Write a one page PowerPoint slide with your
Commander’s Intent
• Present your statement to the class in 20 minutes
© Dale R. Geiger 2011 39
Commander’s Intent in the Cost War
• 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
© Dale R. Geiger 2011 40
Leading the Continuous Improvement Process
• Change culture to one which:• Aggressively seeks better ways to operate• De-emphasizes defense of past practice
(assumed best practice at that time)• Requires and expects development of
continuous improvement initiatives • Today, tomorrow, next week, next month, next
year, forever
© Dale R. Geiger 2011 41
Steps to Cost Based Performance Management
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
© Dale R. Geiger 2011 42