Section 1: Cost Management Overview What are costs and why is managing costs important?

1. Section 1: Cost Management Overview What are costs and why is managing costs important? Army’s overall objectives Change enablers o support Cost Management The process of Cost Management and how it differs from Budget Management Section 2: Cost Model Components Defining the various cost objects (which replace APCs/JONOs) within a Cost Model, e.g. organizations, products, services, jobs, etc. Understanding decision points of where to capture information Section 3: Cost Flow Methods The difference between cost capturing, allocations, and assignment Section 4: Cost Model Build Reflecting organizational structures Replacing APC/Jonos CM 101 Training 1

2. Lesson 1: Cost Assignments Overview Objective(s): Understand the different cost flow methods, the information needed, the Army objective of which method to use. S3L1_p

3. Cost Flow Overview Capturing costs is utilized in order to reflect: Budget Execution The full costs of organizations The full costs of products/services The full costs of customers How organizations can influence the costs by their behavior (output consumption) S3L1_p

4. Cost Flow Overview Full Cost Organizations Full Cost Product/Services Full Cost Customers Services: SSP 29A, 31B IMCOM: Garrison - Tenants Courses: Mission technique classes, combative training TRADOC: Ranger School - Division / BCT - MOS - FMS - Ready Unit - Capability FORSCOM: 1st Brigade Combat Team Mission Commander • Section 2 focused on the shapes depicted in the Cost Model • Section 3 focuses on the arrows in the Cost Model S3L1_p 4

5. Cost Flow Methods Full Cost Organizations Full Cost Product/Services Full Cost Customers • There are three types of Cost Flows: • Direct Charge – the primary or initial posting • Assignments – secondary or follow-on movement based on quantity consumption (has Rate x Qty consumed) • Allocations – secondary or follow-on movements that are value based ($ or # converted to a % split) Services: SSP 29A, 31B IMCOM: Garrison - Tenants Courses: Mission technique classes, combative training TRADOC: Ranger School - Division / BCT - MOS - FMS - Ready Unit - Capability FORSCOM: 1st Brigade Combat Team Mission Commander S3L1_p 5

6. Assignment vs. Allocation Order 1 Order 1 CC 1 $220 -$200 CC 1 8 EE’s 10 @ $10 50% 160 Hrs Hr Order 2 Order 2 10 @ $10 50% 160 Hrs S3L1_p

7. Assignment vs. Allocation S3L1_p

8. 100% 80% Value-Based 60% 40% Quantity-Based 20% 0% Year 1 Year 2 Year 3 Year 4 Year 5 Year N Allocation to Assignment Maturation Process • As the Army’s Management Accounting framework matures over time, utilization between cost allocation versus assignment methods will shift. • Value-based: Cost allocations utilizing tracing factors that result in the allocation of dollars between cost objects, e.g. % split or quantitative information such as # FTEs. The result is the cost flow of dollars only. Supports current costing with limited management control and projection capabilities. • Quantity-based: Cost assignments utilizing the quantity of goods and services provided between cost objects, e.g. # Hrs, SQFT, CPUMINS, etc. The result is the flow of quantities between cost objects with a corresponding monetary valuation. Therefore both quantities and dollars flow. Supports current costing with management control and projection capabilities. S3L1_p

9. Capturing Costs S3L1_p

10. Lesson 1: Wrap-Up There are 3 forms of cost flows: direct charge, assignments, and allocations The primary or initial posting is directly charged to the Cost Object Further associations of the costs to consuming organizations, products/services, uses assignments/allocations Assignments utilize a generic basis providing both a rate & quantity consumed (e.g. SQFT) Allocating utilizes a value basis (either amount or value) to calculate a percentage split. S3L1_p

11. Lesson 2Capture Output Costs Objective(s): To understand which outputs are captured, how the outputs are classified (quantitative or qualitative) and how these outputs are captured S3L5_p

12. Capture Output CostsOverview • In addition to capturing cost, non-financial quantity information is necessary to support Cost Management • Non-financial quantity information can be: • Quantitative, e.g. # of helpdesk tickets, # students • Qualitative, e.g. average # days to close helpdesk ticket, % Completion Rate S3L5_p

13. Capture Output Costs Decisions • Does the output quantity support the cost by BCT/ARFORGEN? HQ Need? or Field product/services? • (e.g. ammo used for training, # soldiers) • Is the output quantity currently used by scheduling/operational managers on a timely basis? • Can an output change the behavior of an organization/individual to be more efficient and effective (e.g. # cancelled course registrations in ATAARS) • Are output quantities used for justifications and/or requests for funding? • If it supports cost management – efficiently & effectively - then considered S3L5_p

14. Capturing Output Costs Posting Data ACT TYPE BPR SKF # • Output Costs are captured as SKF’s, Activity Types, or Business Processes • Entry Methods: • Interface: Direct communication from legacy system to ERP • Load Spreadsheets: Taking an output of an existing legacy system (command and control), formatting appropriately, and processing in ERP • Direct Entry: Currently captures manually or taking a low volume output from existing system and posting an aggregate of the values in ERP S3L5_p

15. Capturing Output CostsAnalysis 100% 80% Capacity 60% 40% 20% 0% Month 1 Month 2 Month 3 Month 4 Month 5 Month N Actual Output Understanding the dollar amount of unit provided, based on number delivered Cost/Per Understanding the relationship between Resource Capacity to Output generation (e.g. 3 Hrs: 1 Output) S3L5_p

16. Capturing Output CostsAnalysis • Visibility across the Army as to what tasks should costs • Supports Comparative Analysis between sites, tasks, types of work, groups of resources to identify best practice vs. inefficiencies • Allows for realization of trade-offs between delivery and resource consumption Number of Tickets Cost of Closing Tickets S3L5_p

17. Capture Output Costs Analysis AMMO FIRED WARS 10 rounds at $50 Qty is valuated with rate AMOUNT AND QUANTITY ARE THE OUTPUTS OF THIS PROCESS S3L5_p

18. Lesson 2 Wrap Up • Output measures can be used to justify resources, to capture total costs, to influence behavioral changes, to retain operation tasks completed daily. • The output measures facilitate both qualitative and quantitative measures. This can also be viewed as efficiency and effectiveness: • How efficiently are resources utilized (e.g. how much is expended to close a ticket in 4 hrs, 8, hrs, 2 days?) • How effectively is the product/service provided to the customer? (e.g. how long does it take for me to close a ticket) S3L5_p

19. Objective(s): Highlight the most important concepts addressed throughout the training Lesson 3: Summary/Key Take-Away’s S4L3_p1

20. What is Cost? Resources Consumed Resources * www.rcainstitute.com - RCA Taxonomy S4L3_p2

21. Ensure Strategic Objectives are Effectively Resourced Effectively & Efficiently Produce Outputs • CG • TRADOC • CG • AMC • CG • FORSCOM • CG • IMCOM ARFORGEN • ARFORGEN Synch Board Program / Budget Construct Cost Management Construct Services &Infrastructure Human Capital Materiel Readiness • Products/Services • Organizations (Cost Centers) • Resources (Labor, Equipment, Assets) Need to Understand What the Resources Buy – The Army Product X X X Heavy Stryker Light S4L3_p3

22. Army Cost Management Framework X X ARFORGEN Available / Deploy X Train / Ready Reset Heavy • Command & Intelligence • Operating Forces • Train Units • Operations & • Activities Stryker Readiness Light • Depot Maint / Repair of Mil Eqt • Ordnance • S&T & R&D • Systems Acquisition, T&E, • Engineering, & Contracting • Research • Procure • Sustain • Distribute • Dispose Operation Planning & Control Cost Management Construct Materiel Financial Management / Budget Communications, Computing, & Info Systems • Civ Education / Training • Civ Personnel Svcs • Mil Education / Training • Mil Personnel Svcs • Prof. Development Educ. Program / Budget Construct • Acquire & Train • Manage (Pay) • & Distribute • Develop & Educate • Force Development Human Capital • Community & Family Svcs • Environmental Security & • National Resource Svcs • Health Svcs • Installation / Facility Mgt • Facility • Installation • Command Programs • Centrally Managed • Programs Services & Infrastructure Common to CEs Unique to CE S4L3_p4 Note: Program / Budget and Cost Management constructs shown represent subset of overall framework

23. Inputs Outputs Conversion “Work” Cost Management Focus COST MANAGEMENT FOCUS Resources: Labor Material Equipment Supplies Contracts Assets Products Services: Courses Services Support Programs Tests Research Projects Training Events Work Performed by Organizations (Cost Centers) to Produce Products and Services for Customers S4L3_p5 23

24. Cost Management Managing Business Operations Efficiently & Effectively Through the Accurate Measurement & Thorough Understanding of the"Full Cost" of an Organization's Business Processes, Products & Services in Order to Provide the Best Value to Customers. Cost Accounting Cost Management Process Cost Planning Cost Analysis Cost Controlling S4L3_p6

25. Develop/Recruit Analysts • Enhance Training • Performance Focus (NSPS) Enablers of Change Army Cost Culture Change “Making a Square a Circle” “A Culture of Influence” “A Culture of Entitlement” • Budget-focused • Spend rate driven – inputs • Performance objective -99.9% obligated • Free goods has infinite demands • Cost and performance focused • Results driven - output & outcome • Performance objective – resource consumption optimization (efficiency & effectiveness) • Use what is necessary to obtain the objective Policy How To’s • Process Improvement (Lean 6-Sigma) • Integrated Business Design • ERP Applications e.g. (GFEBS, LMP, GCSS) • Business Warehouses • Executive Scorecards S4L3_p7

26. Enhanced Ability to Capture Cost Organizational Real Property / Special Event or Cost Objects Program / Project Task / Activity Entities Equipment Initiative ERP (SAP) Assets / Real Cost Centers Project / WBS Business Process Internal Order Estate Objects Cost Collectors • BRAC • Installation • Acquisition • Services • Building • Training Event • Instructional Course • Brigade • RDTE Project • Training Range • Mandatory • Repair Process Army Examples • School • MILCON Project • Weapon System Training • Test Run • Directorate • System Test • Support to • Lab Olympics Cost assigned Directly or Indirectly • Customer / Product • Brigade • Tenant • Command • Weapon System • PEO / PM • Course S4L3_p8

27. Army Cost Design maturation over years Full Cost Organizations Full Cost Product/Services Full Cost Customers Services: SSP 29A, 31B IMCOM: Garrison - Tenants A monetary valuation of the economic goods and services of the organization – full burden cost flows Courses: Mission technique classes, combative training TRADOC: Ranger School - Division / BCT - MOS - FMS - Ready Unit - Capability FORSCOM: 1st Brigade Combat Team Mission Commander S4L3_p9 27

28. Cost Accounting Cost Planning Cost Analysis Cost Management Process Cost Controlling How the information is entered, stored, used, and presented End User Presentation Layer Where the information is entered, stored, used, and presented Public Sector Budget Accounting Costing Conceptual Design What/Why information is entered, stored, used, and presented S4L3_p10

29. Many Types Costs • Direct costs— A cost such as labor, materials/supplies that can be directly traced to producing a specific output of an organization, product/service. • Indirect costs – A cost that cannot be directly traced to a specific organization, product/service output. • Funded Costs -- The value of goods or services received because of an obligation of funds (obligation authority), by the organization performing the work. • Unfunded costs -- A cost that are financed by another organization's or activity's appropriations. • Variable Costs -- A cost that changes with change in output. • Fixed Cost -- A cost that remains the same regardless of the change in output. • Recurring Cost -- A cost that is incur repeatedly for each organization and/or product/service produced . • Non-Recurring Cost -- A cost that is unusual and unlikely to occur again. • Avoidable Costs -- A cost incurred on an object that will no longer be incurred due to a decision to change the output. • Unavoidable Cost --A cost incurred on an object that will be incurred regardless of the decision to change. • CommonUnderstanding of Types of Cost is Necessary for Informed Decision Making • Each Decision Should be Focused on Only Relevant Cost that Impact the Decision S4L3_p11

30. Cost Objects • Cost Center - A cost center is a responsibility center that incurs costs and has a manager who is accountable for those costs. • Activity Type - An Activity Type is a cost object that represents a group of resources within a Cost Center. These resource groups have capacity and a unit of measure such as: labor hours, machine hours, square footage, etc. Activity Types are consumed and utilized to the produce the products and services of the organization. • Cost Element - A Cost Element is the lowest level component for classifying costs and revenues (as negative costs) of a resource and indicates the category/type associated with a posting (e.g. allocation type, revenue, expense) • WBS Element - WBS elements are activities in the Project used for planning and updating cost data. Some examples of WBS Elements are: Tasks, Partial tasks that are further subdivided, and work packages. • Order - Orders are cost objects used to plan, collect, monitor, and settle the costs of specific jobs and tasks. Orders are used to monitor the costs of short term projects and event/job costing. • Business Process - A business process is a cost object used to capture costs of cross-functional (cost center) activities. • Other: • Statistical Key Figure - A Statistical Key Figure is a piece of information about the cost object it is assigned to, e.g. # FTE for a cost center, # telephones, etc. S4L3_p13

31. HQDA assign assign $ Army Service Component Commands Direct assign $ Cost Management Enables Optimization Outputs/Consumers Providers/Inputs relating Cost of Brigade Weapon Sys $ (VAMOSC) $ Direct Military Pay Contracts (CLS) $ Direct Reporting Unit $ $ • Unit Training • Ground OPTEMPO Army Commands $ • Installation • SSP1 (Labor Tracking) • School Training • Initial Entry • Equip the Force • Acquisition $ $ Direct GFEBS enables Army to “slice and dice” data for decision-making S4L3_p14