Identify Similarities Between
Battlefield Management And Cost
Management
Principles of Cost Analysis and
Management
© Dale R. Geiger 2011
1
Why are We Interested in Cost
Management?
• How many brigade combat teams can you
afford if:
• Each costs $2B and you have $30B?
• Each costs $3B and you have $30B?
• Each costs $5B and you have $30B?
Unit Cost
Total Cost
Units
$2B
$30B
15 BCTs
$3B
$30B
10 BCTs
$5B
$30B
6 BCTs
© Dale R. Geiger 2011
Which provides
the stronger
Army?
2
Terminal Learning Objective
• Task: Identify Similarities Between Battlefield
Management And Cost Management
• Condition: You are a cost advisor technician with
access to all regulations/course handouts, and
awareness of Operational Environment
(OE)/Contemporary Operational Environment
(COE) variables and actors
• Standard: with at least 80% accuracy
• Identify symptoms of the Cost War
• Describe the importance of Commander’s Intent
© Dale R. Geiger 2011
3
Cost Management and Control:
National Security Implications
• What if the cost of a BCT could be reduced by one-third while
maintaining the same effectiveness?
• Simplify the math by considering Army Budget to be 30 and
initial BCT cost to be 3
ARMY Budget = 30 = 10 BCTs
initial BCT cost 3
x x x x x
x
x
x
x
x
ARMY Budget
= 30 = 15 BCTs
2/3 initial BCT cost
2
x x x x x
x x x x x
x x x x x
A one-third cost reduction yields a 50% increase in BCTs
“My guess is that a third of the defense budget goes into the friction of
following bad regulations – doing work that doesn’t need to be done.”
Bob Stone former DASD Installations, Reinventing Government
© Dale R. Geiger 2011
4
Risk to Mission = Cost War
• The Cost War is the struggle:
• To accomplish and enhance your organization’s
mission
• With fewer financial resources than you would
wish
• While meeting specifications for quality,
customer service, and ethics
© Dale R. Geiger 2011
5
Are You in a Cost War?
• Do you need more resources?
• Have your budgets been cut?
• More than once?
• Almost always?
• Is your list of unfunded requirements
increasing?
• Do you have limits on hiring?
• Are you getting unfunded mandates?
© Dale R. Geiger 2011
6
Assess Before Continuing
STOP: You need not proceed if
your organization is not in a Cost
War
GO: Proceed only if your
organization is engaged in a Cost
War
© Dale R. Geiger 2011
7
What are You Going to Do About It?
• Alternative 1: Try to get more budget
•
•
•
•
Better define and document “needs”
Highlight deficiencies and problems
Contrast funding levels to others’
React to cuts with downsizing, reduced service
levels, personnel cuts
The old way of
doing things
© Dale R. Geiger 2011
8
Traditional View of Budget
Budget
Appropriated
$
© Dale R. Geiger 2011
Mission
Accomplished
9
Traditional View of Budget
Budget
Appropriated
$
© Dale R. Geiger 2011
Mission
Accomplished
10
What are You Going to Do About It?
• Alternative 2: Manage cost better
•
•
•
•
Seek, but don’t count on, budget increases
Develop a cost management paradigm
Measure costs as needed
What This
Course is All
Motivate a culture of continuous
About
improvement in productivity
• Reprogram/redirect savings to self fund needs
© Dale R. Geiger 2011
11
Payoff: Better Execution,
Not Cost Savings
Budget
Appropriated
$
Manage
ment
$
Better Mission
Execution
$
$
Reprogrammed
Efficiencies
12
© Dale R. Geiger 2011
Top 10 Reasons Government Orgs
Manage Cost
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
Enhance Mission Execution
© Dale R. Geiger 2011
13
Productivity: Getting More Mission for
Less Cost
• Private sector productivity is the
cornerstone of recent economic success
• National statistics show sustained 3-4%
annual rate of productivity improvement
• What did you pay for your first calculator?
iPod? Cell phone? Computer?
© Dale R. Geiger 2011
14
Conclusion: The Cost War
•
•
Period of plenty (The Cold War) is over
Period of limited resources (The Cost War) has
begun
• Losing the Cost War will result in excessive loss of
mission capability or missed opportunities for
enhancement
• Winning the Cost War Requires a strong cost
management process and a culture of continuous
improvement
© Dale R. Geiger 2011
15
Check on learning
• You know you’re in a Cost War if…..?
• What are the two alternatives for dealing with
reduced resources?
© Dale R. Geiger 2011
16
Assess Before Continuing
STOP: Do not proceed if you would
emphasize resource acquisition or if
you don’t want this mission
GO: Proceed only if you wish to more
efficiently use the resources you have
and you want this job
© Dale R. Geiger 2011
17
Can Government Manage?
• Many believe “Government Management”
is an oxymoron
• Do you?
• Academics typically cite:
• Lack of profit motive
• History of government spending
© Dale R. Geiger 2011
18
How Important is Profit Motive?
• Most managers in corporations are not profit
managers
• Cost center managers outnumber profit center
managers 40 or 50 to 1
• Owner control is typically weak unless an
individual owns a large share block
• Probably not much different than power of voters
in political elections
© Dale R. Geiger 2011
19
Can Government Manage?
• History of last 60 years of Government
spending
• Cited as evidence by skeptics of Government’s
inability to manage
• Used here as rationale that Government has
not needed to manage
© Dale R. Geiger 2011
20
Government Management
Improvement Strategies
Centralized
Discontinuous
Continuous
Decentralized
A-76
Business Process
Reengineering
Budget Mgmt
PART
Cost Management
& Control Processes
© Dale R. Geiger 2011
21
Requirements for Cost Management
and Control
• Cost Data: Providing the raw materials needed
for decision making and process
• Process: Institutionalizing a method of
stimulating continuous improvement
• Cost Staff: Translating data into information
• Leadership: Driving management, setting and
achieving intent
© Dale R. Geiger 2011
22
Cost Management & Control Processes
Must
•
•
•
•
•
•
•
Require frequent management attention
Stimulate learning: frequent feedback
Generate goals that challenge
Encourage performance to meet goals
Eliminate entitlements
Create continuous improvement culture
Emphasize constant reduction of needs
© Dale R. Geiger 2011
23
Battlefield Management
• Provides a useful template for cost
management
• Good military commanders are inherently
cost conscious in achieving missions
• Minimize cost in casualty losses
• Minimize cost in resources and capabilities
• Good financial managers must also be cost
conscious in achieving their missions
© Dale R. Geiger 2011
24
Battlefield Management
•
•
•
•
Unique to government management arena
No profit motive exists
We’re pretty good at it
Command, control, and communication
paradigm provides a useful template for cost
based management
© Dale R. Geiger 2011
25
Command, Control, and
Communication of Cost
Warrior Pull
Battlefield Intelligence
becomes
becomes
Cost Warrior Pull
Managerial Costing
Cost Command
and Control
Process
Modeling and
Simulation
After Action Review
becomes
becomes
Cost Planning
© Dale R. Geiger 2011
Cost After Action
Review
26
The Role of Cost
Planning
Cost Command
And Control
:Cost Projection
:What- Iffing
:Ad Hoc Analysis
Cost Planning
• Provides proactive alternative to annual
budget crisis
• Stimulates learning/training in financial
consequences of alternative actions
cheaply
• Provides a basis to evaluate mission success
• Clarifies short term assignments
© Dale R. Geiger 2011
27
The Role of the
Cost After Action Review
Cost Command
And Control
Performance Measurement
Fixed Accountability
Continuous Improvement
Cost After Action Review
• Document and explain performance
• Evaluate performance and create
accountability
• Stimulate learning for:
• Better reconnaissance
• Better planning
• Better execution
© Dale R. Geiger 2011
28
Cost Warrior Pull
The Role of
Cost Warrior Pull
Command Specification
Command Goal Setting
Command Review
Cost Command
And Control
Process
• Specify managerial costing requirement
• Perform intelligence prep of the battlefield
• Determine essential elements of info
• Lead the cost management process
•
•
•
•
Set the agenda
Negotiate and approve plans
Critically review execution
Signal the importance of cost management
© Dale R. Geiger 2011
29
The Role of
Managerial Costing
Managerial Costing
$Relevant Costs
$Customized Views
$True Resource Use
Cost Command
And Control
• Develop needed intelligence for the cost
manager fighting the cost war
• Needed: credible measurement of true costs of
resource consumption
• Provide information to the cost management
process
• Needed for decision making, planning processes,
and after action reviews
© Dale R. Geiger 2011
30
Check on learning
• Why is “lack of profit motive” not an excuse
for not managing cost in government?
• What is the role of the Cost Warrior?
© Dale R. Geiger 2011
31
Commander’s Intent
“Commanders must develop and
communicate a clear vision or intent”
--United States Army Field Manual FM 25-101
Battle Focused Training (emphasis added)
© Dale R. Geiger 2011
32
Why is Commander’s
Intent Important?
• Dynamic environment
• Changing conditions under fog of war
• Unanticipated enemy actions/reactions
• Unforeseen opportunities and threats
• Capitalize on the skills of subordinates who
are best positioned to make decisions
© Dale R. Geiger 2011
33
Commander’s Intent
--United States Army Field Manual
FM 25-101 Battle Focused Training
© Dale R. Geiger 2011
34
Why is Commander’s
Intent Important?
• Commander physically cannot make all
decisions
• Commander is not best qualified to make
all decisions
• Command must insure control while
reaping all possible advantages of
decentralization
© Dale R. Geiger 2011
35
A Military Analogy
• Consider the economy of force sector
• Some sectors in the front line are deliberately
allocated fewer forces
• This permits concentration of force for
• The main attack
• The secondary attack
• The Cost War now places many
government organizations in the fiscal
economy of force sector
© Dale R. Geiger 2011
36
What if You are in Command in the
Economy of Force Sector?
• Your time and energy are limited
• You must allocate them between:
• Going to higher HQ to plead for more
resources to increase your effectiveness
• Staying at your sector maximizing the
effectiveness of the resources you have
© Dale R. Geiger 2011
37
One Way to Think About Your Options
• Grant Me . . .
• The Serenity to Accept the
Things I Cannot Change;
• The Courage to Change the
Things I Can;
• And the Wisdom to Know
the Difference
© Dale R. Geiger 2011
Resource
Level
Resource
Management
Your Decision
38
Group Activity
• Break into groups
• Address the previous slide’s question
Write a one page PowerPoint slide with your
Commander’s Intent
• Present your statement to the class in 20
minutes
© Dale R. Geiger 2011
39
Commander’s Intent in the Cost War
• Development of clear vision and intent is
key to:
• Leading the continuous improvement process
• Developing and institutionalizing the cost
based performance management process and
needed cost measurement capabilities
© Dale R. Geiger 2011
40
Leading the Continuous Improvement
Process
• Change culture to one which:
• Aggressively seeks better ways to operate
• De-emphasizes defense of past practice
(assumed best practice at that time)
• Requires and expects development of
continuous improvement initiatives
• Today, tomorrow, next week, next month, next
year, forever
© Dale R. Geiger 2011
41
Steps to Cost Based Performance
Management
1. Recognition that continuously reduced
resources have become a way of life
2. Awareness that sound management of
resources has become more important
3. Search for a workable management
paradigm becomes critically important
4. Development of actionable measurement
capability becomes indispensable
© Dale R. Geiger 2011
42
Check on learning
• Why is Commander’s Intent important?
• What does it mean to be in the fiscal economy
of forces sector?
© Dale R. Geiger 2011
43