calculate volume and performance variances for output-based control case study scenario letterkenny...

Calculate Volume and Performance Variances for Output-Based

Control Case Study ScenarioLetterkenny Army Depot

Intermediate Cost Analysis and Management

© Dale R. Geiger 2011 1


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Terminal Learning Objective

• Task: Calculate Volume and Performance Variances for Output-Based Control Case Study Scenario

• 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 the cost-rate-price structure at Letterkenny Army Depot

(LEAD)• Calculate surcharge and price for depot services based on

Accumulated Operating Result (AOR)• Discuss performance control issues in revolving funded organizations


Letterkenny Army Depot Teaching Points

Letterkenny is typical of many, manufacturing-like revolving funded operations that have common issues:1. Price Setting: non appropriated organizations generate

revenue by providing goods or services• This requires a mechanism to set prices• How does this work?

2. Performance Evaluation• Does “revenue less cost” yield a meaningful performance measure?• How important is volume variance in manufacturing operations with

significant fixed costs?• How does one evaluate performance in such a complex

environment?


Price Setting in the Business World

• The theory in the business world is that the market sets the price• The forces of supply and demand clear the market at

an efficient price• This appears to work fairly well for commodity goods

• There are circumstances where this doesn’t apply• Specialty items where there is not a market and/or

there are significant barriers to entry• Internal transfers where one division of a company

sells to another (vertical integration)


Price Setting in Government

• Most government organizations are funded by appropriation and have no pricing

• Some are non-appropriated and generate revenues by charging for their goods or services• Usually not competing in the market place so market

pricing not applicable• Sometimes there are social motivations to consider• Budget constraints are expected to increase the

interest of government organizations in charging for services


Price Setting in Government: Examples

• Public water department: • Sets price of water to cover all costs of water acquisition

and delivery• May also include a sewer charge

• Parking meter:• Covers more than the costs of meters• Provides revenue source to cover other city costs

• Public bus fare:• Covers less than the costs of transportation• Subsidized by appropriated funds to encourage use


Consider Some Federal Examples

• National Institutes of Health: Supply and Service Fund• Supplies thousands of laboratory supply items via catalog • Competes with outside sources

• General Services Administration: Public Building Service• Charges all users a basic standard charge• Provides optional services on a fee basis

• National Institutes of Health: Management Fund• Maintains capabilities but doesn’t charge on basis of usage• Negotiates agreements from users like an allocation

• U.S. Army: Army Material Command• Sets prices for outputs based on previous profit and loss record• Over time profits and losses offset each other© Dale R. Geiger 2011 17

Revolving Fund Pricing

• The Army has many non-appropriated organizations: depots, labs, arsenals

• These are sometimes called revolving, industrial, stock, enterprise, or working capital funded• Usually have no social motivation or political agenda• Generally have no comparable free market• Represent internal transfers

• General rule is that the price or user fee must reimburse the costs of providing the goods or services• Some “contracts” specify frequent invoices of incurred cost• Other “contracts” utilize a “stabilized pricing” practice that gives

customers a firm price for the budgeted years


Stabilized Pricing Objectives

• The rationale behind stabilized pricing is that government customers value stability• Customers are appropriated organizations subject to Anti-

Deficiency Act violation• Changing incurred costs would create problems

• Increased incurred costs reduce the quantity that can be purchased or create ADA violations

• Decreased incurred costs increase the quantity that could be purchased or result in unused budget

• The revolving funded organization absorbs the variations of incurred cost to stabilized price:

• Adjusts future years pricing accordingly• (Incurring cash flow risk in the process)


Stabilized Pricing Process

• Books a gain or loss in the current period• Adds a compensating pricing surcharge to the third year • Seeks a long run breakeven = full reimbursement• Timing issues result in a three year lag

• Execution Year: Uses prices set in previously and books a gain or loss compared to incurred cost

• Budget Year: Experience in execution year is evaluated and projected into Budget Year +1 pricing

• Budget Year +1: Uses prices set in budget year based on execution year experience


AMC Pricing Sequence

• NOR (net operating revenue) is the AMC term for profit

• The goal is that NOR over time (AOR) is zero© Dale R. Geiger 2011 21

Year -2 Year -1 Execution Year

Budget Year

Budget Year +1

units units units units units

price price price price price

Revenue Revenue Revenue Revenue Revenue

Cost Cost Cost Cost Cost

NOR NOR NOR NOR NOR

AMC Pricing Sequence

• NOR (net operating revenue) is the AMC term for profit

• The goal is that NOR over time (AOR) is zero© Dale R. Geiger 2011 22

Year -2 Year -1 Execution Year

Budget Year

Budget Year +1

units units units units units

price price price price price

Revenue Revenue Revenue Revenue Revenue

Cost Cost Cost Cost Cost

NOR NOR NOR NOR NOR

note the time lags

Why do we have “rates”?

• Industrial Operations (AWCF) sites are different from Appropriated (OMA) funded installations

• Army Working Capital Fund is a Revolving Fund account

OMA Basis

• For example Ft Belvoir, Ft Detrick and Ft Meade

• Are provided annual operating funds from various Operations and Maintenance, Army sub accounts:

– To pay military and civilian employee salaries and benefits

– To pay utility bills– To fund real property maintenance and improvements– To maintain its vehicle fleet (to include Motor Pool)– To fuel and operate vehicles, facilities and base

infrastructure

• Technically this is termed OBLIGATION AUTHORITY

Industrial Sites

• Do not receive Operating Funds

• We receive orders to execute assigned missions that involve core competencies, or new missions

• We are granted “Cost Authority”, which allows us to incur costs that must be recovered via “rates”

Rates Functionality

• We add an overhead piece onto our labor rates that generate operating dollars for the depot to spend– Example: The cost of labor on a

HMMWV is $5,000 but we charge $9,000 and use $4,000 to pay for indirect labor and base operating expenses

Working Capital Fund Sites

• Working capital fund sites strive to break even over the long term i.e. have no overall profit or loss (Accumulated Operating Result [AOR])

• When the depot records an overall profit at the end of a fiscal year, in the next year’s rates we give our stabilized customer base a price discount (AOR rate)

• When the depot records an overall loss at the end of a fiscal year, in the next year’s rates we tax our stabilized customer base

Rate Process

At the end of FY10, Budget and the Sales/Operations Planning Branch reviewed the year’s expenses by cost center and known workload data for the out-years

Rates are built to encompass those planned expenses through the planned workload

These rates set the FY12 pricing exercise where stabilized workload prices are determined

In the May budget submission these estimates will be reviewed and updated

This will identify FY12’s income which equates to operating dollars, which will be distributed back to directorates in the internal operating budgets (IOBs)

What’s in the Rates?• Rates are split into labor and overhead

• Labor consists of employee salaries and includes costs incurred by the depot for employees on paid leave and the portion of employee benefits the government pays

• Overhead burden consists of indirect operating expenses for support areas to include salaries for overhead staff like Command Group DRM, DPW, DOM leadership, Engineering staff, Security, CPAC support, ACC-LEAD support, LMP bills, worker’s compensation bills, etc.

• A “fully burdened rate” is labor + overhead

What’s in the Overhead Rates?

• The overhead rate is split into four categories

– Within shop

– Above shop

– BASOPS

– General and Administrative

indirect labor

What’s in the Overhead Rates?• Within shop

– applies to production cost centers only – captures costs related to running that cost

center• Cost Center Supervisors• Production assistant• Area supplies

– Racking– Test stands– Office supplies

What’s in the Overhead Rates?• Above shop

– Captures the non-production mission costs– Applies to Maintenance mission cost centers only– DOM, TRMD, DST and DPA have separate/distinct

rates• Director Office• Administrative personnel• Engineering Office• Sales and Operations Planning Office• LMP support/tax• AWPS support• CHRA support• Maintenance mission personnel in DPW, DOIM

and Command Staff

What’s in the Above Shop Rate (DOM)?

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

Travel

Support Bill

Supply/Material

Purchased Services

Leases

Labor

Depreciation

Contracted Labor

Biggest opportunity for cost cutting

Support Bills

Labor

Contracted La-bor

Leases

Purchased Services

Travel

Supplies

What’s in the Overhead Rates?• BASOPS

– Captures costs related to the support side of the depot• Directorate of Resource Management• Directorate of Public Works

– Facilities projects– Environmental projects– Utilities– Custodial Support

• ACC- LEAD support• Directorate of Information Management

– IT equipment

What’s in the Overhead Rates?• General and Administrative

– Costs related to depot management support• Directorate of Risk Management• Command Staff

What’s in the BASOPS/GAE rate?

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

Vehicles and Equipment

Utilities

Support Bill

Retail Supply Operations

Property Book

Postage & Printing

Pavement Clearance

Leases

Fuel

Environmental

DRSK

DRM

DPW Support

DPW Staff

DOIM

Depreciation

Custodial Services

Command Staff

FEP Program

IT

Custodial

DPW

Environmental

Retail Operations

Vehicles/Equip

Command Staff

Depreciation

DRM

DRSK

Leases

Utilities

Learning Check

• How do revolving or working funds differ from other government entities in regards to funding?

• What is NOR? AOR? • What is the purpose of the stabilized pricing

methodology?

Stabilized Pricing: Five Step Process

• The process results in a plan for Year +1 that • Considers inflationary cost increases• Reflects changes in workload volume• Adds surcharge that generate a NOR for the year that

brings AOR to breakeven (i.e. 0)• The process begins once the execution year books are

closed • Labor, material, and in shop overhead are considered on a

cost center basis• Above shop, BASOPS, and General and Administration

overheads are considered on a site wide basis

Starting Point: Actual Results

• Assume three cost centers with the following costs and prices and a beginning AOR of $-4900


cc A cc B cc C Totalunits 1 4 30unit price 2000 1000 300revenue 2000 4000 9000 15000

direct material 500 500 1200 2200

direct labor $ 1000 2000 3000 6000direct labor hrs 20 50 30 100labor rate per hr 50.00 40.00 100.00 60.00

shop overhead 100 200 600 900overhead rate per hr 5.00 4.00 20.00 9.00

above shop overhead 1000 10.00BASOPS 2000 20.00general and admin 3000 30.00

total cost 15100NOR (profit) -100beginning AOR -4900ending AOR (cum profit) -5000

Step 1: Adjust Material & Rates for Inflation

• Assume that material, shop overhead, and labor rates will reflect a 5% inflation in budget year +1

• (Non inflationary costs are also estimated and included)


cc A cc B cc C Total Per hrunitsunit pricerevenue

direct material 525 525 1260 23.10

direct labor $direct labor hrslabor rate per hr 52.50 42.00 105.00 63.00

shop overheadoverhead rate per hr 5.25 4.20 21.00 9.45

above shop overhead 10.50BASOPS 21.00general and admin 31.50

total costNOR (profit)beginning AORending AOR (cum profit)

Step 2: Adjust for Future Workload

• Assume that A goes from 1 to 2 units

• Assume that B goes from 2 to 1 unit

• Assume that C goes from 30 units to 90 units


cc A cc B cc C Total Per hrunits 2 1 90unit pricerevenue

direct material 200% 50% 300%

direct labor $direct labor hrs 200% 50% 300%labor rate per hr

shop overhead 200% 50% 300%overhead rate per hr

above shop overheadBASOPSgeneral and admin


Step 3: Build Plan at Adjusted & Inflated Rates

• Do the math• Project NOR at

original pricing• Note that it is

positive but not large enough to bring AOR to zero

• (We have assumed here that the budget year NOR is zero so that beginning AOR equals ending execution year AOR) © Dale R. Geiger 2011 42

cc A cc B cc C Total Per hrunits 2 2 90unit price 2000 1000 300revenue 4000 2000 27000 33000

direct material 1050 262.5 3780 5092.5 32.85


Shop overhead 210 105 1890 2205overhead rate per hr 5.25 4.20 21.00 14.23

above shop overhead 1627.5 10.50BASOPS 3255 21.00general and admin 4882.5 31.50

total cost 29662.5NOR (profit) 3337.5beginning AOR -5000.0ending AOR (cum profit) -1662.5

Step 4: Calculate the Price Surcharge Needed

• Consider the projected AOR• If negative, a price increase

is needed to breakeven• If positive, a price decrease

is needed to breakeven• Determine the rate by

which revenue needs to change to accomplish the breakeven goal

• In our example AOR is -1662.5

• Extra profit of the same amount is needed to breakeven

• Therefore revenue must increase by 1662.5 to create the needed extra profit

• This is a percentage surcharge of 5.038%


Step 5: Apply Required Surcharge to All Prices

• Increase all unit prices by the surcharge rate

• Note that projected NOR now drives projected AOR to breakeven


cc A cc B cc C Total Per hrunits 2 2 90unit price 2100.8 1050.4 315.1revenue 4201.5 2100.8 28360.2 34662.5

direct material 1050 262.5 3780 5092.5 32.85



above shop overhead 1627.5 10.50BASOPS 3255 21.00general and admin 4882.5 31.50

total cost 29662.5NOR (profit) 5000beginning AOR -5000ending AOR (cum profit) 0

Individual Exercise

• Assume the same actual costs as the “Starting Point” for previous example except beginning AOR was 5100

• Assume a 10% inflation• Assume all workload decreases by half

• Calculate prices for A, B, and C using the stabilized rate process


Solution:Starting Point: Execution Year Results

• No change from previous example except that the beginning AOR is $5100


cc A cc B cc C Totalunits 1 4 30unit price 2000 1000 300revenue 2000 4000 9000 15000

direct material 500 500 1200 2200


shop overhead 100 200 600 900overhead rate per hr 5.00 4.00 20.00 9.00


total cost 15100NOR (profit) -100beginning AOR 5100ending AOR (cum profit) 5000

SolutionStep 1: Adjust Material & Rates for Inflation

• Assume that material and labor rates will reflect a 10% inflation in budget year +1


cc A cc B cc C Total Per hrunitsunit pricerevenue

direct material 550 550 1320 24.20

direct labor $direct labor hrslabor rate per hr 55.00 44.00 110.00 66.00

Shop overheadoverhead rate per hr 5.50 4.40 22.00 9.90

above shop overhead 11.00BASOPS 22.00general and admin 33.00


SolutionStep 2: Adjust for Future Workload

• Assume that A goes from 1 to .5 units

• Assume that B goes from 4 to 2 units

• Assume that C goes from 30 units to 15 units


cc A cc B cc C Total Per hrunits .5 2 15unit pricerevenue

direct material 50% 50% 50%

direct labor $direct labor hrs 50% 50% 50%labor rate per hr

Shop overhead 50% 50% 50%overhead rate per hr

above shop overheadBASOPSgeneral and admin


Solution:Step 3: Build Plan at Adjusted & Inflated Rates

• Do the math• Project NOR at

original pricing


cc A cc B cc C Total Per hrunits .5 2 15unit price 2000 1000 300revenue 1000 2000 4500 7500

direct material 275 275 660 1210 24.20




total cost 8305NOR (profit) -805beginning AOR 5000ending AOR (cum profit) 4195

Solution:Step 4: Calculate the Price Surcharge Needed





• In our example AOR is 4195• Reduced profit of the same

amount is needed to breakeven

• Therefore revenue must drop by 4195

• This is a percentage surcharge of -55.93%


Solution:Step 5: Apply Required Surcharge to All Prices

• Decrease all unit prices by the surcharge rate

• Note that projected NOR now drives projected AOR to breakeven


cc A cc B cc C Total Per hrunits .5 2 15unit price 881.3 440.7 132.2revenue 440.7 881.3 1983.0 3305

direct material 275 275 660 1210 24.20

direct labor $ 550 1100 1650 3300direct labor hrs 10 25 15 50labor rate per hr 55 44 110 66.00

Shop overhead 55 110 330 495overhead rate per hr 5.5 4.4 22 9.90


total cost 8305NOR (profit) -5000beginning AOR 5000ending AOR (cum profit) 0.0

Short Group Exercise

• Assume that $ and hours in actuals are $K and K hours• Assume that employees average $70K salary and benefits per

person• How much must employment decline to achieve the budget

year +1 plan given the following initial cost structure and no change in fixed cost?


$K actualmaterial 2200salary and benefits 4300supplies and travel 4300fixed 4300

15100

Solution$K actual year +3 delta actual year +3 deltamaterial 2200 1210salary and benefits 4300 1397.5 2902.5 people 61 21 40supplies and travel 4300 1397.5fixed 4300 4300

15100 8305


If there is much fixed cost in the actual cost structure the volume decline will call for a disproportionate reduction in people. Given the above structure, this people cost reduction is about two-thirds!!

Break


Performance Issues in Revolving Funded Organizations

• Is the 2002 to 2005 performance poor, OK, or good?


2002 2003 2004 20050

50

100

150

200

250

300

350

400

cost

revenue




2002 2003 2004 20050

50

100

150

200

250

300

350

400

cost

revenue

Is NOR a Good Measure of Performance?

• In corporations the difference between revenue and cost is “profit”• This is the ultimate measure of performance• The organization cannot continue indefinitely with negative

profit• In revolving funded organizations the difference

between revenue and cost is “NOR”• This has a very different meaning than “profit” • Revenue is a function of (i.e. determined by) NOR • NOR can then be seen as a timing artifact as revenue

dynamically adjusts, ultimately insuring breakeven© Dale R. Geiger 2011 61


• Remember how NOR losses in one year must be made up by price increases in a future year


2002 2003 2004 20050

50

100

150

200

250

300

350

400revenue

cost

loss


• Remember how NOR losses in one year must be made up by price increases in a future year


2002 2003 2004 20050

50

100

150

200

250

300

350

400

cost

loss

revenue gain

The Performance Motivations of Breakeven Reimbursement

• Pricing policy for revolving funded organizations:• Guarantees breakeven operation through full cost reimbursement• It is essentially a cost plus (zero) contract

• All cost is passed to the customer • Either immediately through frequent invoices• Or eventually through stabilized pricing policy

• The customer pays the supplier’s full cost• When the supplier is doing a great job in cost management and

control• And when the supplier is doing a poor job of cost management

and control


Consider the Previous Exercise that Called for a Reduction in Force

• What would happen if no reduction in force occurs?• Incurred cost would be 2902.5 higher and immediately

invoiced and reimbursed or• NOR would be -2902.5 and the “stabilized” price would

increase and ultimately be fully reimbursed

• What would happen if 50 people were added????• (Note that cash balances are extremely important in

revolving funded organizations – a long term trend of increasing inefficiency would create significant cash issues)


Key Questions to Consider

• How can revolving funded operations be motivated to improve cost effectiveness?• Another opportunity for Leadership Driven

Management?• How can a customer tell when a revolving funded

supplier is improving cost effectiveness?• Lower unit costs over time?• After action cost reviews that demonstrate

performance to customers?• Recognition from outside bodies?


Output Based Control Complexity

• Letterkenny has been particularly active and effective in its Lean Six Sigma programs and has achieved great recognition

• Reference the 2006 case study citing the remarkable achievements of its program

• Consider the following update from the LSS Manager


External Recognition2002 2003 2004 2005 2006 2007 2008 2009 2010

Patriot Silver Shingo win

HMMWV Silver Shingo win

Patriot Bronze Shingo win, Submission for AGPU

BIDS Bronze Shingo win

HMMWV Silver, Generator Bronze Shingo win

Shingo rules re-written

First year for public sector

Planned Force Provider Shingo Submission

69

Shingo submissions help us to stop, evaluate and improve ourselves

www.shingoprize.org• The Shingo Prize for Operational Excellence is named for Japanese industrial engineer

Shigeo Shingo who distinguished himself as one of the world’s leading experts in improving manufacturing processes. Dr. Shingo has been described as an “engineering genius” who helped create and write about many aspects of the revolutionary manufacturing practices which comprise the renowned Toyota Production System.

• MISSION: The mission of The Shingo Prize is to create excellence in organizations through the application of universally accepted principles of operational excellence, alignment of management systems and the wise application of improvement techniques across the entire organizational enterprise. We do this by teaching appropriate roles and accountabilities throughout the organization.

• VISION: Our vision is to be the Standard of Excellence for every organization.• The Shingo Prize was established in 1988 as the standard of excellence to educate, assess

and recognize organizations that achieve the highest level of world-class operational excellence around the globe. The philosophy of The Shingo Prize is that sustainable results are achieved through the application of universal, self-evident principles of operational excellence and the alignment of management systems and improvement techniques throughout an entire organization. The Shingo Prize is administered by the Jon M. Huntsman School of Business at Utah State University.


How we do LEAN at Letterkenny

Plan

Do

Check

Act

Monthly Scorecard and A3

Review

Monthly LEAN Council Review

Top level driven

Ensu

re al

ignm

ent

VSA

Tactical A3

RIE, Project, Do-it

EVSA

Depot A3

Subordinate A3

Continuous improvement, member involvement

Coach mentor / corrective action

Enterprise level alignment check. Corrective action

reviews and updates

71

A3 and Policy Deployment

• A3 is a Toyota problem solving method named for the size of paper it was produced on (roughly equals 11X17 paper).

• Policy Deployment is derived from the Japanese concept of Hoshin Kanri.

– Hoshin = compass needle – setting direction– Kanri = management of resources

• Our goals are driven from the Enterprise Level and cascaded down through the organization.

• All goals align.• Resources needs identified.• Policy Deployment isn’t just about assigning

targets, it follows the Deming cycle – Plan, Do, Check, Act. It is about sharing and learning.

72

A great A3 tells a story that we can all understand.

Title: Commanders A3

Start Date: 30-Dec-09 Revision Date: 18-Jan-10

Event Team: COL Provancha, John Damhosl

Review Team: Sr. Staff, Depot Employees

1) Reasons for Action:

Understand and control costs Focus on LEANDevelop our people Focus on Policy Deployment

2) Initial State: 3) Target State:

4) Gap AnalysisSTRENGTHS THREATS

We have a committed and talented work force

We are "profitable", but lack a strategy to use our savings to help our customers and / or invest in our future

We have just developed a marketing plan and it must be refined over time

Develop a strategy to re-invest a certain percentage of our savings into the depot while returning a portion to AMCOM and doing extra assets for our customers

Ensure that we focus on understanding our costs and that the UFC's are correct. We must level out the peaks and valleys that cause or cost swings

We lose customers due to rate swings

Our training programs on the floor are generally considered effective but not well documented.

The cost of many of our improvement efforts are being charged to overhead - which ultimately makes us less cost competitive.

We lack a clear strategic focus, path and plan

Charge the costs associated with our savings efforts to the appropriate program

Ensure that we charge costs properly (including DLH to the right program, the right items are charged to overhead etc).

Our core workload is a small percent of our total workload. Our only life cycle programs are; PATRIOT, HAWK and AVENGER

Our management trainee program is started and will be refined.

We don't have data to help us know our overhead numbers

Our policy deployment process provides focus, but we do not do enough follow ups to ensure that we remain in sync and / or have corrective action in place

Develop budgets to the division chief level for 2010 and use them to drive monthly corrective action

Fix LMP until it works as advertised. LMP should reduce our operating cost.

LMP issues continue to impact parts, COT and cost; driving customers away.

Our use of A3's to develop strategy is becoming embedded. PBL is a great tool to track progress / communicate.

We lack detailed quality data to both understand and drive improvements

Our A3's are not tied into PBL as well as they could / need to be. We are data poor (we don't always track the right things at the right level)

Conduct monthly reviews to evaluate status, progress and corrective action as needed to ensure that we achieve our policy deployment goals

Develop business plans for each key area on depot (to Division Chief level) so that we have a "vision and plan" that is executable and trackable.

TRMD transition to LEAD "hiccups" resulting in performance slippage.

We have pockets of excellent LEAN engagement

We lack follow through on many of our good ideas and plans (including our A3 and policy deployment process)

Some areas and leaders have not accepted LEAN as a cultural transformation tool

Re-think our PBL measurables using our A3's to guide us to the right strategic measures.

Increase the number of life cycle programs that LEAD is responsible for.

Re-alignment of DOC reporting results in reduced performance

We are great firefighters

Our cost of quality numbers are not as meaningful as they need to be…there are huge gaps in what we report and how we report it.

We are great at responding to customer needs / our problems, but lack customer satisfaction data or process to consistently collect it and use it.

Fix the new product / transformation office process

Develop detailed quality metrics that support sound decision making. Use data to drive daily improvement We get BRAC'd

We think our COT performance is OK, but we don't really know how it would be if we didn't go back and ask for adjustments to the schedule.

Our parts process is not working properly since LMP start up. To make it work, we eliminated some of the lean actions that we had in place

Develop and publish a strategic plan and periodic review process to support our business direction and decisions

Rethink our cost of quality measurement, what is included in it, how we measure it and how we use it to "get better".

We lose our reputation for excellence due to performance slippage.

LEAN is perceived by most to be something that works best on the production floor

CES is not fully understood / utilized. Our new product process (QSP 11) is neither robust enough or followed

Create feedback loops to ensure that critical actions are being accomplished as planned

Track "approved" adjustments to schedules (where we ask for the change) so that we can determine the potential impact on COT and take corrective action. LMP drives overhead rates too high

We lack business plans at the Division Chief, Director and Command levels

We don't have a clear strategy for what we will do with our savings (re-invest, return to AMCOM or negotiate with customers to do additional work).

Conduct monthly A3 status reviews with staff

Codify admin processes and apply lean processes

We ruin our working relationship with DOC because we fail to streamline LEADs program management contract request process

No Command visibility to the internal operation of the depot

We charge things to overhead that should be charged directly to programs. This distorts some costs and confuses others.

Ensure that directors understand requirements (key measurables) and assign associated responsibility / ownership to the right level within the organization Fix BOM's and routes

"No one" feels that they are responsible for analyzing quality data / trends to drive corrective action.

We "don’t see ourselves" (we lack metrics, the right data or good analysis of data)

Develop a process to collect customer satisfaction data and then use it to drive improvement

Determine where kitting will work and implement it

Equipment serviceability is impacting our ability to complete programs and accept work

Fix / review organization structure of the new product process

Implement final version of end to end process

Define roles and responsibilities for TO

Do a process analysis of the parts management process after implementing the end to end process (if needed)

Determine what other systems we need to set up and use to bridge the LMP information gap

Review new product process and fix it

Need detailed visibility to overhead spending / costs

Follow the TRMD start up plan and have key measurables in place before start-upUse TRMD as a "model" for the rest of the depot

5) Solution Approach:A3 and Policy Deployment LEAN Council Budget Reviews Marketing Plan Tools of QualityPBL Scorecard Communication Boards QSP 11 Business Plans R&A Reviews for: FinancialsCommand and Staff Meeting Automated Communications System LEAN Tools Business Case Studies Quality PartsProduction Control Meeting Town Hall Meetings Strategic Plan SOP's COT / Schedule Adjustments Transportation

6) Rapid Experiments 8) Confirmed State:

7) Completion Plan:

9) Insights:

Strategic A3 © 1996 -2009 Simpler (www.simpler.com)Behind - critical stop Behind - catch up On Schedule Complete

We must develop and execute a bullet proof strategy to ensure that we remain a cost effective, high quality and timely producer of solutions for the war fighter if we are to remain viable in the long term. We must set the conditions now to ensure that we are seen as value to Congress and the US taxpayer at the

Top issues from Commanders A3

Develop a process to get additional profitable workDevelop improvement effort for 2010 and 2011

next BRAC data call.

4) Develop and publish the strategic plan - Nadine Stoler - 27 Feb 10

2) Improve the CES process - Nadine Stoler - 26 Feb 20103) Start monthly A3 reviews with Directors - COL Provancha - 31 Jan 10

WEAKNESSES

Use PBL, monthly A3 reviews and AR sessions to be sure that "we can see ourselves" - for both internal and business operations.1) Define Organization Structure - Mark Sheffield - 12 Feb 2010

OPPORTUNITIES

3) We have a lot of stove pipes in our organization…they "get in the way" of collaborating

1) Few people are using their A3 as the management tool it is intended to be2) By not using the A3's as a management tool, we have given up a great deal of potential synergy

4) Our A3's, PBL and performance plans need to be better tied together5) Moving forward, we will use our A3's, PBL & performance plans to help us become more collaborative

See Attached Sheet

10) Get visibility on equipment downtimes - Steve Miller - 26 Feb 1011) Review equipment management methodology - COL Provancha - 26 Feb 10

9) Define internal management areas:

b) Develop lean council meeting type of recaps for key areas - TBD - XX/XX/XX c) Determine what is needed to get visibility to internal operations - TBD- XX/XX/XX

a) What takes care of people - TBD - XX/XX/XX

8) Get visibility for programs, define what production metrics should be - COL Provancha - 25 Jan 10

5) Standardize the Communications board format - Shea Hurley - 31 Jan 10

7) Define 2010 budgets and allocate responsibility - Joe P. - 30 Jan 106) PBL measurables review with Sr. Leadership Team- COL Provancha - 14 Jan 10

M e a su ra b le C o m m a n d D C O / C o S D i re c to r D i v i sio n C h i e f B ra n c h C h i e f

Co

st

Th is n e e d s t o b e fu rt h e r re fin e d d u rin g t h e m e e t in g 1 4 Ja n , e t c

$ / D L H O ve rh e a d ra t e XXX XXX XXX

$ O ve rh e a d s p e n d in g t o b u d g e t XXX XXX XXX XXX XXX

$ V e rifie d s a vin g s XXX XXX XXX XXX XXXC

ost

Qu a

lity

$ C o s t o f Q u a li t y XXX XXX XXX XXX XXX

TB D E x te rn a l c u s to m e r s a t is fa c t io n XXX XXX XXX XXXQua

lity

Pe o p le % Tu rn o ve r ra t e (D A C 's , C o n t ra c t o rs ) XXX XXX XXX XXX XXX

L o s t t im e ra t e XXX XXX XXX XXX XXX

R e c o rd a b le ra te XXX XXX XXX XXX XXXP

eop le

De

live ry

% D O C (M a jo rs ) C O T XXX XXX XXX XXX

% D O C (s e c o n d a ry ) C O T XXX XXX XXX XXX

% TR M D C O T XXX XXX XXX XXX

% D S & T C O T XXX XXX XXX XXX

% P a rt s D e l ive ry C O T XXX XXX XXX XXX

De

live ry

Pro

f i ta

b le

Gro

wth H R S D ire c t la b o r H o u rs XXX XXX XXX XXX

H R S D o D vs p a rt n e rs h ip w o rk lo a d XXX XXX

% o f H R S % o f w o rk lo a d = l i fe c y c le w o rk XXX XXXPro

f i ta

b le

Gro

wth

COST

QUALITY

DELI

VERY

PROFITABLE

GROWTH

PEOPLE /

MORALE

7 4 %

2 6 %0 %

2 0 %4 0 %6 0 %8 0 %

1 0 0 %

2 0 1 0 b u d

2 0 1 1 e st

2 0 1 2 e st

In iti a l S t a t e M ix - L ife C y c le v s. O t h e r (a s % o f D o lla r s)

O th e r

L ife C y c le (C o r e )

6 3 %

3 7 %0 %

2 0 %4 0 %6 0 %8 0 %

1 0 0 %

2 0 1 0 b u d

2 0 1 1 e st

2 0 1 2 e st

In iti t a l S t a t e M ix - L ife C y c le v s. O t h e r (% o f h o u r s)

O th e r


0

2

4

6

8

1 0

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 an lzd

2 0 1 1 e st

Mill

ions

C o st o f Q u a lit y in D o lla r s

-

1

1

2

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 an lzd

2 0 1 1 e st

C u st o m e r S a ti sfa c ti on (T B D )

3 ,3 5 7 2 ,6 3 7 2 ,6 5 6

0

1 ,0 0 0

2 ,0 0 0

3 ,0 0 0

4 ,0 0 0

2 0 0 9 e s t 2 0 1 0 e s t 2 0 1 1 b u d

Thou

sand

s

D o D v s P a r t n e r sh ip H o u r sP ar tn e r sh ip sD o D

1 0

2 5

9

1 -

5

1 0

1 5

2 0

2 5

3 0

2 0 0 9 ac t 2 0 1 0 p lan

2 0 1 1 p lan

Mill

ions

L E A N S a v in g s

Tar g e t

A c tu al

0123456789

1 0

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9

L E A D A c c id e n t R a t e s

L e tt e rke n n y O S H A R e c o rd a b le R a te

L o s t T im e R a te

O S H A L o s t T im e S ta n d a rd f o r O u r In d u s try

O S H A R e c o rd a b le S ta n d a rd f o r O u r In d u s try

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D O M C O T - P a r t s D e liv e r y

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D O M C O T - S e c o n d a r ie s

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan


0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

T R M D C O T

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D S & T (C la ss 7 / 9 ) C O T

C lass 7

C lass 9

0 .0 %

2 0 .0 %

4 0 .0 %

6 0 .0 %

8 0 .0 %

1 0 0 .0 %

1 2 0 .0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D e p o t Tu r n o v e r R a t e

COST

QUALITY

DELI

VERY

PROFITABL

E

GROWTH

PEOPLE /

MORALE

7 4 % 7 0 % 6 1 %

2 6 % 3 0 % 3 9 %0 %

2 0 %4 0 %6 0 %8 0 %

1 0 0 %

2 0 1 0 b u d

2 0 1 1 e st

2 0 1 2 e st

Ta r g e t S t a t e M ix - L ife C y c le v s. O t h e r (a s % o f D o lla r s)

O th e r


6 3 % 5 8 % 4 8 %

3 7 % 4 2 % 5 2 %

0 %2 0 %4 0 %6 0 %8 0 %

1 0 0 %

2 0 1 0 b u d

2 0 1 1 e st

2 0 1 2 e st

Ta r g e t S t a t e M ix - L ife C y c le v s. o t h e r (a s % o f H o u r s)

O th e r


0

2

4

6

8

1 0

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 an lzd

2 0 1 1 e st

Mill

ions

C o st o f Q u a lit y in D o lla r s

3 . 3 6 2 . 9 0 2 . 6 6

0 . 1 00 . 1 0 0 . 2 5

0 .0

1 .0

2 .0

3 .0

4 .0

2 0 0 9 e st 2 0 1 0 b u d 2 0 1 1 b u d

Mill

ions

D o D v s. P a r t n e r sh ip H o u r s

P ar tn e r sh ip sD o D

-

1

1

2

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 an lzd

2 0 1 1 e st

C u st o m e r S a ti sfa c ti on (T B D )

1 0

2 5

9

1 -5

1 0 1 5 2 0 2 5 3 0

2 0 0 9 ac t

2 0 1 0 p lan

2 0 1 1 p lan

Mill

ions

L E A N S a v in g s

Tar g e t

A c tu a l

0123456789

1 0

2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9

L E A D A c c id e n t R a t e s

L e tt e rke n n y O S H A R e c o rd a b le R a te

L o s t T im e R a te

O S H A L o s t T im e S ta n d a rd f o r O u r In d u s try

O S H A R e c o rd a b le S ta n d a rd f o r O u r In d u s try

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan


0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D O M C O T - S e c o n d a r ie s

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan


0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

T R M D C O T

0 %

2 0 %

4 0 %

6 0 %

8 0 %

1 0 0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D S & T (C la ss 7 / 9 ) C O T

C lass 7

C lass 9

0 .0 %

2 0 .0 %

4 0 .0 %

6 0 .0 %

8 0 .0 %

1 0 0 .0 %

1 2 0 .0 %

2 0 0 6 ac t

2 0 0 7 ac t

2 0 0 8 ac t

2 0 0 9 ac t

2 0 1 0 YTD

2 0 1 1 p lan

D e p o t Tu r n o v e r R a t e

VSA (Value Stream Analysis)• Helps us to understand where we are and

develop an overarching roadmap for improving an entire value stream (product or process):

– Value Added – any activity that physically changes the material being worked on and increases its value to the customer.

– Non Value Added – any activity that takes time, material or space but does not physically change the material or increase it’s value.

– When doing a VSA, we complete a current state map, an ideal state map a future state map and an action plan.

73

Non value added activities are waste, people aren’t!

FUTURE STATE

Receive request for estimate

Send Requestor's Request to the BO

Take down information and

gather information

Validate capability and feasibility(SME & Eng.)

-Phone call or e-mail

Trigger-Send to BODone- Receive requestPFT- 480/480/480MCT- 5/5/5People- 1WIP-Travel -FPY- 100%Problems: -People working thru e-mail box and Voice mails.-People not passing to DC.

Trigger-All data collectedDone- Decision madePFT- 240/2400/7200MCT- 60/480/1440People- 2/2/2WIP- 1/1/1Travel -FPY- 95%/90%/50%Problems:

N

Proceed Y

Notify Customer

Trigger-Can't do estimateDone- Talk to customerPFT- 480MCT- 2People-1 WIP- 0Travel -FPY- 100%Problems: Angry customer

BO notifies IBO Branch Chief

Trigger-Will do workDone- Contact ChiefPFT- 480MCT- 1People-1 WIP- 0Travel -FPY- 100%Problems: Communication

Does this benefit TRMD

TO moves to DOM to be BO

-Handle all estimates

TO Physical move rather than

leadership change

Disconnect in geography between TO

& LMS

Administrator should make sure the correct people

are informed

Can we set up a process using CES to set up

material masters

Better communication!!!

Broadens knowledge base

Development of SME's

Developed checklist of

needed items

Production runsShipping/Crating

Establish Guidelines for

reasonable/feasible

"Flush" the system and start w/good

data

Parts Researcher(s) in BO

(Long lead material)

"Strike Force"-gather data to

support

Training:Estimator suspense date should be 2 days before customer suspense date

Strategic Plan

Trigger-Request receivedDone- All info collectedPFT- 480/480/920MCT- 30/120/240People- 1WIP-Travel -FPY- 85%/65%/10%Problems: Negotiating with customer.

IBO Assign LMS &Engineer using

CES

Should LMS & Engineer decide

simple/Normal/Complex

Trigger-Notify to do estimateDone- People assignedPFT- 480MCT- 5People-1 WIP- 0Travel -FPY- 95%Problems:Backed up with other work

New Work

N

Y

Review & Update BOM/Route

Trigger-Assigned Est.Done- Finish B/RPFT- 480/960/1920MCT- 60/480/1440People- 1WIP-Travel - 0FPY- 95%/95%/95%Problems: -Migrated routes-Amount of revisions

ROM N

Y

Do estimate in CES or LMP

ROM requires formal quote

before accepting work

Trigger-AssignedDone- CompletePFT- 480/960/1920MCT- 60/480/1440People- 1WIP- 0Travel -FPY- 95%/90%/80%Problems: -Finding additional tech data-Unknowns-Uncertain customer requirement-Complexity of tech data

CEG builds BOM and route directly into

LMP

Permission for CEG to build

BOM/Route in LMP(Big Issue)

Best way to get BOMS/Routes

accurate!!!

Separate section in CES to

estimate material masters

Auto populate standard cost

center(Ex. Fab.)

Trigger-Assigned Est.Done- Finished B/RPFT- 1400/4320/9720MCT- 1920/3360/4800People- 1WIP- 0Travel -FPY- 95%/95%/90%Problems: Materials not in LMP

Use LMP

Y

CESDo Spreadsheet (s)

(2)

Trigger-Done- CompletePFT- 10/30/120MCT- 10/30/120People- 1WIP- 1Travel -FPY- 100%Problems: 2 Spreadsheets is done. one for material and other for time.

CEG transfers over to CES

Trigger-B/R completeDone- Info in CESPFT- 240/240/240MCT- 10/10/10People- 1WIP- 0Travel -FPY- 100%Problems: -Systems working properly-Copying route

CES adds data to fixed

price programs

CES needs altered to accept this

data

Copy and Paste into

CES

Data fields in CES

changed to match LMP

Engineer & LMS review and add "other" costs as

necessary

Trigger-Est. in CESDone- Final reviewPFT- 480/480/1440MCT- 15/60/300People- 2WIP- 0Travel -FPY- 98%/85%/70%Problems: -Time available-Expertise

Estimates need to be able to view report here

Output report to review

DST, BO, DPA , Cost Center

Supervisor, LMS Engineering, IBO

Branch Chief

Train to ensure SME is capable of

dissolving approval chain

Update QSP 11 work in

97/98

Determine Standard status reports are needed (View as

Req'd)

Complex

Y

N

Trigger-Call meetingDone- FinishedPFT- 960MCT- 60People- 12WIP- 0Travel -FPY- 90%Problems:People's schedules

Hold meeting w/key players to resolve

issues

All issues resolved

(Eng.&LMS)

N

Y

LMS approves in CES

Trigger-Est. is goodDone- Click approvePFT- 480/480MCT- 1People-1 WIP- 0Travel -FPY- 100%Problems:

Estimate moves to RM

Trigger-Approved by LMSDone-Est. received in RM PFT-1/1 MCT- 1People-0 WIP- 0Travel -FPY- 100%Problems: CES action

RM Reviews

Trigger-Received est.Done- Review completePFT- 120/120MCT- 2People-1 WIP- 0Travel -FPY- 80%Problems:

Approve Y

N

Estimate moves to BO & LMS

Trigger-ApprovedDone- ReceivedPFT- 1MCT- 1People-0 WIP- 0Travel -FPY- 100%Problems: CES movement

BO produces estimate letter

Trigger-Est. receivedDone- Letter donePFT- 120MCT- 5People-1 WIP- 0Travel -FPY- 95%Problems:Programming CES to do this perfectly

Website link for estimates feeds to BO

Formal estimates good until end of FY

ROM's require formal estimate and expire in 90

days

CES generates

letter

"No bid"with standard options why

Formal notice stating material

prices may change after 90 days

Address om process for BO/Cust. interaction

Start up cost vs. production run

New Work N

Y

BO Chief signature

Trigger-Letter to ChiefDone- SignedPFT- 60MCT- 1People-2 WIP- 0Travel -FPY- 95%Problems:Finding Chief

Returns to BO POC

Trigger-Signed letterDone- Signed letterPFT- 1MCT- 1People-2 WIP- 0Travel -FPY- 99%Problems:Should be simultaneous with previous step

Estimate letter to customer

Trigger-Letter outDone- Letter to CustomerPFT- 17MCT- 15People- 1WIP- 0Travel -FPY- 100%Problems:

Modify CES to capture award/no

awardFlag expiration dates

BO does follow ups

w/customers

Pull samples to review

ROM's never get closed, foul up data

Build milestone

tracking into CES

Items put on hold need to be assigned to a person

If BO can find out how much we lost a bid, hold another meeting to compare our estimate to winners

Integrate into quarterly review

Training:Close

estimate or delete it

Include WBS with awarded

estimates

BO tracks results

Trigger-Letter sentDone-PFT-MCT-People-WIP-Travel -FPY- 10%Problems:Customer responses

Current State Future StatePercent

improvementSteps 23 20 13%VA 5 7NVA 18 13 28%% VA 22% 35%FT (min) 41262 20599 50%MCT (min) 82278 9287 89%FPY 3% 3% 0%FT (days) 86.0 42.9 50%

New, Manufactured, Complex

http://www.hostdub.com/modules.php?full=1&set_albumName=PanEuropean&id=Mate_3&op=modload&name=Gallery&file=index&include=view_photo.php

LEAN Involvement…training, training, training

• All new members receive “basic training”.– LEAN 101– 6S

• Event Specific Training.• Management Trainee Program for non-supervisory members.• Lean Facilitator rotation• 6S Champions• Six Sigma Training.

74

You can’t learn LEAN from a book – all of our training involves “going to Gemba” and using what you have learned.

Gemba

http://www.leehansen.com/clipart/Themes/Pirates/index.html

The LEAN Council• The purpose of the LEAN Council is to ensure Depot wide:

– Awareness of upcoming events and reason for them.– Best utilization of resources.– Achievement of goals / targets– Proper alignment with all directorates.– That all events meet top level goals.– Critical “To-Do’s” are on track, coordinated and being supported.– Sustainment of LEAN Events.

• Events are tentatively scheduled 6 to 12 months out (based on A3’s, VSA’s or 2P events).

• Schedule is firm 2 - 3 months out.• The LEAN Council meets once per month.

75

A firm schedule is necessary to give the Process Owner and Facilitator enough time to select team members, schedule them for training and to ensure enough time to do 3 weeks of prep.

Why We Verify Sustainment• Events take time from our busy days and cost money – there

needs to be a benefit.• Our sustainment is not where we want it to be.• Without sustainment, events don’t help make us better.• We need to work together to help the members learn new

processes after a change.• We need to understand the root cause of failure if a change is

not being sustained; then take corrective action.– To do that, we need facts, not opinions.

If you do something for three weeks, it becomes a new habit.76

How we Verify Sustainment• Review these key items:

– Did the key players fully participate?– Are we still doing what we said we were going to do and are we still reaping

the benefits we expected?– Are we on track implementing any “to-do” list items?– Do we have a communications board in the area and do we use it?

Do we have a production control board in the area and do we use it to solve issues?

– Is the process owner engaged and have they taken ownership of the change?– Is the new process well defined and is documentation clearly posted /

followed?– Does the team deserve special recognition?– What corrective action is required to get back on track?

77

Types of Savings

• Low cost / visibility or impact: (under $100,000)

– Estimate benefit, verify that it is reasonable / defendable, document the savings and “take it” for the rolling three year period.

• High cost / visibility or impact: (over $100,000)

– Estimate the benefit, verify that it is reasonable / defendable, document the savings and validate that the savings are in fact still taking place.

Army LSS regulations do not require us to verify our numbers after the initial validation. We do it to ensure that we are receiving the benefit of large savings.

78

Learning Check

• What are the issues with using NOR as a performance measurement with revolving funded organizations?

• What motivation exists to manage cost in these organizations?

Group Exercise

• Given the table on page 3 for the case study• Assume no price changes between any given year’s budget and

actual (stabilized pricing)• Assume no mix effects• Assume three different proportions of fixed cost (10%, 20%, and

30% of total cost) and no fixed cost variances• Calculate the three different analyses to determine volume and

performance variances• 2002 – Groups 1 and 5• 2003 – Groups 2 and 6• 2004 – Group 3• 2005 – Group 4

• Reconcile the scenario you think most likely with hypothetical explanations that include LSS impact


Teaching Note - 20022002 budget

sales vol var flex

performance variance actual

rev 152.5 16 168.5 168.5vc 156.2 (16.3) 172.5 (10.1) 182.6

fc 10% 17.4 0.0 17.4 17.4 tc 173.6 (16.3) 189.9 (10.1) 200.0 nor -21.1 (0.3) -21.4 (10.1) -31.5

2002 budget flex actual rev 152.5 16 168.5 168.5

vc 138.9 (14.5) 153.5 (11.8) 165.3 fc 20% 34.7 0.0 34.7 34.7 tc 173.6 (14.5) 188.2 (11.8) 200.0 nor -21.1 1.5 -19.7 (11.8) -31.5

2002 budget flex actual rev 152.5 16 168.5 168.5

vc 121.5 (12.7) 134.2 (13.7) 147.9 fc 30% 52.1 0.0 52.1 52.1 tc 173.6 (12.7) 186.3 (13.7) 200.0 nor -21.1 3.3 -17.8 (13.7) -31.5

81


sales vol var flex


rev 175.4 69.5 244.9 0.0 244.9vc 152.6 (60.4) 213.0 (2.9) 215.9

fc 10% 17.0 0.0 16.95 17.0 tc 169.5 (60.4) 229.9 (2.9) 232.8 nor 5.9 9.1 15.0 (2.9) 12.1 2003 budget flex actual

rev 175.4 69.5 244.9 0.0 244.9vc 135.6 (53.7) 189.3 (9.6) 198.9

fc 20% 33.9 0.0 33.9 33.9 tc 169.5 (53.7) 223.2 (9.6) 232.8 nor 5.9 15.8 21.7 (9.6) 12.1 2003 budget flex actual

rev 175.4 69.5 244.9 0.0 244.9vc 118.7 (47.0) 165.7 (16.3) 182.0

fc 30% 50.9 0.0 50.9 50.9 tc 169.5 (47.0) 216.5 (16.3) 232.8 nor 5.9 22.5 28.4 (16.3) 12.1

82


sales vol var flex


rev 310.6 (10.7) 299.9 0.0 299.9vc 258.8 8.9 249.8 16.9 233.0

fc 10% 28.8 0.0 28.8 28.8 tc 287.5 8.9 278.6 16.9 261.7 nor 23.1 (1.8) 21.3 16.9 38.2 2004 budget flex actual

rev 310.6 (10.7) 299.9 0.0 299.9vc 230 7.9 222.1 17.9 204.2

fc 20% 57.5 0.0 57.5 57.5 tc 287.5 7.9 279.6 17.9 261.7 nor 23.1 (2.8) 20.3 17.9 38.2 2004 budget flex actual

rev 310.6 (10.7) 299.9 0.0 299.9vc 201.3 6.9 194.3 18.9 175.5

fc 30% 86.3 0.0 86.3 86.3 tc 287.5 6.9 280.6 18.9 261.7 nor 23.1 (3.8) 19.3 18.9 38.2

83


sales vol var flex


rev 356.1 16.5 372.6 0.0 372.6vc 292.6 (13.6) 306.1 6.9 299.3

fc 10% 32.5 0.0 32.5 32.5 tc 325.1 (13.6) 338.7 6.9 331.8 nor 31 2.9 33.9 6.9 40.8 2005 budget flex actual

rev 356.1 16.5 372.6 0.0 372.6vc 260.1 (12.1) 272.1 5.4 266.8

fc 20% 65.0 0.0 65.0 65.0 tc 325.1 (12.1) 337.2 5.4 331.8 nor 31 4.4 35.4 5.4 40.8 2005 budget flex actual

rev 356.1 16.5 372.6 0.0 372.6vc 227.6 (10.5) 238.1 3.8 234.3

fc 30% 97.5 0.0 97.5 97.5 tc 325.1 (10.5) 335.6 3.8 331.8 nor 31 6.0 37.0 3.8 40.8

84

calculate volume and performance variances for output-based control case study scenario letterkenny...

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