ASMC PDI Cost Management Strategies Session 47

Transcription

1 ASMC PDI Cost Management Strategies Session 47 1

2 CFOs have a golden opportunity to help CEOs with the issues that keep them up at night. But today s CFOs need to rise to the challenge and close the gap between the expectations of CEOs and the reality on the ground. This means turning numbers into actionable intelligence and showcasing strong leadership qualities, collaborating with operations and thinking and acting globally. - Morris Treadway, KPMG Global Head of Financial Management and Global Enterprise Performance Management Center of Excellence Lead

3 High bar, low confidence 2015 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 3

4 Taking the lead To succeed, today s CFO needs to excel in four key areas: 2015 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 4

5 OFFICE OF THE UNDER SECRETARY OF DEFENSE Enterprise Managerial Cost Accounting OUSD(C)/DCFO American Society of Military Comptrollers (ASMC) Professional Development Institute June 2016

6 Agenda Overview: Challenges, Objectives, Principles, and Approach ECM Model Design and Reporting Capabilities ECM Future Analysis and Planning Capabilities Long Term Strategic Initiatives 6

7 Enterprise Cost Accounting Overview Enterprise Cost Management (ECM) provides timely, granular, and accurate cost information that helps better inform budget, resource allocation, and performance management decisions DoD Challenges Lack of enterprise view of budget, cost, and performance Data standardization Time-consuming, unverifiable data calls Objectives Enables Audit Readiness - SNC by program and PP&E valuation Identify cost levers that are driving actual cost, budget, and performance Improve mission support efficiency and better align costs to mission needs Guiding Principles Federal GAAP - Costs tie to DoD Financial Statements and General Ledger Leverage existing data and improve over time Accurate, Consistent, Reliable, Repeatable and Scalable Approach Use cost and budget sources that tie to DoD Financial Statements Leverage existing data sources analogous cost drivers to distribute costs to activities Rapid prototyping using Commercial Off-the-Shelf (COTS) Software 7

8 ECM Design and Reporting Capabilities Cost Model Design Statement of Net Cost Multi- Dimensional 8

9 ECM Future Analysis and Scenario Planning Financial Analysis Forecasting & Scenario Analysis 9

10 Enterprise Cost Management and Accounting Enterprise Cost Management and Cost Accounting provides critical inputs to three key initiatives and challenges facing the Departments today. Auditable at BS and SBR levels Auditable SNC by Program Auditable Asset Valuation (e.g. PP&E, Inventory) Informs Historical Actual Costs Cost Drivers and Levers Economic Choices POM estimates based on historical actual costs Readiness levels Operations/ Capabilities Mission Support Performance Management 10

11 ECM Model Design Walkthrough Starting with each Department and Agency s GL/Sub-ledger balances, assign cost and budget values by command, location, lines of business, End Items, Readiness, Operations, and other dimensions. SNC / SBR Command / Location Cost Categories Lines of Business Other Dimensions $640B /$730B $640B / $730B $640B / $730B $640B / $730B $640B / $730B General Ledger Payroll Accounts Payable Drivers / Levers Civilian Labor by Level 2 Org. (MAJCOM) Military Labor by Level 2 Org. (MAJCOM) Goods and Services $60B $141B Drivers / Levers Grade (e.g., ES-1, GS-15), Occupation Series (e.g., 503) Pay Grade (e.g., O-1, E-2), Occupational Specialty $60B $141B Information Technology $24B Non-IT Goods and Services Drivers / Levers Financial Management LoB $6.9B Enterprise Financial Management $1.4B Budget $717M Transaction & Payment Processing $2.9B Drivers / Levers All LoBs / Activities End Items & Services Capabilities / Readiness Operations $640B $640B $640B Manpower Data $640B/$730B $360B WCF and Appropriation $78B WCF by Org. and Appropriation $336B $78B Contract Audit Services $1.9B All Other LoBs / Activities $633B Other $640B $640B 11

12 PDI 2016 Army Cost Management Standardized cost management processes and business practices will transform relevant cost and performance information into knowledge for improved leadership resource informed decision making and provide the foundation and capabilities for managing business operations more efficiently and effectively at all Army levels, and spans of control and influence. Honorable Robert M. Speer, Assistant Secretary of the Army Financial Management & Comptroller * Brian S. Jacobs Chief, Cost & Performance Management Division Deputy Assistant Secretary of the Army (Cost and Economics) * Resource Management. Cost Management Edition. PB59, 3rd Quarter. 08/21/2015

13 Laws, Regulations, Policy Authoritative Sources & Governance: Title 10, 5, 32 DoD Financial Management Regulation (FMR) Government Performance and Results Act (GPRA) 1993 GPRA Modernization Act of 2010 Chief Financial Officer (CFO) Act National Defense Authorization Act (NDAA) Multiple Fiscal Years Government Accountability Office (GAO) Reports Better Buying Power Cost Management Steering Group (CMSG) Army Policy & Regulations General Order (GO)-01 (Directives) AR 1-1 (Planning, Programming, Budgeting, and Execution System) AR 5-1 (Management of Army Business Operations) AR (The Cost and Economic Analysis Program) Army Directive (Changing Management Behavior: Every Dollar Counts) Cost Benefit Analysis (CBA) 13

14 Army Directive & Cost Management Strategic Plan Changing Management Behavior: Every Dollar Counts FY Cost Management Strategic Implementation Plan (CMSIP) On 15 Apr 16, SecArmy directed: Army commanders and leaders at 2Star HQ level and above will: Establish & track annual performance measures focus on the highest level of readiness with the greatest efficiency; Tie resources expenditures (costs) to outcomes and levels of readiness; Identify and manage total costs; Eliminate use or lose funding practices; Reward leaders & organizations who demonstrate exemplary stewardship & innovative ideas. VISION An Army that considers, acknowledges, and controls costs across the Enterprise to provide best value. MISSION Strengthen resource informed decisions that optimize available resources to accomplish the Army mission.. GOALS - How to Accomplish our Mission 1. Establish an Army-wide GO/SES Cost Management Steering Group (CMSG) to align with and enable the Army Leadership priorities. 2. Enhance analysis capabilities, cost and performance data to make the best informed decisions for the Army. 3. Leverage Enterprise Resource Planning (ERP) systems to support decision making processes. 4. Strengthen cost management capabilities through training, best practices, and knowledge management to achieve a cost culture. AIM for Results Aligned Army Work Outputs are Aligned in order to Achieve Highest Level of Readiness with Greatest Efficiency Integrated World Class Workforce, Standardized Integrated Processes, and Full Utilization of Army ERPs Measured Decisions at all levels, Cost Management Organizations (CMOs), SMART Performance Metrics 14

15 Army Financial Management Optimization (AFMO) AFMO Campaign Plan LOE 1: Systems Domain LOE 2: Business Process LOE 3: Organizations LOE 4: FM Professional Workforce LOE 5: Internal Controls Environment LOE 6: Army Cost Management LOE 7: Strategic Management & Communicate AFMO Objectives (1) Achieve and Sustain Auditability (2) Deliver FM Operations Efficiently and Effectively (3) Improve and Sustain Readiness in FM Elements (4) Provide Financial Information and Business Analytic Support for Improved Decision Making AFMO End State Integrated, Effective and Efficient end-to-end financial management enterprise operations Optimized to provide necessary resources to meet the Army s missions proper stewardship and accountability of resources Provide accurate and timely financial information and analysis for actionable decision making Achieve and sustain Clean Audit Integrated plan augments CM DOTMLPF-P Across the Enterprise & uses measures of effectiveness (MOE) & performance (MOP) to achieve the desired end state. 15

16 CMSG Prioritization Army Cost Framework (ACF) Methods and Processes IMCOM USARC USAREUR TRADOC INFLUENCERS ASA(FM&C) CMSG POLICY EXTERNAL ACF REQUIREMENTS HQDA / PROGRAM EVALUATION GROUPS (PEG) U.S. ARMY RESERVE ARMY RESERVE COMMAND WEAPON SYSTEM U.S. ARMY EUROPE INSTALLATIONS AND INFRASTRUCTURE TRAINING READINESS Implementation Plan ACF Methodology Verification and Validation Design Rationale Scope and Reqs Cost Model Blueprint Business Model ARMY COST FRAMEWORK (ACF) Enterprise CFs READINESS WEAPON SYSTEM UNIT RECRUITING Org CFs Cost Management Processes Plan Control CM Account Analyze Decision Forums Across Army Enterprise Planning, Programming Budgeting, Execution ARMY WORKFORCE POLICY TRAINING TOOLS ENABLERS 16

17 CM Aligned to PPBE HQDA Command / DRU Operational Activity Planning Programming Budgeting Execution (6-10 Years) (6 Years) (1-2 Years) (Current Year) Strategic Decision-Making: - Cost Benefit Analysis - Analysis of Alternatives - Army Cost Position (LCCE) - Cost Models / Tools * FORCES Costing Model * Capability Costing Tool - Cost of Army - Workforce Analysis Outyear Forecasting: - Cost Factors & Models * TRM/OSMIS * FORCES Costing Model * AMCOS / Civ Pay Rates - Army Cost Position (LCCE) - Contingency Cost Model - CBA's, LSS - Incorporate AFBRT Benefits Strategic Planning: - Cost Benefit Analysis - Cocept Plans - Workforce Mgmt - Submit Initiatives to AFBRT - Trend Analysis - Cost Models / Tools - Investment Decisions - Identify Efficiency Initiatives Formulation / Justification: - Cost Factors * OPTEMPO Cost Factors * Mil Pay Rates * Civ Pay Rates - Cost & Spend Plans - Include AFBRT Initiatives - Historical Trend Analysis - Establish Should Cost Goals Outyear Plans / Controls: - Cost Targets/ - Annual Efficiency Goals - Assess Cost & Spend Plans - Plan Output (Capacity Mgmt) - Cost Benefit Analysis - Trade Space Analysis - Establish AFBRT Milestones - TRAPS Operational Planning: - Establish Annual Cost Plans - Set Output Goals / Objectives - Optimize Capacity - Adjust to Directives (e.g. TRAPS) - Establish Activity Rates (Labor / Equip) - Estimate OH Allocations Allocation/Funds Distribution: - Cost Analysis to Support * Cash Management * Reprogramming * Rate of Executution - Budget vs Actual (Variance) - Monitor Will /Should Cost - Track Cost Savings (ARFIT) - Mid-Year Reviews Measure & Control: - Variance Analysis (Cost & Output) - Benchmarking Best Practices - Adjust Cost Targets - Mid-Year Reviews - Measure Reduction Initiatives - Adjust Allocation Rules Continuous Improvement: - Qtrly Cost Mgmt Reviews - Variance Analysis * Resources (Inputs) * Labor Rates * Output (Unit Cost, Qty) - Budget vs Actual (Variance) - OH Allocations - Product/Service $, Customer $ 17

18 Key Takeaways and Way Forward AIM for Results Align Army Work Output Integrate Workforce, Processes, & ERPs AFMO as an enabler Measure Cost Managed Organizations (CMO) Achievements Army-wide Release of the Army Cost Framework Tool ( Organizations Trained (key positions) in ACF methodology Standard Labor Time Tracking Started Business Case Analysis CM End-to-End process / tasks defined with audit linkage ERP Cost Objects Standardization Cost Managed Organizations Model Created Challenges Decision Forums / Processes are Difficult to Change Organizational Vs. Enterprise Cost & Perf. Objectives Different Levels: Estimates / Funds / Budgets / Costs Standardization of Cost Objects throughout ERPs Effective & Efficient Results Way Forward Continue Implementation of Cost Management Army-wide: Changing Management Behavior: Every Dollar Counts Actionable AFMO Campaign Plan Cost Management Strategic Implementation Plan Maturation of CM Training Strategy / GAP Analysis Integration and Alignment of CM Skills to Existing Workforce (Financial and Operational) ERP CM Capabilities FM Roles, Responsibilities, and Authorities across Army Organizations and HQDA Cost & Performance Information used by Decision Forums at all Levels of Army 18

19 Contact Information Send Questions: Army s Cost Management (ACM) Portal Register for Access (Requirement is Army CAC) Army Cost Framework Tool and Repository Cost Management Knowledge Center (Authoritative Documentation) 19

20 Defense Health Program Common Cost Accounting Structure (CCAS) June Medically Ready Force... Ready Medical Force

21 The Defense Health Program is an Appropriation, not an Agency Optimum Direct / Purchased Care mix? Consistent policies & clinical practices? Overlapping requirements? Requirements consistently defined? Supportive of leadership goals? Consistent health benefit? Value focus? Transfer of missions without transfer of resources? Synchronized with Medical Military Construction? The Objective: An integrated, efficient funding program that reflects senior leadership priorities Defense Health Program An integrated, efficient funding program that reflects senior leader priorities 21

22 How big is the Defense Health Program (DHP)? Pretty big about $50 billion Budget is bigger than the GDP of over 100 nations Unified Medical Program budget is bigger than total military spending of Japan, Germany, or South Korea Serve more beneficiaries than residents in the state of New Jersey As a state, beneficiaries would have 14 votes in the electoral college More medical staff in uniform than active duty military of Canada, Belgium and Denmark combined Medically Ready Force... Ready Medical Force 22

23 Defense Health Program Funds Flow Congress - Appropriates OMB - Apportions DHA Facilities issues MILCON FADs to design and construction agents USACE NAVFAC ENGCOM HQ USAFE Comptroller - Allots DHA Business Support Directorate Issues Funding Authorization Documents (FADs) DHA Comptroller Army MEDCOM Navy BUMED Air Force SG Regional Medical Commands (RMCs) Naval Medical Command (NAVMEDs) AFMOA DHA Contract Resource Management - Aurora MTFs and Others MTFs and Others MTFs and Others Uniformed Services University of the Health Sciences NCR Medical Directorate 23

24 A little background on the accounting.. Each component in the Military Health System (MHS) has a different accounting system There was a high degree of variability in how the components accounted for transactions as a result of the evolution of the MHS The MHS requires consistent and comparable financial data across all Defense Health Program (DHP) funded activities for timely, efficient, and effective reporting and decision-making. The Office of the Secretary of Defense for Health Affairs directed implementation of a common cost accounting structure across the DHP Our vision is a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP Desired Outcome: Harmonized cost accounting structures, cost management efficiencies, improved standardized reporting, and integration of DHP budget and execution practices Medically Ready Force... Ready Medical Force 24

25 The Problem We Are Trying to Solve: Too Much Variability Each buying the same services and products, but accounting for them differently Medically Ready Force... Ready Medical Force 25

26 CCAS Vision One Accounting System The DHP requires consistent and comparable financial data across the entire system Uniform Accounting Provides a comprehensive approach to reduce variability in cost accounting across the MHS by standardizing cost data critical to the operations across the DHP and providing additional transparency through extensions of current accounting guidance CCAS Vision The DHP on one financial accounting system and database utilizing uniform accounting practices with consistent and reliable reporting. One Database Provides an effective approach for data collection, analysis, consolidation, mapping and storage of financial data Consistent Reporting Improved data quality and standardized reporting for leadership and oversight bodies Medically Ready Force... Ready Medical Force 26

27 Our Approach The CCAS Framework provides a systematic feedback loop to standardize and continually improve financial & data integrity. Policy and Guidance Budgetary Accounting Areas of Standardization Budget Structure: Budget Activity Codes, Budget Activity Groups, Budget Sub Activity Codes, and Budget Line Item Codes, Program Elements Data Quality Analysis Standard Data Program Management Agency Initiatives: Agency Initiative Codes and Cost Breakdown Structure Codes Defense Medical Information System (DMIS) Codes Data Quality Analysis Financial Reporting, Cost and Budget Data Reporting Analysis Key Performance Indicators Compliance & Quality Checks Technical Solutions Working Group (TSWG) Cost Accounting Object and Sub Object Class Codes Product Service Codes Medically Ready Force... Ready Medical Force 27

28 Operational Impact Several activities are required in order to fully implement the CCAS. Such activities will take place during various stages of the CCAS implementation. Internal Guidance Updates Process and Data Flow Charts File Layout Structure/Data Transfer Crosswalks Potential System Changes Training/Compliance Checks/Metrics Medically Ready Force... Ready Medical Force 28