2015 Strategy Execution Summit Presentation. Henry Scharpenberg: Using Cost-Informed Metrics for Resourced-Informed Decision Making at the U.S. Army

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Hank Scharpenberg
HSS & Associates, LLC
540-226-0720
Using Cost-Informed Metrics for
Resourced-Informed Decision-
Making in the U.S. Army

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What if?
What if there was a large Fortune Top 20 organization
with annual revenue of over $120 Billion a year that:
• was more concerned about maximizing expenditures, than what they
were getting for their outlays?
• was reluctant to establish metrics of effectiveness or efficiency
• when faced with a shortage of resources, often cut the funding for
their core products first?
• didn’t understand what their end-to-end costs were for their major
processes?
• had a limited understanding of its internal IT systems and their
shortcomings and overlap with other systems?
What if that organization was the U.S. Army?
You might suppose it would eventually go bankrupt…

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• Annual funding in excess of $120 Billion per year
• Second in size only to Wal-Mart
• More students than largest five colleges in the U.S.
• Real property holdings:
– 108,000 family housing units
– 13.5 million acres of land (size of West Virginia)
– 158 world wide installations
– 144,000 buildings with a replacement cost of $223 billion
– 2,252 track miles of railroads
– 606 dams
– Presence in every U.S. State and Territory
• Energy production similar to a mid-size U.S. city (Tampa)
• Spent over $2 Billion in FY14 for business IT systems alone
• Fleet of vehicles larger than United Parcel Service (UPS) and Federal
Express combined
• Organic in-sourced functions: grocery, retail, railroading, airline, training,
HR, finance, IT, communications, supply, maintenance, S&T, construction,
hotel and entertainment, sports, shipping, acquisition, publishing, museums,
public relations, manufacturing, courts/law, warehousing, energy, water and
waste disposal, insurance, religious services, corrections, health services,
music
The Army

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The Need for Cost-informed Metrics
• All metrics, whether they measure cost, performance,
and/or schedule, inform:
– If desired outcomes are achieved, and
– How well the outcomes satisfy the requirement
• Current resource environment requires that we know:
– Whether resource expenditure is effective
– Whether a different expenditure is more efficient
– Where can the organization accept risk and still accomplish
the mission
• Cost will constrain everything we do.

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The Performance Environment
• Performance Measurement:
- Collection, analyzing and/or reporting information regarding the
performance of a process, organization, or component
- Validating whether outputs are in line with expectations
• Performance Management:
- Process whereby goals are consistently being met in an effective and
efficient manner.
- Process by which organizations align their resources, systems and
employees to maximize strategic objectives and priorities
• Risk management:
- Identifies, assesses, & prioritizes risks
- Facilitates resource application to minimize (mitigate) adverse
impacts

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Performance Management – Key Components
• A successful organization needs to know:
– How It allocates its resources
– Whether that allocation effectively produces the desired outcomes
– Whether there are more efficient ways to obtain the same result
– Where it can accept risk (if necessary) and still get the mission
accomplished
• It needs an information system that provides situational
awareness regardless of organizational or geographic
boundaries
• Leaders and managers who understand what is required
above, and with the authority to recommend or decide

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Organizations Have Two Competing Missions
• Business Plan – how well the organization achieves its Title 10
responsibilities:
– Was the cost expenditure effective (achieve desired outcome)?
– Was the cost expenditure efficient (achieve desired outcome at least
cost per iteration)?
• Strategic Plan – how the organization will adapt to the new
operating environment
– Is the implementation cost-effective and efficient?
• What is the resource risk to the success of the Business
and/or Strategic Plan?
– What needs to be done differently or to a lesser degree?

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Integrating Cost with Performance Data
• Financial data is available from financial systems
• Outcome data is measured at point of execution
• Comparing the two can yield:
– Dollars spent per outcome achieved
• Similar organizations comparing the same provides:
– Benchmarking data
– Trend data usable by Lean Six ( or other BPR tools)
– Framework that enables resource reallocation or risk
mitigation

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How Some Organizations are
Starting to get It Right!

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Some Thoughts to Ponder
• Knowing the cost of doing business is a no-brainer, yet . . .
• The Army (and probably DoD), has not universally adopted resource-
informed metrics.
• Bureaucratic culture tends to resist any change and/or accountability.
• Efficiency + Effectiveness doesn’t always = Successful Performance.
• Salami-slice resource reductions (vice targeted) are easier!
• Notwithstanding the above, there is Hope!
• Budget realities will force behavioral change for the better.
• Newer generation of leaders/managers comfortable with computers
and performance management software.
• Saving money, rather than expending budgets, is starting to be
rewarded.
• There is light at the end of the tunnel, and it’s not an express train
headed for you!