Slides 10 1 determine the purpose and motivation for contin

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 cents tomorrow, 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 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 Day Two’s two cents + Day One’s one cent = three cents The Power of Continuous Improvement 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 Day Three’s four cents + Day Two’s two cents + Day One’s one cent = seven cents The Power of Continuous Improvement … 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 And so on… And so on… The Power of Continuous Improvement 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 By the end of the first week we have $1.27 The Power of Continuous Improvement 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 By the end of the second week we have $163.83 The Power of Continuous Improvement 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0.16 0.32 0.64 1.28 2.56 5.12 10.24 20.48 40.96 81.92 163.84 327.68 655.36 1310.72 2621.44 5242.88 10485.76 20971.52 41943.04 83886.08 167772.16 335544.32 671088.64 1342177.28 2684354.56 5368709.12 0.03 0.07 0.15 0.31 0.63 1.27 2.55 5.11 10.23 20.47 40.95 81.91 163.83 327.67 655.35 1310.71 2621.43 5242.87 10485.75 20971.51 41943.03 83886.07 167772.15 335544.31 671088.63 1342177.27 2684354.55 5368709.11 10737418.23 By the end of the month the total is more than $10 Million! Consider a 3% Annual Improvement • For a $250 billion organization over ten years: $M 10 budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 • The Army you save may be your own!!!! © total 74% 6851 71713 U.S C Paul A Rossi Cost Reduction Initiative $000 Title: Fire Watch Station Consolidation Status: (Achieved or in-progress) IN-PROGRESS Responsible Manager: Forecasted annual cost reduction: $ 87K Number of positions (FTE): 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 â 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 â 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? © The Long Term Power of Continuous Improvement • Often consider only digital decisions • Kill it or keep it • Too little thought given to gradually making operations more efficient • 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 FY98 • 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 © U.S GARRISON MANAGEMENT SYSTEM C Paul A Rossi FY03 Number of Initiatives Cumulative New 350 300 250 200 150 100 50 322 163 85 30 4Q02 30 78 55 1Q03 2Q03 232 90 69 3Q03 4Q03 U.S GARRISON MANAGEMENT SYSTEM C Paul A Rossi FY03 $ Value of Initiatives Cumulative $ Millions New $32 $28 $24 $20 $16 $12 $8 $4 $0 $23.2 $11.6 $1.50 4Q02 $14.0 $23.7 $9.25 $2.37 $1.10 1Q03 $24.4 2Q03 3Q03 $0.65 4Q03 Learning Check • How does Continuous Improvement differ from the “kill it or keep it” mentality? • Who is responsible for ensuring that learning occurs? © 35 How Can You Motivate Continuous Improvement? • The Army motivates soldiers to 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 © 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 © ... 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 0.02 0.04 0.08 0 .16 0.32 0.64 1. 28 2.56 5 .12 10 . 24 20.48 40.96 81. 92 16 3.84 327.68 655.36 1 310 . 72 26 21. 44 5242.88 10 4 85.76 209 71. 52... 209 71. 51 419 43.03 83886.07 16 7772 .15 335544. 31 6 710 8 8.63 13 4 217 7.27 2684354.55 5368709 .11 10 7 37 418 .23 By the end of the first week we have $1. 27 The Power of Continuous Improvement 10 11 12 13 14 ... 327.67 655.35 1 310 . 71 26 21. 43 5242.87 10 4 85.75 209 71. 51 419 43.03 83886.07 16 7772 .15 335544. 31 6 710 8 8.63 13 4 217 7.27 2684354.55 5368709 .11 10 7 37 418 .23 And so on… And so on… The Power of Continuous