Army Financial Management: Winning with a Cost Culture

By Stanton, Edgar E. | Army, October 2009 | Go to article overview

Army Financial Management: Winning with a Cost Culture


Stanton, Edgar E., Army


We have recently reached and passed through a significant crossroads in the ongoing cycle of defense budgets in the United States. Given the nation's current economic woes and the many increasing demands for taxpayer dollars, we can reasonably expect downward pressure on defense spending. Clearly, we have entered a period of leaner fiscal conditions. Are we in the Army prepared for this change?

For the Army to be successful in a leaner fiscal environment, we must dramatically alter our approach to spending. Fulfilling the mission will always be the top priority, but now cost consideration must also play a substantial role.

We must inculcate a "cost culture" throughout the Army. The idea is pretty basic: During the decision-making process, take cost into account. It is not an intrinsically novel idea - most households operate ac- cording to this simple principle. Typi- cally, however, the Army has not put cost consideration at the forefront of decision making. Rather, the Army's requirements-oriented culture has de- fined financial success as spending every appropriated dollar to meet the mission. Further, the Army has not done a good job of relating cost to outputs and outcomes because it is rarely asked to do so: There is no penalty for excessive cost, no reward for decreased cost. Adopting a cost culture will reverse these attitudes and practices.

The first element of a cost culture is establishing an enterprise mind-set, a process already under way. The enterprise mind-set directs us to think and to act as a single entity - as opposed to many disparate pieces and parts - focusing on what is best for the entire Army, not just what is best for any given organization. This will require us to abandon "rice bowls" and "stovepipes," and to take a holistic view of objectives and processes.

The second element of a cost culture is incorporating cost accounting, cost analysis, cost control and cost planning collectively known as cost management - into all activities at all levels. This means that examining and considering cost becomes a standard part of decision making, instilling cost-management practices at every level of Army decision making undoubtedly will take time, but we expect to make great strides in doing so in fiscal year (FY) 2010. For example, each meeting of the Army Enterprise Board (AEB) already incorporates a strategic resource update. This helps senior leaders to understand and appreciate the resource implications of their strategic choices. In addition, the Office of the Assistant Secretary of the Army (Financial Management and Comptroller) (FM&C) is setting cost-management metrics to support AEB strategies and performance objectives. An FM&C cost analyst has been assigned to each of the Army's core enterprises to develop these metrics.

The Army also intends to modify the planning, programming, budgeting and execution process to take cost into account at key points before requirement decisions are made. In addition, we are developing a cost structure and model that will capture the full cost of all Army organizations, the products and services they produce, and the customers they support.

To be most effective, the concept of cost culture must be imbued across the breadth and depth of the Army. Cost culture will not be limited to headquarters or the garrison; every theater of operations also will be required to follow its principles. Already, cost and budget analysts and accountants have been embedded into U.S. Army Central financial management units in Iraq, Kuwait and Afghanistan to provide commanders with more cost visibility and to help them incorporate cost modeling and analysis into the requirements definition process. These analysts are reviewing Coalition Acquisition Review Board resource proposals and determining true requirement costs. They have evaluated why capabilities requested by the command cost the amount they do, determined what they should cost and proposed alternatives based on cost to achieve the same result. …

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