• 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

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Lesson 1: Cost Assignments Overview

Objective(s):Understand the different cost flow methods, the information needed, the Army objective of which method to use.

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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)

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Cost Flow Overview

4

Full Cost Organizations

Full Cost Product/Services

Full Cost Customers

IMCOM:Garrison

TRADOC:Ranger School

FORSCOM:1st 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

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Cost Flow Methods

5

Full Cost Organizations

Full Cost Product/Services

Full Cost Customers

TRADOC:Ranger School

IMCOM:Garrison

FORSCOM:1st 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)

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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

Order1

Order2

Hr10 @

$10

10 @ $10

CC 1 8 EE’s

Order1

Order2

160 Hrs

160 Hrs50%

50%

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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

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• 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 1 Year 2 Year 3 Year 4 Year 5 Year N

Value-Based

Quantity-Based

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Capturing Costs

Today:Not All Cost AllocatedFocused on Direct Obligation by

AppropriationAssigned / 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 ProcessWill Use Acceptable Cost

Assignment/ Allocation PracticesWill Provide Capability for Multiple

Cost Assignments/AllocationsAllocations Only where Direct

Assignments not Used

• Required for Full Cost Accuracy• More Accurately Defines Overhead

& Indirect Cost• Maintains Budget Execution

Capability • Linked to Output

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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.

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Lesson 2Capture Output Costs

Objective(s):• To understand which outputs are captured,

how the outputs are classified (quantitative or qualitative) and how these outputs are captured

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Capture Output CostsOverview

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, # studentsQualitative, e.g. average # days to close helpdesk

ticket, % Completion Rate

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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

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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 ERPLoad 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

ACTTYPE BPRSKF #

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Capturing Output CostsAnalysis

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 1 Month 2 Month 3 Month 4 Month 5 Month N

Capacity

Actual Output

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Capturing Output CostsAnalysis

Cost of Closing Tickets

Num

ber o

f Tic

kets

• 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

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2ABM0014: LEGAL (ILO)Name Cost

ElementAmount Quantity

Perm 6100.11B1 $5,000 100 hrs

Capture Output Costs Analysis

Training Event (UIC)10 roundsat $50

Qty is valuated with rate

2ABM0065: AMMO SUPPLY

Name Cost Element Amount Quantity

Ammo 9400.AMMO 10 EA

Name Cost Element

Amount

Quantity

Ammo 9400.AMMO $500 10 EA

AMMO FIRED

WARS

AMOUNT AND QUANTITY ARE THE OUTPUTS OF THIS

PROCESS

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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)

Lesson 3: Summary/Key Take-Away’s

Objective(s):• Highlight the most important concepts

addressed throughout the training

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What is Cost?

* www.rcainstitute.com - RCA Taxonomy

“Cost is a monetary measure of the sacrifice associated with:• expending resource functionality to achieve a specific objective, or• utilizing resource output required to achieve a specific objective, or• the provision of resource functionality or resource output while not

using it.

Resources ResourcesConsumed

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• Resources (Labor, Equipment, Assets)

• Organizations (Cost Centers)

• Products/Services

XX

Light

X

Stryker

Heavy

Effectively & Efficiently Produce Outputs

Ensure Strategic Objectives are

Effectively Resourced

ARFORGENHuman Capital

Materiel ReadinessServices &

Infrastructure

• CG• TRADOC

• CG• AMC

• CG• FORSCOM

• CG• IMCOM

Cost Management ConstructPro

gram

/ Budge

t Con

struct

• ARFORGEN Synch Board

Need to Understand What the Resources Buy – The Army Product

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Available / DeployTrain / 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

Prog

ram

/ B

udge

t Con

stru

ct

Cost

Man

agem

ent C

onst

ruct

• 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 StrykerHeavy

XX

Readiness

Human Capital

Services & Infrastructure

Unique to CE

Common

to CEs

Com

mun

icati

ons,

Com

putin

g, &

Info

Sys

tem

sFi

nanc

ial M

anag

emen

t / B

udge

tO

pera

tion

Plan

ning

& C

ontr

ol

Note: Program / Budget and Cost Management constructs shown represent subset of overall framework

Army Cost Management Framework

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23

Cost Management Focus

Inputs Conversion“Work” Outputs

Resources:LaborMaterialEquipmentSuppliesContractsAssets

COST MANAGEMENT FOCUS

Products Services:CoursesServices Support ProgramsTests Research ProjectsTraining Events

Work Performed by Organizations (Cost Centers) to Produce Products and Services for CustomersS4L3_p5

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

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• ERP Applications e.g. (GFEBS, LMP, GCSS)

• Business Warehouses• Executive Scorecards

• Process Improvement (Lean 6-Sigma)

• Integrated Business Design

PolicyHow 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)

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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 / Project Task / Activity Special Event or

Initiative

ERP (SAP) Cost Collectors Cost Centers Assets / Real

Estate Objects Project / WBS Business Process Internal 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

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27

Army Cost Design

Full Cost Organizations

Full Cost Product/Services

Full Cost Customers

IMCOM:Garrison

TRADOC:Ranger School

FORSCOM:1st 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

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Costing Conceptual Design

Budget AccountingPubli

c Sector

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

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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

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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.

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Cost Management Enables Optimization

Providers/Inputs Outputs/Consumers

HQDAMilitary Pay

Contracts (CLS)

Unit Training• Ground

OPTEMPOInstallation

• SSP1 (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

Direct $

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