1. Principles of Cost Analysis and Management
Course Introduction
Principles of Cost Analysis and Management
Show Slide #1: Course Introduction – Principles of Cost Analysis and Management
Title: Principles of Cost Analysis and Management
References: MilWiki, PSW,
Facilitator Material and Student Material: Dry erase markers, white boards, GFEBS reports, access to MilWiki and PSW
Facilitator Material: Each primary facilitator should possess a lesson plan, slide deck, course handouts, practical exercises, GFEBS reports, access to MilWiki and PSW
All required references and technical manuals will be provided by the localCommand."
Student Material: Students should possess course handouts, practical exercises, GFEBS reports, access to MilWiki and PSW
and standard classroom supplies.

2. Even Super Powers Can Lose a Cost War
Aral Sea, Kazakhstan
Soviet military installation
Paldiski, Estonia
Show Slide #2: Concrete Experience
Facilitator’s Note: (Concrete Experience 10 minutes) Show students cold war pictures “Even Super Powers Can Lose a Cost War”; Google search: : Ask students what their thoughts of the photos are.
Facilitator’s Note: (Publish and Process 10 minutes) The critical portion of this part of the ELM process is to force the students to reflect. Ask a series of thought influencing questions, for example:
Q1: What did you see in the pictures that makes you relate a Super Powers financial footing to their own experiences?
Q2: What happened in in Russia and how could it relate to this lesson?
Q3: What was your reaction to the analytical data necessary for good accounting?
Q4: How did the video make you feel about past experiences with analyzing/ auditing reports?
Kamchatka Peninsula , Russia

3. Terminal Learning Objective
Action: Introduce Principles of Cost Analysis and Management
Condition: You are cost advisor technician with access PCAM 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 (70% for International students):
Discuss purpose for increasing cost effectiveness; terminology, and best practices in response to threat
Understand the Purpose of this Course
Understand the asymmetrical threat of lack of resources.
Show Slide #3: Terminal Learning Objective (TLO)
Action: Determine Different Accounting Methods Used by Different Fund Types
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners):
Discuss purpose for increasing cost effectiveness; terminology, and best practices in response to threat
Understand the Purpose of this Course
Understand the asymmetrical threat of lack of resources.
Facilitator’s Note: Throughout this lesson, solicit from learners the challenges they experienced in the current operational environment (OE) and what they did to resolve them. Encourage learners to apply at least 1 of the 8 critical variables: physical environment, political stability of the state, sociological demographics, infrastructure, military capabilities, information, time, and economics.
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 DELIBERATE RISK ASSESSMENT 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
Risk Assessment Level: Low. Hazard Identification: Electrical Shock, Fire, Slippery Floors, Physical Injure/Strain, Tripping Tight Spaces in Classroom, and Influenza. Hazard controls: Primary Instructor (PI) will ensure: All electrical cords are properly stored under desks, liquid containers have lids on them and all spills are immediately cleaned and mopped and allowed to completely dry before allowing learners/personnel to walk on them. All chairs are ergonomically designed, adjust to individual preference and that all learners are awake and paying attention in class. All cables/cords are properly plugged in, sheathed, and secured along tables, walls, and ceilings. No damaged or frayed cords/cables will be used. PI will brief proper hand washing techniques, the use of hand sanitizer, and evacuation procedures. All trash will be removed daily.
Environmental Statement: Environmental protection is not just the law but the right thing to do. It is a continual process and starts with deliberate planning. Always be alert to ways to protect our environment during training and missions. In doing so, you will contribute to the sustainment of our training resources while protecting people and the environment from harmful effects. Refer to FM Environmental Considerations and GTA ENVIRONMENTAL-RELATED RISK ASSESSMENT.
Evaluation: Learners will take week one examination. Learners must score 80% or higher and International officers must score 70% or higher.

4. Show Slide #4: Are We Positioned to Win the Cost War.
Facilitator Note: Vice Admiral McCarthy asks a question that we should all ask, “Are we positioned to win the Cost War?” It is not going to go away. Dr. Dale Geiger’s book “Winning the Cost War” highlights some key issues. Government organizations have not managed cost well not because they can’t but because they have not had to. Resources have been plentiful in the past. That is changing.
The problem with the current culture is that it is a culture of entitlement. Government organizations (and the individuals who benefit from them!) tend to think of the resources in their care as “their” money. This entitlement culture will lose the Cost War.
Fighting the Cost War means moving form “wishing” for more budget to “managing” the available budget better. Spending resources to try to increase the budget is not the best use of those resources. At a certain point we must understand that reduced resources are a way of life and we must learn to manage what we have better, to “do more with less.”
This is not a one-time thing, it is a way of life.

5. Cost Maturation Process
Single Use
Estimated
Future Cost
Cost Benefit
Analysis
Cost Informed
Decisions
Persistent Use
Expected and Actual Cost
Continuous Improvement
Cost-Managed Organizations
Universal Use
Planned & Actual Cost
Role Based, Org Based, Output Based Control
Cost-Managed Enterprise
Show Slide #5: Cost Maturation Process
There are various levels of cost management. First is the one-time or single use category. Cost Benefit analysis is now being used in the army to make cost-informed decisions based on estimates of future costs. This is analogous to fighting an insurgency.
The next stage is the Persistent Use category. This focuses on Continuous improvement and requires measurement of expected vs. actual costs to monitor performance and promote learning. We call this level the “Cost Managed Organization” and it is analogous to fighting high intensity conflict.
The final stage, the ultimate goal, is that of Universal use, becoming a Cost-managed enterprise, Army wide. This is analogous to Full Spectrum Operations.
Cost War Cost War High Cost War Full
Insurgency Intensity Conflict Spectrum Operations
Starting here
(Some work is being done now) TARGET

6. LSA #1 Check on Learning
Q1. What are the three stages of the Cost Maturation Process? A1. Single Use, Persistent Use, Cost Managed Organization Q2. Where is the Army now in the process? A2. Single Use – Cost benefit analysis
Show Slide #6: LSA #1 Check on Learning:
Facilitator’s Note: Ask check on learning question, facilitate discussion on answer given.
Q1. What are the three stages of the Cost Maturation Process?
A1. Single Use, Persistent Use, Cost Managed Organization
Q2. Where is the Army now in the process?
A2. Single Use – Cost benefit analysis.

7. LSA #1 Summary
In this LSA, we discussed the Cost Maturation Process and gave some examples of how even a Super Power can fall victim to poor cost management.
Show Slide #7: LSA #1 Summary:
Facilitator’s Note: In this LSA, we discussed the Cost Maturation Process and gave some examples of how even a Super Power can fall victim to poor Cost Management.

8. Transforming the Army: Four Requirements for Success
Leadership Team with the Assistant to the Commander – Enterprise (ACE) to create “informed” leaders
Exploit existing strong leadership capabilities
ACE Build strong staff, strong organization
Select, develop ACEs
Design and deliver advanced training
Process Modify “winning the cost war” template as needed
Cost Info Use new tools as they come online
Need Status Action
Show Slide #8: Four requirements to successfully transform the Army into a Cost Managed Enterprise.
Facilitator’s Note: Discuss in-depth analysis on the Requirements for success.
First is Leadership. (threat level Red) We need to exploit the existing strong leadership capabilities already in place in the Army. The problem is that many of our strong leaders don’t have the information they need to make cost-informed decisions. That is where the ACE comes in.
The second requirement, and the key to success, is the ACE, Assistant to the Commander of the Enterprise. (threat level Black) There is a severe shortage of the type of staff people who have the skills needed to perform this role. That is why you are here today, to receive the necessary training in cost measurement and management. The role of the ACE is to provide the Senior leader with the information needed to make cost-informed decisions. The ACE will also assist in the cost management process, and in the production of cost information.
The process (threat level Green) is in place, and we will see how it works in week 3.
The cost information is rated Yellow. There are new tools coming online that should improve the situation. But it is more important to have people who know how to use the information.

9. ACE Development: PCAM & ICAM
Principles of Cost Analysis and Management
Targeted at entry level CP11 Personnel, Sergeants, Lieutenants, Junior Captains
Course Length: Three Weeks
Intermediate Cost Analysis and Management
Targeted at mid career CP11 Personnel, Staff Sergeants and above, Senior Captains, Majors and above
Show Slide #9: Financial Management School (FMS) has put together two courses for ACE development: PCAM and ICAM.
Principles of Cost Analysis and Management
Targeted at entry level CP11 Personnel, Sergeants, Lieutenants, Junior Captains
Course Length: Three Weeks
Intermediate Cost Analysis and Management (follow up course)
Targeted at mid career CP11 Personnel, Staff Sergeants and above, Senior Captains, Majors and above

10. 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
Show Slide #10:
We see here four levels of cost management training. They are stackable, meaning that they build on one another. They are required for the Financial management career field, but they are not exclusive to this career field. Cost management and measurement skills are needed at all levels and in all functional areas.
* 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.

11. PCAM Develop basic cost management skills
First step in becoming an ACE
Show Slide #11: PCAM
PCAM represents the introductory level. You can expect to develop basic cost management skills. This is the first step to becoming an ACE.

12. Purpose of Course Develop Skills in Cost Accounting
Includes Conference, Demonstration and Practical Exercises
Emphasizes hands-on experience
Introduces Excel templates to facilitate learning
Introduce and Apply Skills in Cost Management
Case studies give students the opportunity to apply their skills to a real-world scenario
Show Slide #12: Purpose of the Course
Facilitator Note: Talk about how to develop Skills in Cost Accounting
Includes Conference, Demonstration and Practical Exercises
Emphasizes hands-on experience. We believe in learning by doing.
Introduces Excel templates to facilitate learning. The excel templates are available to speed the process and help you to organize the information in the practical exercises. You will also be able to take them with you to apply to cost problems you encounter in your job.
Introduce and Apply Skills in Cost Management
Case studies give students the opportunity to apply their skills to a real-world scenario.

13. Cost Accounting: External Reporting
Overview of Course
Week 1:
Basic Accounting Principles: External Reporting
Accounting
Basic Training
Basic Financial Statements, Cash-based Accounting
Military
Fund Accounting
Budgetary Accounting, Obligations & Expenditures
Financial Accounting
Accrual Accounting Basics – Revolving Funds
Show Slide #13: Overview of Course
Facilitator Note: Each yellow block represents a day.
We start with Basic Training: basic financial statements and cash based accounting.
Day 2 introduces fund accounting used by federal entities like the military. The focus is budgetary accounting and reporting, obligations and expenditures.
Day 3 introduces accrual accounting or “financial” accounting. This is the method of accounting used by businesses and revolving funds, but it is also used in the financial reporting of federal government entities.
Day 4 focuses on Cost accounting for external reporting purposes. This is often different from the type of information used for internal cost management.
Day 5 begins with a test on days 1-4, and then introduces Managerial cost accounting (as opposed to cost accounting for external reporting purposes.)
Cost Accounting: External Reporting
Accounting for Manufacturing, Job Order Costing
Test Days 1-4
Managerial Cost Intro
Cost Terminology, Relevant Cost Decisions

14. Key Issues for Week 1 Internal vs. External Reporting
Different ways of measuring costs for external reporting
Measuring and reporting the cost of a job
Defense contractor costing
How to use and interpret different types of information prepared for external users
Show Slide #14: Key Issues for Week 1
Internal vs. External Reporting – How do they differ? We will learn to distinguish between them.
Different ways of measuring costs for external reporting. We’ll learn common cost accounting terminology and basic reporting of costs.
Measuring and reporting the cost of a job.
Defense contractor costing.
How do they impact the operations of contractors.
How to use and interpret different types of information prepared for external users.

15. Expectations There are lots of different methods to account for costs
The goal of this course is to create awareness of the different methods
Students are not expected to become experts but should understand where each method is used and why
Show Slide #15: Expectations
Facilitator Note: Discuss why there are lots of different methods to account for costs and that the goal of this course is to create awareness of the different methods.
Students are not expected to become experts but should understand where each method is used and why.

16. Activity Based Costing
Overview of Course
Week 2:
Cost Relationships and Cost Tradeoffs
Cost Relationships I
Fixed, Variable, Linear and Non-linear relationships
Cost Relationships II
Net Present Value and Expected Value
Activity Based Costing
Allocation Mechanics, Cost Driver Selection, Pitfalls
Show Slide #16: Week 2 overview:
Again, each block represents one day. The light blue blocks represent Days 6, 7, and 8 and indicate a focus on cost relationships and cost expression. We will identify different types of costs and cost behaviors. We’ll also look at Activity Based Costing: the mechanics of cost allocation and its effects on cost management.
Then, on days 9 and 10, represented by the green blocks, we will use those cost relationships that we identified in days 6-8 to analyze cost decisions.
Cost Tradeoffs I
Breakeven Analysis, Sensitivity, Indifference Points I
Test Days 5-9
Cost Tradeoffs II
Batch Quantity Tradeoffs, Indifference Points II

17. Key Issues for Week 2 Identify and express cost relationships
Evaluate investment courses of action using net present value and expected value
Identify behavioral issues with cost measurement
Explain the concept of cost tradeoff and identify points of indifference
Show Slide #17: Key Issues for Week 2
Facilitator Note: Identify and express cost relationships. Identify the cost relationships and express them using verbal units of measure.
Evaluate investment courses of action using net present value and expected value.
Identify behavioral issues with cost measurement. There is an old axiom: Tell me how you will measure me and I’ll tell you how I will behave. We will identify how cost measurement can motivate both desired and undesired behaviors.
Explain the concept of cost tradeoff and identify points of indifference

18. Cost Planning and Estimation
Overview of Course
Week 3:
Cost Planning & Explanation, CBA
Cost Planning and Estimation
Flexible Forecasting, Trend Projection, Learning Curve
Cost Benefit Analysis
Eight Steps to Cost Benefit Analysis
Cost Explanation
Variance Analysis and Reconciliation
Show Slide #18: Overview of Course
Facilitator Note: Explain the color coded blocks and how they pertain to the overview of the course.
Days 11 and 12 (the orange blocks) start with cost planning and estimation which leads nicely into Cost benefit analysis.
Days 13 and 14 deal with cost explanation and after action review.
Day 15 consists of a final exam and closing activities
Winning the Cost War
After Action Review
Prepare After Action Review Briefing from Case Study
Final Exam
Comprehensive Final Exam, Closing Activities

19. Key Issues for Week 3 Tools for cost planning and projection
Cost Benefit Analysis
Cost explanation and After Action Review
Show Slide #19: Key Issues for Week 3
Facilitator Note: Some things to consider as it pertains to week 3 instruction:
Tools for cost planning and projection
Cost Benefit Analysis
Cost explanation and After Action Review

20. LSA #2 Check on Learning Q1. What is an ACE?
A1. Assistant to Commander of the Enterprise. This is a key position in a Cost Managed Organization.
Show Slide #20: LSA #2 Check on Learning
Facilitator’s Note: Ask the following questions and facilitate the answers given.
Q1. What is an ACE?
A1. Assistant to Commander of the Enterprise. This is a key position in a Cost Managed Organization.

21. LSA #2 Summary
During this instruction, we discussed the entire 3-week course overview, and the expectations and issues with each. Also, the requirements for success along with the four levels of Cost Management training.
Show Slide #21: LSA #2 Summary
Facilitator Note: Cover the summary inasmuch detail as needed:
During this instruction, we discussed the entire 3-week course overview, and the expectations and issues with each. Also, the requirements for success along with the four levels of Cost Management training.

22. Remember Valley Forge Read the article by Ms. Matiella
Show Slide #22: Remember Valley Forge
Facilitator Note: Have the students read the article and be prepared to discuss the questions.

23. LSA #3 Check on Learning
Q1. Why does the Army need to become more cost effective? A1. The three alternatives are listed in the article. Get more cash (not likely), cut services (not attractive) or increase cost effectiveness. Q2. What is the difference between Cost Benefit Analysis and a Cost-Managed Organization? A2. Among other points students should gather that Cost Benefit Analysis is done on a project by project basis, essentially a one-time effort. A Cost Managed Organization has an ongoing, systematic process for planning, measuring, and evaluating performance.
Show Slide #23: LSA #3 Check on Learning
Facilitator’s Note: Ask the following questions and facilitate the answers given.
Q1. Why does the Army need to become more cost effective?
A1. The three alternatives are listed in the article. Get more cash (not likely), cut services (not attractive) or increase cost effectiveness.
Q2. What is the difference between Cost Benefit Analysis and a Cost-Managed Organization?
A2. Among other points students should gather that Cost Benefit Analysis is done on a project by project basis, essentially a one-time effort. A Cost Managed Organization has an ongoing, systematic process for planning, measuring, and evaluating performance.
Q3. How do fiscal constraints pose an “asymmetric threat”?
A3. Fiscal constraints pose an emerging asymmetric threat that we have labeled as the “Cost War.” The Cost War is the struggle to meet the mission in an environment of constrained budgets. Even a superpower can lose a Cost War and history has some very prominent examples.
Q4. How should we respond?
A4. This should stimulate varied responses from students. To quote the article:
Winning the Cost War requires a dedicated, proactive, results oriented effort that should appeal to the aggressive nature of the American Soldier. The Army’s posture is not to wait for the inevitable budget cuts and merely react to the situation. We seek to shape the issue through the third option: increasing cost effectiveness through the development of a cost conscious culture.

24. LSA #3 Check on Learning (Cont.)
Q3. How do fiscal constraints pose an “asymmetric threat”?
A3. Fiscal constraints pose an emerging asymmetric threat that we have labeled as the “Cost War.” The Cost War is the struggle to meet the mission in an environment of constrained budgets. Even a superpower can lose a Cost War and history has some very prominent examples.
Q4. How should we respond?
A4. This should stimulate varied responses from students. To quote the article: Winning the Cost War requires a dedicated, proactive, results oriented effort that should appeal to the aggressive nature of the American Soldier. The Army’s posture is not to wait for the inevitable budget cuts and merely react to the situation. We seek to shape the issue through the third option: increasing cost effectiveness through the development of a cost conscious culture.
Show Slide #24: LSA #3 Check on Learning
Facilitator’s Note: Ask the following questions and facilitate the answers given.
Q1. Why does the Army need to become more cost effective?
A1. The three alternatives are listed in the article. Get more cash (not likely), cut services (not attractive) or increase cost effectiveness.
Q2. What is the difference between Cost Benefit Analysis and a Cost-Managed Organization?
A2. Among other points students should gather that Cost Benefit Analysis is done on a project by project basis, essentially a one-time effort. A Cost Managed Organization has an ongoing, systematic process for planning, measuring, and evaluating performance.
Q3. How do fiscal constraints pose an “asymmetric threat”?
A3. Fiscal constraints pose an emerging asymmetric threat that we have labeled as the “Cost War.” The Cost War is the struggle to meet the mission in an environment of constrained budgets. Even a superpower can lose a Cost War and history has some very prominent examples.
Q4. How should we respond?
A4. This should stimulate varied responses from students. To quote the article:
Winning the Cost War requires a dedicated, proactive, results oriented effort that should appeal to the aggressive nature of the American Soldier. The Army’s posture is not to wait for the inevitable budget cuts and merely react to the situation. We seek to shape the issue through the third option: increasing cost effectiveness through the development of a cost conscious culture.

25. LSA #3 Summary
During this instruction, we read the Article “Remember Valley Forge” by Ms. Matiella and briefly discussed it’s outcome.
Show Slide #25: LSA #3 Summation of “Remember Valley Forge”
Facilitator Note: During this instruction, we read the Article “Remember Valley Forge” by Ms. Matiella and briefly discussed it’s outcome.Discuss in-depth hypothetical questions pertaining to the article and Cost Benefit Analysis. Some questions to consider:
Why does the Army need to become more cost effective?
What is the difference between Cost Benefit Analysis and a Cost-Managed Organization?
How do fiscal constraints pose an “asymmetric threat”?
How should we respond?

26. Payoff: Better Execution, Not Necessarily Less Spending$ $
Budget
Management
Better Mission
Appropriated
Execution $ $
Show Slide #26: Conclusion:
Facilitator Note: Discuss conclusion theory about how Cost Management will create efficiencies that be reprogrammed (within legal budget limits) IOT improve mission execution even if the budget remains the same or decreases. The goal is not to spend less than budget, but to spend the budget we have in a cost-effective way.
Reprogrammed
Efficiencies

27. TLO Summary
Action: Introduce Principles of Cost Analysis and Management
Condition: You are cost advisor technician with access PCAM 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:
Discuss purpose for increasing cost effectiveness; terminology, and best practices response to threat
Understand the Purpose of this Course
Understand the asymmetrical threat of lack of resources.
Show Slide #27: TLO Summary
Facilitator’s Note: Restate the TLO
Action: Determine Different Accounting Methods Used by Different Fund Types
Condition: FM Leaders in a classroom environment working individually and as a member of a small group, using doctrinal and administrative publications, self-study exercises, personal experiences, practical exercises, handouts, and discussion.
Standard: With at least 80% accuracy (70% for international learners):
-- Identify different types of funds
-- Classify funds by funding mechanism
-- Classify funds by purpose
-- Read and Review a Case Study
“Or”
Facilitator's at this time, have one learner from each group to explain the most important take away to them from this lesson. Facilitate a discussion on each answer.