Perform Cost Planning

Terminal Learning Objective Action: Perform Cost Planning Conditions: You are a Budget Analyst with access to a computer, the GFEBS training database, applicable GFEBS references, and awareness of Operational Environment (OE) variables and actors. Standards: With at least 80% Accuracy learners must demonstrate proficiency with: Define and Communicate the Cost Planning Process Analyze Cost Management and GFEBS

Associated Key Terms Automated Planning Manual Planning Direct Cost Indirect Cost Full Cost Funded Cost Unfunded Cost Variance Outcome Activity Dependent Planning Activity Independent Planning (1) Automated Planning: In Automated Planning, the system calculates the distribution of secondary costs based on the sender’s anticipated costs.   (2) Manual Planning: In Manual Planning, the product/service receiver estimates the secondary cost rather than relying on the sending activity’s cost estimates. (3) Direct Cost: The cost of resources (labor and materiel) directly consumed by an activity. Direct costs are assigned to activities by direct tracing of units of resources consumed by individual activities. Is a cost that is specifically identified with a single cost object.   (4) Indirect Cost: Is a cost that cannot be identified specifically with or traced to a given cost object in an economically feasible way. The cost of resources that are jointly or commonly used to produce two or more types of outputs but are not specifically identifiable with any of the outputs, e.g., general administrative services, general research and technical support, security, rent, employer health and recreation facilities, and operating and maintenance cost for buildings, equipment, and utilities. Such cost can be assigned to the output on a cause and effect basis or allocated on a reasonable and consistent basis.   (5) Full Cost: The sum of all costs associated with an organization, product, or service to include activities performed by other entities regardless of funding sources.    (6) Funded Costs: Cost assigned to an organization that is responsible for funding, or reimbursing the incurred expense. These costs are funded in the Annual Operating Budget of the organization.   (7) Unfunded Costs: Cost assigned to an organization that is not responsible for funding, or reimbursing the incurred expense. These costs do not result in any obligation of funds by the organization; examples include military labor and military rations. (8) Variance: Is the amount, rate, extent, or degree of change, or the divergence from a desired characteristic or state. (9) Outcome: The results of a program activity compared to its intended purposes. Program results may be evaluated in terms of service or product quantity and quality, customer satisfaction, and effectiveness. (10) Activity Dependent Planning: Secondary cost planning is input planning for costs incurred because of the consumption of another internal organization’s goods and services (e.g., IT services, facilities, electricity, etc.) (11) Activity Independent Planning: Input planning for cost centers and internal orders for costs your organization directly will incur.

The Cost Management Process In this Lesson our focus will be on the Cost Planning Functions of the Cost Management Process

Associated Roles

Cost Management Roles Cost Plan Maintainer Performs activities and tasks related to evaluating planning options, planning primary costs on cost centers and internal orders, and planning prices of activity types and business processes. This role will be performed throughout the Army. Every operational area may have this role to establish a Cost Plan (similar to a Spend Plan in legacy process). Most organizations will not create a full-blown cost plan until they have a year’s worth of actual costs data to base the Cost Plan upon (Establishing a Baseline). The Actual Cost from the previous year become your Cost Plan for the upcoming year after adjusting for new mission, new personnel (Activity Types) and mission requirement that are no longer conducted. Spend Plan Distributor Generates, analyzes and exports the Spend Plan v/s Actuals report for the appropriate fund centers as needed.

Perform Cost Planning Define Cost Planning Topic Objectives Define Cost Planning Define and the differences between Cost and Budget Planning Describe the purpose and benefits of Cost Planning Describe Cost Planning as it relates to GFEBS Define Output Planning Define Input Planning GFEBS Spend Plan vs Actuals Explain Plan Output Reports

Why Do We Plan? The purpose of planning is to anticipate: What you are going to do? (What are your goals, missions and/or objective). How you are going to do it? (What are the risks and/or opportunities for each alternative) . And how well you did it? (Be proactive about time and efficiencies). An additional value of planning is to: -Provide a baseline against which one can measure changes that occur in the course of operations. -For example, an organization can be directed to provide disaster relief assistance to civil authorities.

Cost Planning Cost Planning focuses on the efficient and effective use of all resources used by each organization. When Cost Planning, managers need to consider the following: What do I have to deliver, (what are the requirements)? Who are my customers? What work has to be done, (what work is prioritized)? What are the resources necessary and support available to perform this work?

Budget Planning The primary objective of a budget plan is to synchronize obligations with funding. When building a budget plan, the following considerations apply: What are the regulatory guidance to justify the spending. On what am I going to spend my money? When am I going to execute the mission? Where/by whom will this work be performed (e.g., onsite/off-site, Army labor/contractor labor)? What are the constraints to consider in executing this mission (e.g., CRA, supplemental)?

Cost Planning Cost Planning estimates what it should cost to provide the products and services required to support the Army. Focusing on the efficient and effective use of resources to deliver these products and services. – Calculates the “cost per output or service.” – Provides a baseline of expected costs. – Compares actual and plan costs. – Provides management with data. – Predicts full cost and expected outcomes of resources.

Knowing your obligations is not the same as knowing your costs! Cost Planning vs. Budget Planning Costs Obligations Knowing your obligations is not the same as knowing your costs!

Cost Planning vs. Budget Planning (Cont.) The Focus Budget Planning Cost Planning Full Cost Focus: Manager’s available Funds Focus: Full cost (direct and indirect). Primary costs (budget) plus secondary costs (outside of your cost center) Timing Focus: When obligation is Made. (Records full value for 12 month contract at obligation) Focus: When benefit of obligation is received. (Records 1/12 of value of 12-month contract – monthly). Detail Tends to be high-level by Organization and object class. More management detail. Adds another level of detail – plans against projects, products, services (via internal orders, business processes, and WBS elements).

Cost Planning in GFEBS In GFEBS cost planning, managers must consider: What good or service are to be delivered? Who are the customers? What work has to be done? What money are necessary? What support is available to perform this work? Initially, Managers may plan primary costs on cost centers, internal orders, and WBS elements. Managers may create an initial cost plan before the beginning of the year and make adjustments to the plan, as needed, during the operating year.

Plan Anticipated Primary Costs Anticipated Primary Costs are Planned on the following objects: Cost centers (CC) Internal orders (IO) Work Breakdown Structure element (WBS) When there is an unanticipated mission requirement for more than the initial plan, then the additional or incremental cost is planned. For example, for natural disaster relief, the Army might create an internal order to plan additional costs for relief supplies.

Plan Secondary Cost For a full cost plan, managers plan for secondary costs. – Secondary costs are used to track the internal movement of costs, such as allocations or settlements that provide a more accurate view of costs within the organization. – Secondary cost elements do not have corresponding expense accounts in the General Ledger (GL). – Examples of secondary cost elements include: • Assessment cost elements • Cost elements for internal activity allocation • Cost elements for order settlement

Plan Outputs – Cost Center / Activity Types The purpose of output planning for cost centers/activity types is to determine how much your organization is going to produce for a given period of time. A cost center is a responsibility center that incurs costs and has a manager who is accountable for those costs. An activity type is a type of cost master data that represents a group of resources within a cost center. During this step, planned activities for cost center activity types are entered into GFEBS. – Additionally, planned capacities can be entered as well to provide additional information that might be useful for managerial decision-making purposes.

Conduct Practical Exercises

Plan Outputs – Cost Center / Activity Types (Cont.) Output Planning for cost centers includes specifying planned activities (e.g., labor activity types). This is accomplished by using the following transaction codes: - KSBT - Display Activity Type Price Report - KP26 – Change Plan Data for Activity Types - KP27 – Display Plan Data for Activity Types

Type of Plan - Output Reports Plan Output Reports are used to view costs related to cost centers and activity prices associated with cost planning. These reports can be used for both output and input planning, with the exception of the KSBT report, which is the only true output report. The following are Plan Output Reports: - KSBT: Display Activity Type Price Report - KSBL: Display Cost Centers: Planning Overview Report - KSBP: Display Plan Cost Line Item for Cost Center Report

LSA #1 Check on Learning Q1: _____ _____focuses on the efficient and effective use of all resources used by each organization. A1: Q2: Anticipated Primary Costs are Planned on what 3 objects? A2: Q1: _____ _____focuses on the efficient and effective use of all resources used by each organization. A1: Q2: Anticipated Primary Costs are Planned on what 3 objects? A2:

LSA #1 Summary

Cost Management - GFEBS Managing Business Operations Efficiently & Effectively Through the Accurate Measurement & Thorough Understanding of the "Full Cost" of an Organization's Business Processes, Products & Services in Order to Provide the Best Value to Customers. Cost Accounting Cost Management Process Cost Planning Cost Analysis Cost Controlling

Cost Planning Cost Planning is the use of a Cost Model for “should-cost” forecasting to make informed decisions Often Performed for: Budget Requirements Requests Costs Estimations Output Quantities Capacity Management Risk Analysis Various Time Frames: Out year / Current year, Quarterly, Monthly Standard Rates Defining Targets to Measure Efficiency and Effectiveness Cost Accounting Cost Planning Cost Analysis Cost Management Process Cost Controlling

Information to Make Sound Economic Decisions* Cost Accounting Cost Accounting translates the operational value chain into financial values Cost Accounting is the dollar valuation of the cost measurements resulting from business operations Cost Measurement has meaning only when considering its purpose Defining Cost Measurement should be carefully considered and evaluated Alternative cost methods should be evaluated under operating environment Cost Planning Controlling Analysis Accounting Management Process Purpose Is the key to Understanding the Army ERP Cost Design (GFEBS): To Provide Operational Managers With Relevant “True” Cost Information to Make Sound Economic Decisions*

Cost Analysis Cost Analysis is the integration of functional outcome data with cost data to produce valid and verifiable information to conduct various forms of analysis Cost Planning Controlling Analysis Accounting Management Process Sample types of analysis include: Organizational performance Analysis of alternatives Variance analysis Economic analysis Cost / Risk assessments Trending

Cost Controlling Cost Controlling is to take “Best Value” and/or “Best Practice” actions to realign the organization to achieve the defined objectives Actions taken based on information provided from Cost Analysis results Redeployment of resources between outputs Change outputs (e.g. do more or less) Update/revision of plan information (e.g. updated Std. Rate) Execution of trade-off decisions (e.g. OT versus external support) Cost Planning Controlling Analysis Accounting Management Process

LSA #2 Check on Learning Q1: The Cost Management Process Consist of what 4 Elements? A1: Q2: Which Element translates the operational value chain into financial values? A2: Q3: T/F Cost Analysis is to take “Best Value” and/or “Best Practice” actions to realign the organization to achieve the defined objectives. A3: Q1: The Cost Management Process Consist of what 4 Elements? A1: Q2: Which Element translates the operational value chain into financial values? A2: Q3: T/F Cost Analysis is to take “Best Value” and/or “Best Practice” actions to realign the organization to achieve the defined objectives. A3:

LSA #2 Summary

Questions

TLO Summary Action: Perform Cost Planning Conditions: You are a Budget Analyst with access to a computer, the GFEBS training database, applicable GFEBS references, and awareness of Operational Environment (OE) variables and actors. Standards: With at least 80% Accuracy learners must demonstrate proficiency with: Define and Communicate the Cost Planning Process Analyze Cost Management and GFEBS