Identify Similarities Between Battlefield Management And Cost Management © Dale R. Geiger 20111.

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?


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


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

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© 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


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?


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


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


The old way of doing things

BudgetAppropriated

MissionAccomplished

$

Traditional View of Budget


Traditional View of Budget


Budget Appropriated

Mission Accomplished$

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


What This Course is All

About

$

BudgetAppropriated

Management

Better MissionExecution

$ $

Reprogrammed Efficiencies

$

Payoff: Better Execution,Not Cost Savings


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


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?


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


Check on learning

• You know you’re in a Cost War if…..?• What are the two alternatives for dealing with

reduced resources?


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


Can Government Manage?

• Many believe “Government Management” is an oxymoron• Do you?

• Academics typically cite:• Lack of profit motive• History of government spending


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


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


Government Management Improvement Strategies


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


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


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


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


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


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


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



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


Process

Cost Warrior Pull«Command Specification

«Command Review

«Command Goal SettingCost Command

And 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


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?


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)


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



34

--United States Army Field Manual FM 25-101 Battle Focused Training


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


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


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


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


Group Activity

• Break into groups• Address the previous slide’s question

Write a one page PowerPoint slide with your


• Present your statement to the class in 20 minutes


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


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


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


Check on learning

• Why is Commander’s Intent important?• What does it mean to be in the fiscal economy

of forces sector?


Identify Similarities Between Battlefield Management And Cost Management © Dale R. Geiger 20111.

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Transcript of Identify Similarities Between Battlefield Management And Cost Management © Dale R. Geiger 20111.