Document created: 29 September 03
Air University Review, May-June 1974

The Military Leader 
A Financial Manager

Jerome G. Peppers, Jr.

The rise in the cost of living for American society is also reflected in the rising cost of business and governmental operations. Inflation affects the Department of Defense budgeted dollars, yet Defense must provide adequate salary for its military and civilian employees in order to retain the numbers and skills required for mission ability. At the same time, the Department of Defense is not likely to receive budget increases to accommodate rising costs. Effectively, then, the DOD faces level or decreasing budgets in coming years with no foreseeable diminution of mission requirements. The need for improved financial management at all levels has never been so urgent or so definitely required.

The cost of labor (people) has risen dramatically in the sixties and seventies, military and civil service pay and allowances roughly doubling in that time. The fiscal year 1973 budget reflects 60 percent of that money spent on people-related items such as salary and retirements.^l Concurrently, the costs for new weapon systems and support items and for supporting supplies have risen. Because of these rising costs, fewer and fewer budget dollars are available for the purchase of goods and services. Defense management is aware of this budgetary constraint, but more management concern, action, and emphasis will increasingly be necessary at each managerial level for financial considerations in management decisions.

Financial management is more than an accounting system and more than fund control. Adequate accounting systems are necessary for any complex organization’s financial management efforts, and fund control is necessary in Defense to meet legal requirements for statements and accounts to the Congress as to how budgeted monies were spent. Even so, the accounting systems and fund control are of little real value if management does not give sufficient consideration to current and future costs when making decisions and establishing programs. Financial management really requires the manager to consider his costs of operation, the alternatives available to him, the costs of those alternatives, and the need to make economic choices from arrayed and evaluated alternatives. All this, of course, must be done intelligently so that low cost today is not reflected in inordinately high cost tomorrow.

The Department of Defense does not aim to make a profit, but it is in business to provide a vital service to American society. We operate with budgeted monies provided from taxes paid by the people. It is public money and should be handled with every practical assurance that it is wisely spent. Every decision to expend public resources should be a cost-effective decision. The action decided upon should be essential, and the manner of accomplishing it should be an economical application of resources. The “profit” in a military unit might then said to be the assurance that we have provided national security at the lowest feasible cost, giving the people the best possible dollars allocated for that purpose.

This charge for cost-conscious management was reflected in our early history by Thomas Paine, who wrote: “Public money ought to be touched with the most scrupulous conscientiousness of honor. It is not the produce of riches only, but of the hard earnings of labor and poverty. It is drawn even from the bitterness of want and misery. Not a beggar passes in the streets whose mite is not in that mass.”

Paine’s comment, appropriate for his time is just as applicable today. Every member of society contributes to public monies, and those public monies are allocated to governmental agencies for the public good. The managers of governmental organizations are charged with the moral responsibility to insure that budgeted money is wisely spent on those things essential to the accomplishment of their public service.

Faced with the prospects of level or decreasing budgets, military managers must grow increasingly capable in financially efficient ways. We must become more deeply involved in the financial considerations of our management activity and be more certain than ever before that our decisions and action recommendations are financially sound and cost effective. The overall intent is to manage to attain and maintain military effectiveness at the lowest practical cost in consideration of both current and future requirements. It is to this end that this article is devoted.

A major change in federal expenditures for defense occurred during and after World War II. The U.S. had always operated with a mobilization concept prior to this time. That is, the technology of war and the weapons available permitted time to mobilize for war using as a base the small, relatively inexpensive regular military forces as the core. World War II, the cold war, and rapid change in technology altered this situation. Mobilization could no longer be timely, and we adopted the concept of forces in-being. This meant large regular forces, full-time, equipped with expensive and sophisticated weaponry. The resultant military budgets were of unparalleled peacetime scope. It was during this time that the Department of Defense came to be the largest single consumer of Congressionally allocated funds—a condition that resulted in considerable pressure from the Congress, society, and within the Defense establishment for significant improvements in financial management.

Secretary of Defense Robert S. McNamara and Charles J. Hitch, Assistant Secretary of Defense (Comptroller), began action to align defense planning, programming, and budgeting in the early sixties. The Five Year Defense Program became, in effect, a beginning of program budgeting for defense. New and strong emphasis came to bear on costs and cost analysis, but there were still problems with coordination, with the relationships of requirements and costs/programs and costs, and so on. The need was for a process that would relate and tie together the management acts of planning, programming, budgeting, and accounting in a meaningful and useful manner.

In 1965 Robert Anthony became the Assistant Secretary of Defense (Comptroller) and began emphasizing the concept that came to be known as Project PRIME, an acronym for Priority Management Efforts. PRIME had two main objectives:

• the integration of programming, budgeting, and management accounting so that terminology and information in all three would be consistent;

• the development of more meaningful information on the consumption of operating resources, with the major focus on expenses incurred by operating units in the carrying out of their missions.

The intent of PRIME was ultimately to charge an organization with as close to 100 percent of its incurred expenses as would be feasible, thus changing the emphasis from pure fund control to financial management concern. PRIME intends to bring recognition to the real costs of operation. The funding processes of our government seem, today, to provide operating units with resources, systems, and services that carry no cost identification. These are often considered “free” by the managers who receive and use them, and there is little incentive for their efficient use. Many times a military department or major command will centrally fund and manage certain programs or support for operating units. The managers in the operating units have no visibility for these costs, and the lack of visibility likely causes wasteful use. PRIME’S objective of ultimately charging an operating organization with 100 percent of its expenses could, in the long run, change the centralized concept of defense management to a concept of decentralized management. At any rate, whether or not PRIME has that result, defense managers are going to acquire, in time, more cost visibility and more accountability for efficient operations.

A manager in defense organizations today finds he is working with the partial implementation of a financial management effort identified as “resource management.” Resource management is intended to provide managers the methods that will enable them to acquire resources (men, money, material things), manage those resources, and provide data for information systems about what was done, by whom and for what purpose, and what it ultimately cost. Of significant importance is the objective to establish standards of “should cost” for comparison with experienced cost, to measure performance against plan. Even though the resource management systems currently in use are incomplete and in some areas embryonic, they are an essential step toward more rational and efficient use of resources in the Department of Defense.

current environments

Every organization must function within and react to a variety of environments including the physical, geographic, economic, political, and many others. Intelligent management stays attuned to the environments in which it must function and tries to satisfy the desires of those environments so that resources will continue to be made available, and the unit’s product or service will continue to be used. This is as true for defense managers as for managers in any other organizational entity.

The environments impacting upon the Department of Defense are not totally friendly. American citizens are reflecting some restiveness about the burden of costs for national defense and how we manage the expenditure of billions of dollars each year. Some political bodies and people are plainly stating their dissatisfaction with the efficiency of defense managers in using resources. The fluid and changeable international situation creates other environmental pressures. The point is that defense managers must be more sure than ever before that they are intelligently and efficiently using resources for essential needs and that their actions can stand evaluation and scrutiny.

Over the years critics have amassed dramatic illustrations of resource expenditure in the Department of Defense to defend their positions. Much publicity has been generated by reports of cost overruns, excessive purchases, provisioning of special benefits for certain groups, and so on. Many of these may be reasonably defended, but their defense rarely gets the publicity given the charge. Others are not rationally defendable. As a result, a certain set of the environments in which Defense functions has become, if not hostile, somewhat critical. As managers in military units, we should not bury our heads and hope for the best. Rather, we must act decisively to insure that unit responsibilities are met through intelligent use of resources.

Financial management alone will not solve these problems. However, management without financial considerations can do nothing but add to the problems and create more. It needs to be re-emphasized that financial management is a state of mind in which efficiency receives adequate consideration along with effectiveness. In military situations, of course, there are times when survival is at stake, and when this occurs, costs hardly matter. But such situations are rare. In the bulk of our experience, costs do matter and should be of concern. We should be working to satisfy the implicit and explicit requirements of our environments through financially responsible management.

Financial management in the Defense Department must serve many purposes. It must produce a budget in a form acceptable to the Congress. It must account for funds in the same manner for which they were appropriated. It must provide the financial information required by other agencies of the government—the Office of Management and Budget, the Treasury, and the General Accounting Office. Of major importance, the financial management system must provide data needed by top management to make crucial decisions, such as those on the major forces and weapon systems needed to carry out principal missions.

The result of all this, for the local manager, is a defined mission or set of missions and an operating budget. The operating budget is an approved program that authorizes designated responsible individuals to consume resources for mission needs. This, then, is the reason for being and imposes the operational resource constraints on the individual military units and commands.

the importance of budgets

Resources are not unlimited, and they have lead-time requirements. In other words, we cannot perceive today a need for men, money, or material items and expect them to be immediately available to us. Rather, we perceive the need, state the requirements, and wait the time necessary to obtain or produce the resource and get it to its place of intended use. Managers must consider their resource requirements well in advance and insure that they can be obtained within the constraints of limited accessibility. Unavailable resources, or demands for more than is available, doom the manager to less than optimum success, often to failure.

Budget processes aid managers in their efforts to obtain resources for continuing success and efficiency. Budgeting must begin at the lowest level of organizational structure. The proposed budgets from lower levels (to meet objectives assigned by higher levels) must be consolidated and added to as they go up the hierarchy, so that at the top the accumulation represents the needs of all. A major budget, such as for a major military command, is a collection of the smaller budgets for its constituent elements. 

A budget, being a presentation of resources required for successfully accomplishing assigned objectives within a stated time period, is a vital tool for financial management and must not be overlooked at any managerial level. It serves to coordinate goals and resources as well as organizational elements and divisions. Further, it provides a means for measuring unit effectiveness and efficiency and also permits self-evaluation of managerial activity. It demands a look into the future, which enhances the manager’s opportunity to make better and more cost-effective decisions. The approach to the future requires that the manager forecast the expected situations for the time frame in consideration. He can forecast what is likely to happen and what should happen and compare the two. The difference between what is likely to happen and what should happen offers him the opportunity to advance those things he wants to happen and hinder those he does not want to happen.

An approved budget is top-level concurrence with the stated objectives and an authorization to acquire and use the resources to attain them. However, an approved budget is also a limit on expenditures. That is, we may spend to the extent of the budget if necessary, but we need not spend it all. In other words, if an objective can be attained with less than the planned expenditure of resources, we should not seek out other means of expenditure solely to use up the budget limit. Unfortunately, some of our external criticism stems from the belief that governmental managers often do spend to insure that the total budget is used. This has been identified as the “June syndrome,” since it is most likely to occur in that time period just before the fiscal year expires. The point, again, is that an approved budget is a maximum limit on spending and not an invitation to unnecessary spending. At the same time, a budget must be sufficiently flexible to permit managing. It must not be set in concrete but must recognize that conditions, situations, and resource requirements may change. Management must be able to adapt to changing situations and not be bound by budget detail to impossible ones.

some cost considerations

Financial management demands that managers know something about costs. There is a great variety of cost identifications—far too many, and often too specialized, for consideration of them all here. However, some costs deserve mention because they are important to the frame of mind necessary for financial responsibility. The interested manager, thinking and planning for his future effectiveness, will investigate these further and learn more about their applicability to his management efforts.

Sunk costs are costs that will not be changed by a decision. The importance of this identification is that those things which will not be changed by a decision should not be considered when making that decision. Sunk costs are already incurred and cannot be altered by decision now or in the future. A desk on hand, for example, reflects a sunk cost that cannot be changed no matter how much we might now wish we had not bought it. Sunk costs might be termed historical costs. We cannot change them now, but we might use them to forecast some future costs, and we might analyze them occasionally to help develop our financial management ability. Future costs are not yet sunk because they can still changed by decisions. So, managers should learn to recognize sunk costs and adapt to the concept in decision considerations.

Management is a process involving constant comparison of alternatives. The manager’s selection from alternative is called decision-making. It is obvious that when there are no alternatives there are no decisions. Hence, whenever we must make a decision, we must always have at least two alternative methods for getting the desired results. Most often we find more than two alternatives, and then decision-making becomes more complex. Two forms of cost considerations that must be included in cost-effective decision processes are differential costs and opportunity costs.

A vital aspect of decision is the comparison cost of alternatives. Those costs that will not change between alternatives are of equal consideration. However, some costs will differ from one alternative to another and are called differential costs. Differential costs that reflect an increase are incremental costs; those that show decrease are decremental. For example, if it would cost $15 to produce a certain result and $25 to double that result, the differential cost would be $10, an incremental cost. If a change in operating processes in a unit would cut costs by an estimated $7500 per year, the new processes would show a differential cost of $7500 less than the old, a decremental cost.

Differential costs are also accounting costs; that is, they can be considered as additions to or subtractions from currently experienced costs depending upon which alternative management selects. The other cost factor that should be considered in decision-making, opportunity cost, is not an accounting cost. An accountant may be able to ignore opportunity costs, but a manager should not.

Opportunity costs reflect the sacrifices that result when one alternative is chosen over others. The manager making a decision will attempt to select the best alternative. Whichever selection he makes, he must forego that which might have come from the alternatives he did not select. The process automatically sacrifices some return from the unchosen alternatives, and the value of the sacrificed returns is the opportunity cost of the decision.

For example, if a manager has $1000 available for small equipment items and decides to buy two air conditioners in lieu of ten electric drill motors, he must recognize that his decision cost him the possible benefits from the ten drill motors. In this example the cost (in dollars) of that decision is not readily available, but it could be costed. In addition, that decision could cost his unit the increased production or production efficiency that the drill motors might have made possible. This, too, can be costed should the manager think it necessary. At any rate, every decision has costs in some sacrificed opportunities. A responsible manager will be aware that cost-effective decisions will include adequate consideration of such factors.

More immediately applicable are the fixed and variable costs in unit operation. Fixed costs are those that do not change with increase or decrease in the quantity or volume of output, such as the manager’s pay and allowances and per diem rates. Many fixed costs do vary over a period of time, but the variability is not within the control of the manager or the unit, often resulting from Public Law, Executive Order, and the like. Fixed costs must be included in the total costing of a unit and its output because they continue to exist whether or not the unit produces.

Variable costs generally change with output. They do not always vary on a one-to-one correspondence to output, although they are usually thought of that way. For example, if it takes $7.25 worth of bits and pieces to update a gizmo, the updating of ten gizmos might require $72.50 worth of bits and pieces, and the variable cost would be in direct proportion to output. Troubleshooting an electronic circuit would likely result in semivariable costs; that is, we could arrive at a reasonable average labor cost for troubleshooting that circuit, but we would also know that the labor cost would vary depending upon the actual hours consumed, the skill of the technician, and other conditional factors of the job. The cost, while variable, would be fluctuating or semivariable.

Direct and indirect costs must also be considered. Direct costs are directly attributable to a product or service, as when supplies and labor are directly consumed in an engine overhaul. Indirect costs are not identifiable to a specific product or service; for example, the salary and allowances of a Chief of Maintenance would be an indirect cost of that engine overhaul. Of course, indirect cost at one organizational level can become direct cost at another. The salary and allowances of that Chief of Maintenance would be a direct cost to the wing in which he functions. If the cost can be directly assigned to the organization’s operation, it can be considered direct. If it can only be assigned to the unit by allocation, it is indirect.

Sometimes costs are termed controllable or uncontrollable, according to whether or not the costs can be significantly influenced by the unit management actions. A decision whether or not to repaint a shop office is a controllable cost since it is probable that no higher level of management will force the painting should the manager decide not to repaint. But the hourly pay rate for a wage board employee, or the annual salary of a general schedule employee, is uncontrollable by local management; those costs are controlled by Public Law, pay board action, and the like. Uncontrollable costs must be used in forecasting and budgeting unless management action can reduce requirements. Even then, the individual costs are still uncontrollable although the gross total may be controllable.

All this may seem rather confusing, but the reader is urged not to think of these costs and their considerations as unimportant because they are not well understood by him. Rather, if confused, he should seek other writings and develop the opportunity to talk about them with more knowledgeable people. They are important, and he cannot hope to be a financially sound manager without coming to grips with these thoughts.

Professor Chauncey Dean, School of Systems and Logistics of the Air Force Institute of Technology, has prepared a helpful summary of cost distinctions for defense managers, shown in the accompanying table.

resource constraints

Managers succeed when they are able to marshal the needed resources at the right time and combine them into the product or service for which the organization is responsible. But resources are limited and always constrain the manager in some manner. If that were not the situation, we would be able to do anything we wanted whenever we wanted. We always find that we want, or would like, more than we have available to do the job. Hence, managers must learn, as they have, to get the jobs done within the constraints of limited resources.

Managers realize the limitations placed upon them by available resources. It may help to think of these limitations more definitively to assist managerial functioning. Hitch and McKean refer to resource constraints as specific constraints or general constraints.² Viewing them this way can be valuable to the manager’s problem-solving and/or decision-making efforts.

Specific constraints are the limitations created by the very specific availability of a given resource. For instance, if a job must be done by Friday requires the services of three skilled machinists but only two are available, the constraint is the specific shortage of one skilled machinist.

General constraints are usually dollar limitations that restrict total effort but not the quantities of specific items that might be obtained or used. With a $10,000 limit for expendable supplies, a unit is restrained by that dollar ceiling but is not limited as to how many pencils, nuts, or bolts it might buy within that ceiling.

Often, of course, combinations of these constraints face the manager. The Air Force functions within the general constraint of the budget and also within the specific constraint of a manpower ceiling imposed by the Congress. At lower levels the same constraint combinations apply in smaller orders of magnitude. But the manager needs to employ different techniques when problems involve the separate constraints. The same techniques would not normally be used, nor would the same considerations be given, to specific constraint problems as to general constraint problems.

Generally, the closer the problem to the here and now, the more applicable the specific constraints; the farther we look into the future, the more applicable the general constraints. In the earlier example, the specific constraint (a shortage of one skilled machinist) will prevent, or delay, that job accomplishment. It is not likely that we can get it done by Friday, but it would do us no good to charge this to the general constraint of the Congressional manpower ceiling. We must recognize the problem for what it is if we are to solve it. If the job does not have to be completed until this date next year, the problem assumes a changed dimension: we now have some time in which to overcome the specific shortage. Maybe we can adequately train someone to fill the need. Maybe we can contract the job. A variety of means becomes available when time permits action.

Constraint identification is important for financial management. Many problems turn out to be these constraints experienced in the operational environment. To solve the problems, we must identify them and take adequate corrective action. A reasonable management adage states that a problem correctly identified is half solved, which certainly applies to resource constraints. A job that cannot be accomplished because of the lack of a certain part, for instance, cannot be solved by blaming that shortage on the Defense budget. The means for correcting that specific problem are considerably different, as is the time required, than for changing the budget. A manager’s time should be efficiently used, and correct identification of constraints will help assure that it is.

           Concept                                      Antithesis                                         Purpose of Distinction

financial information

The Air Force provides a range of accounting systems to aid managers, some general aspects of which can be discussed because they are conceptually sound and relatively permanent.

Cost data must be collected from the lowest organizational element and from each succeedingly higher level for accumulation of organizational and program costs. Coding systems are provided to structure the generation and accumulation of data and permit them to be used in a variety of ways. Costs at each organizational level are based on collections from subordinate levels. As the data move upward through the accounting systems, they begin more and more to reflect full program costs.

It seems certain that in coming years all management levels in Defense are going to become more accountable and responsible financially. Additional emphasis is being given to efficiency, and efficiency improvements are almost impossible without financial considerations. Many requirements that have traditionally been accepted without question are now being challenged and evaluated for their contribution to mission capability. More of this must occur so that nonessential and unprofitable requirements may be eliminated or streamlined. When managers acquire visibility of the actual costs of their decisions and actions, they begin to question the necessity and value of some of the requirements created by themselves or imposed upon them by higher authority. Financial data inform the manager and encourage him to refine his evaluation of conditions and his methods of handling problems. Efficiency is improved through this process while the vital capability to perform in the national security role is retained.

We earlier stated that financial management is more than just fund control. Yet, fund control is an essential element of financial concern in the Air Force, and there is little question about its importance.

A cautionary restatement seems wise, though. The budget is a ceiling on expenditures, not a mandate to spend. A review of the management environment may lead one to believe there is little incentive for the Air Force manager to conserve funds and not spend when there is money available. There is no monetary return to him for financial responsibility, but there is moral return. All of us must satisfy ourselves that we are trying to do the best job we can. We must measure against our own mental standards of what we can be. The real incentive is the individual’s personal satisfaction with his performance. We may not know how to measure this, but each of us undergoes some form of periodic self-evaluation, and the more we come to know about what we could do the more we are apt to feel the need for our own more responsible actions.

Financial information helps these self-appraisals, and we should insure that every data generation we control is accurate and reflective of actual conditions. The data can be of little help if that is not true. We make decisions and act on problems as a result of the judgmental workings of our minds. Our judgmental values are created from available information. The quality of information therefore has a lot to do with the quality of decisions and actions. That factor, alone, ought to convince us that all forms of reporting and recording must be accurate representations of the situational facts. Many managers at many levels must use the data. The effect is magnified a number of times and can be detrimental when the data reflect an unreal or untrue representation of what actually happened.

responsibility centers

A basic feature of financial management and its allied accounting systems is the concept of the responsibility center. A responsibility center is an organizational entity headed by a single individual who can control the expenditure of resources and to whom is assigned management responsibility and control authority. The senior maintenance manager may head a responsibility center, for example, and he may have several subordinate such centers under him. But all work centers in the maintenance complex need not be so designated, since many may not have the financial control authority that would make them responsible. This is not say that the work center supervisors are not capable, and it is not to say that they are not responsible for cost-consciousness. They are. But they are not defined as responsible in this manner. An Air Force base would be a collection of responsibility centers, and each responsibility center would ordinarily have a collection of cost centers subordinate to it. The cost centers would be units whose functioning requires the expenditure of resources and the creation of costs in the accomplishment of mission-related or other-directed tasks.

Essentially, the responsibility-cost center concept addresses itself to the idea that financial responsibility cannot be properly accommodated only at high organizational levels. That is, decisions must be made at many levels depending upon what is going on, urgency, size of resources involved, impact upon the total organization, and so on. Routinely, daily activity in even the most complex units requires some immediate response capability, and decision needs cannot be delayed and deferred until the senior manager can get to them. It is for this sort of reasoning that we have organizational structures and hierarchies. The financial management concepts relate to those same needs. Each level of management delegates authority and accountability in certain degrees to subordinate elements so that necessary tasks may be accomplished readily and smoothly. Within designated limitations the subordinate manager is relatively free to act, but exceptions to those limitations create a need for the superior to be involved.

Problems arise because the subordinate manager expects to receive authority equal to his accountability for results. Senior managers usually think this exists, but almost always the subordinate feels his authority is not really adequate to run things. This divergence of perceptions results in conflict and some degree of dissatisfaction by both parties. The lack of aggressiveness at lower levels toward more active financial management may be traced in part to this conflict because it appears to the lower manager that accountability has been delegated but adequate authority has not. It is not an insurmountable problem, but managers must learn their role and recognize that the same relationship may also exist between themselves and their subordinates.

It is easy to say that if I am not given full authority to do as I see necessary I cannot really be held responsible for results. But this is a departure from reality and is an invalid reason for not accepting the challenge of improved financial management. If we analyze the functioning of an organization and apply a bit of knowledge about the human being, we will likely conclude that full delegation of authority is not necessary or probable. How can my superior actually divest himself of all his authority for my unit and give it to me? Does his delegation of accountability or authority to me actually lessen his accountability or authority? If I am given full authority, do I still remain subordinate to him? These are trying and discomforting questions because the answers do not justify what we would like: greater power for us to decide for our unit. Our personal desires, though, must give ground to the greater needs of the organization for continuity and unity of direction. The greater needs of the organization mean that some authority is always going to be retained by those managers above us in the hierarchy.

Delegation occurs in all units; it must, for the unit to function effectively. However, that delegation decreases in scope and content as we deserve it; and this occurs down the structure to the lowest level. We can recognize the logic of this reduction when we note that the scope of activity becomes more constricted as we descend the organization level by level. This is represented in the pyramidal form of most organizational charts in which authority is spread over more and more individuals as the level drops. Obviously, no one below the senior man is going to have authority equal to his, if for no other reason than that the top man’s authority is shared; for example, first with two people, and then with four at the next level, and so on.

Responsibility for performance is another subject, however. It does not diminish so much in its delegation because it is not so shared. In other words, there is not a split responsibility for performing maintenance, and the maintenance officer and the commander are almost equal in that respect. So, while responsibility for results is essentially pure, we cannot say the same for authority to obtain those results.

Authority is reduced in lower levels of the organization because seniors just cannot give it all away. They, too, are constrained in the same manner by their bosses and higher authority. The actions of lower levels are always constrained by law, by ethics, and by regulations from above. No way really exists to avoid this. Senior managers retain some authority at all times to provide some control over resources and results. Control systems and policy books are reflections of this, and no subelement can ever really expect to be completely autonomous. But we will fret over the constraints we feel to be unreal or overdone. It is well we do, because from this fretting we can expect recommendations for change and improvement in structure and/or functioning of our organizations.

The important point is that real financial management is a joint affair that must be cooperatively accomplished by the manager and his boss. Neither can do the job alone, and this emphasizes the need for communication, coordination, and cooperation. The responsibility center concept must include the people of the unit, its immediate manager, and his immediate boss. They cannot be separated and expect to do the job well. They must all be cost-conscious and actively involved in the whole financial management operation.

This discussion of some basic considerations of financial management, without details of how it is done, can be supplemented by the manuals, pamphlets, and other directives that exist for detailed guidance and the specific forms and frequencies of reported data. The military manager should learn the systems for reporting and recording financial data and insure that he and his people fully and fairly comply.

As we have presented it, financial management is an inherent management responsibility in any unit anywhere. Efficient use of resources in the accomplishment of essential tasks is a part of the charge to each of us. It involves more than simply controlling funds and more than an accounting system. Adequate financial management includes continual consideration of tasks as to their essentiality and the least feasible expenditure of resources to accomplish those tasks that are essential. It includes budgetary considerations and preparations and requires the spending of as little as practical in mission efforts. It cannot be accomplished by one person alone. The people of the unit, the unit manager, and his boss must work together in coordinated cooperation, all aiming for the efficient operation that will result in our ability to do our part for national security.

School of Systems and Logistics, AFIT

Notes

1. Barry J. Shillito, Assistant Secretary of Defense (Installations and Logistics), “Defense Logistics: Challenge of the 1970s,” Defense Management Journal, vol. 9. no. 1 (January 1973), pp. 2-7.

2. Charles J. Hitch and Roland N. McKean, The Economics of Defense in the Nuclear Age (New York: Atheneum, 1965), pp. 23-28.

Other references

Anthony, Robert N. Planning and Control Systems. Boston, Harvard University, 1965.

Dean, Chauncey H., Jr. Defense Financial Management. Wright-Patterson AFB, Ohio, School of Systems and Logistics, AFIT.

Sadow, Peter. Planning, Programming, Budgeting. Wright-Patterson AFB, Ohio, School of Systems and Logistics, AFIT.

Contributor

Jerome G. Peppers, Jr., Major, USAF (Ret), (M.L.S., University of Oklahoma) is Professor of Maintenance Management, School of Systems and Logistics, Air Force Institute of Technology. His active duty assignments (1940-64) were in maintenance, in Strategic Air Command from 1951. He is editor of the 4-volume textbook AFIT Maintenance Management and author of numerous articles. He is a graduate of Industrial College of the Armed Forces.

Disclaimer

The conclusions and opinions expressed in this document are those of the author cultivated in the freedom of expression, academic environment of Air University. They do not reflect the official position of the U.S. Government, Department of Defense, the United States Air Force or the Air University.

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