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. 2S3L1_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) 3S3L1_p

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

5. Cost Flow Methods 5 Full Cost Organizations Full Cost Product/Services Full Cost Customers TRADOC: Ranger School IMCOM: Garrison FORSCOM: 1 st Brigade Combat Team Services: SSP 29A, 31B Courses: Mission technique classes, combative training - Ready Unit - Capability Mission Commander - Division / BCT - MOS - FMS - Tenants 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) 5S3L1_p

6. Assignment vs. Allocation Assignment: The establishment of relationship between a sending cost object and a receiving cost object based on a quantity (with a rate for valuation) being consumed by the receiver Requires: Activity Type or Business Process quantity as sender A rate associated to valuate the quantity flow Mechanism for capturing or imputing the sender quantity Allocation: The establishment of a relationship between a sending cost object to one or more receiving cost object(s) based on % (even if a quantity is utilized to generate a %, e.g. # FTEs) Requires: Mechanism for capturing a quantitative or monetary value on the receiver(s) which is then utilized to determine the % split of the sender costs Acceptance of batch processing CC 1 $220 -$200 Order 1 Order 2 Hr 10 @ $10 CC 1 8 EE’s Order 1 Order 2 160 Hrs 50% 6S3L1_p

7. Assignment vs. Allocation Assignment: Pros: Direct relationship Real-time information for analysis Reduces systemic burden during period close Dynamic (can change as the environment changes) Capacity Mgmt (resource utilization) Cons: Must have the ability to track quantity from send to receiver or impute Allocation: Pros: Provides mechanism for cost association when tracking of quantity is not possible or cost prohibitive Cons: Full-absorption approach Typically less accurate High demand on system resources during period-end close Static assumption set often infrequently updated 7S3L1_p

8. 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. Allocation to Assignment Maturation Process 0% 20% 40% 60% 80% 100% Year 1Year 2Year 3Year 4Year 5Year N Value-Based Quantity-Based 8S3L1_p

9. Capturing Costs Today: Not All Cost Allocated Focused on Direct Obligation by Appropriation Assigned / Mapped to High Level Programs (e.g. MDEP) Allocation Done Differently by Organization Inconsistent Army Reporting Not Full Cost Financial Focus to Meet Budget Execution Reports Not linked to Output Tomorrow: Standardized Process Will Use Acceptable Cost Assignment/ Allocation Practices Will Provide Capability for Multiple Cost Assignments/Allocations Allocations Only where Direct Assignments not Used Required for Full Cost Accuracy More Accurately Defines Overhead & Indirect Cost Maintains Budget Execution Capability Linked to Output 9S3L1_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. 10S3L1_p

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

12. Capture Output Costs Overview 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 12S3L5_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 13S3L5_p

14. Capturing Output Costs Posting Data 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 ACT TYPE ACT TYPE BPR SKF # 14S3L5_p

15. Capturing Output Costs Analysis 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) 0% 20% 40% 60% 80% 100% Month 1Month 2 Month 3 Month 4 Month 5Month N Capacity 15S3L5_p Actual Output

16. Capturing Output Costs Analysis Cost of Closing Tickets Number of Tickets 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 16S3L5_p

17. 2ABM0014: LEGAL (ILO) NameCost ElementAmountQuantity Perm6100.11B1$5,000100 hrs Capture Output Costs Analysis Training Event (UIC) 10 rounds at $50 Qty is valuated with rate 2ABM0065: AMMO SUPPLY NameCost ElementAmountQuantity Ammo9400.AMMO10 EA NameCost ElementAmountQuantity Ammo9400.AMMO$50010 EA AMMO FIRED WARS AMOUNT AND QUANTITY ARE THE OUTPUTS OF THIS PROCESS 17S3L5_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) 18S3L5_p

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

20. What is Cost? * www.rcainstitute.com - RCA Taxonomywww.rcainstitute.com “Cost is a monetary measure of the sacrifice associated with: expending resource functionality to achieve a specific objective, orresource functionalityobjective utilizing resource output required to achieve a specific objective, orresource output the provision of resource functionality or resource output while not using it. Resources Consumed S4L3_p2

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

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

23. 23 Cost Management Focus Inputs Conversion “Work” Outputs Resources: Labor Material Equipment Supplies Contracts Assets COST MANAGEMENT FOCUS 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

24. 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 Planning Cost Controlling Cost Analysis Cost Accounting Cost Management Process Cost Management S4L3_p6

25. ERP Applications e.g. (GFEBS, LMP, GCSS) Business Warehouses Executive Scorecards Process Improvement (Lean 6-Sigma) Integrated Business Design Policy How To’s Enablers of Change Army Cost Culture Change “Making a Square a Circle” 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 “A Culture of Entitlement” “A Culture of Influence” Develop/Recruit Analysts Enhance Training Performance Focus (NSPS) S4L3_p7

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

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

28. Costing Conceptual Design Budget Accounting Publi c Sect or End User Presentation Layer Where the information is entered, stored, used, and presented Cost Planning Cost Controlling Cost Analysis Cost Accounting Cost Management Process How the information is entered, stored, used, and presented 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. Common Understanding 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. Cost Management Enables Optimization Providers/Inputs Outputs/Consumers HQDA Military Pay Contracts (CLS) Unit Training Ground OPTEMPO Installation SSP 1 (Labor Tracking) School Training Initial Entry Equip the Force Acquisition Army Commands Army Service Component Commands Direct Reporting Unit $ $ Direct $ assign GFEBS enables Army to “slice and dice” data for decision-making assign $ relating $ assign $ $ $ Cost of Brigade Weapon Sys $ (VAMOSC) Direct $ S4L3_p14