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Business Modeling: Cost Analysis In The Operations Environment

Management Track

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Traditionally, cost estimators find themselves estimating elements of major acquisitions, whereas operational environments rarely require the same level of cost support. However, operational programs are under the same pressures to reduce costs and manage limited resources efficiently. This paper explores the application of cost and quantitative analysis in the operations environment, and illustrates practical examples of cost-related analytic toolsets. Specifically, this paper will describe environments apt for business modeling, propose metrics related to cost analysis that usefully measure operational performance, and illustrate tools that allow the cost analyst to perform quantitative analysis and communicate with stakeholders.

For a cost analyst, there is life beyond creating the cost estimate. Measuring the fiscal efficiency of a program’s activities opens a whole new set of cost analysis opportunities. With an administration focused on increasing accountability for spending, as evidenced by reverse- outsourcing activities, the operational components of government environments will be affected. Profitability and efficiency analysis are required, both as prerequisites for insourcing and as recurring measures afterward, to ensure a sustained and value-adding operation. This is of particular importance in the federal working capital fund environment where agencies must operate in the fee-for-service style of a commercial business, but it also should not be ignored in the appropriated operations environment to ensure efficient use of funds. Business modeling applies from both the contractor and federal perspective. Contractors should be interested in remaining competitive by reducing costs, while federal oversight organizations need to be able to allocate resources to address productivity gaps. Ideally, both organizations can work together to create an environment of operational transparency.

Cost estimators and analysts have a role in operations divisions that lend themselves to process management, a domain in which efficiency metrics can provide key insight into production characteristics such as workload management, quality, productivity, resource management, schedule and operating risk. The analyst must study the production process characteristics to answer which portions are direct, indirect, or G&A, and then allocate cost to the process. Reliable metrics provide leadership sound footing to quickly and confidently justify cost-driven decisions such as whether to hire additional staff or work overtime, or to pinpoint which division is operating the least efficiently. Without agile information, a manager is strictly limited in his/her ability to respond to business needs. Furthermore, these responses are typically reactive because a model is required in order to predict future performance.

Finally, the estimator must have the ability to share results and communicate methodologies to stakeholders. This paper will illustrate the changing industry environment, the need for additional information to effectively operate, and detail analytic toolsets available to help decision makers at every level understand how to allocate resources to improve performance.


John Teal
Booz Allen Hamilton
John Teal is an Associate with Booz Allen Hamilton in Columbus, Ohio and lately he has been focused on business modeling for the Defense Finance and Accounting Service (DFAS). Prior to this, his eight years of cost and finance experience centered on space and aircraft programs for the Air Force, intelligence agencies, DoD joint programs, and NASA. Additionally, from 2006 though 2009 years he served as the Program Chair for the Pikes Peak SCEA chapter. He has an MBA from Regis University and a Bachelor of Science degree from the United States Military Academy at West Point. Mr. Teal is a Certified Cost Estimator/Analyst (CCE/A) and a Project Management Professional (PMP).

Andy Beck
Booz Allen Hamilton
Mr. Beck supports business modeling and quantitative management development as an Associate in the Booz Allen Hamilton Economic Business Analysis practice in Indianapolis, Indiana. He recently designed several quantitative management tools for the Defense Finance and Accounting Service (DFAS), including historical and cyclical operations models and multi-dimensional metrics. Previously, he managed a team providing a variety of Economic Analysis, Project Management, Forecasting, and Performance/Business Metrics support to a portfolio of 17 multi-year, multi-million-dollar projects.
His current clients include DFAS Senior Executive Service (SES) members; his former clients include DFAS and Business Transformation Agency (BTA) Senior Officials and Office of the Secretary of Defense – Comptroller (OUSD(C)) staff. He also supported the Federal Emergency Management Agency (FEMA) Katrina and Rita recovery efforts through his BTA client.
He also managed the life cycle development of the Global War on Terror financial reporting tool, managed the augmentation of two dashboard applications delivered to DFAS SES members and SES staff in the OUSD(C), and led the development and delivery of accounting reconciliation tools processing over $6,000,000,000 in monthly transactions. Direct users of his products have ranged as high as Deputy Secretary of Defense, and Under Secretary of Defense – Comptroller.
Mr. Beck is a Project Management Professional, a Certified Defense Financial Manager, and a Lean 6 Green Belt. He holds a Master’s Degree in Finance from the Indiana University, a Bachelor’s degree with an Engineering concentration from Purdue University, and speaks two foreign languages.