Determine the Implementation Determine the Implementation Requirements for Cost Management Requirements for Cost Management

and Controland Control

© Dale R. Geiger 2011 1

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

© Dale R. Geiger 2011 2

Terminal Learning ObjectiveTerminal Learning Objective• Task: Determine the Implementation Requirements for

Cost Management and Control• 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• List four common characteristics of successful cost

management efforts• Describe responsibilities of leadership• Describe the characteristics and responsibilities of an ACE

© Dale R. Geiger 2011 3

Maturation of Cost Roles in Winning the Cost War

4

Single Use

EstimatedFuture Cost

Cost Benefit Analysis

Cost Informed Decision Making

Persistent Use

Expected & Actual Cost

Continuous Improvement

Cost Managed Organization

Universal Use

Planned & Actual Cost

Mission Control

Cost Managed Enterprise

Cost War Cost War High Cost War Full Insurgency Intensity Conflict Spectrum Operations

Starting here (Some work is being done now) TARGET

Key Cultural Changes Needed to Key Cultural Changes Needed to Win the Cost WarWin the Cost War

• Institutionalize cost accountability• Subordinates present after action reviews

explaining their performance compared to plan• Eliminate budget entitlement mentality

• Plans are negotiated frequently and represent targets to be beaten

• Demand improved cost and output • After Action Review challenges both

US.

Paul A. RossiC Approach to Cost ManagementApproach to Cost ManagementApproach to Cost ManagementApproach to Cost Management

Change Change CultureCulture

Hold Managers

Accountable

Focus on Cost &

Performance

Divorce From BudgetGarrison CommanderFort Huachuca

Requirements for VictoryRequirements for Victory

• There is more than one way to• Win a war• Win the Cost War

• There do seem to be common factors• Good leadership• Strong staff support• Learning oriented AAR processes• Actionable intelligence

Requirements for Cost Management Requirements for Cost Management and Control Successand Control Success

1) Aggressive, knowledgeable leadership• Nothing happens without leadership drive

2) Strong staff, strong staff organization• Analytic Cost Experts (ACEs) or• Assistants to the Commander for Enterprise (ACEs)• Leaders need expert costing and analytic support

3) Learning oriented process• Institutionalizes a forum for creative accountability

4) Actionable cost intelligence• Translates efforts and actions into dollars: the

language of managementSlide 8

Check on LearningCheck on Learning

• What are the four common factors in successful Cost Managed Organizations?

• What does ACE stand for?

© Dale R. Geiger 2011 9

1) Attributes of Aggressive, 1) Attributes of Aggressive, Knowledgeable LeadersKnowledgeable Leaders

• Specify and define good information requirements

• Participate actively in review process• Signal the importance of continuous

improvement• Understand that there is always a better

way to operate

Cost Management and Control is Cost Management and Control is Not Simply Cost AccountingNot Simply Cost Accounting

• Cost management is a “people issue” not an accounting problem

• Previous attempts at cost management overemphasized accounting’s importance

• Even the best cost measurement system• Did notDid not…cannotcannot…and never willnever will…• Manage anything!

• Accounting is simply a tool and tools don’t do anything by themselves

• Effective use of tools is a leadership responsibility

Behavioral Issues of ImportanceBehavioral Issues of Importance

• Subordinates respond to leadership’s performance expectations• “Tell me how you measure me and I’ll tell you how

I’ll behave”

• Resistance to measurement is human nature• “Tell me that you are going to measure me and I’ll

fight it to the death”

• Resistance to change is also to be expected

Leader’s Role: ExpandedLeader’s Role: Expanded

• Don’t:• Delegate cost command• Accept poor or confused reports

• Do:• Expect subordinates to thoroughly understand and

competently explain “their” costs• Expect subordinates to develop continuous improvement

initiatives• Signal the mission benefits of cost management and

control• Acknowledge and reward good performance• Create a cost accountable culture

Subordinate Leader’s RoleSubordinate Leader’s Role

• Don’t• Delegate reporting and report preparation• Provide poorly prepared reports

• Do:• Truthfully and credibly explain “your” numbers• Show and explain both good and bad results• Recognize the importance of meeting or exceeding

planned commitments• Prepare for probing questions• Demonstrate continuous improvement capability with

good continuous improvement initiatives• Accept a cost accountable culture

• Why is it important that the Senior Leader not delegate responsibility for cost control?

• How should cost accounting information be viewed?

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Check on LearningCheck on Learning

2) Attributes of Good ACE Staff 2) Attributes of Good ACE Staff SupportSupport

• Understand the organization and its people and operations

• Develop the leadership trust through personal competence and credibility

• Develop excellence in analyzing data and transforming it into information

• Learn the tools, mechanics, and methods of managerial costing

• (These people are not abundant in government)

Key Barrier to Creating Cost Key Barrier to Creating Cost Managed OrganizationsManaged Organizations

• One of the biggest problems in implementing cost management and control is that leadership has:• Little, if any, experience in cost management, when

compared with industry• Already demanding number of responsibilities• No time for extensive training or education

• ACEs are therefore critically important to enable the leader effectiveness needed by Cost Managed Orgs

• The Leader-ACE team combines and exploits the skills or both to the benefit of the mission

Supporting Roles: The Assistant to the Supporting Roles: The Assistant to the Commander for the EnterpriseCommander for the Enterprise

• Maintain the schedule of meetings• Publish list of required slides• Support subordinates in discovering the

story• Support leadership in interpreting

information and subordinate presentations• Consolidate information as needed

The Job Requirements of the ACEThe Job Requirements of the ACE

• This key cost management advisor must have:• Credibility• Analytic capability• Knowledge of organization functions• Sensitivity to people issues• Sound training in cost based management

Army ACE Job DescriptionArmy ACE Job Description

• The mission of the ACE is to build a cost-capable team build a cost-capable team from withinfrom within

• This critical role (or anything like it) does not exist• The ACE must quickly:

• Learn the organization’s mission • Become a key, trusted financial advisor to the commander• Become a valued resource to all chain of command

subordinates• Be able to model “enterprise thinking”

• Success in the ACE’s mission is critically dependent on having very capable people

Finding Strong ACEs May Not Be EasyFinding Strong ACEs May Not Be Easy

• To many good accountants, numbers are the productproduct• They follow GAAP and consider the job finished

with a compliant report• To strong cost analysts, numbers are the

raw materialsraw materials• They understand their job is to translate the

number into actionable management information

subordinatesubordinateleaderleader

ACE Relationships to ACE Relationships to Leadership and ProcessLeadership and Process

leaderleader

subordinatesubordinateleaderleader

seniorseniorleaderleader

reviewreview

reviewreviewhelp leader

critique

help leaderprepare

ACE

help subordinatesprepare

ACE Staff Shadow OrganizationACE Staff Shadow Organization

leaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

subordinatesubordinateleaderleader

ACE of ACEs

ACE ACE ACE

ACE ACE ACE ACE

ACE

Principles of Cost Accounting and Management Targeted at entry level CP11 Personnel, Sergeants, Lieutenants, Junior

Captains Offered at Army Finance School at Fort Jackson (Columbia, South

Carolina) Course Length: Three Weeks Pre-requisites: On Line Math Refresher (TBD)

Intermediate Cost Accounting and Management Targeted at mid career CP11 Personnel, Staff Sergeants and above,

Senior Captains, Majors and above Offered at Army Finance School at Fort Jackson (Columbia, South

Carolina) Course Length: Three Weeks Pre-requisites: On Line Math Refresher (TBD)

ACE Development: PCAM & ICAM

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ACE Development: PCAM & ICAM

acct basic training gfebs ext vs internal terminology

financial acct balance sheet profit&loss stmt role of audit

fund acct fund balance expenditure stmt unencumbered bal

cost acct - ext defense cont expense stmts fed requirements

mgr costing fasab 4 decision support cost mgmt/controlcost relationships direct - indirect fixed - variable allocation cost tradeoffs break even indifference pnts decision making wifs cost estimation learning curve cost factors budget devl net present value cost explanation aar variance analysis reconciliation cost benefit analysis army training capstone case

Overview of Accounting

Cost Relationships

Cost Tradeoffs

Cost Estimation

Cost Explanation

Cost Benefit Analysis

Principles of Cost

Accounting & Management

Intermediate Cost

Accounting & Management

Review ofPCAM

Cost Benefit Analysis

Winning the Cost War

Leadership DrivenManagement

Change Management

acct basic training refresher cost relationships refresher cost relationships refresher cost tradeoffs refresher cost estimation refresher cost explanation refresher cost benefit analysis Winning the Cost War Leadership Driven Management

Stackable CredentialsStackable Credentials**

26

All CEs will require basic, advanced, and master skills with a concentration in:Readiness – Capacity management and force cost analysisMateriel – Logistics and working capital funds cost analysisHuman Capital – Manpower cost analysisServices & Infrastructure – Services and capital asset costingFAs and CPs that are common to all CEs should train to become a master in any CE

* NOTE: Stackable credentials are based on Financial Management (BC36/CP11) career field demands for cost management, which is the Army maximum; other career fields will use a subset of these requirements.

Based on the Financial Management Career Field

• All CEs should sponsor participants in the CMCC; application materials at: https://www.us.army.mil/suite/page/616700

• Commands endorse and prioritize multiple nominations

• Each course offering holds a maximum of 25 students

Cost Management Cost Management Certificate CourseCertificate Course

27

• What tasks does the ACE perform to support the subordinate managers?

• What is the ACE’s role in supporting the leader?

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Check on LearningCheck on Learning

3) Attributes of an Effective Review 3) Attributes of an Effective Review ProcessProcess

• Feedback: frequent updates with management interaction

• Accountability: requires managers to explain performance in cost terms

• Institutionalization: imbedded in organization’s calendar and culture

• Behavior change: makes continuous improvement part of cultural expectation

4) Attributes of Good Information4) Attributes of Good Information

• Must be managerially useful• Managers are the users

• Must be technically credible• Managers must trust

• Must be affordable• Managers are the bill payers

Conclusions: Leadership Driven Conclusions: Leadership Driven ManagementManagement

• Provides a workable doctrine for decentralized, continuous improvement

• Proven workable in pilots with savings of millions of dollars to date

• Will continue to evolve and improve with experience and continuous learning

Transforming the Army:Four Requirements for Success

Need Status Action

Leadership Team with ACE to create “informed” leaders

Exploit existing strong leadership capabilities

ACE Build strong staff, strong organization

Select, develop ACEs (Asst to Comdr – Enterprise)

Design and deliver advanced training

Process Modify “winning the cost war” template as needed

Cost Info Use new tools as they come online

• DeclareDeclare the Cost War • Acknowledge the threat to mission accomplishment and national

security from “under-managed” use of resources• Recognize that “cost effectiveness” is a core value in a Cost War• Develop your Commander’s Intent Statement

• BuildBuild critically deficient managerial costing staff ASAP• Select your ACE (Assistant to the Commander for the Enterprise)• Build and develop the ACE staff throughout your AOR• Initiate and nurture “bridgehead” projects as ACEs come on line

• BeginBegin the process at all levels in all disciplines of building • “Cost Competency” into all leadership and training efforts• “Cost Effectiveness” into core values

Call to Action:Call to Action:Suggested Steps for EngagementSuggested Steps for Engagement

Time Available Group ExerciseTime Available Group Exercise

• Using the attached job description as a guide:• Develop the job description for an ACE• Prepare one slide highlighting key points of your

job description to present to the class

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