Unmasking Transparency: Gaining Greater Operational Insight Through Financial Metrics Presenting Organizations: Navy Reserve Force Defense Information Systems Agency (DISA) Deloitte Consulting LLP A Combat Support Agency DCS 400458 June 4, 2010 Introductions Christopher Rose Paul Branum Principal Comptroller, Navy Reserve Forces Chris is a lead Principal in the delivery of Finance Transformation and Service Delivery Transformation engagements for DoD clients. Paul leads the finance organization for the $1.7B Navy Reserve Operations and Personnel Budget. Fifteen years of federal financial management experience at HQ level activities 17 years of financial management experience spanning all dimensions – people, process, systems, & technology 24 years as a Navy Surface Warfare Officer Former Presidential Management Intern (PMI) for the Department of the Army Master’s Degrees in Business Administration and Public Policy Nathan Maenle Business Systems Executive, Defense Information Systems Agency Nathan leads the integration and evolution of Agency business systems. Works directly with the CIO to shape business policy and manage business information and data Supported integration of worldwide DISA Directorate’s processes and systems driving $13M capital investment -1- DCS 400458 Twenty years as Information Systems Specialist Session Overview Objectives – Introduce the foundational concepts of performance management – Define and explain common performance management terms providing relevant examples – Explain the four critical components of performance management – Explain how management can align people’s behavior with their corporate strategy through operational goals -2- DCS 400458 – Present case studies that illustrate the concepts in action -3- DCS 400458 DoD future years budget projections present a concerning situation for every organization in the Department In addition to fiscal concerns, DoD financial management organizations are experiencing competing challenges across various areas Execution Challenges Efficiency Challenges Risk/Control Challenges ■ How can I manage my responsibilities to focus on the activities that create real value for the organization and make a quick, noticeable impact? ■ How do I ensure that the data the organization relies on provides the most useful information? ■ How do I create a common language that empowers management to see itself the way outside stakeholders do? ■ How should I organize my team and interact with business leaders to embed financial disciplines and support value-creation activities? ■ How do I attract, develop, and retain the talent required to execute our mission efficiently? ■ How do I drive innovation and improved performance in my operation? ■ How do I ensure that the reporting data the organization relies on is accurate so that the organization delivers a reliable dial tone (information)? ■ How do I remain compliant without increasing the workload burden on my organization? -4- DCS 400458 Performance Challenges In response to these challenges, DoD financial management needs to accelerate evolution from value preservation to value creation A “Moment of Truth” for DoD Financial Management… Value preservation has been achieved primarily through Finance’s focus on stewardship and budget development capabilities. The Shift From Value Preservation... Financial management office responsibilities were to ensure that the people, processes, controls and technology existed to ensure accurate documentation of all transactions and support budget justification. Financial management personnel collected, consolidated, and verified data. Today, financial management offices can take advantage of new technologies to shift their focus to becoming a more valued business partner. Providing deeper and more consistent analytical insight into the operations of the business and how to improve them. Financial management organizations are expanding their responsibilities to contribute to determination of strategic business direction and stimulate the right behaviors across the organization in pursuit of corporate objectives through performance management. -5- DCS 400458 ...to Value Creation One such method to accelerate “value creation” is to improve the effectiveness of performance management in our organizations Performance management is characterized by many names in the Federal marketplace and several slightly different definitions Business Performance Management Business Intelligence Corporate Performance Management Balanced Scorecard Performance Management Business Enterprise Planning Value Based Management Scorecarding and dashboards Strategic Enterprise Planning Strategic Cost Management -6- DCS 400458 Performance management consists of a set of management and analytic processes, supported by technology, that enable organizations to define strategic goals and then measure and manage performance against those goals. Effective performance management translate strategic objectives into operational results through a lens focused on “value creation” The objective of any performance management process is to bridge strategy and execution by linking corporate strategy with people’s behavior through operational goals and rewards What is the value? How is it done? Improved decision making Improved performance Aligned organizational behaviors Enabling the organization mission Combining the power of information, people, process and technology through all stages of the management cycle -7- DCS 400458 What is the objective? A foundational step is to understand an organization’s information and its hierarchical nature The types of information required for decision making depends on: The level of the organization it is generated for (Employee, Management, or Executive), The type of decision it is intended for (Operational, Tactical, or Strategic) The end user (External Customer or Internal Consumer) Integrated, Relevant Information Internal Consumers Information Hierarchy Component Leadership Decision Types External Consumers External Stakeholders – OMB, Congress, Organization Levels Level 1 Executive Committees Level 3 Middle Managers Other Middle Managers and Supervisors Tactical Decisions Operational Decisions Strategic Information Management Information Transactional Information Individual Contributors -8- The Regulators – OSD Executive Level Management Level Employee Level Partners Customers Suppliers Partners Customers Suppliers DCS 400458 Strategic Decisions Level 2 Senior Managers Information is evaluated using measures, metrics, or indicators, each of which has a different implication on decision making Measure Metric Indicator Definition A measure is a single value measurement A metric is a comparison of two or more measures An indicator compares a metric with a baseline or expected result Example The cost per travel voucher is $10 per voucher The cost per voucher has been $10 voucher during the past 12 months The cost per voucher for this month is $10 which is above the government average of $5 per voucher. A stable stream of costs probably suggests a “Do Nothing” strategy The organization should decide on an initiative to increase decrease cost or understanding the need for a higher than High average cost. Does $10/voucher mean costs are low or Implication too high? What should on decision we do? making Low -9- DCS 400458 Value of information to decision making Measures, Metrics, and Indicators can be of different types - financial or operational, and leading or lagging Financial Definition Example Operational Is a by product of the financial reporting process and usually historical Measures the outcome of an activity or operating process • Cost per Voucher • Vouchers processed per month • Total Cost of Voucher Processing Leading Lagging Indicates what will happen in the future Tells you what happened in the past • Number of travel orders issued is an indication of • Lines of future Accounting per workload Voucher • Cost indicates how much the organization expended over a given period of time • There could be a plethora of measures, metrics, and indicators in an organization - 10 - DCS 400458 • The measures, metrics, and indicators to be considered are the ones that quantify the impact of decisions or actions in alignment with value creation and corporate strategy. A more balanced performance measurement model uses measures, metrics, and indicators defined from different perspectives in the organization Most strategies focus first on stakeholder value (using financial metrics for performance measurement) and then on the value to other stakeholders such as customers, suppliers, and employees A robust performance measurement approach balances these views Financial Employee Lagging metrics Leading metrics Cost per Voucher Total Cost of Voucher Processing Fulfillment cost Customer service cost Number of travel orders issued Operational Absenteeism Morale Growth Learning Turnover Customer Satisfaction Retention Total Customer Experience (TCE) Vouchers Processed Per Month Line of Accounting Per Voucher - 11 - DCS 400458 *The Balanced Score Card: Measures that drive performance HBR, July 2005 Performance Measures: Rules of the Road Relevant: Directly linked to critical objectives and strategies Reliable: Verifiable and free from subjective judgment or bias Valuable: Able to help management make decisions and take actions Timely: Available before it loses its capacity to influence decisions Cost Effective: Benefits of using measure outweigh the costs of collecting and reporting the information Availability: Data to support the performance measure is available - 12 - DCS 400458 All performance measures should meet a number of key criteria: Successful performance models consist of four components: Information, Processes, People and Organization, and Tools and Technology • The specific information set that facilitates coordinated actions, understanding of business performance and better decisions • Processes establish a methodology to define, develop, communicate, and act on information Information Process Performance Management Strategic Objectives • Incentives and corrective actions align people’s behavior with corporate strategy - 13 - • Tools and technology enable the storage, analysis, maintenance, and reporting of information DCS 400458 Tools and Technology People A developed performance management landscape follows the guiding principles of focus, alignment, integration, and behavior Alignment “Doing what matters” Shared understanding of value creation across the organization Identified key value drivers linked to strategic directive Planning, execution, and measurement of what matters “Pulling in the same direction” Clear management control and accountability Project portfolio and initiatives linked to value drivers Targets cascaded throughout the organization Integration Behavior “Talking the same language” “With everybody on board” Planning, measuring, and intervention processes interlinked Incentives and rewards for organizations and people embedded in the performance management system Comprehensive information strategy and supporting technology architecture - 14 - Raise awareness of targets Establish performance incentives Deploy and develop talent DCS 400458 Focus A maturity matrix for performance management can help guide further development Process Info Tools and Tech Advanced Performance data is kept among management team, not communicated/provided Performance data is only sporadically communicated/provided to stakeholders Performance data is regularly communicated/ provided to all Reports focused on statutory requirements and basic actual to budget comparisons Statutory reports complemented with multidimensional management Reports provide actual, budget, and forecast results • Statutory and multidimensional management reports; Comparisons of actual cost to standard cost actual, budget, and forecast results Executives are held accountable for financial results only Measure owners are identified but not accountability below the Executive level Managers are held accountable for those measures for which they have control Reports developed through export to spreadsheet application Reports are developed and produced directly from the ERP system Data warehouse as the foundation for single version of the truth • Bullet points • Bullet points • Bullet points People Defined - 15 - DCS 400458 Developing Department of the Navy Commander, Navy Reserve Force (CNRF) Financial Metric Maturity Within the Navy Reserve As a multi-echelon, geographically-dispersed organization, the Navy Reserve provides a unique and challenging environment for driving change Regional Component Commands (RCC) (6) Navy Operational Support Centers (NOSC) (126) Similar to many DoD organizations, CNRF was confronted with a number of environmental factors driving a need for change in the way we do business Relocation of CNRF HQ operations have created challenges for obtaining visibility into organization operations and retaining key resources Leadership/ Staff Turnover Defense against Budget Marks Demands for improved financial performance have been driven by regulatory and organizational oversight Relocation of HQ Changing Support for Wars Case for Change Strategic Performance Measurement Greater Scrutiny of Training Funds Wars in Iraq and Afghanistan have increased scrutiny on resource allocation and utilization Evolving demands began to require overall organizational focus to shift from routine reporting to evaluation of funds management performance • ASN(FM&C) established financial performance metrics were cascaded throughout the Department. Elements of the Financial Efficiency Index (FEI) were included in the Office of Chief of Naval Reserve (OCNR) Strategic Plan. • CNRF developed a Field Level FEI Scorecard to institute a more aggressive focus on financial performance. • Changing requirements, added demands, and fiscal constraints directly impacted the Military Personnel budget - estimates have declined by $300 million between FY 2007 - 11. This trend holds true for Reserve Personnel Navy (RPN) with budget estimates declining by $45.1M. • FY07-10 Unexpended Congressional Marks to the RPN account were $54M. Source: Pres. Bud. Book Military Personnel Budget Estimate Reductions ASN (FM&C) FEI ASN(FM&C) FEI OCNR 2010 Strategic Plan OCNR Strategic Plan CNRF began to align with these changing priorities by making strategic decisions about evaluating critical programs and measuring performance •The prospect of losing additional budgetary resources in future years drove the need for a more indepth look into the execution trends within the major Navy Reserve programs. •Analysis of preliminary enterprise-level metrics led to the identification of key focus areas for improving the financial performance of the overall organization. CNRF FEI Identified Focus Areas Inputs: Obligations Expenditure/ Disbursements Lapsing Appropriation Balance 1517 Violations Funds Management Financial Accountability Legacy Financial Systems Workforce Skill Sets Leadership Dashboard 34.1% Further evaluation of enterprise-level financial metrics led to the identification of specific improvement objectives within the identified focus areas Improvement Objectives Actions Taken Benefits •Drive accountability for managing activities affecting funds execution to the process-level •Developed semi-automated tools to support process specific financial management activities •Improved field-level visibility into measurements of financial management performance •Improve efficiency with which legacy system financial data can be analyzed and reported •More efficient use of Funds •Increased timeliness in identifying and resolving required actions RPN Travel Tool Aviation Fuel Tool •Improve alignment of job requirements with identified skills sets •Began preliminary steps to initiate workforce competency assessment •Increase workforce’s ability to analyze and manage financial data and associated funds •Advanced ability to effectively reduce ineffective use and management of organization funds •Greater reliance on workforce to affect the activities driving organizational performance metrics Workforce Competency Development Timeliness As visibility into CNRF processes and performance continues to mature, the organization is taking a more integrated approach to performance measurement Developing •Manually developed enterpriselevel metric set •Limited ability to identify underlying metric drivers •Financial data obtained from multiple supporting systems for analysis Defined •Web-based process specific management dashboards •Visibility into process specific data •Semi-automated data integration and analysis from disparate systems Advanced •Comprehensive, multidimensional measurement of financial data •Customizable, near-real time display of performance metrics •Dynamic integration of financial data from multiple sources Next Steps: - Continue to integrate and automate performance measurement tools into CNRF operations - Initiate workforce competency assessment to identify key financial management skill set requirements Defense Information Systems Agency A Combat Support Agency DISA BI Evolution Mr. Nathan Maenle Business Systems Executive Office of the CIO June 2010 Defense Information Systems Agency A Combat Support Agency ACQUIRE DELIVER OPERATE Planning Resources Spectrum • Enterprise Infrastructure Testing • C2 & Information Sharing People • Operate and Assure Acquisition Contracting Info & Knowledge Mgmt Engineering Leaders enabling information dominance A Combat Support Agency Evolution of Capability Manual Multiple Dashboards Enterprise Capability Manually developed data Limited to Excel & PowerPoint Web-based capabilities Data obtained from multiple supporting systems with no defined business rules Time shifted from data gathering to data analysis Improved consistency, access, and timeliness Limited interoperability Portal access; improved integration with operational data and multiple end users • Leadership • Managers/Action Officers • Customers/Partners DISA’s capabilities have matured over time. Advances in technology, evolution in thought, and external drivers fuel the need & ability for continuous improvement. 25 3 A Combat Support Agency Future DISA Business Systems Environment Customers Order Entry/Order Mgt Service Catalog ePortal Services Data Integration Communication Services i Workplace Mission Partners DISA OSS Directory Services Employees Security Services Collaboration DISA Enterprise Procurement System Suppliers 26 - 28 - DCS 400458 Questions?