DASA-CE Training INTRODUCTION TO COST MANAGEMENT Cost Management
DASA-CE Training INTRODUCTION TO COST MANAGEMENT Cost Management Overview Cos t Ma nag em ent = Ma nagi ng Bus ines s Op erat
ions Effi 2 Cost Management is a New Process Cost Accounting / Management is new to most of the Army as a formalized process 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 3 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. Efficiently means doing things "right - e.g. in the best and most economical way, wasting no resources Effectively means doing the "right" things - e.g. setting targets to achieve an overall goal (the effect) and attaining the goal Full Costs is the inclusion of all and only those costs related to generating the output Best Value is a qualitative measurement to be taken into consideration 4 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
Planning Cost Management Process Cost Analysis Cost Controlling 5 Cost Planning Cost Planning is the use of a Cost Model for should-cost forecasting to make informed decisions Often performed for: Cost Accounting Cost
Planning Cost Management Process Cost Controlling Cost Analysis Budget Requirement Requests Cost Estimations Output Quantities Capacity Management Risk Analysis Various Time Frames: Out year / Current year, Quarterly, Monthly Standard Rates Defining Targets to Measure Efficiency and Effectiveness
6 Resources/Inputs Cost = Converting and Measurement of Work Cost Center Organization - Labor, Materials, Supplies Asset / Equipment Plant, Property & Equipment Project / Program Building Project, Weapon System
Outputs Internal Order WBS / Work Order Services, Events (SSP, Course) Job (Set of Tasks) Maint & Repair 7 Cost Accounting Cost Accounting translates the operational value chain into financial values Cost Accounting Cost Planning Cost Management
Process Cost Controlling Cost Analysis Cost Accounting is the dollar value of the cost measurements resulting from business operations 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 * Source: The Federal Accounting Standards Advisory Board (FASAB) No. 4. Managerial Cost Accounting Standards
8 Cost Analysis Cost Analysis is the integration of functional outcome data with cost data to produce valid and verifiable information to conduct various forms of analysis Cost Accounting Cost Planning Cost Management Process Cost Analysis Sample types of analysis include: Organizational performance Analysis of alternatives
Variance analysis Economic analysis Cost / Risk assessments Trends Cost Controlling 9 Types of Cost Analysis For ec ast ing : usi ng pri or per
iod info rm atio n to pre dict fut 10 Types of Cost Analysis Co st/ Be nef it An aly sis :
An aly sis of dec isio 11 Analysis Supported by Enterprise Resource Planning (ERP) Reporting The various types of analysis are supported by ERP reporting by providing: Real-time, accurate data Drill-down capabilities to generating document (e.g. transparency and audit/integrity) Standard definitions, business rules, and methods (commonality in what the data means) Multiple cost assignments and views 12
Cost Controlling Cost Controlling is taking Best Value and/or Best Practice actions to realign the organization to achieve the defined objectives Cost Accounting Cost Planning Cost Management Process Cost Controlling Cost Analysis Actions taken based on information provided from Cost
Analysis results Redeployment of resources between outputs Change outputs (e.g. do more or less) Update/revision of plan information - e.g. updated Std. Rate Execution of trade-off decisions e.g. OT vs. external support 13 Cost Controlling Its where the benefits of Cost Management are realized The step where leaders and decision-makers use the results of their cost analysis as decision support, and implement the changes and enhancements that ultimately move us to a more efficient Army 14
Cost Management Involves.. Capturing and Valuating Data Accurate, timely and relevant data Connecting operational output/performance data to financial data Allocate Overhead Cost Planning Set Cost Targets and Efficiency Goals Compute Standard Rates Cost Planning Cost Controlling Move to action based on analysis Change targets Change resources Change quality Cost
Accounting Cost Management Process Cost Controlling Cost Analysis Variances Depreciation Cost Analysis Trends and forecasting Product, service or activity cost by element (labor, contract, etc.) Understanding full costs of organizations, operations, products and services
15 Cost Management Process (Who Is Involved?) RM Cost Accounting OM Cost Planning Cost Management Process Cost Analysis Cost Controlling
- Resource Managers (RM) - Operational Managers (OM) 16 Cost Culture Cult ure is the sha red Ta ken ForGra nte d ass um ptio ns,
beli17 What is a Cost Culture? Comprises the attitudes, experiences, beliefs and values of an organization A shared behavior by people & groups in an organization A Cost Culture is the cultural shift from Accomplish the Mission at Any Cost to Accomplish the Mission While Considering Cost 18 Why Focus on Cost Culture? Deploying Systems, Improving Cost Models, Issuing Policies, Training Staff, Recruiting Experts will not enhance the Armys ability to manage costs unless Army Soldiers / Civilians understand and value the need to manage costs Knowing our costs and managing them to increase our mission capability must become ingrained in our culture
Leaders must demand cost information and use it in decision-making, otherwise it provides no utility to the Army We Need A Lifestyle Change, Not A Diet! 19 Moving to a Cost Culture A Culture of Entitlement Budget-focused Spend rate driven inputs Performance objective 99.9% obligated Free goods have infinite demands A Culture of Influence Cost and performance focused Results driven - output & outcome Performance objective resource consumption optimization (efficiency &
effectiveness) Use what is necessary to obtain the objective From Budget to Cost 20 Cost Enablers Enterprise Resource Planning (ERP) is an enabler to Cost Management Culture by providing the necessary technology The Cost Management Process is an enabler to Cost Management by incorporating cost impact into routine decision-making 21
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