1. Intermediate Cost Analysis and Management
Determine the Implementation Requirements for Cost Management and Control
Intermediate Cost Analysis
and Management
11.2

2. Is This the Way to Win the Cost War?

3. Terminal Learning Objective
Action: Determine the Implementation Requirements for Cost Management and Control
Condition: You are training to become an ACE with access to ICAM course handouts, readings, spreadsheet tools, and awareness of Operational Environment (OE) 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

4. Maturation of Cost Roles in Winning the Cost War
Single Use
Estimated
Future Cost
Cost Benefit Analysis
Cost Informed Decision Making
Persistent Use
Expected & Actual Cost
Continuous Improvement
Cost Managed Organization
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

5. 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

6. Approach to Cost Management
US.
Paul A. Rossi C
Change
Culture
Hold
Managers
Accountable
Focus on
Cost &
Performance
Divorce From Budget
Garrison Commander
Fort Huachuca 2 4 4

7. 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

8. Requirements for Cost Management and Control Success
Aggressive, knowledgeable leadership
Nothing happens without leadership drive
Strong staff, strong staff organization
Analytic Cost Experts (ACEs) or
Assistants to the Commander for Enterprise (ACEs)
Leaders need expert costing and analytic support
Learning oriented process
Institutionalizes a forum for creative accountability
Actionable cost intelligence
Translates efforts and actions into dollars: the language of management

9. LSA #1 Check on Learning
Q1. What are the four common factors in successful Cost Managed Organizations? A1. Q2. What does ACE stand for? A2.
Q1. What are the four common factors in successful Cost Managed Organizations?
A1. Good leadership, Strong staff support, Learning oriented AAR processes, and Actionable intelligence
Q2. What does ACE stand for?
A2. Either “Analytic Cost Expert” or “Assistant to the Commander of the Enterprise”. Either way the ACE should be the resident cost expert who provides cost information to support the decisions of the Senior Leader.

10. LSA #1 Summary
We discussed the keys to success for cultural change and the requirements necessary for cost management and control success in order to win the cold war.

11. 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

12. 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 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

13. 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

14. 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

15. 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

16. LSA #2 Check on Learning
Q1. Why is it important that the Senior Leader not delegate responsibility for cost control? A1. Q2. How should cost accounting information be viewed? A2.
Q1. Why is it important that the Senior Leader not delegate responsibility for cost control?
A1. It is too important. Being personally, actively involved in the cost management and control effort signals to subordinates that it is important and that they had best view it as important as well.
Q2. How should cost accounting information be viewed?
A2. As a tool. Tools are only useful in the hands of a skilled user.

17. LSA #2 Summary
We discussed the first requirement for Cost Management, attributes of aggressive and knowledgeable leaders. We also discussed how cost management is more a “behavioral issue” and not simply cost accounting.

18. 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)

19. 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

20. 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

21. 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

22. Army ACE Job Description
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

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

24. ACE Relationships to Leadership and Process
senior
leader
help leader
prepare
review
ACE
leader
help leader
critique
review
help subordinates
prepare
subordinate
leader
subordinate
leader

25. ACE Staff Shadow Organization
leader
ACE of ACEs
subordinate
leader
subordinate
leader
subordinate
leader
subordinate
leader
ACE
ACE
ACE
ACE
subordinate
leader
subordinate
leader
subordinate
leader
subordinate
leader
ACE
ACE
ACE
ACE

26. ACE Development: PCAM & ICAM
Principles of Cost Analysis & Management
Intermediate
Cost Analysis & Management
acct basic training
gfebs
ext vs internal
terminology
financial acct
balance sheet
profit&loss stmt
role of audit
fund acct
fund balance
expenditure stmt
unencumbered bal
cost acct - ext
defense cont
expense stmts
fed requirements
mgr costing
fasab 4
decision support
cost mgmt/control
cost relationships
direct - indirect
fixed - variable
allocation
cost tradeoffs
break even
indifference pnts
decision making
wifs
cost estimation
learning curve
cost factors
budget devl
net present value
cost explanation
aar
variance analysis
reconciliation
cost benefit analysis
army training
capstone case
acct basic training
refresher
cost relationships
cost tradeoffs
cost estimation
cost explanation
cost benefit analysis
Winning the Cost War
Leadership Driven Management
Overview of Accounting
Cost Relationships
Cost Tradeoffs
Cost Estimation
Cost Explanation
Cost Benefit Analysis
Review of
PCAM
Cost Benefit Analysis
Winning the
Cost War
Leadership Driven
Management
Change Management

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

28. Cost Management Certificate Course
The CMCC is an intense four-week resident graduate education course that is taught course conducted on the campus of The University of South Carolina in Columbia, SC. This course is designed to teach students how to manage Army business operations efficiently and effectively through the accurate measurement and thorough understanding of the "Full Cost" of business processes, products, and services. Certificate holders will become part of a community of practice equipped to help decision makers provide the best value to customers and stakeholders.
Managerial Costing—instruction in cost concepts and analysis techniques with a strong focus on analytics.
Operations Management—the fundamentals of design, management, and control of operational processes and project management used in cost management.
Cost Control—cost control theory, leadership driven management, practical examples of cost control issues and solutions, cost benefit analysis and Army case studies.
Organizational Effectiveness for Cost Managers— systems thinking, interpersonal communication, listening, motivation, leadership, message framing, decision-making, persuasion, power and social influence, and negotiation.
Show Slide #28: Describe the characteristics and responsibilities of an ACE (Cont.)
Facilitator Note: Cost Management Certificate Course
CMCC Homepage:

29. 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

30. 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

31. 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

32. 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

33. Call to Action: Suggested Steps for Engagement
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 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 the process at all levels in all disciplines of building
“Cost Competency” into all leadership and training efforts
“Cost Effectiveness” into core values

34. 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

35. LSA #3 Check on Learning
Q1. What tasks does the ACE perform to support the subordinate managers? A1. Q2. What is the ACE’s role in supporting the leader? A2.
Q1. What tasks does the ACE perform to support the subordinate managers?
A1. Communicates the schedule and reporting requirements for the AAR. Helps them prepare for the AAR by helping them to understand “their” numbers and prepare for probing questions that the leader will ask.
Q2. What is the ACE’s role in supporting the leader?
A2. Helps interpret and evaluate the cost reports from subordinates. Consolidates cost information and helps the leaders prepare to report to his or her senior leader.

36. LSA #3 Summary
We discussed the importance of the ACE and the attributes they must possess in order to implement effective change within an organization. We also conducted an exercise to identify where to begin in inculcating change in the cost war.

37. TLO Summary
Action: Determine the Implementation Requirements for Cost Management and Control
Condition: You are training to become an ACE with access to ICAM course handouts, readings, spreadsheet tools, and awareness of Operational Environment (OE) 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