1. Define Cost Culture
Slide 1: Title slide
U.S. Army Soldier Support Institute
Noncommissioned Officer Academy – Senior Leaders Course
542-36B4O-C46 – Financial Management
ACC6B100 – Define Cost Culture
SCOPE
Define Cost Culture is a lesson that analyzes the common behavior and beliefs in relation to the thought process and implementation of an organizations financial goals. Financial Managers must embrace the need of reforming the Army’s cost culture. Reshaping of the Army’s cost culture will primarily be achieved through education, a renewed focus of information management, enhancing decision making abilities, isolating cost measurement tools, and balancing cost versus performance. This lesson integrates and is the supporting lesson to create an environment of understanding in regards to cost based lessons within this module. The outcome of this lesson is to help students comprehend the definition of a cost culture, how to influence a cost culture, and how each student can implement the knowledge thereof to benefit the Army’s transition.
Method of Instruction: Discussion
Educational Outcomes:
Soldiers-Valued members of the team who exhibit character, accountability, resilience, adaptability, initiative, and sound judgment while honorably serving in a Division/ASCC G-8 or SRC 14 delivering FM support.
Doctrinally Sound-Competently delivers timely, accurate, and relevant FM support.
Technically Capable-Demonstrate the capabilities and perform the basic functions of FM enabling systems.
-Understands the FM’s role in accomplishing the Division/ASCC G-8 or SRC 14 mission in support of Unified Land operations.
Critical and Creative-Able to solve sometimes ambiguous problems using logical thinking and sound reasoning to develop viable recommendations or solutions.
Safety Requirements: In a training environment, leaders must perform a risk assessment in accordance with DA PAM , Risk Management. Leaders will complete a DD Form 2977 RISK MANAGEMENT WORKSHEET during the planning and completion of each task and sub-task by assessing mission, enemy, terrain and weather, troops and support available-time available and civil considerations, (METT-TC). Local policies and procedures must be followed during times of increased heat category in order to avoid heat related injury. Consider the work/rest cycles and water replacement guidelines IAW TRADOC Regulation
Instructional Guidance: Throughout this lesson, solicit from students the challenges they experienced in the operational environment (OE) and what they did to resolve them. Encourage students to apply at least one of the critical variables: Political, Military, Economic, Social, Information, Infrastructure, Physical Environment and Time (PMESII-PT).
21st Century Soldier Competencies:
1. Character and accountability
5. Teamwork and collaboration
6. Communication and engagement (oral, written, negotiation)
7. Critical thinking and problem solving
9. Tactical and technical competence
FM Senior Leaders Course – SFC James L. Johnson, Jr., Small Group Leader

2. Enabling Learning Objective
Action: Define Cost Culture
Conditions: FM Leaders in a training environment working individually and as members of small groups, using FM 1-06 Financial Management Operations, Army Directive Changing Management Behavior: Every Dollar Counts, and AR 5-1 Management of Army Business Operations, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: Students will be assessed within 80% accuracy by demonstrating:
Define cost culture
Analyze shift to cost culture
Review AD
Slide 2: Enabling Learning Objective
2. Enabling Learning Objective
Action: Define Cost Culture
Conditions: FM leaders in a training environment working individually and as members of small groups, using FM 1-06: Financial Management Operations, Army Directive Changing Management Behavior: Every Dollar Counts, and AR 5-1: Management of Army Business Operations, self-study exercise, personal experiences, practical exercises, handouts, and discussion.
Standard: Student will be accessed with 80% accuracy by demonstrating:
1. Define Cost Culture
2. Analyze shift to cost culture
3. Review AD
Learning Domain: Affective
Level of Learning: Valuing
3. Assigned Student Readings
Strategy Research Project: Transforming to a Cost-Management Culture
4. Instructor Additional Reading(s)/Material
Strategy Research Project: Transforming to a Cost-Management Culture, by COL Michael J. Schroeder (2009)
5. Training Aids
This lesson is taught in a small group classroom setting with personal computer systems, Panasonic projection televisions, Mr. Podium MP42 Lectern, indoor speakers, Touch panel TPS-3100I Crestron, Ceiling mountable projector, internet access, and a dry erase/white board.
Appendix A: Assessment Plan
Appendix B: Slides
Appendix C: Article; Read-ahead
6. Conduct of Lesson
a. Lesson Timeline:
20 minutes – Article Facilitation
05 minutes - Concrete Experience
10 minutes - Publish and Process
30 minutes – Generalize New Information: Introduce the lesson
10 minutes – Develop
35 minutes – Apply
10 minutes - Break
Instructor Note: Adjust the Lesson Timeline as necessary to facilitate class schedule, your teaching style, and student learning. There are no time constraints during any particular phase of the ELM model.
b. Article Facilitation (20 Minutes):
Students should receive the article for this lesson the day prior in order to be prepared for the facilitation of this portion of the lesson.
Facilitating an article is a maximum participatory event and the facilitator should use their abilities to create a dynamic discussion in the classroom. The goal is to inspire a level of learning that will prepare the students for ensuing lesson. The facilitator should ask open-ended questions that will influence the students to interact.
These are example questions to ask when facilitating:
The main purpose of the article is?
The Key question that the author is addressing is?
The most important information in this article is?
The key concepts we need to understand in this article are?
The main assumptions underlying the author’s thinking are?
What is the point of reading this article and how can it improve critical thinking?
36B SLC – Define Cost Culture

3. 4th Quarter Spending Discussion
You are the S8 Budget Manager for a BCT
$100K needs to be spent and all requirements have been funded
You and the OIC have come up with four COAs to present the commander:
COA 1: Buy new office equipment; send 10 NCOs to Battle Staff; buy dayroom furniture, TVs and create gaming room
COA 2: BDE FTX; buy dayroom furniture
COA 3: Return funds back to G8
COA 4: Fund projects that focus on operational readiness
Slide 3: Concrete Experience
The concrete experience serves as a trigger of past experience, knowledge, and it is also a focusing mechanism for the lesson that follows to support the teaching of new content. The collective intent is to force the student to connect to the lesson and is the precursor to intuitive thinking of experiential learning model.
Instructor note: Have students read slide. Break class into four groups. Each group will discuss the following Courses of Action (COA) (5 minutes)
Group 1: COA 1
Group 2: COA 2
Group 3: COA 3
Group 4: COA 4
d. Publish and Process (10 minutes)
During this phase of the Army Learning Model the instructor will solicit responses of the students reaction to the concrete experience. The students will reflect on their experience and knowledge of the topic and they will begin a reconciliation of where they are and, if successful, where they will be at lesson end.
The critical portion of this part of the ELM process is to force the students to reflect. As the instructor you can achieve this by asking a series of thought influencing questions, for example:
How many times have you been in this situation where you have to give input on how to spend funds?
What happened in this example and how could you relate it to this lesson?
What was your though to each COA?
How does this example make you feel about past experiences to conserve financial resources?
Having the students think critically is the ultimate goal of publish and process. Force the students to explain their answers; meaning, how and why did they derive at the solution to the questions.
As the instructor, you should be also looking for responses that will help the students transition from publish and process to generalize new information. During this process, remind the students of lesson objectives as they transition from publish and process into generalize new information.
36B SLC – Define Cost Culture

4. “Cost” and “Culture” Examined
Cost is the monetary value or resources used or sacrificed or liabilities incurred to achieve an objective, such as to acquire or produce a product or to perform an activity or service.
Culture describes how the people in an organization behave and the underlying principles that drive their behavior; forms the foundation for everything the organization does.
Slide 4: Defining Cost and Culture
e. Generalize New Information (30 minutes)
Reference: FM 1-06, paragraphs 5-32 and 5-33
Cost is defined as defined by the Statement of Federal Financial Accounting Concepts No. 1, 1993, is the monetary value or resources used or sacrificed or liabilities incurred to achieve an objective, such as to acquire or produce a product or to perform an activity or service. Costs incurred may benefit current or future periods. The cost of running the Army is a concern to the public as well as to Army leadership. As opposed to a business entity, Army efforts and performance cannot be measured solely in financial terms; however, financial measures such as cost are integral in measuring the efficient and effective use of fiscal resources to accomplish Army
Missions and activities.
Culture describes how the people in an organization behave and the underlying principles that drive their behavior. Thus, culture helps form the foundation for everything the organization does. For example, the military culture places high value on patriotism, service, and valor. Army leaders expect their Soldiers to be guided by these principles in all their actions. Inculcation of a cost culture similarly affects the behavior of Army leaders and managers.
36B SLC – Define Cost Culture (ref: FM 1-06, 5-32; 5-33)

5. “Cost Culture” Examined
Focuses on “readiness at best value” instead of “readiness at all cost”
Shifts from budget execution to outcome-based decision making
Cost is incorporated into decision-making and daily management
Slide 5: Cost Culture Explained
e. Generalize New Information (30 minutes) con’t.
Reference: FM 1-06, paragraphs 5-33 and 5-34
The Army must adopt a “cost culture”. Rather than trying to achieve “readiness at any cost”, decision makers strive for “readiness at best value”. Cost considerations do not take precedence over mission accomplishment, but these considerations are incorporated into every decision that is made.
We as Financial Managers must be at the forefront of leading this cultural change, which shifts from a focus on budget execution – with its emphasis on the expenditure of available funding – to outcome-based decision making, where the emphasis is on outcomes and their associated costs.
36B SLC – Define Cost Culture (ref: FM 1-06, 5-33; 5-34)

6. Shifting to a Cost Culture for Financial Managers
What capabilities is my organization responsible for producing, and what does it cost to produce them?
What are the key cost drivers in my organization?
How can I generate the required capabilities more effectively and efficiently?
What are the cost implications of my decisions?
How can I use cost information to make better decisions?
Slide 6: Shifting to a Cost Culture for Financial Managers
e. Generalize New Information (30 minutes) con’t.
Reference: FM 1-06 paragraph 5-34
In a cost culture, all leaders and managers incorporate cost into their decision-making and day-to0day management. They routinely ask the following types of questions:
What capabilities is my organization responsible for producing, and what does it cost to produce them?
What are the key cost drivers in my organization?
How can I generate the required capabilities more effectively and efficiently?
What are the cost implications of my decisions not only for my organization but also for the entire Army, both now and in the future?
How can I use cost information to make better decisions?
36B SLC – Define Cost Culture (ref: FM 1-06, 5-34)

7. Shifting to a Cost Culture for Financial Managers
Avoid using budget execution data and obligation rates as primary measure of fiscal success
Tie resource expenditures to outcomes
Establish performance measures that tie inputs to outcomes
Identify specific levels of readiness expected to achieve with provided funds
Slide 7: Shifting to a Cost Culture for Financial Managers (con’t)
e. Generalize New Information (30 minutes) con’t.
Reference: Army Directive , paragraph 4b
Army Directive directs that Army commanders will change the focus from budget execution and find better and more efficient ways to change to a cost culture. To serve as good stewards of taxpayer dollars and ensure the highest level of readiness, we must adapt management practices to make sure every dollar we spend counts toward fielding a trained and ready force.
The purpose of the directive is twofold:
Adapt financial management practices
Improve outcomes
AD directed as of 1 July 2016, commander at all levels will do the following in order to implement the new cost culture:
Avoid using budget execution data and obligation rates as the primary measure of fiscal success. Instead, tie resource expenditures to outcomes. Previously, we measured readiness without identifying the required resources to produce it. Moving forward, leaders will have to establish performance measures that tie inputs to outcomes. More importantly, leaders should identify the specific levels of readiness they expect to achieve given the resources provided.
36B SLC – Define Cost Culture (ref: AD )

8. Shifting to a Cost Culture for Financial Managers
Manage total costs of critical processes
Eliminate “use or lose” funding practices
Reward leaders who demonstrate exemplary stewardship and innovative ideas
Establish and track performance measures
Slide 8: Shifting to a Cost Culture for Financial Managers (con’t)
e. Generalize New Information (30 minutes) con’t.
Reference: Army Directive
Additionally, financial managers must assist commanders in doing the following:
(paragraph 4c) Identify and manage total costs of critical processes, especially when funding is divided among multiple commands and sources. For example, develop activity-based costing mechanisms (that is, military, civilian, and contract labor; operations and maintenance costs; one-time acquisition costs; facility costs) required to complete a training event, program of instruction, or vehicle maintenance service. By doing so, we can identify hidden cost drivers and make budgeting processes more efficient.
(paragraph 4d) Eliminate “use or lose” funding practices. While the Office of Secretary of Defense and Congress will hold us accountable for execution metrics that we will have to meet, commanders and staffs will not automatically decrement command or programs in future allotments when they do not spend all funds without further investigation to evaluate the reason for the under-execution and determine if it was a one-time event or funding adjustments are needed.
(paragraph 4e) Reward leaders and organizations who demonstrate exemplary stewardship and innovative ideas. Develop channels to solicit new ideas and mechanisms to rapidly implement best practices. Ensure that organizations are rewarded for finding better ways of operating by allowing them to keep and redirect savings to validate command priorities. It should NOT be implied that under-execution is always good. The goal is to achieve the highest level of readiness given the resources provided.
(paragraph 4a) Establish and track annual performance measures at 2-Star/Tier 2 Senior Executive Services (SES) headquarters and above. These measures will support the organization’s mission and be singularly focused on achieving the highest level of readiness with the greatest efficiency.
36B SLC – Define Cost Culture (ref: AD )

9. Additional Reading AR 5-1 Management of Army Business Operations
Chapter 2-2(d)
Chapter 2-3(f)
Chapter 3-3
Chapter 3-4(c)
Table B-1
Table B-2
Appendix C
Slide 9: Additional Reading
e. Generalize New Information (30 minutes) con’t.
Reference: AR 5-1 Management of Army Business Operations
The purpose of AR 5-1 is to prescribe policies and responsibilities for managing business operations supporting the Army’s execution of its primary functions under Title 10, USC to organize, man, equip, and sustain forces. Although the Army is not a business and does not aspire to be one, we exist for one purpose: to fight and win the Nation’s wars. We must be innovative and good stewards of taxpayer dollars. This regulation directs activities that improve governance and innovation across the Business Mission Area (BMA), implement enterprise-wide strategic planning, performance management and risk mitigation, employ business process re-engineering and/or continuous process improvement techniques, control program costs, enhance quality, and mature the Army’s Business Systems Architecture.
The paragraphs listed on the slide details our roles as Financial Managers in the management of Army Business Operations.
36B SLC – Define Cost Culture (AR 5-1)

10. Critical Thinking: Playing Cost Devil’s Advocate
Two team debate
Team One: position is for spending all unit funds because funding will decrease next FY
Team Two: position is for returning unused funds to better benefit the division and to be better stewards of government resources
Both teams will come up with talking points and argue them
Publications, regulations, directives, and previous trends can be used to assist in argument
Slide 10: Critical Thinking: Playing Devil’s Advocate
f. Develop (10 mins)
Reference: AR 5-1 Management of Army Business Operations
Us vs. Them.
Break room up into two groups. One side argues why we need to spend all funds because funding levels will drop next year; other side argues for being better stewards of government resources. (10 mins)
This phase is student-centered and instructor facilitated. After the debate, allow the students to decide how they will use the information. The definitive goal is for the students to think critically and creatively about how to use the information garnered from the lesson plan in the future. As the instructor you can direct the students to brainstorm or you can ask open ended questions such as:
How might you use this information in the future?
How else could you use this information?
How can you apply the premise of the conservation of resources to your personal life as well?
Instructor Note: The above listed questions are only examples. As the instructor you are free to ask varied questions. However, ensure the questions are open-ended and serves to ensure the students see the relevance of the generalized new information presented and future usage.
36B SLC – Define Cost Culture

11. Check on Learning Define cost culture.
What are questions Financial Managers can ask to assist with changing the cost culture?
What does AD mandate?
Who are the proponents of AD ?
Slide 11: Check on Learning
Define Cost Culture. A cultural change, which shifts from a focus on budget execution – with its emphasis on the expenditure of available funding – to outcome-based decision making, where the emphasis is on outcomes and their associated costs (Slide 5; FM 1-06 paragraph 5-33 and 5-34)
What are questions Financial Managers can ask to assist with changing the cost culture? (Slide 6; FM 1-06, paragraph 5-34)
What capabilities is my organization responsible for producing, and what does it cost to produce them?
What are the key cost drivers in my organization?
How can I generate the required capabilities more effectively and efficiently?
What are the cost implications of my decisions not only for my organization but also for the entire Army, both now and in the future?
How can I use cost information to make better decisions?
What does AD mandate? (AD paragraph 4)
Establish and track annual performance
Avoid using budget execution data and obligation rates and the primary measure of fiscal success
Identify and manage total costs of critical processes
Eliminate “use or lose” funding practices
Reward leaders and organizations who demonstrate exemplary stewardship and innovative ideas
Who are the proponents of AD ? Assistant Secretary of the Army (Financial Management and Comptroller) and Director of Business Transformation (AD , paragraph 7)
36B SLC – Define Cost Culture

12. Enabling Learning Objective
Action: Define Cost Culture
Conditions: FM Leaders in a training environment working individually and as a member of a small group, using FM 1-06 Financial Management Operations, Army Directive Changing Management Behavior: Every Dollar Counts, and AR 5-1 Management of Army Business Operations, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: Students will be assessed within 80% accuracy by demonstrating:
Define cost culture
Analyze shift to cost culture
Review AD
Slide 12: Enabling Learning Objectives
Review the learning objectives, summarize the lesson, and poll for questions.
36B SLC – Define Cost Culture

13. Appendix A – Assessment Plan
Contribution to Group Work – 30%
Written Communication – 10%
Oral Communication – 10%
Module Post Assessment – 50%
Total – 100%
Slide 13: Appendix A
Contribution to Group Work. See FM SLC Contribution to Group Work Rubric for specific grading criteria.
Written Communication. See FM SLC Written Communication Rubric for specific grading criteria.
Oral Communication. See FM SLC Oral Communication Rubric for specific grading criteria.
Module Post Assessment. A comprehensive post assessment consisting of multiple-choice, matching, fill-in-the-blank and ordering questions will be administered via Blackboard Academic Suite upon completion of the module.
36B SLC – Define Cost Culture (AR 5-1)

14. Appendix B – Presentation Outline
Slide 1 – Title Slide Slide 2 – Enabling Learning Objective Slide 3- Concrete Experience Slide 4 – Defining Cost and Culture Slide 5 – Cost Culture Explained Slide 6 – Shifting to a Cost Culture for FM’ers Slide 7 – Shifting to a Cost Culture for FM’ers (con’t) Slide 8 - Shifting to a Cost Culture for FM’ers (con’t) Slide 9 – Additional Reading Slide 10 – Critical Thinking Slide 11 – Check on Learning Slide 12 - Enabling Learning Objective Slide 13 – Appendix A Slide 14 – Appendix B Slide 15 – Appendix C
Slide 14: Appendix B
36B SLC – Define Cost Culture (AR 5-1)

15. Appendix C – Article: Transforming to a Cost-Management Culture
“Transforming to a Cost-Management Culture”, by Colonel Michael J. Schroeder, United States Army, 2009
Slide 14: Appendix C
Strategy Research Project: Transforming to a Cost-Management Culture
Instructor Note: Click the on the image to open, save, forward or print this lessons article. Students should receive the article for this lesson the day prior in order to be prepared for the facilitation of this portion of the lesson.
Facilitating an article is a maximum participatory event and the facilitator should use their abilities to create a dynamic discussion in the classroom. The goal is to inspire a level of learning that will prepare the students for ensuing lesson. The facilitator should ask open-ended questions that will influence the students to interact.
These are example questions to ask when facilitating:
The main purpose of the article is?
The key question that the author is addressing is?
The most important information in this article is?
The key concepts we need to understand in this article are?
The main assumptions underlying the author’s thinking are?
What is the point of reading this article and how can it improve critical thinking?
36B SLC – Define Cost Culture (AR 5-1)