Home' Army Acquisition Logistics and Technology Magazine : Army ALT October-December 2013 Contents this as a cost savings, despite having
taken no action itself to reduce cost?
Finally, there is the issue of the granularity,
or the level of detail in the measurement.
In his seminal 1984 business novel, " e
Goal: A Process of Ongoing Improve-
ment," Eliyahu M. Goldratt describes a
manufacturing plant that bases its success
on the sum of the "e ciencies" created by
its individual departments, blinding itself
to the plant's overall decline.
Costs are hierarchical: e cost of a single
activity is subsumed into a project, which
in turn is subsumed into a higher level,
and so on. e acquisition community
may claim nancial bene ts at the activity
level, even though there is no reduction at
the project level, because other activities
may have increased in cost.
In his 1967 paper, "How Long Is the
Coast of Britain? Statistical Self-Sim-
ilarity and Fractional Dimension"
(online at http://classes.soe.ucsc.edu/
Mandelbrot1967.pdf), m athematicia n
Benoit Mandelbrot showed the coastline
to approach an in nite length based on
increasing the granularity of measure-
ment. A coastline measured in miles is
shorter than the same coastline measured
in inches, because the shorter unit allows
for the measurement of smaller varia-
tions. e logical conclusion here for the
acquisition community is that if we mea-
sure and calculate our e ciencies at lower
levels of the work structure, we'll have a
greater result than at the higher levels.
Consider the following scenario: A pro-
gram manager successfully optimizes
part of the program's elding plan and
frees up money in the current year. e
PM can then procure additional end-item
quantities against the program's acquisi-
tion objective, which is only pa rtially
funded in the out-years of the budget.
e successful reduction in elding costs
is a cost savings at the activity level because
it made dollars available for reallocation
to another approved purpose. However,
the end result at the program level was to
reduce a future unfunded requirement,
which is a cost avoidance. One might be
tempted to issue a blanket policy that all
savings will be reported at the program
level, but that would leave open the pos-
sibility of a PM claiming a savings even
if the result is not an overall savings for
the Army. e granularity or reporting
by level of hierarchy can not only change
savings to avoidance, but also determine
whether a cost reduction even occurred.
e adoption of a common nancial ben-
e ts model and language for all reported
e ciencies is essential to reducing varia-
tion and bolstering the credibility of
any claim of nancial bene t, as well as
reducing the risk of double-reporting.
e Army must identify granularity stan-
dards to at least acknowledge and begin
mitigating the problem of granularity in
nancial bene t claims. To some degree,
there will always be an element of pro-
fessional judgment in such claims, but
without acknowledging the problem,
there is no possibility of ever coming to
Finally, organizations reporting savings
should include a description of the usage
of funds saved; for example, by citing an
unfunded requirement that was reduced.
Without such a description, it is not
clear whether the savings are available
and could be claimed to pay a bill, or if
the reporting organization has already
used the funds for an approved purpose
While these steps would not put an end
to every debate over cost reductions, they
would bring clarity to the conversation.
As for the vultures, they can just keep
For more information contact the authors
at email@example.com or
MR. THOM HAWKINS is the continuous
performance improvement (CPI) program
director and chief of program analysis for
Program Executive Office Command, Con-
trol and Communications -- Tactical (PEO
C3T). He holds a B.A. in English from
Washington College and an M.L.I.S. from
Drexel University. Hawkins is Level III
certified in program management and is
an Army-certified LSS Black Belt. He is a
member of the U.S. Army Acquisition Corps
MR. VINCE DAHMEN is a cost analyst
at PEO Ammunition. He holds a B.S. in
chemistry from Montclair State University
and an M.S. in operations research from
Stevens Institute of Technology. He is Level
III certified in business financial manage-
ment and a member of the AAC.
THE IDEA THAT WE MUST PREFACE A TERM LIKE "COST SAVINGS"
WITH A QUALIFIER, AS IF SOME SAVINGS ARE A MIRAGE ...
REFLECTS THE IMPRECISION OF OUR TERMINOLOGY AND THE
INABILITY OF SOME OF THESE COMMONLY MADE STATEMENTS TO
WITHSTAND CAREFUL SCRUTINY.
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