Determine the Implementation Requirements for Cost Management and Control © Dale R. Geiger 20111

Is This the Way to Win the Cost War? © Dale R. Geiger 20112

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 20113

Maturation of Cost Roles in Winning the Cost War 4 Single Use Estimated Future Cost Cost Benefit Analysis Cost Informed Decision Making Single Use Estimated Future Cost Cost Benefit Analysis Cost Informed Decision Making Persistent Use Expected & Actual Cost Continuous Improvement Cost Managed Organization Persistent Use Expected & Actual Cost Continuous Improvement Cost Managed Organization Universal Use Planned & Actual Cost Mission Control Cost Managed Enterprise Universal Use Planned & Actual Cost Mission Control Cost Managed Enterprise Cost War Cost War High Cost War Full Insurgency Intensity Conflict 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. Paul A. Rossi C Approach to Cost Management ChangeCulture Hold Managers Accountable Focus on Cost & Performance Divorce From Budget Garrison Commander Fort Huachuca

Requirements for Victory There is more than one way to Win a war Win the Cost War There do 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 8

Check on Learning What are the four common factors in successful Cost Managed Organizations? What does ACE stand for? © Dale R. Geiger 20119

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

Cost Management and Control is Not Simply Cost Accounting Cost management is a “people issue” not an accounting problem Previous attempts at cost management overemphasized accounting’s importance Even the best cost measurement system Did notcannotnever will Did not…cannot…and never will… Manage anything! Accounting is simply a tool and tools don’t do anything by themselves Effective use of tools is a leadership responsibility

Behavioral Issues of Importance Subordinates respond to leadership’s performance expectations “Tell me how you measure me and I’ll tell you how I’ll behave” Resistance to measurement is human nature “Tell me that you are going to measure me and I’ll fight it to the death” Resistance to change is also to be expected

Leader’s Role: Expanded Don’t: Delegate cost command Accept poor or confused reports Do: Expect subordinates to thoroughly understand and competently explain “their” costs Expect subordinates to develop continuous improvement initiatives Signal the mission benefits of cost management and control Acknowledge and reward good performance Create a cost accountable culture

Subordinate Leader’s Role Don’t Delegate reporting and report preparation Provide poorly prepared reports Do: Truthfully and credibly explain “your” numbers Show and explain both good and bad results Recognize the importance of meeting or exceeding planned commitments Prepare for probing questions Demonstrate continuous improvement capability with good continuous improvement initiatives Accept a cost accountable culture

Why is it important that the Senior Leader not delegate responsibility for cost control? How should cost accounting information be viewed? © Dale R. Geiger Check on Learning

2) Attributes of Good ACE Staff Support Understand the organization and its people and operations Develop the leadership trust through personal competence and credibility Develop excellence in analyzing data and transforming it into information Learn the tools, mechanics, and methods of managerial costing (These people are not abundant in government)

Key Barrier to Creating Cost Managed Organizations One of the biggest problems in implementing cost management and control is that leadership has: Little, if any, experience in cost management, when compared with industry Already demanding number of responsibilities No time for extensive training or education ACEs are therefore critically important to enable the leader effectiveness needed by Cost Managed Orgs The Leader-ACE team combines and exploits the skills or both to the benefit of the mission

Supporting Roles: The Assistant to the Commander for the Enterprise Maintain the schedule of meetings Publish list of required slides Support subordinates in discovering the story Support leadership in interpreting information and subordinate presentations Consolidate information as needed

The Job Requirements of the ACE This key cost management advisor must have: Credibility Analytic capability Knowledge of organization functions Sensitivity to people issues Sound training in cost based management

Army ACE Job Description build a cost-capable team from within The mission of the ACE is to build a cost-capable team from within This critical role (or anything like it) does not exist The ACE must quickly: Learn the organization’s mission Become a key, trusted financial advisor to the commander Become a valued resource to all chain of command subordinates Be able to model “enterprise thinking” Success in the ACE’s mission is critically dependent on having very capable people

Finding Strong ACEs May Not Be Easy product To many good accountants, numbers are the product They follow GAAP and consider the job finished with a compliant report raw materials To strong cost analysts, numbers are the raw materials They understand their job is to translate the number into actionable management information

subordinateleadersubordinateleader ACE Relationships to Leadership and Process leaderleader subordinateleadersubordinateleader seniorleaderseniorleader reviewreview reviewreview help leader critique help leader critique help leader prepare help leader prepare ACE help subordinates prepare help subordinates prepare

ACE Staff Shadow Organization leaderleader subordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleader subordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleadersubordinateleader subordinateleadersubordinateleader ACE of ACEs ACE

 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) ACE Development: PCAM & ICAM 24

ACE Development: PCAM & ICAM acct basic traininggfebs ext vs internal terminology financial acctbalance sheet profit&loss stmt role of audit fund acctfund balance expenditure stmt unencumbered bal cost acct - extdefense cont expense stmts fed requirements mgr costingfasab 4 decision support cost mgmt/control cost relationshipsdirect - indirect fixed - variable allocation cost tradeoffsbreak even indifference pnts decision making wifs cost estimationlearning curve cost factors budget devl net present value cost explanationaar variance analysis reconciliation cost benefit analysisarmy training capstone case Overview of Accounting Cost Relationships Cost Tradeoffs Cost Estimation Cost Explanation Cost Benefit Analysis Principles of Cost Accounting & Management Intermediate Cost Accounting & Management Review of PCAM Cost Benefit Analysis Winning the Cost War Leadership Driven Management Change Management acct basic trainingrefresher cost relationshipsrefresher cost relationshipsrefresher cost tradeoffsrefresher cost estimationrefresher cost explanationrefresher cost benefit analysis Winning the Cost War Leadership Driven Management

Stackable Credentials* 26 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. Based on the Financial Management Career Field

All CEs should sponsor participants in the CMCC; application materials at: Commands endorse and prioritize multiple nominations Each course offering holds a maximum of 25 students Cost Management Certificate Course 27

What tasks does the ACE perform to support the subordinate managers? What is the ACE’s role in supporting the leader? © Dale R. Geiger Check on Learning

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 Status Action Leadership 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 Modify “winning the cost war” template as needed Cost Info Use new tools as they come online

Declare 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 Build Build critically deficient managerial costing staff ASAP 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 Begin Begin the process at all levels in all disciplines of building “Cost Competency” into all leadership and training efforts “Cost Effectiveness” into core values Call to Action: Suggested Steps for Engagement

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

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