Determine the Purpose and Motivation for Leadership Driven Cost Control Processes © Dale R Geiger 2011 Being Out of Control Isn’t Good © Dale R Geiger 2011 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 â Dale R Geiger 2011 Program of Instruction Overview Week One Week Two Week Three Understanding Cost Learning the Process Applying the Process Accounting Basics Cost Relationships Cost Tradeoffs Cost Projection Cost Explanation Cost Benefit Analysis CBA Examples Cost Management After Action Review Cost Management Cases © Dale R Geiger 2011 Program of Instruction Overview Week Three Applying the Process 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 © Dale R Geiger 2011 There is a Long History of Trying to Improve Management Waste, Fraud and Abuse Anti-Deficiency Act Budgetary Control GPRA, CFO Act Enhanced Reporting Presidential Initiatives Performance Measurement Limited Fiscal Resources Performance Management © Dale R Geiger 2011 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 © Dale R Geiger 2011 Status Quo: Highly Developed Rule Driven Processes • Rule-driven management • Provides many barriers (and excuses) that diminish creativity • Results in a compliance centered 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) • Rules work best when they provide boundaries rather than prescriptions to behavior © Dale R Geiger 2011 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 is leave a lamp light bulb burning next to the thermostat and we can drive down the temperature very nicely” © Dale R Geiger 2011 10 Budget Execution Forces Impacting Mission Effectiveness Budget Controls Anti-Deficiency Act We are reluctant to spend less $ Organizational Pressures Performance © Dale R Geiger 2011 21 Budget Execution Forces Impacting Mission Effectiveness Budget Controls Anti-Deficiency Act $ There are lots of things dragging down performance Drift Organizational Pressures Performance © Dale R Geiger 2011 22 Budget Execution Forces Impacting Mission Effectiveness Budget Controls Anti-Deficiency Act $ Drift Leadership Only Cost Management & Control can offset drift and/or improve performance Organizational Pressures Performance © Dale R Geiger 2011 23 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” © Dale R Geiger 2011 24 Imagine! • 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? â Dale R Geiger 2011 25 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 © Dale R Geiger 2011 26 Budget-Performance Conundrum High Performing Organization Needs less budget Low Performing Organization Needs $ $ $ more budget • Shifting budget where needed arguably penalizes and certainly de-motivates performance • Why would any organization want to be high performing? © Dale R Geiger 2011 27 Learning Check • 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? © Dale R Geiger 2011 28 Cost Management & Control Offers Mission Improvement Opportunities Desired 10 to Ratio mission benefits costs (process & measurement) credibility © Dale R Geiger 2011 29 The Cost Managed Organization Budget plan execute measure AAR Spend Mission Effectiveness Efficiencies Recognizes that spending, not budget, drives mission Values efficiencies as budget multipliers Commands and controls cost Self supplements through continuous improvement Aggressively stimulates creativity to work smarter © Dale R Geiger 2011 30 Cost Managed Organizations Fort Huachuca: Single Use Persistent Use Estimated Future Cost Expected & Actual Cost Cost Benefit Analysis Continuous Improvement Cost Informed Decision Making Cost Managed Organization Cost War Insurgency Cost War High Intensity Conflict © Dale R Geiger 2011 Navy Research Lab Bureau of Engraving 31 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 © Dale R Geiger 2011 Org Based Control Role Based Control Output Based Control 32 Case Study Summary © Dale R Geiger 2011 33 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 â Dale R Geiger 2011 34 Learning Check 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 © Dale R Geiger 2011 35 ...Being Out of Control Isn’t Good © Dale R Geiger 2 011 Terminal Learning Objective • Task: Determine the Purpose and Motivation for Leadership Driven Cost Control Processes • Condition: You... Dale R Geiger 2 011 10 Leadership Driven Management • Recognizes that there is always a better way to things • Capitalizes on the accountable creativity and ingenuity of the workforce • Motivates... Motivates excellence rather than compliance © Dale R Geiger 2 011 11 Contrasting Managerial Dimensions Goals Financial Accountability Rule Driven Leadership Driven Follow the Rules, Obey the Law Increase