Explain Causes of Variances with the Reconciliation Format ©1

Could the Battle of the Bulge Have Been Won if All Battle Maps of Ardennes Forest Looked Like This? ©2

Terminal Learning Objective Task: Explain Causes of Variances with the Reconciliation Format 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: Describe content of effective cost intelligence briefing Prepare reconciliation for cost intelligence ©3

3d ACR Feb 7, 2011 Non-deployables Review 21 pages over 400 names over 400 names ©4

How Can the Cost War Be Won if All Cost Reports Look Like This? It can’t – Of course, someone needs to know where the trees are, but Effective command and control needs intelligence formatted in more useful ways Formatting cost information for effective command and control is critically important ©5

After Action Reconciliation Case ACase B Spending What was Expected $X $X What was Achieved$X - $20 $X+$20 Delta $20 ($20) Reconciliation Format Good News Story $ $ Bad News Story ($) ($) Total Explained $20 ($20) ©6

After Action Reconciliation The coster provides this part: the credible intelligence ©7

After Action Reconciliation The accountable, operational manager prepares and presents this part: the story ©8

After Action Reconciliation or variance This is a favorable variance since actual cost is lower than expected cost The technical accounting term for this is a “goodie” This is a favorable variance since actual cost is lower than expected cost The technical accounting term for this is a “goodie” ©9

After Action Reconciliation or variance This is an unfavorable variance since actual cost exceeds expected cost The technical accounting term for this is a “baddie”  This is an unfavorable variance since actual cost exceeds expected cost The technical accounting term for this is a “baddie”  ©10

After Action Reconciliation “The story” is usually a composite of a number of good news and bad news stories. Each story has a favorable or unfavorable aspect that should net to the total delta. “The story” is usually a composite of a number of good news and bad news stories. Each story has a favorable or unfavorable aspect that should net to the total delta. ©11

Learning Check Who prepares the first part of the After Action Reconciliation report? What is the goal of the second part of the report? ©12

Exercise: Construct the AAR Reconciliation Slide PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 ©13

Exercise: Construct the AAR Reconciliation Slide PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 Is this a “goodie” or a “baddie”? ©14

After Action Reconciliation Spending What was expected What was achieved Delta Reconciliation Total Explained ©15

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation Total Explained ©16

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation One less civilian staff but higher rate4000 Total Explained This is a “good news” story...sort of ©17

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation One less civilian staff but higher rate4000 Three fewer, less expensive trips5500 Total Explained More good news! ©18

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation One less civilian staff but higher rate4000 Three fewer, less expensive trips5500 Higher military pay(3000) Total Explained This is a “bad news” story ©19

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation One less civilian staff but higher rate4000 Three fewer, less expensive trips5500 Higher military pay(3000) Higher contract cost(5000) Total Explained More bad news ©20

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation One less civilian staff but higher rate4000 Three fewer, less expensive trips5500 Higher military pay(3000) Higher contract cost(5000) Total Explained1500 ©21

Learning Check If actual cost is greater than planned cost, how will it be displayed in the After Action Reconciliation? ©22

Exercise: Redo the Previous AAR by Considering Volume Variance Effects PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 output units10000 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 output units8000 variable cost fixed cost variable cost fixed cost variable cost © 23

Exercise: Redo the Previous AAR by Considering Volume Variance Effects PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 output units10000 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 output units8000 variable cost fixed cost variable cost fixed cost variable cost Planned VC/unit= Planned VC/unit= © 24

Exercise: Redo the Previous AAR by Considering Volume Variance Effects PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 output units10000 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 output units8000 variable cost fixed cost variable cost fixed cost variable cost Actual VC/unit= Actual VC/unit= © 25

Variance Template Plan (100 units) Volume Variance Flex (80 units) Perf. Variance Actual (80 units) Var. Cost Fixed Cost Total Cost ©26

Variance Template Plan (100 units) Volume Variance Flex (80 units) Perf. Variance Actual (80 units) Var. Cost 10000* ,500 14, * ,800 (8,200) 8000* ,000 Fixed Cost 20, ,000 (5,000) 25,000 Total Cost 93,500 14,700 78,800 (13,200) 92,000 1,500 Total Cost Variance ©27

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation Total Explained ©28

After Action Reconciliation Spending What was expected93500 What was achieved92000 Delta1500 Reconciliation Produced fewer units14700 Higher variable cost/unit(8200) Higher fixed cost(5000) Total Explained1500 ©29

Exercise: Redo the Previous AAR by Considering Volume Variance, Sales, and Profit Effects PLANnumbercost pertotal civilian staff military contract cost20000 trips total cost93500 output units10000 ACTUALnumbercost pertotal civilian staff military contract cost25000 trips total cost92000 output units8000 variable cost fixed cost variable cost fixed cost variable cost planned a $10 per unit price got a $13 per unit price © 30

Variance Template Plan (100 units) Volume Variance Flex (80 units) Perf. Variance Actual (80 units) Revenue Var. Cost Fixed Cost Profit ©31

Variance Template Plan (100 units) Volume Variance Flex (80 units) Perf. Variance Actual (80 units) Revenue 10000*$10 100,000 (20,000) 8000*$10 80,000 24, *$13 104,000 Var. Cost 10000* ,500 14, * ,800 (8,200) 8000* ,000 Fixed Cost 20, ,000 (5,000) 25,000 Profit 6,500 (5,300) 1,200 10,800 12,000 5,500 Total Profit Variance ©32

After Action Reconciliation Revenue and CostPlanActualDelta Revenue Variable Cost Fixed Cost Profit Reconciliation Total Explained ©33

After Action Reconciliation Revenue and CostPlanActualDelta Revenue Variable Cost Fixed Cost (5000) Profit Reconciliation Increase in selling price24000 Decrease in units (variable cost)14700 Decrease in units (revenue)(20000) Increased fixed cost(5000) Increase in unit variable cost(8200) Total Explained5500 ©34

Conclusions The AAR format is critically important to facilitating command and control It varies to suit the issues at hand and can evolve as the issues change It pinpoints variances to expectation and demands a story from the accountable manager Some additional, possible formats and typical explanatory elements follow ©35

Simple Cost Results and Reconciliation Output APlan or PriorActualDelta Direct Cost Indirect Cost Total CostX Reason 1: Change in Number of Units Reason 2: Change in Direct Cost Reason 3: Change in Indirect Cost Total Cost ExplainedX Reconciliation Explanation for Delta for Output A © 36

P&L View Results and Reconciliation Output APlan or PriorActualDelta Fee Revenue Cost ResidualX Reason 1: Change in Revenue Reason 2: Change in Number of Units Reason 3: Change in Cost Total ExplainedX Reconciliation Explanation for Delta for Residual © 37

Unit Cost Results and Reconciliation Output APlan or PriorActualDelta Unit Cost AX Reason 1: Change in Number of Units Reason 2: Change in Direct Cost Reason 3: Change in Indirect Cost Total ExplainedX Reconciliation Explanation for Unit Cost Delta © 38

Spreadsheet Exercise Redo the previous exercises using the spreadsheet Which do you prefer? ©39