The Few, the Proud, the Cost-Effective

By Edward Cone Print this article Print

How activity-based coisting helped the Marine Corps cut spending at its 16 major bases.

The Marine Corps got its orders in 1999: reduce the cost of running its 16 major bases by $110 million a year, by 2004.

So far, so good. Aided by a computer program that supports activity-based costing (ABC) and management like that used by corporations, the Marines exceeded last year's goal of $41 million by $7 million, or 17%.

But it's not necessarily a cause-and-effect relationship. Stephen Pellegrino, who ran the activity measurement project as a Marine officer and now works on it as a consultant, says it's hard to put a precise number on how much of the savings are due specifically to understanding costs more precisely.

"What it gives you is information, and information only saves you money if you act on it," he says. "When I tell someone that we are saving money by changing a simple rule or way of doing things, they say, 'That's not because of activity-based costing; you could have done that anyway.'"

"But we didn't," he notes.

The project came after Congress reallocated some of the funds used to handle services such as housing, transportation, and security for 37,000 Marines and civilian workers. To maintain an acceptable level of these critical services at bases like Camp Lejeune and Camp Pendleton with the available funds, the Corps needed to cut costs. To do so efficiently, it had to understand the cost of every nonmilitary activity it performed, and then automate the job of collecting this cost data so it could be widely used.

At Marine Corps Base Hawaii, on Oahu, for example, the procedure for preparing housing for new tenants was changed when investigation showed that putting families up in a hotel while their house was being cleaned made the transition expensive.

Now families stay in the houses longer and have proscribed cleanup duties before they vacate. This resulted in annual savings of $142,000 at the Hawaii base. At another base, it turned out that three people were each spending up to 60% of their time checking invoices, paying bills and otherwise managing finances. One person working full time now does it all.

Getting detailed information involved interviewing workers and painstakingly setting out the activities in their jobs, in much the same way a movie director uses story boards. Meanwhile, financial information for each base was extracted from a mainframe in Kansas City and entered by hand into software from vendor ABC Technologies (since purchased by SAS Institute of Cary, N.C).

The Marines had to cut costs in time to bid against private contractors for some services, a competitive move required by Congress. The need for speed helped drive the decision to implement the ABC software simultaneously at 15 locations instead of running a pilot and creating a single standard version.

"We just wanted to get the tools out," says Maj. Rod Brewster, the project's senior technical director. "We had a couple of installations doing activity-based costing and a number of others getting ready to do it, so we bought the software and training for each base and said, 'Go do great things, solve your own problems.'"

Every activity performed at the bases was attributed to one of 37 processes, such as "providing transportation" or "maintaining facilities," and aggregated in a database. The bases can still call their activities what they want, with standardization of labels done at the database level. Cognos Powerplay business intelligence software is applied to this database to provide easy-to-use information on costs ascribed to each of those processes, such as fuel or painting. "From a headquarters level, you can see what big chunks of time are being spent on," says Brewster.

But tracking costs is not without its own cost.

Having spent just $3 million for the ABC software and less than $25 million for hardware and labor, the Marines thought they were exempt from the cumbersome acquisition guidelines required for large projects. But once the individual applications began to be incorporated into something resembling a true information systems project, the Naval Audit Service began asking questions.

Now, the Marines have to justify something that's already been implemented. "We are having to go through gobs of acquisition paperwork and bureaucracy to get permission for something we've already done," says Brewster. "Now that we are using the SQL server to integrate the legacy data and pump back out to the installations, they say we have built a financial system."

The Naval Audit Service said it could not comment on ongoing audits. Freedom of Information Act coordinator Wayne Rosewell estimated that the final audit would be published in late October. Pellegrino admits that what seemed like a fairly straightforward project clearly has evolved into something bigger.

"It's not a big [technology] system, it is 16 applications that as we automate and make policy are drifting into a true system environment, with standardized information and content," he says.

But the Marines do not regard retreat as an option. "It's deployed, it's done, what do you want us to do?" says Pellegrino. "We can't pretend we haven't already done this."

This article was originally published on 2002-10-10
Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.
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