Managing activity costs

How much does it cost to fly a fighter-bomber for one hour?

Financial management in the public sector usually means keeping expenses within allocated budget. Agencies receive a set amount of funding to meet certain targets, and their ability to exercise control is limited to ensuring the efficient use of resources.

Such was the case for the Spanish Air Force. But with rapid modernization in recent years, the military institution found it increasingly difficult to reliably quantify the costs of its operations.

Thanks to the SAS® Activity-Based Management solution, we can know the real cost of all of our activities, from the hourly flying cost of a fighter-bomber to the cost of training a fighter pilot. This allows the Air Force to allocate its budget more optimally to facilitate the analysis of operations costs in each area.

Alfredo Medina
Wing Commander of the Economic Affairs Department of the Air Force

How much does it cost to train a pilot?

In particular, the Air Force needed a way to invoice third parties for services such as official travel by government employees, the use of seaplanes to fight forest fires, operating the system for airspace alert and air navigation aids, and training helicopter pilots for the Guardia Civil and the National Police Force.

The Air Force also needed to know how much it costs to fly a fighter-bomber for an hour, and how much it costs per hour to train the pilots who fly them. That way, it could seek reimbursement from pilots who transfer to commercial aviation before fulfilling their obligation to the Air Force.

So the Air Force's Economic Affairs Department turned to SAS for a cost-accounting solution that determines the precise cost of each and every activity.

"Thanks to SAS® Activity-Based Management, we can know the real cost of all of our activities, from the hourly flying cost of a fighter-bomber to the cost of training a fighter pilot," says Wing Commander Alfredo Medina. "This allows the Air Force to allocate its budget more optimally to facilitate the analysis of operations costs in each area."

Intelligent management

With SAS® Activity-Based Management, the Air Force gained a detailed view of all elements involved in each activity. Although the implementation works the same as in private business, it includes two adaptations specific to military use:

  • The "cost center" concept was integrated into the "activity centers," which include each detailed item in the Air Force's different units.
  • The "product" concept was adapted to concepts like flying hours, transportation services, firefighting services, training hours, etc. These concepts include both direct and indirect operations costs, which allow a complete cost model to be defined by SAS Activity-Based Management.

Three-phase implementation

The process of implementing the solution consisted of three phases:

  • Allocation of expenses by cost center. This phase allocates the expenditure corresponding to the Wing Headquarters, the Materials Group with its maintenance and supply squadrons, and the Air Force Group with its two squadrons of fighter jets. Each cost center is allocated various cost categories, and each category can be subdivided to show its individual cost elements.
  • Allocation of costs to the activities and resources of the unit. All activities are subdivided so that the appropriate ones are included in the activities catalog of the unit. The support activities include personnel management, maintenance, supply and mapping. The maintenance activities include maintenance of weapons, weapons systems, electronic and communications equipment, etc.
  • Allocation of activity costs to each weapon system in the unit to determine the total cost and unit cost. For example, in the case of Wing 12, this is the cost of the F-18s it contains. This general cost is the sum of the costs of the operations resources, plus the costs of the headquarters, support and operations activities. The end result is a cost accounting-based income statement for Wing 12 that reveals the full cost of its training operations in the air, plus the cost of its combat and attack operations in the air.

Challenge

To precisely calculate the cost of each activity and service performed.

Solution

SAS® Activity-Based Management

Benefits

The Spanish Air Force can understand all the elements involved in an activity and identify its real costs, resulting in better budget allocation.

The results illustrated in this article are specific to the particular situations, business models, data input, and computing environments described herein. Each SAS customer’s experience is unique based on business and technical variables and all statements must be considered non-typical. Actual savings, results, and performance characteristics will vary depending on individual customer configurations and conditions. SAS does not guarantee or represent that every customer will achieve similar results. The only warranties for SAS products and services are those that are set forth in the express warranty statements in the written agreement for such products and services. Nothing herein should be construed as constituting an additional warranty. Customers have shared their successes with SAS as part of an agreed-upon contractual exchange or project success summarization following a successful implementation of SAS software. Brand and product names are trademarks of their respective companies.

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