What’s the Cost?.......What’s the Question?

1. What’s the Cost?.......What’s the Question? The Importance of Building and Sustaining Operational Cost Models in Support of Capability Mr David Robinson Business Manager RAN Fleet Air Arm 27-28 Jun 2011

2. Presentation Topics • The Importance of Quality Data • Theory and Practise • Defence/Navy Management - Lessons Learnt • Costing in Defence • My Boss Doesn’t Think This is Important • The Current Costing Environment • What’s the Cost?……What’s the Question? • Costing Scenarios and Potential Issues • The Future Costing Pools and Costing Tools • Sustaining Knowledge • Integrated Solutions to Support Continuous Improvement

3. The Importance of Consistent Quality Cost Data • Pyzdek – Repeatable, Reproducible, …. • Remove over complicated accountancy based rules, regulations and reporting • Constant validation • Cost and analysis resources • Is cost all you need? • Examples from Industry, Defence and CAM-I Survey • The basis/core of next tier process • Walk before you run – transitioning data in support of CI methodology Process Cost and Performance People

4. Defence Costing – Operators, Accountants & Users • How do you engage staff to highlight the importance of cost data? • -In the case of Defence its all about capability/effect • How do you link cost data to capability? • - Timely application of current working knowledge/operations to costing scenarios • - ABM best practice – Link/mirror your cost data to performance indicators • - Create data packages and cost management processes at the level you need • Build it and they will come • - Engaging external providers? You hold the knowledge…. • - Automation: Beware the ‘push button solution’. Provide manageable ‘data pools’ not ‘solutions’. • - Navy Capability Costing Systems support

5. FAA BM PI 8 Governance & Compliance What’s the Cost?.......What’s the Question? • Do you understand what you’re asking? • Abe Lincoln once highlighted his distrust for economists stating “I could ask of 300 economists their assessment of the state our finances, and receive a different response from each ”… • $ Lets look at the example of costing people – Actual, CEI Ready Reckoner – Direct, Total Variable, SOC, CFTS, Reserves, Trainees, Filled Vs Vacant • $To support Net Personnel Operating Costs (NPOC), Schedule of Rates and Charges (SORC), Directed Level of Capability (DLOC)? • Information gathering - start at square one • $ What is the purpose of the costing? Highlight the scenario • $ Is there existing guidance on how this is to be done? • $ Don’t recreate the wheel, look to align with current endorsed process • $ Ask the specialists

6. Danger Will Robinson • Get it right the first time • - Validate and document your assumptions • - Ask the specialists • - Peer review - Operator and Cost Analysis • Potential examples • - Acquisition NPOC offset issues • - Budget or equipment removal • - Capability decision errors

7. Application in the Defence Environment • Costing pool solutions (PMKEYS, ROMAN, Assets, EO, MILIS etc) • RAN COGNOS models • - Total Cost of Capability • - NPOC • - DLOC • - Log Consumption • - CEI SORC • Sustaining your efforts - Resource and train to sustain - Embedded methodology - The importance of integrated methodology as it pertains to improvement

8. QUESTIONS “There is always a better way of doing business”