Determine the Implementation Requirements for Cost Management and Control © Dale R Geiger 2011 Is This the Way to Win the Cost War? © Dale R Geiger 2011 Terminal Learning Objective • Task: Determine the Implementation Requirements for Cost Management and Control • 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 • List four common characteristics of successful cost management efforts • Describe responsibilities of leadership • Describe the characteristics and responsibilities of an ACE © Dale R Geiger 2011 Maturation of Cost Roles in Winning the Cost War Single Use Persistent Use Universal Use Estimated Future Cost Expected & Actual Cost Planned & Actual Cost Cost Benefit Analysis Continuous Improvement Mission Control Cost Informed Decision Making Cost Managed Organization Cost Managed Enterprise Cost War Insurgency Cost War High Intensity Conflict Cost War Full Spectrum Operations Starting here (Some work is being done now) TARGET Key Cultural Changes Needed to Win the Cost War • Institutionalize cost accountability • Subordinates present after action reviews explaining their performance compared to plan • Eliminate budget entitlement mentality • Plans are negotiated frequently and represent targets to be beaten • Demand improved cost and output • After Action Review challenges both US C Paul A Rossi Approach to Cost Management Hold Managers Accountable Change Culture Divorce From Budget Focus on Cost & Performance Garrison Commander Fort Huachuca Requirements for Victory • There is more than one way to • Win a war • Win the Cost War • There seem to be common factors • • • • Good leadership Strong staff support Learning oriented AAR processes Actionable intelligence Requirements for Cost Management and Control Success 1) Aggressive, knowledgeable leadership • Nothing happens without leadership drive 2) Strong staff, strong staff organization • Analytic Cost Experts (ACEs) or • Assistants to the Commander for Enterprise (ACEs) • Leaders need expert costing and analytic support 3) Learning oriented process • Institutionalizes a forum for creative accountability 4) Actionable cost intelligence • Translates efforts and actions into dollars: the language of management Slide Check on Learning • What are the four common factors in successful Cost Managed Organizations? • What does ACE stand for? © Dale R Geiger 2011 1) Attributes of Aggressive, Knowledgeable Leaders • Specify and define good information requirements • Participate actively in review process • Signal the importance of continuous improvement • Understand that there is always a better way to operate Finding Strong ACEs May Not Be Easy • To many good accountants, numbers are the product • They follow GAAP and consider the job finished with a compliant report • To strong cost analysts, numbers are the raw materials • They understand their job is to translate the number into actionable management information ACE Relationships to Leadership and Process senior leader review help leader prepare leader ACE review help leader critique help subordinates subordinate subordinate prepare leader leader ACE Staff Shadow Organization leader ACE of ACEs subordinate leader subordinate leader subordinate leader subordinate leader ACE ACE ACE ACE subordinate leader subordinate leader subordinate leader subordinate leader ACE ACE ACE ACE ACE Development: PCAM & ICAM Principles of Cost Accounting and Management Targeted at entry level CP11 Personnel, Sergeants, Lieutenants, Junior Captains Offered at Army Finance School at Fort Jackson (Columbia, South Carolina) Course Length: Three Weeks Pre-requisites: On Line Math Refresher (TBD) Intermediate Cost Accounting and Management Targeted at mid career CP11 Personnel, Staff Sergeants and above, Senior Captains, Majors and above Offered at Army Finance School at Fort Jackson (Columbia, South Carolina) Course Length: Three Weeks Pre-requisites: On Line Math Refresher (TBD) 24 ACE Development: PCAM & ICAM Principles of Cost Accounting & Management Overview of Accounting Cost Relationships Cost Tradeoffs Cost Estimation Cost Explanation Cost Benefit Analysis acct basic training gfebs ext vs internal terminology financial acct balance sheet profit&loss stmt role of audit fund acct fund balance expenditure stmt unencumbered bal cost acct - ext defense cont expense stmts fed requirements mgr costing fasab decision support cost mgmt/control cost relationships direct - indirect fixed - variable allocation cost tradeoffs break even indifference pnts decision making wifs cost estimation learning curve cost factors budget devl net present value cost explanation aar variance analysis reconciliation cost benefit analysis army training capstone case Intermediate Cost Accounting & Management acct basic training refresher cost relationships refresher cost relationships refresher cost tradeoffs refresher cost estimation refresher cost explanation refresher cost benefit analysis Winning the Cost War Leadership Driven Management Review of PCAM Cost Benefit Analysis Winning the Cost War Leadership Driven Management Change Management Stackable Credentials* Based on the Financial Management Career Field All CEs will require basic, advanced, and master skills with a concentration in: Readiness – Capacity management and force cost analysis Materiel – Logistics and working capital funds cost analysis Human Capital – Manpower cost analysis Services & Infrastructure – Services and capital asset costing FAs and CPs that are common to all CEs should train to become a master in any CE * NOTE: Stackable credentials are based on Financial Management (BC36/CP11) career field demands for cost management, which is the Army maximum; other career fields will use a subset of these requirements 26 Cost Management Certificate Course • All CEs should sponsor participants in the CMCC; application materials at: https://www.us.army.mil/suite/page/616700 • Commands endorse and prioritize multiple nominations • Each course offering holds a maximum of 25 students 27 Check on Learning • What tasks does the ACE perform to support the subordinate managers? • What is the ACE’s role in supporting the leader? © Dale R Geiger 2011 28 3) Attributes of an Effective Review Process • Feedback: frequent updates with management interaction • Accountability: requires managers to explain performance in cost terms • Institutionalization: imbedded in organization’s calendar and culture • Behavior change: makes continuous improvement part of cultural expectation 4) Attributes of Good Information • Must be managerially useful • Managers are the users • Must be technically credible • Managers must trust • Must be affordable • Managers are the bill payers Conclusions: Leadership Driven Management • Provides a workable doctrine for decentralized, continuous improvement • Proven workable in pilots with savings of millions of dollars to date • Will continue to evolve and improve with experience and continuous learning Transforming the Army: Four Requirements for Success Need Leadership Status Action Team with ACE to create “informed” leaders Exploit existing strong leadership capabilities ACE Build strong staff, strong organization Select, develop ACEs (Asst to Comdr – Enterprise) Design and deliver advanced training Process Cost Info Modify “winning the cost war” template as needed Use new tools as they come online Call to Action: Suggested Steps for Engagement • Declare the Cost War • • Acknowledge the threat to mission accomplishment and national security from “under-managed” use of resources Recognize that “cost effectiveness” is a core value in a Cost War Develop your Commander’s Intent Statement • • • Select your ACE (Assistant to the Commander for the Enterprise) Build and develop the ACE staff throughout your AOR Initiate and nurture “bridgehead” projects as ACEs come on line • • “Cost Competency” into all leadership and training efforts “Cost Effectiveness” into core values • • • Build critically deficient managerial costing staff ASAP Begin the process at all levels in all disciplines of building Time Available Group Exercise • Using the attached job description as a guide: • Develop the job description for an ACE • Prepare one slide highlighting key points of your job description to present to the class © Dale R Geiger 2011 34 35 ...Is This the Way to Win the Cost War? © Dale R Geiger 2 011 Terminal Learning Objective • Task: Determine the Implementation Requirements for Cost Management and Control • Condition: You... Management (BC36/CP11) career field demands for cost management, which is the Army maximum; other career fields will use a subset of these requirements 26 Cost Management Certificate Course • All CEs... on Cost & Performance Garrison Commander Fort Huachuca Requirements for Victory • There is more than one way to • Win a war • Win the Cost War • There seem to be common factors • • • • Good leadership