Cost management training day2

Training Agenda/Objectives
• Day 1: Cost Management Overview
– Understanding of why managing costs are important, Army’s
overall objectives, the process of Cost Management, how it
differs from Budget, and key cost terms

• Day 2: Cost Object Definition
– Understanding of an ERP, how to build a Cost Model, and the
various cost objects within a Cost Model (e.g. organization,
products, job orders, etc.)

• Day 3: Assignment of Costs
– Understanding of cost allocations/assignments, how to chose
which to utilize when, how to valuate the results of the
assignments (Std. vs Actual), and rate creation

• Day 4: Analysis and Reporting
– Understanding of the results of the Cost Model and how various
types of analysis and decisions are supported
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Day 2 Objective & Agenda
Day 2: Cost Object Definition
• Understanding of an ERP, how to create a cost model
and each of the cost objects supported within the cost
model
- Lesson 1:
ERP Enabler
- Lesson 2:
Costing Conceptual

Design
- Lesson 3:
Cost Centers
- Lesson 4:
Activity Types
- Lesson 5:
Cost Elements
- Lesson 6:
WBS Elements
- Lesson 7:
Orders
- Lesson 8:
Business Processes
- Lesson 9:
Statistical Key Figures
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I FOUND A WAY TO SAVE
A MILLION DOLLARS BY
SPENDING ONLY
$10,000.

THE $10,000 WOULD
COME OUT OF MY
BUDGET BUT THE
SAVING WOULD GO
INTO SOMEONE ELSE’S
BUDGET. IT’S NOT
FEASIBLE.

(Modified)

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THE
CHIEF OF
STAFF
MIGHT
NOT
AGREE.

THAT’S WHY
HE IS NOT
INVITED TO
THE
MEETINGS.


Lesson 1: ERP Enabler
Objective(s):
• To understand what “ERP” stands for and
how it can support the Army’s Cost
Management culture

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Enhanced Ability to Capture
Cost

Organizational
Entities

Cost Objects

GFEBS (SAP)
Cost Centers
Cost Collectors
• Installation
• Brigade
• School
• Directorate
• Lab

Army Examples

X

X

Real Property /
Equipment

Program / Project

Task / Activity

Special Event or
Initiative

Assets / Real
Estate Objects

Project / WBS

Business Process

Internal Order

• Building
• Training Range
• Weapon System

• Acquisition
• RDTE Project
• MILCON Project
• System Test

• Service Support
Program (SSP)
• Instructional Course
• Repair Process
• Test Run

• BRAC
• Training Event
• Mandatory
Training
• Support to
Olympics

Cost assigned Directly or Indirectly

X

Heavy

X

X
UA

Light

SUST

Stryker

X
SUST

FCS

Force Generation

Customer / Product

$ to Reset
$ to Train
$ to Deploy

Training (Ind)
$ / Student Trng Day
$ / Course Day

Training (Unit)
$ / Mile
$ / Flying Hour
$ / Weapon System

Base Support

Personnel

$ / Service
$ / Brigade
$ / Installation (SRM, BOS,
ENVR, FP)

Military - $ / Soldier
Civilian - $ / FTE
Contractor - $ / FTE

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Equipment
$ / Brigade - New
$ / Brigade - Conversion
Ratio: Sppt $ / Brigade $

• Brigade • Weapon System
• PEO / PM
• Tenant
• Command • Course


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)

Traditional vs. Cost View (example)

- Activity Based Costing
- Job Order (Event) costing

Traditional view (Inputs)

- Project (with WBS) costing
- Std. (Product) costing
- Others

Salaries
Supplies
Contracts
Travel
Transportation

Cost View (Process)

$ 501K
44K
45K
17K
19K
$626K

Issue Property
Receive/Turn-In Property
Maintain Prop. Book
Store Property
Administrative Support

• Requires a System to Gather Cost Data and Provide Analytical
Information

Army
Ad
Hoc
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Financial
Reports

Independent
Cost Models

Integrated
Cost Management

$ 40K
72K
279K
136K
99K
626K


Enterprise Resource Planning (ERP)
ERP Benefits
ERPs Help to Streamline & Integrate the Processes &
Systems Providing the Following Benefits:
• Increases Productivity Across Organizations
• Improves Standardization & Efficiency of Processes
• Increases Access, Consistency & Transparency of
Data
• Provides Collaboration Across Business Domains
• Provides IT Economies of Scale
• Enhances Analytics & Improves Accuracy of Data
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Enterprise Resource Planning (ERP)
Commercial Off the Self System that
Integrates All Facets of the Business

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Data Warehousing Analytics

GFEBS

End User Presentation Layer


Enterprise Resource Planning (ERP)
• ERP Functionality Integrates Management Accounting (Cost
Management) with the Financial & Budget Accounting
End User Presentation Layer

End User Presentation Layer

Public
Sector
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Budget Accounting

Data Warehousing Analytics

Cost Management
Integrated with Finance &
Budget Accounting


Enterprise Resource Planning (ERP)
Cost
Accounting

ERPs (e.g. GFEBS) Enable

The Cost Management Process
Cost
Planning

Cost
Management
Process

Cost
Controlling

Cost
Analysis

Cost Management
Integrated with Finance &
Budget Accounting

End User Presentation Layer

Public
Sector
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Budget Accounting


GFEBS System Components
ECC – Enterprise Central Component

BI – Business Intelligence

FI – Financial Acct. & Mgmt.
Cost By
Report

FM – Funds Acct. & Mgmt.
CO – Cost Acct. & Mgmt.

Unit Cost
Report

MM – Materials Mgmt.
and Procurement

PPE – Property, Plant &

Detailed
Labor
Report

Equipment [PM, PS, RE, AA]

SD – Sales & Reimbursables

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•
•
•

•

Optimized for Data Input
Transaction Processing
Real-time; recon analysis
Structured reporting

•
•
•
•

Optimized for Data Extraction
Analytical Processing
Near real-time; trending analysis
Slice-n-dice reporting (pivot)


Simultaneous Update
ECC – Enterprise Central Component
FI – Financial Acct. & Mgmt.

• FI
• FM
• CO

FM – Funds Acct. & Mgmt.

• FI
- None

- Commitment • FM
• CO
- None

PR

PO

Pay

GR

- None
- Obligation
- None

CO – Cost Acct. & Mgmt.
MM – Materials Mgmt.
and Procurement

PPE – Property, Plant &
Equipment [PM, PS, RE, AA]

SD – Sales & Reimbursables
•
•
•
•
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Optimized for Data Input
Transaction Processing
Real-time; recon analysis
Structured reporting

• FI
• FM
• CO

• FI
- AP/Cash
- Disbursement• FM
• CO
- None

- Expense/AP
- Expenditure
- Expense


Lesson 1: Wrap-Up
• An ERP is an enabler to Cost Management
“Culture” by providing the technology necessary
• The Army Cost Model is being designed into
GFEBS which utilizes the SAP ERP application
• The ERP application has a transactional
component and an analytical component
• The transactional component has real-time
integration for the various value
streams/modules

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Lesson 2: Costing
Conceptual Design
Objective(s):
• To understand the approach to developing
the costing conceptual design to support
the Cost Management Process using the
GFEBS ERP application.

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Costing Conceptual Design
Full Cost
Organizations
Director of
Logistics)

Full Cost
Product/Services
SSPA:

Full Cost
Customers
Brigade

Manage

XXX

OCIE Inventory

SSPB:

Issue

OCIE to Soldier
Military
Labor

Depreciation

Civilian

Central
Issue
facility

SSPC:

Issue
Clothing to Initial
Training Soldier

CIVHR

CNTHR

Military
Labor

YYY

What/Why information is entered,
stored, used, and presented

Accept

OCI Turn-Ins

Employees
Contractors

SSPD:

TRADOC

SSPE:

Brigade
ZZZ

Receive

& Process
MILHR

Shipments

SSPF:

Manage

Chemical Defense
Equipment

. . Etc.

Cost
Accounting

Cost
Planning

Cost
Management
Process

Cost
Analysis

How the information is entered,
stored, used, and presented

Cost
Controlling

End User Presentation Layer

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Publi
c
Sect
or

Budget Accounting

Where the information is entered,
stored, used, and presented


What is the Costing
Conceptual Design?
The translation of the business objectives, needs,
and requirements into a management decision
support model (Cost Model)
A monetary valuation of the economic goods and
services of the organization – full burden cost flows
“The Continuum” – maturation over years (ex. from
Ft. Jackson go-live through all roll-outs and beyond,
increased accuracy of cost flows through better
data)

•
•
•

The CCD influences/defines the set-up of tools providing
cost management information, e.g. GFEBS, GCSS, Data
Warehouses, etc.
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What Influences the CCD
Developed?
•
•
•
•
•

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Management information requirements – What type of
decisions to support, when, for who, etc. (e.g.
Insource/Outsource, Contract/OT, etc.)
Cost objectives necessary to support the informational
needs (SSP Focused, Brigade, etc.)
The Cost Objects – What does it cost to/for/if….?
Cost Object Relationships – flows of goods and
services from/to/between
Various Techniques for reflecting the relationships - %
based, quantity (Plan/Actual, such as ATAAPS Hrs),
variances, etc.

CCD – Cost Model
Full Cost
Organizations

Full Cost
Product/Services
SSPs Provided

Director of
Logistics)

SSPA: Manage
OCIE Inventory

Full Cost
Customers
Cost Center

Brigade
XXX

SSPB: Issue
Cost Center/Resource Pool
Military
Labor

Depreciation

Contractors

Military

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SSPC: Issue
Clothing to Initial
Training Soldier

Central Issue
facility

Civilian
Employees

OCIE to Soldier

CIV
HR

CNT
HR

MIL
HR

TRADOC
YYY

SSPD: Accept
OCI Turn-Ins

SSPE: Receive
& Process
Shipments

SSPF: Manage
Chemical Defense
Equipment

Brigade
ZZZ

. . Etc.

The translation
of the business
objectives,
needs, and
requirements
into a
management
decision
support model
(Cost Model)


CCD – Cost Model
Full Cost
Organizations

Full Cost
Product/Services
SSPs Provided

Director of
Logistics)

SSPA: Manage
OCIE Inventory

Full Cost
Customers
Cost Center

Brigade
XXX

SSPB: Issue
Cost Center/Resource Pool
Military
Labor

Depreciation

Contractors

Military

D2L2_p6

SSPC: Issue
Clothing to Initial
Training Soldier

Central Issue
facility

Civilian
Employees

OCIE to Soldier

CIV
HR

CNT
HR

MIL
HR

TRADOC
YYY

SSPD: Accept
OCI Turn-Ins

SSPE: Receive
& Process
Shipments

SSPF: Manage
Chemical Defense
Equipment

Brigade
ZZZ

. . Etc.

A monetary
valuation of
the economic
goods and
services of
the
organization –
full burden
cost flows

maturation
over years


Resources

Army Cost Model Concept
Cost Center
Organization
- Labor, Materials, Supplies

Asset / Equipment
Plant, Property & Equipment

Project / Program

Outputs

Building Project, Weapon System
Internal Order
WBS Services,
/ Work Order
Events (SSP, Course)

Job (Set of Tasks) – Maint & Repair
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Cost Object Types
• Product/Service Centric

• Resource Centric

– Projects/Events (ex. Minor

– Cost Centers [Orgs]
– Resource Pools/Activity
Types [Types of Labor,
– Cost Elements [Labor,

Construction…)

(Customers of your

– Orders (ex. Work,

products/services)

Production, Customers….)

P&L
P&L

Travel, Etc.
– Business Process [Services]

PROD
PROD

CC
CC

(ex. Dir/Div…)
(ex. Dir/Div…)

RP
RP

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– Results Segments

Maintenance, Service,

Machine, SQFT]

CE
CE

• Results Centric

IO
IO
BPR
BPR

PROJ
PROJ
SERV
SERV


How is the CCD
Developed?
•
•
•
•
•
•

D2L2_p8

Identification of Subject Matter Experts from each
of the core business providers
Schedule meetings with each area’s key
stakeholder(s) and SME representatives
Conduct Analysis workshops
Gather Results and Evaluate
Translate the business objectives, needs, and
requirements into a management decision support
model, i.e. the CCD
Feed information to system supporting
management model (e.g. GFEBS)


How is the CCD Developed
for IMCOM?
•
•
•

•
•
•

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Review of IMCOM stated objectives on web site
and already identified products/services (CLS)
IMCOM HQ Interviews of CLS representatives

Select and visit bases and conduct analysis
workshops [Ft. Jackson, Ft. Lewis, Ft. Polk,
Aberdeen Proving Grounds]
Gather and review org charts, TDA, etc.
Work with Installation RM representative to
collect information required
Recognize all installations are different


Analysis Workshops
•

Inputs into the Analysis
– Organizational Structure
– List of Locations
– List of Data Feeds and Input
– List of Operational Systems
– Current Cost Reports

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• Analysis Outputs
– Organization
• Revamp Org Structure
• Conceptual Design
– Process
• Organizational Business
Process
• Management Accounting
Processes

– Technology
• Interface Inventory
• Reports and Forms
• Customizations


CCD – Cost Model
Full Cost
Organizations

Full Cost
Product/Services
SSPs Provided

Director of
Logistics)

SSPA: Manage
OCIE Inventory

Full Cost
Customers
Cost Center

Brigade
XXX

SSPB: Issue
Cost Center/Resource Pool
Military

Labor

Depreciation

Contractors

Military

D2L2_p11

SSPC: Issue
Clothing to Initial
Training Soldier

Central Issue
facility

Civilian
Employees

OCIE to Soldier

CIV
HR

CNT
HR

MIL
HR

TRADOC
YYY

SSPD: Accept
OCI Turn-Ins

SSPE: Receive
& Process
Shipments

SSPF: Manage
Chemical Defense
Equipment

Brigade
ZZZ

. . Etc.

Results of the
Analysis
Workshops are
aggregated and
utilized to
generate the
Cost Model