Slides 13 1 determine the purpose and characteristics of rol

Determine the Purpose and Characteristics of Role Based Cost Management and Control © Dale R Geiger 2011 All the World’s a Stage: What’s Your Role? © Dale R Geiger 2011 Terminal Learning Objective • Task: Determine the Purpose and Characteristics of Role Based 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 • Define the characteristics of Role Based Control • Discuss dimensions of cost reporting • Apply ABC concepts to Role Based Control situation © Dale R Geiger 2011 Different Types of CMOs Role Based vs Org Based Control • Organization based control exploits the reporting relationship of the org chart • Sometimes we wish to manage and control joint efforts where reporting relationships don’t exist • Organizations that support but don’t report to the supported core functions • Organizations that come together for a specific purpose like ARFORGEN or training © Dale R Geiger 2011 Support Functions Often Do Not Report to Core Functions • Consider a common organization where support and core functions report on the same level Headquarters Core A Core B Support X Support Y Support Z • Core functions the major missions • Support functions aid the core functions and only indirectly support the major missions © Dale R Geiger 2011 Budget Often Funds Each Component Separately, Creating “Stovepipes” • Support functions are often funded independently of their roles and responsibilities to the core orgs Core A Core B Support X Support Y Support Z • Over time they can forget their supporting roles © Dale R Geiger 2011 The Problems with Stovepipes • Support budget is independent of support provided • Result: less supportive of core org customers • Support is “free” to customers • Result: “free” goods have infinite demand from core organizations • Bottom line • More cost than appropriate in support functions • Support functions disconnected from their support role Solution: Role Based Control • Goal: • Build cost control process around the support and supported roles • Solution: Solution • Create forum of interaction through AAR structured so that support functions present costs and continuous improvements to core functions • Requirement: Requirement • Measurement process that assigns virtual support “costs” to consuming core functions Role Based Control Goal Results: A Virtual Organization Headquarters Core A Core B AAR X Y Z X Y Z Where support functions are now part of each core team Intro: A good statement of philosophy Should each of these be an activity? What about these activities? These are all important, aren’t they? Here are some more things they do… Should we hire another accountant? First Step: Aggregate actions into major activities Second Step: Determine cost of the activities Third Step: Determine the bases of allocation Step Four: Calculate • Task: Calculate the “old” Safety Office overhead allocation based on labor hours given the following usage for the following consumers: 30 40 50 70 80 Tenants Total 410 950 583 715 709 3367 • Codes 30, 40, 50, 70, and 80 are core research functions Step Four: Calculate • Task: Calculate the “new” Safety Office overhead allocation using the three activity cost pools and the driver information below: 30 40 50 70 80 Tenants Total Square feet 100 489 474 495 568 705 2831 Hazmat units 11 2128 317 350 328 3134 50 467 950 417 617 317 2818 Composite units Step 5: Evaluate • Compare the ABC allocation with the labor hours allocation: Change © Dale R Geiger 2011 43 Step 5: Evaluate • Compare the ABC allocation with the labor hours allocation: Change 151 263 (333) 104 © Dale R Geiger 2011 64 (249) 44 Step 5: Evaluate • Compare the ABC allocation with the labor hours allocation: Code 50 was being grossly undercharged Change 151 263 (333) 104 © Dale R Geiger 2011 64 (249) 45 Step 5: Evaluate • Compare the ABC allocation with the labor hours allocation: Tenants were getting free goods Change 151 263 (333) 104 © Dale R Geiger 2011 64 (249) 46 Sixth Step: Actions • Site renegotiated intra service agreements with tenants and stopped subsidization • Senior leader reorganized, redirected Code 50 • Core function leaders learned the high costs of hazardous materials Questions for Thought • How much longer would this exercise have taken you if there had been 48 activities instead of three? • How much more value would have been generated by the extra time spent? © Dale R Geiger 2011 48 ...All the World’s a Stage: What’s Your Role? © Dale R Geiger 2 011 Terminal Learning Objective • Task: Determine the Purpose and Characteristics of Role Based Cost Management and Control • Condition:... Define the characteristics of Role Based Control • Discuss dimensions of cost reporting • Apply ABC concepts to Role Based Control situation © Dale R Geiger 2 011 Different Types of CMOs Role Based... Learning Check • How does role-based control differ from organization-based control? • What are the benefits of implementing rolebased control? © Dale R Geiger 2 011 15 Individual Study • Read