Winning the Cost War: Applying Battlefield Management Doctrine to the Management of Government

By Dale R. Geiger

Dr. Geigers research proposes innovative and practical responses to the cost war fought by government organizations struggling with lower budget levels. His sustained research contributions into the measurement and management of cost in government organizations promise to improve governments mission effectiveness by improving its mission efficiency.Association of Government Accountants

As the United States moves from Cold War to Cost War, the management of cost has greatly increased in importance. In fact, the greatest threat today to the strength of the nation may be poor management of the limited remaining resources.

Winning the Cost War documents a new doctrine of cost management developed from battlefield management, one of managements oldest applications. Dale Geiger defines and illustrates new ideas for everything from managerial cost accounting to analysis and accountability.

Winning the Cost War has moved managerial costing from being a secondary chore to a framework for success in todays environment. A must-read for agency and corporate leaders who need to adopt battlefield instincts of strategy and tactics and apply them in the new fiscal war.Ward Melhuish, partner, PricewaterhouseCoopers LLP

• Language: English
• Publisher: iUniverse
• Release date: Jun 27, 2000
• ISBN: 9781462041039

Dale R. Geiger

Dr. Dale Geiger brings a unique combination of academic study, government management research, and corporate management experience to the problem of improved performance in government. He holds three degrees from MIT and earned his Doctorate from the Harvard Business School after a seventeen-year career that included several significant controllership positions. Dr. Geiger is the recipient of the Association of Government Accountants’ 1995 and 2001 National Author's Awards, 1996 Education and Training Award, and 2000 Career Contributions to Research Award.

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Contents

Dedication

Foreword

Acknowledgements

Introduction

Part I

Declaring the Cost War

Chapter 1

Understanding the Nature of the Cost War

Chapter 2

Defining the Battlefield Management Paradigm

Part II

Winning the Cost War

Chapter 3

Establishing Commander’s Intent: Ground Rules to Creating a Productive Organization

Chapter 4

Planning the Battle

Chapter 5

Institutionalizing the After Action Review

Chapter 6

Winning Battles

Chapter 7:

Motivating Cost Warriors

Chapter 8

Managing Mercenaries: Making Allies

Chapter 9

Conclusions: Making the Campaign Plan

Part III

Managerial Costing: Reconnaissance for the Cost War

Chapter 10

Developing a Reconnaissance Strategy

Chapter 11

Cost Warrior’s Role in Reconnaissance Planning

Chapter 12

Converting Data into Intelligence

Chapter 13

Defining the Level of Detail in Reconnaissance

Chapter 14

Avoiding Reconnaissance Mistakes

About the Author

References

Dedication

This book is dedicated to Jackie Wife, Partner, and Best Friend andShirley and Erv Geiger Mom, Dad, and Original Cost Warriors

Foreword

Here is an important book for all managers struggling with the need for fresh ideas in the never-ending battle to achieve productivity improvements. While the author speaks directly to managers of government programs, the lessons are equally applicable to leaders in the private sector. Even though there is liberal use of military terminology about how to win the Cost War, the book is an easy read for any manager with or without military experience.

Dr. Dale Geiger, with 17 years experience in the high technology sector and a Doctorate in managerial accounting, has defined an important process: Interactive Cost Based Management. The process is based on a simple premise; productivity gains will be achieved when the creative power of the organization’s workforce is unleashed by continuously challenging them to identify ways to improve performance, cut costs, and reapply resources to higher priority endeavors. Within this productivity-sensitized organization, Cost Warriors, leaders of cost center activities, measure performance and costs, plan future activities with these measures in mind, conduct after-action reviews after the plans are executed, and then start the cycle all over again. Up and down the chain of command subordinates brief seniors on results and lessons learned, and seniors hold them accountable with rewards or special help.

Lessons learned are perhaps the most valuable outcome of this management concept. They are frequently applicable elsewhere in the organization, not just in the discovering activity.

This is a book about better management, not better accounting. Yet Geiger includes plenty of tips on better cost measurement, the intelligence gathering function of the Cost War. If you have wondered about such tools as Activity Based Costing (ABC) for your organization, Geiger describes what you as a manager might accomplish with it.

If you are a manager in the public sector, you will soon see that this is not a book about managing a budget. Interactive Cost Based Management is a system that challenges the organization to expend its resources in a far more productive way than that envisioned at the point in time when the budget was locked.

I have been privileged to participate with Dr. Geiger in implementing a series of prototype demonstrations of this system at four posts of the United States Army. I can attest that the methods described in this book show great promise in instituting a system Army-wide for continuous productivity improvement, an effort that is currently underway.

Thomas P. Carney Lieutenant General United States Army Retired

Acknowledgements

There are many people to thank for help in this effort. They include the many managers in many government organizations who have taken time to educate me, particularly Tom Carney, Jim Freauff at Fort Huachuca, and Steve Bagby and Bob Young from the Army’s Cost and Economic Analysis Center (CEAC). The list also includes my students from universities and government organizations who have interacted with me in developing ideas on this subject. Special thanks is due to CEAC for the idea for the Cost Warrior on the front cover. I’d also like to thank my assistant and colleague Melanie Nelson for her patience and insight in putting these ideas to paper.

Introduction

We spend an immense amount of money through our government institutions. Federal, state, local, school district, special district, and non profit organizations make up a large segment of the economy and employ millions. Management of government organizations apparently leaves much to be desired. Consider the viewpoint of Congress as stated in the Chief Financial Officers Act (H.R. 5687):

– Billions of dollars are lost each year through fraud, waste, abuse, and mismanagement…

– These losses could be significantly decreased by improved management…

– The Federal Government is in great need of fundamental reform in financial management requirements and practices…

– Current financial reporting practices of the Federal Government do not accurately disclose.information required for efficient management of programs.

Yet, how to manage government seems to be a mystery. Policy issues seem to divert many people’s attention from management considerations. This should not be surprising. Policy decisions in government dominate the media. Political campaigns keep policy issues at the forefront. Even most Masters of Public Administration programs heavily emphasize the policy making dimension.

Let’s clearly state here that this book is not about making policy. Policy making will be left to elected officials, their appointees, and the democratic process. This book will concentrate on the efficient execution of policy where policy execution is defined as management.

This premise suggests the government management process should be capable of efficient policy execution independent of the policy itself. Such a goal should be universally desirable. Efficient execution saves resources for deployment to additional programs or return to the taxpayer as determined by the democratic policy making process. Efficiency allows more guns, more butter, or more guns and more butter for a given level of spending. Who could be opposed to this?

Many people, however, have looked at the recent history of government management and concluded that government cannot manage itself. They believe that privatization is universally optimal and that the private sector is inherently better managed. Academics seem particularly fond of espousing this view. Usually, the argument is grounded in the fact that government does not exist to make a profit and we all know that it’s the profit motive that makes the private sector work.

Let me take clear exception to this view. In my experience as a controller in a major company, the vast majority of managers did not manage profit: they managed cost. The ratio of cost center managers to profit center managers was something like 40 to 1. The ratio of employees to profit center managers was probably in the range of 400 to 1. Achieving corporate profit was highly dependent on sound cost management. I see no intrinsic reason why cost centers in government organizations cannot be as well managed as those in the private sector.

Some say it is the greed of corporate owners that increases the importance of cost management within companies. Yet, it should be noted that the self interested, greedy vote of the typical shareholder differs little in its impact from that of the self interested, greedy voter in a political election.

I would like to propose an alternative theory for why government organizations do not manage cost well: they have not had to. Franklin Roosevelt’s solution to the Depression was based on increased government spending. World War II and the Cold War maintained government spending at high levels. Resources available to government managers have been relatively plentiful. Nobody, in their personal lives or in the corporate world, manages cost very well when resources are plentiful. There is simply no pressing need for cost management and it should not be surprising that costs remain unmanaged in organizations with such an environment.

One proof of this theory can be seen in the increased interest in cost management now that budgets are more constrained. Now there is an incentive to use the remaining resources more wisely in order to better perform the mission of the organization. Government managers are starting to recognize that there is a large untapped reservoir of funding within their own organizations that can be exploited to accomplish the mission in spite of lower funding levels.

This change in the environment is increasingly recognized as permanent. Tax rates have fallen due to that democratic, policy setting process and pressure for further reduction seems significant. Perhaps more important, however, is that government’s appetite for borrowing has been curbed. It is highly unlikely that we will borrow the national debt again over the next fifty years. It is arguably more likely that we will begin to pay it off.

The search is on for a new paradigm to deal with this fundamental change in the fiscal environment of government. This book hopes to make a contribution to that effort by explaining and defining an Interactive Cost Based Management process I have developed that has been successfully tested and piloted by the Cost and Economic Analysis Center of the United States Army.

Cost Based Management is based on a management process that government is good at: winning battles. This process is unique to government and doesn’t involve any profit motive. Managing a battle is quite analogous to managing cost since battlefield management is fundamentally a cost management paradigm. Good combat commanders are always interested in cost measurement, cost reduction, and cost-benefit relationships.

The difference is that cost in combat is measured in terms of people and equipment, rather than dollars. Good combat commanders seek to accomplish their missions at minimum loss. All government organizations, whether they be military or not, can improve the execution of their missions by applying lessons learned on the battlefield to the management of their dollars. This is the essence of the Cost Based Management paradigm.

In the United States military, resources became much more constrained with the end of the Cold War. Since forces were no longer needed, mission capabilities were significantly drawn down. In this book we will generically use Cold War to describe a period of relative abundance of resources and Cost War to describe a period of relative scarcity. An increasing number of government organizations seem to be facing lower budgets these days and find themselves in a Cost War.

Government executives in a Cost War are searching for a government applicable management paradigm. They seem frustrated with the bureaucratic management paradigm of rules, regulations, and restrictions and are receptive to the new ideas of Cost Based Management proposed here. As one manager at a pilot site put it: This is exciting. It’s a whole new way to run government and we can do this.

This subject is of great importance today. Managers within this large segment of our economy represent a huge, but underdeveloped, national resource.

Dr. Dale R. Geiger Associate Professor of Managerial Accounting California State University San Marcos

Part I 

Declaring the Cost War

Historians viewing the 1990’s may recognize this decade as the time when the federal government entered the Cost War. Desire for a peace dividend, revolts by taxpayers, and limits to federal borrowing combined to cause a major reduction in funding levels for many organizations. Lower resource levels posed a significant threat to the ability of these organizations to accomplish their missions. Other government organizations may experience different timetables for the start of their Cost Wars, but many will be affected by changes at the federal level.

Dealing with the new realities of the Cost War requires new strategies, tactics, and weapons. Cost warfighting doctrine must be developed, and Cost Warriors must be trained and led. But first, government organizations must recognize the fundamental change that has occurred and declare the Cost War.

Declaring the Cost War and changing the culture of the organization to fight and win it may not seem very interesting or worthy of management attention. Most leaders in government organizations are in their jobs because of their interest in achieving the mission of their organization: not to be cost managers.

Those leaders have enjoyed the luxury during the relatively resource- abundant past of being totally focused on achieving their missions. However, failure to address the new realities of the Cost War will unavoidably result in an unnecessary loss of mission capability.

Today, fiscal constraints pose a significant threat to the ability of many government organizations to execute their missions. For example, consider that the Army downsized from eighteen divisions to ten in the 1990s. This reduction in mission capability is significant: more than was necessary to win the Gulf War. The Army has never lost a division- sized unit in combat, but there is the very real threat of losing another division to the Cost War in the next few years.

Countering this threat by efficiently using remaining resources would seem a worthwhile goal of the organization and in the best interests of the nation. In the absence of improved cost management, budget cuts inevitably reduce the service levels for which government organizations were created.

The threat to mission capability is clear. Leaders concerned with the mission effectiveness of their organizations are beginning to realize that mission efficiency has increased in importance. They also recognize that losing mission capability unnecessarily is contrary to national interests, and that a new paradigm of cost management is required.

Conclusion:

Cost Management Paradigm Needed To Win Cost War

Companies have learned that they can only close so many plants to reduce costs. Closing the least efficient plant each year eventually results in the closure of all plants. Appropriately, this is called the death spiral. Continuing a strategy of downsizing or base realignment and closure could have the same effect.

Once the really bad plants have been closed, corporate strategy shifts to running the remaining plants better. In a sense, this strategy recognizes that the remaining fat is not easily found or cleanly cut. Instead, it is well marbled throughout, and can only be shed by continuously exercising the muscles

Industry has shown how it can change to deal with its own Cost Wars. Why can’t government organizations? Why should this sector that represents roughly a third of our Gross Domestic Product be exempted from pressures for efficiency at the expense of the other two thirds?

I believe that government can and should continuously improve its productivity and that the payoffs to society will be enormous. While the process of change will not be quick or easy, declaring the Cost War is the logical first step.

Chapter 1

Understanding