Determine the Purpose and Motivation for Continuous Improvement

Intermediate Cost Analysis and Management

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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)

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Terminal Learning Objective

• Task: Determine the Purpose and Motivation for Continuous Improvement

• Condition: You are training to become an ACE with access to ICAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.

• Standard: with at least 80% accuracy:• Describe the benefit of Continuous Improvement• Describe the process of stimulating Continuous

Improvement and creativity© 3

The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

Day Two’s two cents + Day One’s one cent = three cents

The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

Day Three’s four cents + Day Two’s two cents + Day One’s one cent = seven cents

The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

And so on….And so on…

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The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

By the end of the first week we have $1.27

The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

By the end of the second week we have $163.83

By the end of the month the total is

more than

$10 Million!

The Power of Continuous Improvement2 0.02 0.033 0.04 0.074 0.08 0.155 0.16 0.316 0.32 0.637 0.64 1.278 1.28 2.559 2.56 5.11

10 5.12 10.2311 10.24 20.4712 20.48 40.9513 40.96 81.9114 81.92 163.8315 163.84 327.6716 327.68 655.3517 655.36 1310.7118 1310.72 2621.4319 2621.44 5242.8720 5242.88 10485.7521 10485.76 20971.5122 20971.52 41943.0323 41943.04 83886.0724 83886.08 167772.1525 167772.16 335544.3126 335544.32 671088.6327 671088.64 1342177.2728 1342177.28 2684354.5529 2684354.56 5368709.1130 5368709.12 10737418.23

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 7 8 9 10 total

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74%

savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

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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 7 8 9 10 total

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74%

savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

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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 7 8 9 10 total

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74%

savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

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Consider a 3% Annual Improvement

• For a $250 billion organization over ten years:

• The Army you save may be your own!!!!

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$M 1 2 3 4 5 6 7 8 9 10 total

budget 250000 242500 235075 227724 220447 213243 206110 199049 192059 185138 74%

savings 7500 7425 7351 7277 7204 7132 7061 6990 6921 6851 71713

Continuous Improvements:Lots of Small Victories

• Continuous improvement’s success based on:• Many, many small initiatives• Widespread employee involvement• The long term power of accumulation

• The AAR is the forum to monitor progress in generating initiatives

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Learning Check

• How would you describe the power of Continuous Improvement?

• Where is Continuous Improvement monitored?

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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

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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?

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Opportunities for Creativity

• Shedding activities no longer needed• Resizing service levels to current needs• Eliminating redundancies• Redefining service levels provided• Challenging inefficient guidance • Removing deadwood

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Learning Check

• What are two ways of achieving Continuous Improvement initiatives?

• What are three opportunities for Continuous Improvement?

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Shedding Activities No Longer Needed

• Organizational inertia tends to institutionalize services once started• No clear mechanism exists to reassess the

requirement for service• Results in continuance of non essential tasks

while sometimes cutting essential• Example from Fort Huachuca

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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. RossiC Cost Reduction Initiative$000

Cost Reduction Initiative$000

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!”

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Resizing Service Level to Current Needs

• Many missions have downsized • Many support functions have not

• Examples: • Hours of airfield operation at Fort Huachuca• Staffing for ammunition issue point at Fort

Huachuca

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Eliminating Redundancies

• Organizations often generate a “stove pipe” approach

• Consolidating across institutionalized boundaries can improve efficiency• Beware the danger of creating non-responsive

monopolies• Examples: Fort Detrick and Fort Huachuca

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Fort Detrick

• Initiator: Maintenance Supervisor• Description: Cross train monitoring,

preventive maintenance, and emergency response personnel

• Result: Save $600K per year while increasing uptime

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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

U.S.

Paul A. RossiC Cost Reduction Initiative$000

Cost Reduction Initiative$000

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 it?

• What’s different here?• Productivity oriented culture driven by leadership

that expects creativity

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Redefining Service Levels Provided

• Support services are free goods to users• Free goods have infinite demand• Redefining 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

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Cutting Non-Productive Employees

• All organizations and leaders find it difficult to cut non-productive workers

• Relatively abundant resources allowed avoidance of the issue in the past• Could your organization operate as effectively

as now without bottom 5%?• Could you use 5% more funding?• How important is it?

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The Long Term Power of Continuous Improvement

• Often consider only digital decisions• Kill it or keep it

• Too little thought given to gradually making operations more efficient• A 4% annual productivity increase will not solve

current crisis or get much attention• Ten years of 4% annual productivity increases

will

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Learning Requires Teaching:Leadership Has KEY Role

• Government organizations can learn• Who 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

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 technology• Quality of life

FY98

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U.S.

Paul A. RossiC

GARRISON MANAGEMENT SYSTEM

Number of Initiatives

322

232163

85

3030

55

7869

90

050

100150

200250

300350

4Q02 1Q03 2Q03 3Q03 4Q03

Cumulative

New

FY03

U.S.

Paul A. RossiC

GARRISON MANAGEMENT SYSTEM

$ Value of Initiatives

$1.10

$24.4$23.7$23.2

$14.0$11.6

$2.37$1.50 $0.65

$9.25

$0$4$8

$12$16$20$24$28$32

4Q02 1Q03 2Q03 3Q03 4Q03

Cumulative

New $ Millions

FY03

Learning Check

• How does Continuous Improvement differ from the “kill it or keep it” mentality?

• Who is responsible for ensuring that learning occurs?

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How Can You Motivate Continuous Improvement?

• The Army motivates soldiers to do much harder things• Under threat of great personal risk• For limited monetary compensation• Under often adverse conditions

• Is it patriotism?• Is it for the money?• Is it to win a medal?

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Why Soldiers Fight

• Possible reasons:• Expected by peers• Demanded by leader• Trained by the institution

• These are the ingredients that define an organization’s culture

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Cold War Cost Culture Will Lose the Cost War

• Performance management is not important when resources are plentiful

• Budget management dominates actions• Spend 99.9%• Work on defining “needs” to get more• Never give any back

• Result: “Why should I reduce cost - we don’t get to keep it?” culture

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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 capabilities

• Winning the Cost War requires the same cost conscious mentality

• Excessive casualties and excessive costs are unacceptable

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