Intermediate Cost Analysis and Management 1 101 Which Would You Rather Have A million dollars today or A penny today plus twice the previous days input for a month ie 2 cents tomorrow 4 cents the next day etc ID: 729629
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Slide1
Determine the Purpose and Motivation for Continuous Improvement
Intermediate Cost Analysis and Management
1
10.1Slide2
Which Would You Rather Have?
A million dollars today-or-
A penny today plus twice the previous day’s input for a month?(i.e. 2 cents tomorrow, 4 cents the next day, etc)
…
2Slide3
Terminal Learning Objective
Action: Determine the Purpose and Motivation for Continuous Improvement
Condition: You are training to become an ACE with access to ICAM course handouts, readings, spreadsheet tools, and awareness of Operational Environment (OE) variables
and
actors
Standard:
With at least 80% accuracy :Describing the benefit of Continuous ImprovementDescribing the process of stimulating Continuous Improvement and creativity
3Slide4
The Power of Continuous Improvement
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
50.16
0.316
0.320.63
70.64
1.278
1.282.55
92.56
5.11
10
5.12
10.23
11
10.2420.471220.4840.951340.9681.911481.92163.8315163.84327.6716327.68655.3517655.361310.71181310.722621.43192621.445242.87205242.8810485.752110485.7620971.512220971.5241943.032341943.0483886.072483886.08167772.1525167772.16335544.3126335544.32671088.6327671088.641342177.27281342177.282684354.55292684354.565368709.11305368709.1210737418.23
Day Two’s two cents + Day One’s one cent = three cents
4Slide5
Day Three’s four cents + Day Two’s two cents + Day One’s one cent = seven cents
5
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
5
0.16
0.31
6
0.32
0.63
7
0.64
1.27
8
1.28
2.5592.565.11105.1210.231110.2420.471220.4840.951340.9681.911481.92163.8315163.84327.6716327.68655.3517655.361310.71181310.722621.43192621.445242.87205242.8810485.752110485.7620971.512220971.5241943.032341943.04
83886.0724
83886.08
167772.1525
167772.16335544.3126
335544.32671088.63
27671088.64
1342177.27
28
1342177.28
2684354.55
29
2684354.56
5368709.11
30
5368709.12
10737418.23
The Power of Continuous
Improvement (Cont.)Slide6
And so on….
And so on…
…
6
The Power of Continuous
Improvement (Cont.)
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
5
0.16
0.31
6
0.32
0.63
7
0.64
1.27
8
1.28
2.55
9
2.56
5.11
10
5.12
10.23
11
10.24
20.47
12
20.48
40.95
13
40.96
81.91
14
81.92
163.83
15
163.84
327.67
16
327.68
655.35
17
655.36
1310.71
18
1310.72
2621.43
19
2621.44
5242.87
20
5242.88
10485.75
21
10485.76
20971.51
22
20971.52
41943.03
23
41943.04
83886.07
24
83886.08
167772.15
25
167772.16
335544.31
26
335544.32
671088.63
27
671088.64
1342177.27
28
1342177.28
2684354.55
29
2684354.56
5368709.11
30
5368709.12
10737418.23Slide7
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
5
0.160.31
60.32
0.637
0.641.27
81.28
2.559
2.565.11
10
5.12
10.23
11
10.24
20.471220.4840.951340.9681.911481.92163.8315163.84327.6716327.68655.3517655.361310.71181310.722621.43192621.445242.87205242.8810485.752110485.7620971.512220971.5241943.032341943.0483886.072483886.08167772.1525167772.16335544.3126335544.32671088.6327671088.641342177.27281342177.282684354.55292684354.565368709.11305368709.1210737418.23
By the end of the first week we have $1.27
7
The Power of Continuous Improvement (Cont.)Slide8
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
5
0.160.31
60.32
0.637
0.641.27
81.28
2.559
2.565.11
10
5.12
10.23
11
10.24
20.471220.4840.951340.9681.911481.92163.8315163.84327.6716327.68655.3517655.361310.71181310.722621.43192621.445242.87205242.8810485.752110485.7620971.512220971.5241943.032341943.0483886.072483886.08167772.1525167772.16335544.3126335544.32671088.6327671088.641342177.27281342177.282684354.55292684354.565368709.11305368709.1210737418.23
By the end of the second week we have $163.83
8
The Power of Continuous Improvement (Cont.)Slide9
2
0.02
0.03
3
0.04
0.07
4
0.08
0.15
5
0.16
0.31
6
0.320.63
70.64
1.278
1.282.55
9
2.56
5.11
10
5.12
10.231110.2420.471220.4840.951340.9681.911481.92163.8315163.84327.6716327.68655.3517655.361310.71181310.722621.43192621.445242.87205242.8810485.752110485.7620971.512220971.5241943.032341943.0483886.072483886.08167772.1525167772.16335544.3126335544.32671088.6327671088.641342177.27281342177.282684354.55292684354.565368709.1130
5368709.1210737418.23
By the end of the month the total is more than
$10 Million!
9
The Power of Continuous Improvement (Cont.)Slide10
Consider a 3% Annual Improvement
For a $250 billion organization over ten years:
The Army you save may be your own!!!!
$M
1
2
3
4
5
6
78
910
totalbudget
250000242500
235075227724
220447213243
206110199049
192059
185138
74%
savings
7500
7425735172777204713270616990692168517171310Slide11
Consider a 3% Annual Improvement (Cont.)
For a $250 billion organization over ten years:
The Army you save may be your own!!!!
$M
1
2
3
4
5
6
78
910
totalbudget
250000242500
235075227724
220447213243
206110199049
192059
185138
74%
savings
7500
7425735172777204713270616990692168517171311Slide12
Consider a 3% Annual Improvement (Cont.)
For a $250 billion organization over ten years:
The Army you save may be your own!!!!
$M
1
2
3
4
5
6
78
910
totalbudget
250000242500
235075227724220447
213243206110
199049192059
185138
74%
savings
7500
7425
735172777204713270616990692168517171312Slide13
Consider a 3% Annual Improvement (Cont.)
For a $250 billion organization over ten years:
The Army you save may be your own!!!!
$M
1
2
3
4
5
6
78
910total
budget250000
242500235075
227724220447
213243206110
199049192059
185138
74%
savings
7500
7425
735172777204713270616990692168517171313Slide14
Continuous Improvements:Lots of Small Victories
Continuous improvement’s success based on:Many,
many small initiativesWidespread employee involvementThe long term power of
accumulation
The AAR is the
forum
to monitor progress in generating initiatives
14Slide15
LSA #1 Check on Learning
Q1. How would you describe the power of Continuous Improvement?
A1. Many small incremental improvements, accumulated over time. Q2. Where is Continuous Improvement monitored
?
A2.
In the After Action Review
.
15Slide16
LSA #1 Summary
During this lesson, we discussed the benefits of continued improvement which eventually results in an overall victory
16Slide17
How Do You Get Continuous Improvements?
You ask for them(Why
did the chicken cross the road?)You reward them
You
expect them
You
build a team that knows continuous improvement is expected
17Slide18
You Will Be Amazed
“What you have done is unleash the creativity
of your people”HQDA staff officer after CSA review
Who
knows best how
to
fix a problem?Congress?Auditors?
HQ staff?The person who lives with the problem?
18Slide19
Opportunities for Creativity
Shedding activities no longer neededResizing service levels to
current needsEliminating redundanciesRedefining service levels providedChallenging
inefficient guidance
Removing
deadwood
19Slide20
LSA #2 Check on Learning
Q1. What are two ways of achieving Continuous Improvement initiatives?
A1. Ask for them, Reward them, Expect them.Q2. What
are three opportunities for Continuous Improvement?
A2.
Shed unneeded activities, Resize service levels, Eliminate Redundancies, Redefine service levels,
Challenge inefficient guidance, Remove deadwood.
20Slide21
LSA #2 Summary
During this brief lesson, we discussed achieving ‘continuous improvements’ and to look for those opportunities for creativity.
21Slide22
Shedding Activities No Longer Needed
Organizational inertia tends to institutionalize services once started
No clear mechanism exists to reassess the requirement for serviceResults in continuance
of
non essential tasks while sometimes cutting essential
Example from Fort Huachuca
22Slide23
Title:
Contractor property accountability
Status:
(Achieved or in-progress)
IN-PROGRESS
Responsible Manager:
Forecasted annual cost reduction:
$ 23K
Number of positions (FTE):
1
Target date for cost reduction:
February
U.S.
Paul A. Rossi
C
Cost Reduction Initiative
$000
23Slide24
Share the Wealth
Garrison Commander:“You know those computers you’ve wanted for the warehouse that we couldn’t afford? Well, thanks to your action we can now afford them. Take $6K of the savings and get them. I’ll take the other $17K for unfunded requirements that I have at the Garrison Level. Great job!”
24Slide25
Resizing Service Level to Current Needs
Many missions have downsized Many support functions have not Examples:
Hours of airfield operation at Fort HuachucaStaffing for ammunition issue point at Fort Huachuca
25Slide26
Eliminating Redundancies
Organizations often generate a “stove pipe” approach
Consolidating across institutionalized boundaries can improve efficiencyBeware the danger of creating non-responsive monopolies
Examples: Fort
Detrick
and Fort Huachuca
26Slide27
Fort Detrick
Initiator: Maintenance
SupervisorDescription: C
ross train monitoring
,
preventive maintenance
, and emergency response personnelResult: S
ave $600K per year while increasing uptime27Slide28
Title:
Fire Watch Station Consolidation
Status:
(Achieved or in-progress)
IN-PROGRESS
Responsible Manager:
Forecasted annual cost reduction:
$ 87K
Number of positions (FTE):
3
Target date for cost reduction:
May
28
U.S.
Paul A. Rossi
C
Cost Reduction Initiative
$000Slide29
Fix Problems, Not Blame
But it is Instructive to consider: Why this had not been done already, when:
Budgets had been reduced for the previous four or five years?Internal Review Audit in 1992
had suggested
i
t
?What’s different here?Productivity oriented culture driven by leadership
that expects creativity29Slide30
Redefining Service Levels Provided
Support services are free goods
to usersFree goods have infinite demandRedefining basic “free”
service level can lead
to
more efficient consumption
Beware of the danger in creating costly accounting cross charges that don’t create desired behavior modification
30Slide31
Cutting Non-Productive Employees
All organizations and
leaders find it difficult to cut non-productive workersRelatively abundant resources allowed avoidance
of the
issue
in the
pastCould your organization operate as effectively as now without bottom 5%?
Could you use 5% more funding?How important is it?
31Slide32
The Long Term Power of Continuous Improvement
Often consider only digital decisionsKill
it or keep itToo little thought given to gradually making operations more efficient
A 4%
annual productivity increase will not solve current crisis
or
get much attentionTen years of 4% annual productivity increases will
32Slide33
Learning Requires Teaching:
Leadership Has KEY RoleGovernment
organizations can learnWho is responsible for teaching?Support exists
and
provides training materials like this but
. . .
“Effective training requires the personal time, energy, and guidance
of commanders. Commanders must personally observe and assess training at all echelons.”
United States Army Field Manual FM 25-101
33Slide34
The Payoff: New Source of Funding
After six months of pilot, Ft Huachuca Garrison Commander
disclosed that he: Had cost reductions greater than
worse case budget cut
for the
next fiscal year
Could now afford key spending initiatives that were previously unaffordable in:Information technologyQuality of
life
FY98
34Slide35
FY03
35
Garrison Management System
U.S.
Paul A. Rossi
CSlide36
FY03
36
Garrison Management System
U.S.
Paul A. Rossi
CSlide37
LSA #3 Check on Learning
Q1. How does Continuous Improvement differ from the “kill it or keep it” mentality?
A1. Continuous improvement instead focuses on making the services we have incrementally more efficient which is significant over time. Q2. Who
is responsible for ensuring that learning occurs
?
A2.
It is the role of the Senior Leader.
37Slide38
LSA #3 Summary
During this lesson, we discussed some of the ‘real-world’ examples of continuous improvement initiatives resulting in generous payoffs.
38Slide39
How Can You Motivate Continuous Improvement?
The Army motivates soldiers to do much harder thingsUnder threat of great personal risk
For limited monetary compensationUnder often adverse conditionsIs it
patriotism
?
Is it for the
money?Is it to win a medal?
39Slide40
Why Soldiers Fight
Possible reasons:Expected by peersDemanded by
leaderTrained by the institutionThese are the ingredients that
define
an
organization’s culture
40Slide41
Cold War Cost Culture Will Lose the Cost War
Performance management is not important when resources are plentiful
Budget management dominates actionsSpend 99.9%Work on defining “needs
” to
get more
Never
give any backResult: “Why should I reduce cost -
we don’t get to keep it?” culture41Slide42
Battlefield Culture Needed to Win the Cost War
Good commanders are
inherently cost conscious in achieving missions Minimize cost in soldiers lost
Minimize
cost in resources
and
capabilitiesWinning the Cost War requires the same cost conscious mentality
Excessive casualties and excessive costs are unacceptable
42Slide43
43Slide44
TLO Summary
Action
: Determine the Purpose and Motivation for Continuous Improvement
Condition
:
You are training to become an ACE with access to ICAM course handouts, readings,
spreadsheet tools,
and awareness of Operational Environment (
OE) variables
and actors
Standard: With at least 80% accuracy :
Describing the benefit of Continuous ImprovementDescribing the process of stimulating Continuous Improvement and creativity
44