Finance drives logistics (or vice-versa)

A few weeks back I told you that at the Modernization Workshop I recommended to the people there that they read (or re-read) The Fifth Discipline.  I recommended it for three reasons:

1. Tom Borross had recommended a book the day before, and I wanted to seem smart like him.

2. I’m trying to get back into the habit of reading more, and that’s what I was reading at the time.

3. On the first day of the workshop, someone on the financial transformation team asked me what she thought was a REALLY BIG QUESTION: “Is the logistics system going to drive financials, or do financials drive logistics.

The answer, as anyone who was in the middle of reading The Fifth Discipline would know immediately, is “Neither” or “Both.” Rather than think of a single relationship from logistics to financials (or the other way around), we should think of both logistics and financials as part of a system. Rather than thinking of them in a linear fashion where only one of them drives the other, one should see them as part of a circular system.

We often represent things in a straight line to try to simplify (as Jim did in this great brief that showed the linkage from mission outcomes to configuration to maintenance to supply to budget), but in truth both ends of the line should be wrapped around to connect. In that brief, it means that mission outcomes drive resource allocation decisions and mission outcomes will be driven by resource allocations.

In the primacy of “logistics” or “financials” question, if both are connected to each other with arrows, the relationship is more clear, and the initial question is moot.

While you’re thinking about logistics and financials in terms of being parts of a single system, it may be a good time to go back and read the number one takeaway of my October 9, 2008 post.

I go back to it every time I need to explain to folks that I’m not making stuff up when I talk about the logistics system as a feeder to the core accounting system.

Here’s the section of that post I want to remind you of today:

1. Our view of a single Coast Guard Financial System is right. That single system is comprised of a Core Financial System and several feeder or mixed financial systems, one of which is CG-LIMS. A single financial system doesn’t mean having only one application, it means having a single system that’s managed as a system. Says who? Says the Framework for Federal Financial Management Systems (JFMIP-SR-01-04, 22 Mb MS Word doc), the foundation document for Financial Management System Requirements. It’s important enough that the good folks from MCI provide it in its entirety in their standard red binder. It’s also available online from the link above from the Federal Financial Systems Integration Office website at http://www.fsio.gov. Here’s an excerpt:

The vision for federal financial management systems is a single integrated financial infrastructure with standardized applications and services that are supported and enabled by integrated financial management data and information.

…

Core financial system. The core financial system is an integral part of an agency’s single integrated financial management system. It controls and supports the key functions of an agency’s financial management, including general ledger management, funds management, payment management, receipt management, cost management, and reporting. The core financial system receives data from other financial and mixed systems and from direct user input, and it provides data and supports processing for those systems that need it, including department and government-wide reporting systems.

Subsidiary/feeder applications. Subsidiary applications account for financial transactions (e.g., payroll, accounts receivable, accounts payable) externally, i.e. subsidiary to the core financial system. Subsidiary systems manage components of the core financial system functions of general ledger management, funds management, payment management, receipt management, cost management, and reporting. Subsidiary applications must “feed” related data to the core financial system to ensure general ledger and funds control. Integration of processes and data between core and subsidiary applications is a critical factor in producing timely and accurate financial management information and accountability. (emphasis added)

Mixed financial applications. Mixed financial applications are program/business support applications that have a financial management component. The financial data in mixed systems must integrate with the agency’s general ledger, funds control, and financial reporting by feeding financial data to the agency’s core or financial reporting system. Examples of mixed financial applications are loans, benefits, insurance claims, seized assets, property management, inventory, acquisition, and grants. Strategic planning for standardizing data and ensuring business efficient processes is critical for the CFO, as a key stakeholder in the financial data generated by mixed financial systems…

Bottom line: it’s right to think of CG-LIMS and the Core Financial System as separate applications that are part of a single system with integrated processes and data. Managing our requirements in the enterprise DOORS and System Architect applications within TEAMS will be an important part of keeping the processes integrated.

For those who read all the  way to the bottom, I’ll reward you by telling you the book Tom recommended.  The book is “It’s Your Ship: Management Techniques from the Best Damn Ship in the Navy” by Michael Abrashoff.  Add it to your  reading list.