Costing Framework III: Case Study

ESTABLISHING A COST INFORMATION FRAMEWORK TO OPTIMIZE A MAJOR PORTFOLIO OF INFORMATION TECHNOLOGY RESOURCES THROUGH GREATER VISIBILITY, SUPERIOR DECISION MAKING, AND COST SAVINGS

Introduction:

What separates good decision making from great decision making in an enterprise? A sound cost information strategy and framework. With the exponential increase in the volumes of data generated by organizations, many leaders are seeking ways to capitalize on the resultant information

To drive innovation, optimization, reduce cost, or in this particular case, to justify modernization investments, organizations must focus their change  strategy around several key people, process, and technology areas:

  • People:
    • invest in developing and or acquiring data scientists and data architects
    • create and/or embed data science and data analytics into your existing training programs
  • Process:
    • establish enterprise data standards
    • determine data collection and/or tagging strategies for cross system integration
    • form governance boards for policy and standards administration
  • Technology:
    • implement modern data management tools and analytical capabilities such as dashboards

 

Background:

One major Defense organization (D.O.) needed Alta Via to design a sound cost information framework to support the modernization of one of its largest portfolios in terms of annual dollars and importance for mission operations. The framework needed to improve cost visibility and analytics for a portfolio of 600+ [4] defense business systems, which are primarily software-based technology investments, across the following six major mission operations domains:

  • Financial Management and Compliance (FMC)
  • Human Resource Management (HRM)
  • Logistics (LOG)
  • Acquisitions (ACQ)
  • Training and Readiness (T&R)
  • Installations, Environment, and Energy (IEE)

Simultaneously, new DoD wide regulations called for each branch of the military to adhere to and report cost against a new business capability acquisition cycle for defense business system investments. Each acquisition phase had specific reporting categories that specific funds (i.e., research and development, procurement, and sustainment) would need to be tracked and reported against. This required creating a data linkage or association (example shown below) between funding sources, acquisition phase, and the categories of cost/spend.

 

Funding Source         à        Acquisition Phase     à        Category of Cost/Spend

OMA                           à        Capability Support     à        Tier II Help Desk

With the new cost information framework, the D.O. sought to adhere to the newly mandated business capability acquisition cycle and improve their ability to justify future funding requests aimed at consolidating and modernizing capabilities and systems within the portfolio. Justification would be supported by the realization of savings by retiring legacy systems currently in sustainment and reinvesting those dollars.

Problem Statement:

Current deficiencies in data standards, architectures, integration of cost and operational data, as well as a lack of data governance created the proverbial “black hole.” This meant a lack of financial visibility (from plan to actual) of the current portfolio of systems, resulting in an inability to accurately show proposed savings across the modernization timeline. The lack of a cost framework resulted in delays, withholding, and denial of funding for new systems and capabilities.

Solution:

To address all these issues, Alta Via led the charge using our proprietary Cost Information Framework services and methodologies. To begin, we established a common understanding of what the stakeholders hoped to achieve, what questions they needed to answer, what decisions the cost information would support. This information pointed to what data is required and when, which led to questions about where does that data currently reside, what data is missing, and what tools would be leveraged to build and present the analytical findings.

Answers to these and other questions informed the cost framework design. A sampling of the cost information framework requirements included:

  • Defining the required data and data entry standards for the portfolio and financial management systems
  • Establishment of standard cost reporting categories and definitions for all defense business systems to report spending against
  • Creating a crosswalk and association between funding source, acquisition cycle phase, and cost reporting category
  • Establish full life cycle cost visibility for all defense business systems within the portfolio
  • Match annual funding tracked in the portfolio management system with actual expenditures from the financial system to show how dollars were being spent vs planned
  • Establish analytics to show how savings could be achieved through sunsetting legacy systems in sustainment
  • Show how savings would be used to justify and fund the new systems and capabilities being requested
  • Using the standard cost reporting categories to identify common capabilities and functions for consideration to consolidate and migrate into a shared service model

Proposed Solution / Changes:

Through our design workshops, the new framework created a 3-way link, through the establishment of a common asset (business system) id, between the portfolio management system, DoD-mandated registration and tracking systems, and the financial management system. This would allow stakeholders to aggregate data to track planned and allotted funding from the portfolio management system against actual cost/spending from the financial management system.

By reviewing all existing governing documentation to include regulations and instructions for business systems we evaluated the current portfolio and classified business systems into one of four categories. These categories defined the annual planned investment in terms of dollars across the Future Years Defense Program (FYDP) as listed below:

BUSINESS SYSTEM CATEGORY

DOLLAR THRESHOLD

CATEGORY 1

$250M and Above

CATEGORY 2

$50M to $250M

CATEGORY 3

$1M to $50M

CATEGORY 4

Up to $1M[a11] [12] 

 

The first call to action was data cleanliness. Each business system owner was in charge of cleansing their current data. Each of the six domain portfolio management teams were responsible for ensuring that only valid business systems were active in the portfolio management system. This initiative removed any systems that were no longer active in the acquisition cycle. In addition, each system owner were required to update their system’s records to identify the above business system category into which the system falls. In doing this, we were able to identify that 13% of the portfolio fell into either a business system category 1 or 2. Therefore, we were also able to determine that these systems alone had a minimum planned investment of $3.5B. These systems were the target for Wave 1 implementation of the new Cost Information Framework.

The next design element entailed architecting the data and information that needed to be captured for each business system. This included selecting and standardizing the use of cost objects (cost centers, work breakdown structures, and/or internal orders) and attribute fields to track each defense business system within the financial management system. The term “cost object” refers to an activity, output, or item whose cost is to be measured. A cost object “attribute field” is a piece of identifying information that is captured on a cost object master record that helps further classify the cost object’s costs. Each combination of attributes would create multi-dimensional views (i.e., analytics slices) of the costs for each system.

Attributes needed to support a stakeholders’ need to track and report for each business system entailed:

  • The domains portfolio (one of the six: FMC, HRM, LOG, ACQ, T&R, IEE)
  • The business systems category (1-4)
  • The business capability acquisition cycle phase (one of five: CNI, BSA, FR&AP, AT&D, CS)
  • The specific cost reporting category from the investment or sustainment cost reporting structure (i.e., software licenses, hardware, system engineering, help desk, etc.each funding source was used for.

This data was then mapped and sorted using the newly defined framework as shown in the graphic below:

Each of these new requirements and data elements would merge with already captured funds, financial, cost, and procurement management data. This supported portfolio management decision making in regards to system and capability consolidation opportunities. (Example)

Subsequently, the next step involved designing, building, and training system owners on how to mass create the unique cost objects for each of their business systems.

The third and most difficult step required working with each system owner to identify, isolate, and map 1 year of historical  financial execution for each business system and mapping that execution to the newly established cost framework.

This required the creation of new web intelligence tools to pull and map to the new cost information framework, historical financial execution, to include funding, contract, payroll, and cost data for each business system.

A significant insight from this exercise resulted in the fact that there were nearly $900M in vendor labor cost that required significant analysis to determine how that labor was used. Once the analysis was performed, allocations associated the labor to the relevant output or cost reporting category. The example below shows a single contract for one business system where the labor was pooled on a single cost object (i.e., the red posting) resulting in a lack of visibility into how that labor was actually used.

Once the analysis was performed, you can then see how the assignment mapped labor to each of the new cost objects. This resulted in increased visibility into the vendor labor cost for this system as well as cross system analysis of vendor labor.

The final piece of the solution involved selection of the analytical toolset and creation of the analytical dashboards in support of portfolio monitoring and management decision making. The dashboards provided stakeholders and decision makers with cost information and graphics for monitoring the portfolio as well as detailed cost information for more targeted analytics. For example, at the domain portfolio level, Domain Portfolio Managers could see all of the systems that fell within their domain, organized by total cost by business system category, or all the way down to an individual category of cost such as Tier II Help Desk. Insights like this help inform consolidation opportunities such as eliminating separate help desk contracts across the portfolio by standing up a single shared service.

Enabling the Workforce:

Ensuring the workforce was prepared to adopt and take ownership of the new cost framework required a comprehensive training and communications strategy. Alta Via developed a strategy that entailed a task-based implementation and training approach using 1 year of historical execution data, setting up the new cost framework, and mapping that historical data to the framework. Each step of the process was divided into discrete tasks delivered over a six-month timeline, with go live at the beginning of the new fiscal year.

We rolled this out across all six domains simultaneously by delivering 36 live, instructor-led, virtual training sessions. We also developed all of the standard operating procedures, maintained and published frequently asked questions, established master data standards and mass creation templates, and generated transaction-based video demonstrations or simulations. Additionally, we created, monitored, and presented compliance for over 200+ stakeholders for each task delivered in the implementation process. All of this knowledge capital was centrally stored, creating a leverageable, sustainable center of excellence for managing the acquisition lifecycle for the D.O.'s business systems.

The effective enabling of the workforce ensured a very short window to gaining benefit from the cost framework (or something to that effect).

 

Managing Compliance:

A key to ensuring success with the new cost information and data analytics strategy is ensuring compliance with the new standards. If users do not enter the necessary data, the information collected will be incomplete, negatively impacting decision making. The whole framework initiative then degenerates into a garbage in garbage out scenario. Leveraging dashboarding capabilities along with policy enforcement can mitigate that risk. In this case, dashboards were not only used to present cost information that could be sliced and diced into different views, but also to highlight possible compliance violations. This helped identify additional training or further policy enhancement.

 

Enhanced Visibility and More Informed Decision Making:

The result was complete spend and cost visibility for $3.5B in business system spending across six mission domains. As already mentioned, the management information that was generated also shed light on the fact that over $900M in vendor labor required cost assignment to align with the predefined cost reporting categories in order to see how that labor was used.

This resulted in the kickoff of a second effort to establish a new spending information framework to standardize the data collected for vendor-supplied resources on external contracts for business systems. The goal will be to create a set of standard procurement categories aligned to a standard defense business system contract structure to classify vendor resources. This information framework will link directly with the cost information framework to create a holistic view of all of the D.O.’s business systems within the portfolio. This enables greater spend visibility, lowers the need and resources required to generate and manage quarterly labor assignments by aligning the new input/spending data structure to the cost/output structure established during the implementation of the cost framework.

In summary, with Alta Via leading the charge the D.O. implemented a new cost information framework to gain much-needed visibility into a major portfolio of mission-critical business systems. The framework served to justify new funding requirements tied to the cost savings of proposed sunsetting of legacy systems within that portfolio, and supports decision making for consolidation of resources and the modernization of capabilities.

 

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