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Enabling Cost Management

for Improved Decision Making

Army Day – PDI 2007

“GFEBS will provide the Army with Cost Management functionality


to accurately capture and reflect the true cost of our operations,
products and services” - GFEBS Capabilities Design Document
SAFM-CES-C
GFEBS Cost Team Lead
Agenda

  Cost Management Definition

  Army Cost Management Direction

  How GFEBS will Enable Cost Management

  Changes from Today’s Processes

  GFEBS Cost Management Process / Status

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Cost Management Concept
  The Practice of Understanding What Causes Costs to 
Occur and Then Using That Information to Achieve a More 
Desirable Outcome.  Benefits Include:
 Reducing Cost and Preserving Resources for Other Military 
Missions
 Supporting Continuous Improvement and Accountability
 Increasing the Capability to Satisfy Customer Demand
 Analyzing Value Provided by Activities

Cost Management Sounds Like “Do More With Less” - It Can Be!
• Improves Efficiency and Effectiveness
• Identifies & Frees Resources for Alternative Uses
• Improved Methods / Processes Lead to Doing More With Less
• Provides Quicker / Better Reaction to Resource Constraints

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What is Cost Management?
A Cycle of Determining Cost Information, Forecasting,
Measuring, & Reviews Using the Chain of Command:

• Determine Accurate Costs,


- Cost Measurement System to Gather
Cost Data & Information

• Forecasting & After Action Reviews


- Improve Business Processes,

- Eliminate Waste,

- Cost Estimating,

- Plan Operations & Set Enterprise


Strategies.
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Cost Measurement is Required
 Cost Measurement Has Meaning Only
When Considering Its Purpose
 Defining Cost Measurement Should Be
Carefully Considered and Evaluated
 Alternative Cost Methods Should Be
Evaluated Under Operating Environment
Purpose Is the key to Understanding Army
Cost Model Design (GFEBS)
Army’s Cost Management Purpose is to
Provide Operational Managers With
Relevant “True” Cost Information to Make
Sound Economic Decisions
Source: The Federal Accounting Standards Advisory Board (FASAB) SFFAS
No. 4. Managerial Cost Accounting Standards
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Many ways to Measure Cost
Methodology vs System
• Army’s Purpose is to Provide Operational Managers With Relevant “True” Cost
Information to Make Sound Economic Decisions
• Methodologies to Measure Cost (FASAB #4)
- Activity Based Costing
- Job order costing Traditional vs Cost
ABC View
For Notional Business Process to Account for Installation Property
- Project costing
- Incremental costing Traditional View (Inputs) Cost
ABC View (Activities)

- Hybrid Salaries $501K Issue Property $ 40K


Supplies 44K Receive/Turn-In Property 72K
• Cost Measurement System to Contracts 45K Maintain Prop. Book 279K
Gather Cost Data and Travel 17K Store Property 136K
Transportation 19K Administrative Support 99K
Information
$626K $626K

Army Range of Approaches

Ad SAS SAS CM
GFEBS
Hoc Oros ABM Structure
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Cost = Budget = Obligations…
 Cost Accounting / Management New to Most of
Army
 Provides Financial and Managerial Information

 Cuts Across financial and operational


organizations
 Is Driven by Information Needs of the
Operational Army not solely the Financial
Community

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Budget Formulation Budget Execution Cost Management

Budget Budget Authority Cost


» President’s financial plan  » Authority to incur 
and the priorities for the  » Valuation of resources 
obligations used to produce outputs, 
Federal Government
basis for decision making
Focus Focus Focus
» requirements » availability, obligations » full cost
SAP SAP SAP
» BW/BPS » FM » CO / BW / BPS

Data Streams Data Streams
Data Streams
» plan, target, actual 
» requirements,  » budget, actual COED expenses  ­> cost, rates, 
formulations performance measures
Key Data Elements Key Data Elements Key Data Elements
» appropriation, FTE » appropriations, EOR’s,  » operational entity (e.g. 
PE,  MDEP, projects,  cost centers), services, 
BLIN, etc. rates, products, projects, 
Questions Questions etc.
Questions
» What will I ask for? » What funding did I get ? » What was expensed? 
» What obligations were   » What did I get for it?
executed? » How well was it used?
Process Dependencies Process Dependencies Process Dependencies
» budget requests are the  » consolidates operational   » capture full cost 
base for appropriations expenditures across  components regardless of 
budget entities budget entities/authority

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Agenda

  Cost Management Definition

  Army Cost Management Direction

  How GFEBS will Enable Cost Management

  Changes from Today’s Processes

  GFEBS Cost Management Process / Status

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The Army
Requires A Great Deal Of Resources
$ 38 billion of inventory
b u d get
Army illion $120 billion in general property, plant & equipment
b
$200 ally $ 40 billion environmental liabilities
annu
 70 Brigade Combat Teams (BCT)
» 42 Active BCT
» 28 USARNG BCT
 200 Support Brigades 
» Active, USARNG and USAR
» Multifunctional, e.g., Combat Aviation, Sustainment
» Functional, e.g., Engineer, Military Police, Signals
 482,000 Active Soldiers
 350,000 National Guard Soldiers
 205,000 Army Reserve Soldiers
 229,000 Civilians  10,000 Major Items of Equipment
 300,000 Spares and Repair Parts (Army managed)
 250 Installations With Thousands Of Facilities
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Need to Understand What
the Resources Buy – The Army Product
X
Sets Framework X X
for Developing
Army-wide Cost Heavy
Structure
X Light X Stryker X
SUST UA SUST
FCS
Force Generation
$ to Reset
$ to Train
$ to Deploy
Training (Ind) Training (Unit)
$ / Student Trng Day $ / Mile
$ / Course Day $ / Flying Hour
$ / Weapon System

Base Support Personnel Equipment


$ / Service Military - $ / Soldier $ / Brigade - New
$ / Brigade Civilian - $ / FTE $ / Brigade - Conversion
$ / Installation (SRM, BOS, Contractor - $ / FTE Ratio: Sppt $ / Brigade $
ENVR, FP)

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Cost Management
Reporting Requirements
 Cost by Brigade
» Equip Brigade
– Weapon System (RDT&E & Procurement)
– Depot overhaul
– Transportation
» Train Brigade HQDA will establish Enterprise-wide
– Training Ranges Business rules for:
– OPTEMPO • Allocation (At Appropriate Levels)
» Man Brigade • Costing Methods
– Recruit / Retain • Required Cost Structure
– Institutional Training
– MILPERS (labor cost)
» Support Brigade
– Base Operations (IMA)
– Other (e.g., NETCOM, MEDCOM, INSCOM, CIDC, USACE, MDW)
» Brigade Operations
– US Army (Central, North, South, Europe, Pacific), EUSA, SDDC,
SMDC/ARSTRAT, USASOC
» Corporate Overhead
– HQDA & ARMY COMMAND HQs
– Military Academy

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GFEBS Enables Funds Control
And Cost Management
Funds Control Cost Management
relating Cost Weapon Sys $
of Brigade (VAMOSC)
HQDA
Military Pay Actual $
Contracts (CLS) assign $ $
Army Service
Component Commands

Direct Reporting Unit


Unit Training
• Ground
Actual $ $
Army Commands
OPTEMPO
Installation
• SSP1 (Labor Tracking)
assign $
School Training assign $
•Initial Entry
Equip the Force Actual $ $
•Acquisition
GFEBS enables Army
to “slice and dice” data
for decision-making
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Agenda

  Cost Management Definition

 Army Cost Management Direction

  How GFEBS will Enable Cost Management

  Changes from Today’s Processes

  GFEBS Cost Management Process / Status

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Army Cost Management Strategies for
Efficiency & Continuous Improvement

Top Down / Centralized Operational Level /


Captures Low Approach Decentralized Approach
Hanging Fruit,
Provides Initial - Business Process
- A-76
Savings Reengineering
One Time - Business Process
- Standardization
Fixes Improvement
- Reorganizations - Reorganizations
- Budget Management
GFEBS
Continuous Cost & Performance
- Reduction Targets
Improvement Management
- GPRA, PMA

- Achieved through
existing Financial Systems - Requires Managerial Costing
- Reduces Spending - Supported by Cost Accounting
- Gains some Efficiencies - Leads to Efficiency & Effectiveness

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SAP Provides
Integrated Solution

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Benefits of Integrated Cost
and Financial System
Financial (FI) Module       STANFINS  Controller (CO) Module
• Compliant with CFO ACT and
GAAP Standards
X • Compliant with GPRA and
FASAB Statement #4
• Provides consistent, auditable • Provides flexibility in
capturing relevant cost
and repeatable transactions
that meet external reporting
X information to meet recurring
requirements. and one time internal
management needs.
• Separate but integrated • Separate but integrated
transactions - maintains X transactions – allows variations
integrity of FI data while in CO costing with controls set
allowing costing flexibility in in FI to manage financials.
CO.
• Cost & Execution can be
• Manageable, high level captured at greater levels of
external reporting to meet detail, against programming
Congressional, OSD, and X and planning targets as
Army requirements without low required (integrated with non-
level, detailed reconciliations financial data)
and balancing efforts

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How Costs are Collected
Organizational Real Property / Special Event or
Cost Objects Entities Equipment
Program / Project Task / Activity
Initiative

GFEBS (SAP) Assets / Real


Cost Centers Project / WBS Business Process Internal Order
Cost Collectors Estate Objects
• BRAC
• Installation • Acquisition • Service Support
• Building • Training Event
• Brigade • RDTE Project Program (SSP)
• Training Range • Mandatory
Army Examples • School
• Weapon System
• MILCON Project • Instructional Course
Training
• Directorate • System Test • Repair Process
• Support to
• Lab • Test Run
Olympics

Cost assigned Directly or Indirectly


X
X X
Heavy

X Light X Stryker X
SUST UA SUST
FCS
Force Generation
$ to Reset
$ to Train
Customer / Product
• Brigade • Weapon System
$ to Deploy
Training (Ind) Training (Unit)
$ / Student Trng Day $ / Mile

• Tenant • PEO / PM
$ / Course Day $ / Flying Hour
$ / Weapon System

Base Support Personnel Equipment


$ / Service
$ / Brigade
$ / Installation (SRM, BOS,
Military - $ / Soldier
Civilian - $ / FTE
Contractor - $ / FTE
$ / Brigade - New
$ / Brigade - Conversion
Ratio: Sppt $ / Brigade $
• Command • Course
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ENVR, FP)
Agenda

  Cost Management Definition

  Army Cost Management Direction

  How GFEBS will Enable Cost Management

  Changes from Today’s Processes

  GFEBS Cost Management Process / Status

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GFEBS Resource Management
Framework
3 Tiered Hierarchy of Master Data and Managerial Information:

Upper: Meet Legal & Regulatory Requirements (OSD, OMB, Congress)


Middle: Meet Leadership Information Requirements (Army, DoD)
Lower: Provide Managerial Information (Army Commands and below)

Macro Linkage of the 3 Tasks & Outcomes:

Budget Management
–Build and manage execution year Budgets below HQ Dept. of Army
–Inform leadership decisions during execution year
–Support formulation of the Army Budget

Funds Management Cost Management


– Distribute funds – Report cost for internal decision making
– Control funds –Measure cost & performance execution
– Monitor funds execution – Conduct cost variance analysis
– Report legal and regulatory requirements – Link cost to outputs

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Cost Management
Today and Tomorrow
Today With GFEBS Tomorrow
MEASUREMENT MEASUREMENT
 Business Areas supported   CM functionality in GFEBS 
by standalone software directly linked with financial 
 Crude links with financial  data
systems  Common cost management 
 No cost management  structure enables cost roll­ups 
HOW
structure ­ Cost roll­ups  DO  Tracks Labor by Work 
difficult Performed / Output
WE
 Time & attendance w/o work  GET
indications HERE
?
MANAGEMENT MANAGEMENT
 Budget Mgmt culture   Cost Mgmt culture focused 
focused on Reporting Internal Decision Making
 Budget vs cost skills/ staff   Budget vs cost skills/staff 
imbalance balanced
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Cost Structure
Today: Tomorrow (GFEBS):
 Appropriation  Product
 Organization  Service
 MDEP  Customer
 Element of Resource (EOR)  Tenant
 PE/AMSCO/APC  Facility
 Functional Cost Account
 Typically captures financial   Based on accrual/expense by 
obligation data transaction
 Not Full Cost  Will be Focused on Full Cost
 Financial Focus not Managerial  For Internal Management not 
 Not linked to Output External Fiduciary Reporting
 Linked to Output
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Cost Collection Methods
Today: Tomorrow (GFEBS):
 Independent Systems  Integrated System (ERP)
 Data Calls  Cost Accounting  Functionality
 Multiple Varying Structures  Controlling Module
 Mapping, Manipulation and Gross  - Job Order Cost 
- Project Cost
Allocations - Standard Costing
 Limited Labor Tracking / Cost  - Activity Based Cost 
Accounting  Will Track Labor
 Not Full Cost  Full Cost 
 System Not Flexible  Standardization & Flexibility
 Ad Hoc for Management Decisions  Provides Analytical Capabilities
 Cost Collected Separately &   Cost Assigned to Appropriate 
Different Accounts

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Cost Allocation
Today: Tomorrow (GFEBS):
 Not All Cost Allocated  Standardized Process
 Focused on Direct Obligation by   Will Use Acceptable Cost 
Appropriation Allocation Practices
 Assigned / Mapped to High Level   Will Provide Capability for Multiple 
Programs (e.g. MDEP) Cost Allocations
 Allocation Done Differently by   Allocations Only where Direct 
Organization Assignments not Used

 Inconsistent Army Reporting  Required for Full Cost Accuracy
 Not Full Cost  More Accurately Defines Overhead 
 Financial Focus to Meet Budget  & Indirect Cost
Execution Reports  Maintains Budget Execution 
 Not linked to Output Capability  
 Linked to Output

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Agenda

  Cost Management Definition

  Army Cost Management Direction

  How GFEBS will Enable Cost Management

 Changes from Today’s Processes

  GFEBS Cost Mgmt Process / Status

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Functional Integration IPT
Program Director(FIM)

Functional IPT Leads

Cross Integration
Master Data

Funds Mgmt/ Budget


Plant, Property& Spending Chain
Equipment
Reimbursables Cost Management Formulation Financials

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Cost Management
Blueprint Processes
6.0 Cost Management
(Perform Management Accounting)

6.2 Determine
6.1 Define Master 6.3 Perform
Assignments
Data Elements Planning
Methods

6.6 Perform Mgmt


Accounting Close, 6.5 Capture
6.4 Capture
Analyze Results, & Actuals for Payroll
Actuals for Payroll
Take Corrective
Action

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Cost Management
 Process Overview:
» The GFEBS implementation of the SAP Controlling component 
will provide the Army with full Cost Management functionality to:
– Provide the Army with better decision support information by 
integrating expenditure, cost, and output data across the Army
– Enable Full Costing of product, service, organization, project, or 
other cost objects across the Army
– Enhance decision­making based on real­time, accurate, 
relevant, and transparent cost information 
– Provide the ability to establish Cost Targets and Plans, 
Compare Actuals, and Improve Forecasts
– Retain all of the content and critical data relationships as they 
exist today in the legacy financial systems (e.g. DFAS 37­100 
FCA, EORs, AMSCO point accounts) using SAP COTS cost 
objects

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Cost Management
 Key Assumptions/Decisions:
» Policy and Guidance  ­  HQDA will establish for Master Data, Cost 
Assignments, Time Tracking, Standard Rates, and Variance Reporting
» GFEBS Cost Center Structure  ­  AR 10­87, OSD Organization Unique 
Identifier, and Army Unique Identifier Code will serve as foundation
» Organizational Changes  ­  Originate by G3, G1, G8 through external 
process
» Maximize Standardization  ­  standard assignment methods, rates and 
structures will be used where possible
» Time Tracking  ­  will be used where applicable to associate work hours 
with detailed activities (e.g. Service/SSP)
 Degree of Change: High 
» Majority of Army does not have standard cost objects defined in financial 
accounting system
» Army proponents currently create, collect, and use cost accounting data on 
ad hoc basis only
» Only limited cost accounting ­ Army reimbursable organizations (e.g. ATEC, 
ARDEC)

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Release 1.2 Accomplishments
To Date for Cost Mgmt Team
 Completed Blueprint Design
 Identified RICEFW
­  Reports     ­  Interfaces
­  Conversions  ­  Enhancements
­  Forms ­  Workflow
 Identified Potential Gaps in System 
Requirements
 Developing Conceptual Cost Model by 
Business Area
- Currently Finalizing IMCOM
 Conducting Study of Labor Tracking Systems
 Conducting Study Methods for Capturing 
Contract Labor
 Design Phase Kickoff (1 May 07)

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