Target Costing Best Practices and Implications for CAIV Implementation

1. PBraxton@ar.navy.mil (703) 633-8300 x4327 1 Target Costing Best Practices and Implications for CAIV Implementation Peter J. Braxton, Richard L. Coleman, Northrop Grumman IT – TASC Tami L. Capperauld, The Boeing Company Dan W. Swenson, Arizona State University (ASU) West Cari L. Pullen, Tecolote Research, Inc. CAM-I Cost Management Systems (CMS) Target Costing Interest Group DoN Acquisition Reform Office (ARO)

2. PBraxton@ar.navy.mil (703) 633-8300 x4327 2 Outline CAIV Implementation Framework Review of 1998 TCBP Study Diagnostic Tool Overview TCBP Implementation Survey Results Diagnostic Tool Refinements Current State of CAIV in DoD Next Steps

3. PBraxton@ar.navy.mil (703) 633-8300 x4327 3 CAIV Principles and Tenets

4. PBraxton@ar.navy.mil (703) 633-8300 x4327 4 CAIV Culture and Infrastructure

5. PBraxton@ar.navy.mil (703) 633-8300 x4327 5 CAIV Tools and Processes

6. PBraxton@ar.navy.mil (703) 633-8300 x4327 6 Target Cost Best Practices Study (1998) Phase I

7. PBraxton@ar.navy.mil (703) 633-8300 x4327 7 Target Cost Best Practices (TCBP) Study (1998) Co-sponsored by: American Institute of Certified Public Accountants (AICPA) The University of Akron, Ohio Researchers: Dr. Shahid Ansari, California State University Northridge Dr. Jan Bell, California State University Northridge Dr. Il-Woon Kim, University of Akron Dr. Dan Swenson, Idaho State University Statisticians: Peter Braxton, Richard Coleman Final Report published March, 1999

8. PBraxton@ar.navy.mil (703) 633-8300 x4327 8 TCBP Study (1998) Components: TCBP Survey American Site Visits Boeing, Caterpillar, Chrysler, Continental Teves (formerly ITT Automotive) Japanese Site Visits Literature Survey Purpose: Identify practices of U.S. Target Costing companies Compare to Japanese practices Reasons for not adopting and barriers to improvement

9. PBraxton@ar.navy.mil (703) 633-8300 x4327 9 TCBP Survey (1998) 120 Respondents: 48 “Adopters” 72 “Non-Adopters” Company information (confidential) 34 multi-part questions Many “one through five” type (Likert scale) Not Important, … , Very Important Strongly Agree, … , Strongly Disagree Two sections: Questions 1-18 answered by all respondents Questions 19-34 answered by Target Cost practitioners (“Adopters”) only

10. PBraxton@ar.navy.mil (703) 633-8300 x4327 10 Statistical tests conducted t test for difference of means chi square test for difference of “profiles” sign test for significance of trends Spearman and Kendall tests for correlation alpha = 0.05 Results legend: = Statistically Significant = Correlation = No Correlation Survey – Statistical Analysis

11. PBraxton@ar.navy.mil (703) 633-8300 x4327 11 Target Costing Tools Cross-functional teams (IPTs) for problem solving Single most used tool Correlated with all other tools Multi-year product & profit planning DTC (cost objectives, goals, and thresholds throughout) DFMA (optimize interactions) Continuous Improvement activities (Kaizen) TQM Benchmarking Value Engineering (includes performance trades) Competitor cost analysis QFD (document and understand requirements)

12. PBraxton@ar.navy.mil (703) 633-8300 x4327 12 Tools – Negative Results Certain tools did not show significant differences between Adopters and Non-Adopters, nor were they correlated strongly with other tools: Activity-Based Costing/Management (ABC/ABM) Cost tables Tear down analysis/Reverse engineering Integrated Data Environment (IDE) was not asked on the survey No correlation between tools and maturity

13. PBraxton@ar.navy.mil (703) 633-8300 x4327 13 Benefits of TC Increased overall profitability Reduced manufacturing costs Reduced the costs of new products before manufacturing Met or exceeded customer expectations for our products Reduced the cost of purchased materials Resulted in product features and functions that customers value Developed a more profitable product mix Decreased the number of design changes after production begins Reduced the time required for new product introduction

14. PBraxton@ar.navy.mil (703) 633-8300 x4327 14 Adopters cited negative impact of missing targets Adopters also cited inverse problem of no rewards for achieving targets Buy-in by top management is crucial: Lack of top management support Increased overall profitability [main benefit] Barriers to Improvement

15. PBraxton@ar.navy.mil (703) 633-8300 x4327 15 Survey – Key Results Clear delineation of TC Tools Convincing evidence of TC Benefits Unbalanced representation on cross functional teams a problem Improvement possible in supplier integration, performance measurement, rewards, training, information systems Handful of significant differences for Aerospace and Defense, “small programs”

16. PBraxton@ar.navy.mil (703) 633-8300 x4327 16 Survey – Expected Results Adopters had more demanding business environment, more discriminating customers Adopters had greater customer and supplier involvement Adopters estimated costs at both ends of the life cycle more often Non-Adopters perceived TC as irrelevant, or lacked the resources to implement in light of other initiatives

17. PBraxton@ar.navy.mil (703) 633-8300 x4327 17 Survey – “Interesting” Results Adopters had longer cycle times, and reduced cycle time was least often observed benefit For A&D companies, more important to beat competitor’s price ABC not a hallmark tool of TC Adopters weakest in key principles of Price Led Costing, Life Cycle Costing (esp. Disposal) Bimodal maturity

18. PBraxton@ar.navy.mil (703) 633-8300 x4327 18 Target Costing Diagnostic Tool Developed by TC Group under Dave Schwendeman, Gus Blazek, and Pete Zampino Tool focuses on readiness, capability, maturity TC should be an inextricable part of the new product development process, so focus not so much on process Intended to guide implementation strategy and toolbox development Points out “weak” areas

19. PBraxton@ar.navy.mil (703) 633-8300 x4327 19 Diagnostic Tool Mechanics Diagnostic tool divided into three areas: Cultural/Infrastructure: 5 tenets, reflects corporate environment suitable for Target Costing Principles: 6 tenets, key principles from TC book Processes/Tools: 7 tenets, capturing key enablers Each tenet has several associated true-false statements Statements are designed to avoid “gaming the question” Average scores on each part are plotted to form a “spider” graph for each of the three sections

20. PBraxton@ar.navy.mil (703) 633-8300 x4327 20 Sample Diagnostic – Fledgling

21. PBraxton@ar.navy.mil (703) 633-8300 x4327 21 Sample Diagnostic – World-Class

22. PBraxton@ar.navy.mil (703) 633-8300 x4327 22 Diagnostic Tool Development Benefit of multiple perspectives, functional expertise within group “Zealots” tended to produce overemphasis 99Q3 Seattle, joint meeting with SAVE “Group English is painful” Disagreement over grouping of tenets Inclusion of similar tenets under Principles and another area Disagreement over scoring of statements All or nothing vs. numerical scale (e.g., 1-5)

23. PBraxton@ar.navy.mil (703) 633-8300 x4327 23 Target Cost Best Practices Implementation Survey (2001) Phase II

24. PBraxton@ar.navy.mil (703) 633-8300 x4327 24 TCBP Implementation Survey (2001) German site visits proved infeasible Purpose: Provide insight into Breadth of TC applications for a variety of industries Degree of success and measurable benefits achieved Characteristics of successful adopters Researchers: Dr. Dan Swenson, Arizona State University West Dr. Il-Woon Kim, University of Akron Dr. Thomas E. Buttross, Pennsylvania State University - Harrisburg Statisticians: Cari Pullen, Peter Braxton, Richard Coleman Project Director: Pete Zampino Final Report issued March, 2002

25. PBraxton@ar.navy.mil (703) 633-8300 x4327 25 TCBP Implementation Survey (2001) 27 Respondents, all “Adopters” 38 multi-part questions Many “one through five” type (Likert Scale) Not Important, … , Very Important Strongly Agree, … , Strongly Disagree Six sections Company Information (confidential) [1-11] Site Information [12-16] Business Strategy [17-20] Management Support [21-26] Enablers/Tools [27-34] Implementation Results [35-39] Same statistical tests as references for Phase I survey

26. PBraxton@ar.navy.mil (703) 633-8300 x4327 26 Middle Management is Key,So Communication is Needed Many benefits of Target Costing (about a third) aren’t achieved until communication reaches middle management So, communication must proceed through the chain of command … the following slides show this graphically

27. PBraxton@ar.navy.mil (703) 633-8300 x4327 27 Benefits Correlated with Upper Management

28. PBraxton@ar.navy.mil (703) 633-8300 x4327 28 Benefits Correlated with Middle Management

29. PBraxton@ar.navy.mil (703) 633-8300 x4327 29 CommunicationsChain of Command

30. PBraxton@ar.navy.mil (703) 633-8300 x4327 30 CommunicationsChain of Command Does Middle Management = Program / Project Manager? May depend on organization No definition given in survey Does Upper Middle Management “feed” Upper Management? Correlation may be bottom-up as well as top-down Middle Management can serve as “blockers” Lack of Middle Management support correlates to low benefits

31. PBraxton@ar.navy.mil (703) 633-8300 x4327 31 Other Management Results Upper management correlated with encouraging innovation empowerment Middle management correlated with encouraging innovation empowerment continuous improvement mindset effective team work Lower Middle management correlated with high morale empowerment continuous improvement mindset effective team work Lower management correlated with team members empowerment

32. PBraxton@ar.navy.mil (703) 633-8300 x4327 32 Formalized Decision Analysiswith Risk Assessment* Mature and Full Implementers both use formalized decision analysis with risk reduction to a greater extent Formalized decision analysis with risk assessment is correlated with all benefits It has much more impact on benefits than any other tool Other tools/initiatives with some impact include: Voice of the customer Continuous improvement (Kaizen) Concurrent engineering Life-cycle costing Not asked on Phase I Survey

33. PBraxton@ar.navy.mil (703) 633-8300 x4327 33 Benefits Correlated with Formalized Decision Analysis with Risk Assessment

34. PBraxton@ar.navy.mil (703) 633-8300 x4327 34 Other Survey Results Consistent with 1998 Survey: Bimodal maturity Reverse Engineering, ABC/M, Cost Tables still little used Benefits correlated with time (maturity) Time to market least among benefits “Interesting” results: Use of Project Management, Decision Analysis correlated with time (maturity) Functional group representation correlated with the benefits of TC only with design engineers

35. PBraxton@ar.navy.mil (703) 633-8300 x4327 35 Dichotomy – Mature Implementers

36. PBraxton@ar.navy.mil (703) 633-8300 x4327 36 Mature Implementers Differences Adoption of TC driven by customer recommendation to a greater extent [18b] More extensive communication of TC objectives and status/progress [19a,d] Design engineering groups have a greater representation on the TC team [25b] Use VOC, decision analysis, and DTC to a greater extent [34c,d,i] TC considered more successful by design engineering [38b] Fewer production problems, fewer quality problems, better cost control over internal processes, and more satisfied customers [39c,d,g,k]

37. PBraxton@ar.navy.mil (703) 633-8300 x4327 37 Dichotomy – “Full” Implementers

38. PBraxton@ar.navy.mil (703) 633-8300 x4327 38 “Full” Implementers Differences Adoption of TC driven by market concerns to a greater extent [18g] More extensive communication of TC objectives, status/progress, and target costing accomplishments [19a,d,e] Use executive mandates to achieve TC buy-in more extensively [21b] More extensive support from middle and middle-upper management [24c,d] Purchasing and distribution/logistics groups have greater representation on the TC team [25d,h] TC team members are encouraged to innovate to a greater extent [26c]

39. PBraxton@ar.navy.mil (703) 633-8300 x4327 39 “Full” Implementers Differences Rely on new, on-line integrated system more extensively to meet TC data requirements [29d] Financial cost systems allow cost estimates at various levels to a greater extent [30e] VOC, decision analysis, and DFMA to a greater extent [34c,d,j] Satisfied with direct labor costs to a greater extent [35d] Management used TC results to measure employee performance to a greater extent [37d] TC considered more successful by service engineering [38c] Faster time to market and more satisfied customers [39a,k]

40. PBraxton@ar.navy.mil (703) 633-8300 x4327 40 Dichotomy – Large Companies

41. PBraxton@ar.navy.mil (703) 633-8300 x4327 41 Large Companies Differences TC better aligned with strategic objectives [17] Adoption of TC driven by product design concerns to a greater extent [18i] Process and cost information is shared with suppliers to a greater extent [20b,c] Use grass roots acceptance to achieve TC buy-in to a greater extent [21c] Management support for financial resources is more extensive [22a] Accounting/finance groups have greater representation on the TC team [25a] Use PM, benchmarking, VE, DTC, and ABC to a greater extent [34e,f,h,i,p]

42. PBraxton@ar.navy.mil (703) 633-8300 x4327 42 Large Companies Differences Gather relevant data, evaluate decision alternatives, make timely decisions and act upon decisions to a greater extent [36a,c,d,e] Management used TC results to measure organizational and employee performance, and used team participation in annual performance evaluations to a greater extent [37c,d,g] TC considered more successful by accounting/ finance [38a] Faster time to market, better cost control over purchased materials and parts, and improved product/service profitability [39a,f,l]

43. PBraxton@ar.navy.mil (703) 633-8300 x4327 43 Dichotomy – “TC” Practitioners

44. PBraxton@ar.navy.mil (703) 633-8300 x4327 44 “TC” Practitioners Differences Used TC more predominantly on commercial (non-government products) [14] Adoption of TC driven by customer recommendation to a greater extent [18b] Management Support for training and education more extensive [22e] Management stayed actively involved and responded to feedback to a greater extent [23a,c] More support and supplier training, but less customer training [27d,e,f] TC considered more successful by purchasing and product planning [38d,e] Better cost control over purchased materials and parts [39f]

45. PBraxton@ar.navy.mil (703) 633-8300 x4327 45 Items for Future Discussion Value Engineering/Value Analysis While used a lot, no connection to benefits Cross Functional Teams (CFTs) CFTs are incompletely staffed In-plant-oriented disciplines are fairly well represented Accounting/Finance - Production Planning Design Engineering - Operations/Manufacturing Purchasing Customer-oriented disciplines are slighted Service Engineering - Distribution/Logistics Quality Assurance - Sales/Marketing We conclude that the tenets of Customer Focus and Life Cycle Orientation are not yet fully entrenched

46. PBraxton@ar.navy.mil (703) 633-8300 x4327 46 Diagnostic Tool and Survey For both Phase I and Phase II Surveys, questions were selected that represented each diagnostic tenet, either directly or by affinity Averages were computed for each tenet on a 1-5 scale Raw correlations between these averages and an aggregate measure of success were computed Spearman and Kendall rank correlation tests performed to determine statistical significance Phase II results shown on next slide

47. PBraxton@ar.navy.mil (703) 633-8300 x4327 47 Diagnostic Tool and Survey

48. PBraxton@ar.navy.mil (703) 633-8300 x4327 48 Diagnostic Tool Refinements Incorporating Survey Results

49. PBraxton@ar.navy.mil (703) 633-8300 x4327 49 Diagnostic Tool Refinements Three new tenets added under Culture / Infrastructure Communication Resources Change Management Does order matter around the spider chart? Relative importance / ranking of tenets? Remove Supplier Partnerships from Tools, combine with Principles – Value Chain

50. PBraxton@ar.navy.mil (703) 633-8300 x4327 50 Culture / InfrastructureCommunication Upper Management has communicated their objectives & expectations of the CAIV initiative to all levels of the organization A formal mandate for action such as command media or policy manual is in place to facilitate the CAIV process A published plan to convey the CAIV objectives & expectations and engage all participants down the line is in place and being followed Systems are in place to facilitate the flow of information related to the CAIV process A non-threat communication plan with suppliers has been developed for data sharing Documented processes are in place to protect supplier information A standard metric reporting package is being used by the cross-functional teams to track status to the target in program reviews

51. PBraxton@ar.navy.mil (703) 633-8300 x4327 51 Culture / InfrastructureResources An appropriate level of resources has been planned, budgeted, and assigned to the cross-functional teams A CAIV Lead has been assigned and has timely and unrestricted access to the Program Management Qualified people have been assigned to support the CAIV process People have been adequately trained to implement CAIV Adequate resources have been provided to develop and maintain CAIV core tools and supporting processes Lead time & staffing levels have been provided to implement CAIV properly

52. PBraxton@ar.navy.mil (703) 633-8300 x4327 52 Culture / InfrastructureChange Management A formal organizational readiness assessment / maturity diagnostic has been performed and documented Corrective actions are taken to meet CAIV objectives An Executive Steering Committee is in place to oversee change Upper Management requires progress reports on the CAIV process from their direct reports at all organizational reviews Active support from Top Functional Managers has been obtained CAIV has been integrated with other processes & initiatives

53. PBraxton@ar.navy.mil (703) 633-8300 x4327 53 Cultural/Infrastructure

54. PBraxton@ar.navy.mil (703) 633-8300 x4327 54 Principles

55. PBraxton@ar.navy.mil (703) 633-8300 x4327 55 Processes/Tools

56. PBraxton@ar.navy.mil (703) 633-8300 x4327 56 Current State of CAIV in DoD Renewed policy mandate DoD 5000 series Aldridge memo Separation of Acquisition and Logistics initiatives CAIV affinity with Program Management, Systems Engineering, Cost Estimating TOC affinity with Performance-Based Logistics (PBL), Total Life Cycle Systems Management (TLCSM) Renewed emphasis on Affordability Application of Nunn-McCurdy Amendment

57. PBraxton@ar.navy.mil (703) 633-8300 x4327 57 USD(AT&L) CAIV Memo 19 Jan 02 Memo from USD(AT&L) E.C. “Pete” Aldridge Subj: Cost-as-an-Independent Variable (CAIV) and Spiral Development Implementation Plans dtd 19 Jan 2002 Two plans required by end FY02 for “100% of defense programs Supports Goal #1 of 5: “Achieve credibility and effectiveness in the acquisition and logistics support process” Progress reports on 1 Mar and 3 Jun POC – Dr. Spiros Pallas (PD, S&TS), (703) 695-7417 RTOC Working Group to provide templates by 31 Mar

58. PBraxton@ar.navy.mil (703) 633-8300 x4327 58 Next Steps Target Costing Implementation Guide (TCIG)

59. PBraxton@ar.navy.mil (703) 633-8300 x4327 59 Implementation Guide Development Target Costing book = rules of baseball Implementation Guide = how to manage a baseball team Working outline: Build Support Base Establish Charter for Target Costing Develop Implementation Plan Build Teams for Target Costing Provide Training Acquire Tools Develop Action Plan to Achieve Goals Institutionalize the Target Costing Process

60. PBraxton@ar.navy.mil (703) 633-8300 x4327 60 IG Development Process Outline drafted by working group chair Outline developed, supporting materials brainstormed at 01Q4 Core materials and outline posted to QuickPlace Secure customizable project website Supporting materials and text posted by group members Outline refined 02Q1 Interim meetings of chair, academic team, and lead authors

61. PBraxton@ar.navy.mil (703) 633-8300 x4327 61 Program Management Community of Practice (PM CoP) – http://www.pmcop.dau.mil Total Ownership Cost (TOC) CoP Multi-disciplinary CoP focused on issues surrounding TOC and Reduction of TOC Including CAIV (Target Costing), ABC/M, EVM, Cost Estimating Navy ARO POCs – (703) 602-2300 Rob Houser – RHouser@ar.navy.mil – x149 Peter Braxton – PBraxton@ar.navy.mil – x162 Also CoPs for Risk Management,Systems Engineering, and Contract Management Interest areas for Software, PBL, HSI, ESOH A Word From Our Sponsor…

62. PBraxton@ar.navy.mil (703) 633-8300 x4327 62 CAIV Diagnostic Tool (CDT) Guiding implementation

63. PBraxton@ar.navy.mil (703) 633-8300 x4327 63 Cultural/InfrastructureLeadership Embracing CAIV adherence is a factor in executive management performance Executive managers evaluate project managers based on their use of CAIV tenets All management levels embrace the strategic philosophy of CAIV Those who don't support the philosophy are removed or reassigned Management demonstrates its commitment to the process by providing resources, facilities, etc A high level multifunctional core organization is established to integrate all processes

64. PBraxton@ar.navy.mil (703) 633-8300 x4327 64 Cultural/InfrastructurePerformance Metrics Performance metrics encourage CAIV Compensation and benefits are linked to performance metrics Risk taking and innovation, essential to CAIV, are included in performance metrics Metrics are in place to encourage and enable team, as well as program, target achievement Cross-functional teams have substantial input in individuals' career path

65. PBraxton@ar.navy.mil (703) 633-8300 x4327 65 Cultural/InfrastructureEmpowerment and Innovation Individuals and teams make all decisions within contractually defined boundaries Processes exist for individuals and teams to pursue innovative ideas The team environment encourages decision making Roles and responsibilities of management and teams are clearly understood and documented Decisions are made at the lowest appropriate level

66. PBraxton@ar.navy.mil (703) 633-8300 x4327 66 Cultural/InfrastructureProject Management Cost, schedule, and “product” are related and managed interdependently All scope is documented and linked to customer expectations Scope is formally defined in a work breakdown structure Product metrics are meaningful, timely, and deployed utilizing a structured methodology There is a functioning risk management process in place Project management has a life cycle orientation Project management has formal job descriptions and compensation rules and is perceived as a career path

67. PBraxton@ar.navy.mil (703) 633-8300 x4327 67 Cultural/InfrastructureTraining Training cultivates knowledge, ability, awareness and behavior Training is not a discipline unto itself; both thinkers and doers are engaged as trainers Regular participation in training, as trainer or trainee, is required of all members of the enterprise The quality of training is evaluated by trainers, trainees and project managers Courses of training constantly evolve based on trainers’, trainees’, and consumers’ requirements Training encompasses the full spectrum of teaming, functional area disciplines, and CAIV tools

68. PBraxton@ar.navy.mil (703) 633-8300 x4327 68 PrinciplesCustomer Focus Tools and processes are in place to incorporate customer requirements for quality, cost and time, and are used for appropriate product/process decisions A systematic method for capturing and ranking customer “value” based requirements is in place and used by you, your suppliers, and customers The customer is an interactive part of the design activity and accessible on a daily basis Reaching the cost target requires the voice of the customer for changes in functionality or quality Product feature and function enhancements only take place if they meet customer expectations and customers are willing to pay for them

69. PBraxton@ar.navy.mil (703) 633-8300 x4327 69 PrinciplesLife Cycle Cost Reduction Decisions are made based on ownership costs over the product life including purchasing price, operating costs, maintenance and repair, and disposition costs A system is in place to recognize the correct valuation of life cycle costs Suppliers recognize their role in life cycle cost contributions There is a common understanding of the definition of life cycle cost at the enterprise (product) level

70. PBraxton@ar.navy.mil (703) 633-8300 x4327 70 PrinciplesPrice-Led Costing Cost targets flow from a rigorous affordability determination process Analysis of Alternatives (AoA) is rigorously documented and applied to establishing thresholds and objectives The relationship between product feature and function and product cost is communicated to affected stakeholders in the value chain Programs are not launched unless it has been demonstrated that affordability constraints will be satisfied Resources are available to those products that meet cost and performance targets

71. PBraxton@ar.navy.mil (703) 633-8300 x4327 71 PrinciplesFocus on Design Product features and cost targets are set during product planning and concept development stages Systematic methods are used to achieve target costs during the design development and production stages Designs are reviewed by stakeholders prior to release to reduce unwanted post design change activity Products and manufacturing processes are simultaneously engineered

72. PBraxton@ar.navy.mil (703) 633-8300 x4327 72 PrinciplesValue Chain Involvement Producers, suppliers, and service providers are involved in value determinations Product decisions are influenced by supplier and service provider requirement inputs Operations and Support (O&S) needs are involved in value determinations Voice of the customer is heard throughout the value chain

73. PBraxton@ar.navy.mil (703) 633-8300 x4327 73 PrinciplesCross Functional Teams [1] Product- and process- focused teams (i.e. cross functional teams) are utilized and include all stakeholders (e.g., design, manufacturing engineers, production, sales, marketing, material, finance, services and support) Team responsibility encompasses the product life cycle Suppliers, distributors, customers, and recyclers are directly involved in cross functional teams Cross functional teams have the responsibility, accountability and authority for all product work statement decisions

74. PBraxton@ar.navy.mil (703) 633-8300 x4327 74 PrinciplesCross Functional Teams [2] Stakeholders have responsibility, accountability and authority to represent and commit for their function The cross functional team has internal staffing authority The cross functional team leadership has performance evaluation input on all team members The cross functional team members are primarily evaluated by how they support overall product strategy, and secondarily by their functional organization strategy The roles and responsibilities of all team members are clearly defined and available

75. PBraxton@ar.navy.mil (703) 633-8300 x4327 75 Processes/ToolsProduct-Focused Financial Systems Financial systems are designed to allow estimation of costs at the parts level, major assembly level, and product feature or function Financial systems are an integrated part of product development Financial systems are used for past reporting, future planning, benchmarking of potentials, and identifying opportunities Financial data systems are flexible, timely, and the access mechanisms are invisible to the user Business plans and resource requirements are based on the mission-driven detail statement of work

76. PBraxton@ar.navy.mil (703) 633-8300 x4327 76 Processes/ToolsValue Engineering/Value Analysis Feature and function decisions are tied directly to customer value expectations A corps of experts in value engineering principles and methodology is involved in the team Value decisions are based on total life cycle cost Value decisions are supported by part cost detail and integration cost detail The Value Methodology is employed throughout the value chain

77. PBraxton@ar.navy.mil (703) 633-8300 x4327 77 Processes/ToolsVoice of the Customer There is a rigorous tool for identifying and ranking product and process design characteristics based on customer requirements (e.g., QFD) Customer input is sought during the product design phase Customer and product data is collected using formal methods (e.g., surveys, focus groups, clinics, etc.) Customer needs analysis data is routinely disseminated throughout the organization

78. PBraxton@ar.navy.mil (703) 633-8300 x4327 78 Processes/ToolsDecision Analysis Formal decision support tools or processes are used in the formulation of program plans Business case analysis is used for product and process decisions Decision tools address the following six investment elements: cost, schedule, performance, effectiveness/value, risk, and profit Decision analysis tools complement other target costing tools and processes (e.g., Value Engineering, Quality Function Deployment, etc) Decision making is information based

79. PBraxton@ar.navy.mil (703) 633-8300 x4327 79 Processes/ToolsBenchmarking/Cost Driver Analysis Cost information categorized by part attributes and organized by part/process families is utilized Cost information is calibrated to regional performance and industrial engineering standards Cost information is readily accessible and easy to understand Cost information is utilized in conjunction with component actuals to identify opportunities Cost information guides the Design/Build effort

80. PBraxton@ar.navy.mil (703) 633-8300 x4327 80 Processes/ToolsProduct Estimating Program lessons learned are folded into estimate tools and processes Estimating routines and manufacturing rules of thumb are integrated into design tools Program and component estimates are consistent with design and manufacturing schedules Appropriate tools to provide cost insight are used to make decisions during product definition and production Cost estimates delineate between cost risk and the core cost estimate

81. PBraxton@ar.navy.mil (703) 633-8300 x4327 81 Processes/ToolsSupplier Partnerships Suppliers share in cost reduction opportunities and benefits Suppliers are involved in design and build decisions Partnerships maintain supplier profit margins Suppliers and producers have common measures of customer satisfaction and long term success Cooperation, performance to commitment, and communication are fundamental to the supplier-producer relationship