asmc pdi cost management strategies session 47...information and analysis for actionable decision...

ASMC PDI

Cost Management Strategies

Session 47

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- Morris Treadway, KPMG Global Head of Financial Management and

Global Enterprise Performance Management Center of Excellence Lead

“CFOs have a golden opportunity to help CEOs with the issues

that keep them up at night. But today’s CFOs need to rise to the

challenge and close the gap between the expectations of CEOs

and the reality on the ground. This means turning numbers into

actionable intelligence and showcasing strong leadership qualities,

collaborating with operations and thinking and acting globally.”

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High bar, low confidence

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International

provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such

authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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Taking the leadTo succeed, today’s CFO needs to excel in four key areas:

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International

provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such

authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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Enterprise Managerial Cost Accounting

OUSD(C)/DCFO

American Society of Military Comptrollers

(ASMC)

Professional Development Institute

OFFICE OF THE UNDER SECRETARY OF DEFENSE

June 2016

Agenda

• Overview: Challenges, Objectives, Principles, and Approach

• ECM Model Design and Reporting Capabilities

• ECM Future Analysis and Planning Capabilities

• Long Term Strategic Initiatives

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DoD

Challenges

Objectives• Enables Audit Readiness - SNC by program and PP&E valuation

• Identify cost levers that are driving actual cost, budget, and performance

• Improve mission support efficiency and better align costs to mission needs

Enterprise Cost Accounting Overview

• Lack of enterprise view of budget, cost, and performance

• Data standardization

• Time-consuming, unverifiable data calls

Enterprise Cost Management (ECM) provides timely, granular, and accurate cost information that helps better inform budget, resource allocation, and performance management decisions

Guiding Principles

• Federal GAAP - Costs tie to DoD Financial Statements and General Ledger

• Leverage existing data and improve over time

• Accurate, Consistent, Reliable, Repeatable and Scalable

Approach • Use cost and budget sources that tie to DoD Financial Statements

• Leverage existing data sources analogous cost drivers to distribute costs to activities

• Rapid prototyping using Commercial Off-the-Shelf (COTS) Software

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ECM Design and Reporting Capabilities

Statement of Net

Cost – Multi-

Dimensional

Cost Model

Design

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ECM Future Analysis and Scenario Planning

Financial

Analysis

Forecasting &

Scenario

Analysis

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Enterprise Cost Management and Accounting

Enterprise Cost Management and Cost Accounting provides critical inputs to three key initiatives and challenges facing the Departments today.

• Auditable at BS and SBR levels • Auditable SNC by Program• Auditable Asset Valuation (e.g.

PP&E, Inventory)

• Historical Actual Costs • Cost Drivers and Levers• Economic Choices• POM estimates based on

historical actual costs

• Readiness levels• Operations/ Capabilities• Mission Support• Performance Management

Informs

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General Ledger

$640B /$730B

SNC / SBR

$640B / $730B

WCF and Appropriation

Goods and Services

Civilian Labor by Level 2 Org. (MAJCOM)

Military Labor by Level 2 Org. (MAJCOM)

$78B

$360B

$141B

$60B

$640B / $730B

WCF by Org. and Appropriation

Grade (e.g., ES-1, GS-15), Occupation Series (e.g., 503)

Pay Grade (e.g., O-1, E-2),Occupational Specialty

Information Technology

Non-IT Goods and Services

$24B

$336B

$78B

$141B

$60B

Cost Categories

All Other LoBs / Activities

Enterprise Financial Management

Contract Audit Services

Transaction & Payment Processing

Financial Management LoB

Budget

$6.9B

$1.4B

$2.9B

$1.9B

$633B

$717M

$640B / $730B

Lines of BusinessCommand / Location

Drive

rs / Levers

Drive

rs / Levers

Drive

rs / Levers

Starting with each Department and Agency’s GL/Sub-ledger balances, assign cost and budget values by command, location, lines of business, End Items, Readiness, Operations, and other dimensions.

ECM Model Design Walkthrough

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Other Dimensions

$640B / $730B

Drive

rs / Levers

Payroll

Accounts Payable

Manpower Data

$640B/$730B

All LoBs /

Activities

$640B

End Items &

Services

Capabilities /

Readiness

Operations

$640B

$640B

$640B

Other

$640B

Army Cost Management

Brian S. Jacobs

Chief, Cost & Performance Management Division

Deputy Assistant Secretary of the Army

(Cost and Economics)

“Standardized cost management processes and business practices will transform

relevant cost and performance information into knowledge for improved leadership

resource informed decision making and provide the foundation and capabilities for

managing business operations more efficiently and effectively at all Army levels, and

spans of control and influence.”

Honorable Robert M. Speer, Assistant Secretary of the Army Financial Management & Comptroller *

* Resource Management. Cost Management Edition. PB59, 3rd Quarter. 08/21/2015

PDI 2016

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Laws, Regulations, Policy

Authoritative Sources & Governance: Title 10, 5, 32

DoD Financial Management Regulation (FMR)

Government Performance and Results Act (GPRA) 1993

GPRA Modernization Act of 2010

Chief Financial Officer (CFO) Act

National Defense Authorization Act (NDAA) – Multiple Fiscal Years

Government Accountability Office (GAO) Reports

Better Buying Power

Cost Management Steering Group (CMSG)

Army Policy & Regulations General Order (GO)-01 (Directives)

AR 1-1 (Planning, Programming, Budgeting, and Execution System)

AR 5-1 (Management of Army Business Operations)

AR 11-18 (The Cost and Economic Analysis Program)

Army Directive 2016-16 (Changing Management Behavior: Every Dollar Counts)

Cost Benefit Analysis (CBA)

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Army Directive 2016-16 & Cost Management Strategic Plan

Changing Management Behavior: Every Dollar Counts

FY2015-25 Cost Management Strategic

Implementation Plan (CMSIP)

“AIM” for ResultsAligned – Army “Work Outputs” are Aligned in order to Achieve Highest Level of Readiness with Greatest Efficiency

Integrated – World Class Workforce, Standardized Integrated Processes, and Full Utilization of Army ERPs

Measured– Decisions at all levels, Cost Management Organizations (CMOs), “SMART” Performance Metrics

VISIONAn Army that considers, acknowledges, and controls costs across the Enterprise to

provide best value.

MISSIONStrengthen resource informed decisions that optimize available resources to accomplish the Army mission..

GOALS - How to Accomplish our Mission1. Establish an Army-wide GO/SES Cost Management Steering Group (CMSG) to align with and enable the Army Leadership priorities.

2. Enhance analysis capabilities, cost and performance data to make the best informed decisions for the Army.

3. Leverage Enterprise Resource Planning (ERP) systems to support decision making processes.

4. Strengthen cost management capabilities through training, best practices, and knowledge management to achieve a cost culture.

On 15 Apr 16, SecArmy directed: Army commanders and leaders at 2Star HQ level and above will:

Establish & track annual performance measures…focus on the highest level of readiness with the greatest efficiency;

Tie resources expenditures (costs) to outcomes and levels of readiness;

Identify and manage total costs;

Eliminate ‘use or lose’ funding practices;

Reward leaders & organizations who demonstrate exemplary stewardship & innovative ideas.

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Army Financial Management Optimization (AFMO)

LOE 2: Business Process

LOE 6: Army Cost Management

LOE 4: FM Professional Workforce

LOE 5: Internal Controls Environment

LOE 1: Systems Domain

LOE 7: Strategic Management & Communicate

LOE 3: Organizations

AFMO Campaign PlanAFMO Objectives

(1) Achieve and

Sustain Auditability

(2) Deliver FM Operations

Efficiently and Effectively

(3) Improve and Sustain

Readiness in FM Elements

(4) Provide Financial

Information and

Business Analytic

Support for Improved

Decision Making

AFMO End State

• Integrated, Effective andEfficient end-to-end financial management enterprise operations

• Optimized to provide necessary resources to meet the Army’s missions

• proper stewardship and accountability of resources

• Provide accurate and timely financial information and analysisfor actionable decision making

• Achieve and sustain Clean Audit

Integrated plan augments CM DOTMLPF-P Across the Enterprise & uses measures of effectiveness (MOE) & performance (MOP) to achieve the desired end state.

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Scope and Reqs

Business Model

Cost Model

Blueprint

Design Rationale

Implemen-tation Plan

Verification and

Validation

ACF

Methodology

Army Cost Framework (ACF)Methods and Processes

ARMY COST FRAMEWORK (ACF)

Enterprise CFs

READINESS

WEAPON SYSTEM

UNIT

RECRUITING

…

Org CFs

IMC

OM

US

AR

C

US

AR

EU

R

TR

AD

OC

…

ACF REQUIREMENTS

HQDA / PROGRAM EVALUATION

GROUPS (PEG)

U.S. ARMY RESERVE

ARMY RESERVE COMMAND

WEAPON SYSTEM

U.S. ARMY EUROPE

INSTALLATIONS AND INFRASTRUCTURE

TRAINING READINESS

…

CM

SG

Prio

ritiza

tion

INFLUENCERS

ASA(FM&C) CMSG POLICY EXTERNAL

Cost Management Processes

ENABLERS

ARMY WORKFORCE POLICY TRAINING TOOLS

CM

Plan

Account

Analyze

Control

De

cis

ion

Fo

rum

s A

cro

ss

Arm

y E

nte

rpris

e

Pla

nn

ing

, Pro

gra

mm

ing

Bu

dg

etin

g, E

xe

cu

tion

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(6 - 10 Years) (6 Years) (1-2 Years) (Current Year)

HQDA

Strategic Decision-Making:- Cost Benefit Analysis- Analysis of Alternatives- Army Cost Position (LCCE)- Cost Models / Tools

* FORCES Costing Model* Capability Costing Tool

- Cost of Army- Workforce Analysis

Outyear Forecasting:- Cost Factors & Models

* TRM/OSMIS* FORCES Costing Model* AMCOS / Civ Pay Rates

- Army Cost Position (LCCE)- Contingency Cost Model- CBA's, LSS- Incorporate AFBRT Benefits

Formulation / Justification:- Cost Factors

* OPTEMPO Cost Factors* Mil Pay Rates* Civ Pay Rates

- Cost & Spend Plans- Include AFBRT Initiatives- Historical Trend Analysis- Establish Should Cost Goals

Allocation/Funds Distribution:- Cost Analysis to Support

* Cash Management* Reprogramming* Rate of Executution

- Budget vs Actual (Variance)- Monitor Will /Should Cost- Track Cost Savings (ARFIT)- Mid-Year Reviews

Command / DRU

Strategic Planning:- Cost Benefit Analysis- Cocept Plans- Workforce Mgmt- Submit Initiatives to AFBRT- Trend Analysis- Cost Models / Tools- Investment Decisions- Identify Efficiency Initiatives

Outyear Plans / Controls:- Cost Targets/- Annual Efficiency Goals- Assess Cost & Spend Plans - Plan Output (Capacity Mgmt)- Cost Benefit Analysis - Trade Space Analysis- Establish AFBRT Milestones- TRAPS

Measure & Control:- Variance Analysis

(Cost & Output)- Benchmarking Best Practices- Adjust Cost Targets- Mid-Year Reviews- Measure Reduction Initiatives- Adjust Allocation Rules

Operational Activity

Operational Planning:- Establish Annual Cost Plans- Set Output Goals / Objectives- Optimize Capacity- Adjust to Directives

(e.g. TRAPS)- Establish Activity Rates

(Labor / Equip)- Estimate OH Allocations

Continuous Improvement:- Qtrly Cost Mgmt Reviews- Variance Analysis

* Resources (Inputs)* Labor Rates * Output (Unit Cost, Qty)

- Budget vs Actual (Variance)- OH Allocations- Product/Service $, Customer $

CM Aligned to PPBE

Planning Programming Budgeting Execution

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Key Takeaways and Way Forward

Decision Forums / Processes are Difficult to Change

Organizational Vs. Enterprise Cost & Perf. Objectives

Different Levels: Estimates / Funds / Budgets / Costs

Standardization of Cost Objects throughout ERPs

Army-wide Release of the Army Cost Framework Tool (https://acm.army.mil)

Organizations Trained (key positions) in ACF methodology

Standard Labor Time Tracking –Started Business Case Analysis

CM End-to-End process / tasks defined with audit linkage

ERP Cost Objects Standardization

Cost Managed Organizations Model Created

Achievements

AIM for Results Continue Implementation of Cost

Management Army-wide: Changing Management Behavior: Every Dollar

Counts

Actionable AFMO Campaign Plan

Cost Management Strategic Implementation

Plan

Maturation ofCM Training Strategy / GAP Analysis

Integration and Alignment of CM Skills to Existing

Workforce (Financial and Operational)

ERP CM Capabilities

FM Roles, Responsibilities, and Authorities

across Army Organizations and HQDA

Cost & Performance Information used by

Decision Forums at all Levels of Army

Way Forward

Challenges

Align Army “Work Output”

Integrate Workforce, Processes, & ERPs –AFMO as an enabler

Measure Cost Managed Organizations (CMO)

Effective &

EfficientResults

https://acm.army.mil/

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Contact Information

Send Questions:[email protected]

Army’s Cost Management (ACM) Portalhttps://acm.army.mil

Register for Access (Requirement is Army CAC)

Army Cost Framework Tool and Repository

Cost Management Knowledge Center (Authoritative Documentation)

“Medically Ready Force . . . Ready Medical Force”

Defense Health Program

Common Cost Accounting Structure (CCAS)

June 2016

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An integrated, efficient funding program that reflects senior leader priorities

Defense

Health

Program

Value focus?

Consistent

health benefit?Consistent

policies &

clinical

practices?

Supportive of

leadership

goals?

Optimum

Direct /

Purchased

Care mix?

Synchronized with Medical Military Construction?

Overlapping

requirements?Transfer of

missions

without

transfer of

resources?

Requirements

consistently

defined?

The Objective:

An integrated, efficient funding program that

reflects senior leadership priorities

The Defense Health Program…is an Appropriation, not an Agency

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How big is the Defense Health Program (DHP)?

• Pretty big……about $50 billion

• Budget is bigger than the GDP of over 100 nations

• Unified Medical Program budget is bigger than total military spending of Japan, Germany, or South Korea

• Serve more beneficiaries than residents in the state of New Jersey

• As a state, beneficiaries would have 14 votes in the electoral college

• More medical staff in uniform than active duty military of Canada, Belgium and Denmark … combined

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Congress - Appropriates

OMB - Apportions

Comptroller - Allots

Army MEDCOM

Regional Medical

Commands (RMCs)

MTFs and Others

Navy BUMED

Naval Medical Command

(NAVMEDs)

MTFs and Others

Air Force SG

AFMOA

MTFs and Others

DHA Comptroller

DHA Contract

Resource

Management -

Aurora

DHA Business Support Directorate –

Issues Funding Authorization

Documents (FADs)

DHA Facilities issues MILCON FADs to

design and construction agents

USACE NAVFAC

ENGCOM

HQ USAFE

Uniformed Services

University of the

Health Sciences

NCR Medical

Directorate

Defense Health Program Funds Flow

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A little background on the accounting…..

• Each component in the Military Health System (MHS) has a different accounting system

• There was a high degree of variability in how the components accounted for transactions as a result of the evolution of the MHS

• The MHS requires consistent and comparable financial data across all Defense Health Program (DHP) funded activities for timely, efficient, and effective reporting and decision-making.

• The Office of the Secretary of Defense for Health Affairs directed implementation of a common cost accounting structure across the DHP

• Our vision is a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP

Desired Outcome: Harmonized cost accounting structures, cost management efficiencies, improved standardized reporting, and integration of DHP budget and execution practices

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The Problem We Are Trying to Solve: Too Much Variability

Each buying the same services and products, but accounting for them differently

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CCAS Vision

The DHP requires consistent and comparable financial data across the entire system

One Accounting System

Provides an effective approach for data collection, analysis, consolidation, mapping and storage of financial data

One Database

Provides a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP and providing additional transparency through extensions of current accounting guidance

Uniform Accounting

Improved data quality and standardized reporting for leadership and oversight bodies

Consistent Reporting

CCASVision

The DHP on one financial accounting system and

database utilizing uniform accounting practices with

consistent and reliable reporting.

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Our Approach

The CCAS Framework provides a systematic feedback loop to standardize and continually improve financial & data integrity.

Areas of Standardization

•Budget Structure: Budget Activity Codes, Budget Activity Groups, Budget Sub Activity Codes, and Budget Line Item Codes, Program Elements

Budgetary Accounting

• Agency Initiatives: Agency Initiative Codes and Cost Breakdown Structure Codes

• Defense Medical Information System (DMIS) Codes

Program Management

• Object and Sub Object Class Codes

• Product Service CodesCost

Accounting

Data Quality Analysis• Financial Reporting, Cost and Budget Data

Reporting Analysis• Key Performance Indicators• Compliance & Quality Checks• Technical Solutions Working Group (TSWG)

Policy and Guidance

Standard DataData Quality Analysis

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Operational Impact

Several activities are required in order to fully implement the CCAS. Such activities will take place during various stages of the CCAS implementation.

Internal Guidance Updates File Layout Structure/Data Transfer

Potential System ChangesCrosswalks

Process and Data Flow Charts

Training/Compliance Checks/Metrics

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