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Quality: a personal journey.

(The following article is reprinted by permission of the American Society for Quality)

The cataclysmic events of September 11, 2001, and their attendant consequences for our nation remind us that each generation must defend and uphold our American ideals. As you are reading this, we are approaching the holiday season, normally a time of gaiety and mirth. I believe this year will find many of us concentrating on family, community; and the deeper meaning of the holidays.

There is a quote in the June issue of our magazine by Dr. Juran where he suggests that the next steps in the evolution of quality would be into the "enormous service industries" that were previously "largely immune" to the quality movement: education, health, and government. In reality, there has been a quiet transformation in the delivery of government services since the fall of the Soviet Union. The collapse of government-sponsored economies gave theoretical impetus to the idea that government services are best delivered by private industry. Witness the growth in contractor-operated public utilities, such as municipal water works. For the Department of Defense (DoD), that has translated into a call for revitalizing and transforming the DoD establishment and infrastructure. The thought is that functions that are not directly linked to the warfighting mission of the Department should be outsourced or done in partnership with private firms. The other quiet change in the delivery of government services is the p aperless environment of electronic commerce and the computer. For instance, payments made to citizens and businesses are faster and cheaper when electronic finds transfers are the norm rather than paper-based checks.

Nonetheless, there remains criticism of financial management in the Pentagon. In July 2000, Tom Bloom, our Director, saw the need for our agency; the Defense Finance and Accounting Service (DFAS), to move to a customer-focused, strategy-based organization, structuring our efforts along business and product lines. At that time, I was a senior line manager with over 6,000 people engaged in supporting Army financial management reporting to me. One aspect of the DFAS Business Evolution, as we have tided it, was the establishment of a Quality and Performance Assessment Group, which I volunteered to lead. Tim Clark, Mike Serowik, and I were given the task of establishing the quality organization and program. Both Tim, a published author--Success through Quality--and Mike, a certified Baldrige examiner with strong statistical skills, were long-time quality professionals. I, on the other hand, had no formal training in quality theory. In previous positions, I "allowed" my folks to form Quality Circles and to go to TQ M training, but I was only cursorily familiar with the precepts. Further, I had seen TQM implemented in organizations only to lose the support of management.

We faced a daunting challenge to develop a quality program that would support the vision and help achieve the goals of the Agency; Accusations of erroneous payments and inaccurate bookkeeping spoke to a difficult and complex financial management challenge. We needed to gauge the level of quality in our various processes and implement a program to improve the accounting and payment processes.

The concept that captured my imagination was the cost of poor quality. This was the key to translate quality theory into concrete business practices. We pointed out to line managers that if DFAS disburses $1 billion a day and has an accuracy rate of 98%, then $20 million is disbursed each day inaccurately; Put in those terms prior performance standards were no longer acceptable. Rework was a very high cost by all estimates in our accounting business. Thousands of individual transactions may process through several systems daily; If any transaction is correct, it flows through for less than a dollar in total cost. Backlogs result when financial transactions are inaccurate or do not process automatically; If a transaction rejects, goes into suspense, or recycles, the cost grows exponentially because human intervention is required to correct it. And, sometimes, the transaction has to be entered into three different systems because the error was caught later in the cycle. I had had previous situations in which so me managers had allowed unacceptable backlogs in financial transactions to build. I had to devote personnel from other organizations to form "tiger teams" to eliminate those backlogs. The "poor" managers then told me that they would need their staffs augmented if I did not want recurring backlogs; but, if I gave them additional resources, costs to our customers would increase.

As our men and women in uniform and our civilians face the challenges of the war on terror, it is our responsibility and duty to make sure that we support them in every way we can. DFAS is the accounting arm of DoD. It was established in 1991 to improve financial management and reduce cost for the Department. The Deputy Secretary of Defense directed the consolidation of finance and accounting operations of the various military departments and Defense agencies into a single business entity that would charge a fee for the services provided. This would help the Department identify the full cost of finance and accounting activities and focus our efforts to improve the service. DFAS pays all military and civilians with few exceptions. We pay all contractors and vendors providing supplies, equipment, and services to DoD. The volume of payments and the associated accounting requirements are staggering. Every workday DFAS disburses an average of $1 billion. Monthly, over 2 million paychecks are disbursed electronical ly. In addition, DFAS pays over 1 million invoices each month to thousands of companies and firms; and those statistics do not include the several hundred thousand intergovernmental payments occurring each month. DFAS must keep track of each payment and record it against any one of over 230 appropriations. Approximately 19,000 military, civilian, and contractor personnel make DFAS one of the largest accounting organizations in the world.

During World War II, a relatively unknown senator, Harry Truman, conducted hearings on the quality of supplies and equipment reaching our armed forces that proved instrumental in the war effort. Quality in all support functions will be just as important in the new war on terror. But how do you measure quality in an accounting organization? We gave Mike Serowik the challenge of pulling the data to attempt to answer that question. In 1997 DFAS was placed under a performance contract with the Defense Management Council, a kind of a board of directors for DoD headed by the Deputy Secretary of Defense. This contract met the goals of the Government Performance and Results Act, in establishing a measurement of DFAS based on results. Each one of our outputs is defined in the timeliness required, the accuracy demanded, and a unit cost target. Our Performance Management Information System (PMIS) was the basis for Mike's work in puffing data for us to review. Table 1 is a monthly PMIS report. Notice that we have one mon th of data by site for our major sites (networks composed of many smaller sites) in which each metric is shown in green, yellow, or red, depending on whether we met the goal, just missed it, or filled to meet the goal in that month. As we reviewed the data, the question of comparability arose. For instance, if one network had 8 greens, 2 yellows, and 3 reds, was it better or worse than a sister network with 7 greens, 5 yellows, and 1 red? How did you compare quality between business lines, e.g., accounting versus bill paying? What about the trends: Was DFAS getting better? (See Table 1, page 29.)

Looking at the data over a two-year period, we noticed that at the end of each fiscal year things got better: More of the metrics reflected green. Conversely, at the beginning of the next fiscal year there was an immediate and dramatic worsening of the metrics. We discussed the reasons behind this, namely the invariable delay in establishing new appropriations and implementing new legal and regulatory requirements. That indicated a special cause situation that camouflaged the common cause variations. Still, I was unable to discern whether DFAS was improving its service. Tim and Mike began discussing the potential of using a capability process model (Cpk) to form the basis for an index that might give us a picture of what was happening over time. We wanted a dashboard to answer: Are we getting better? The capability process model had been used by a variety of companies to test the quality of their production processes but had never been used in the manner that Tim and Mike were proposing as far as we could tel l. We were a bit nervous about it: not only about whether it would work but also whether it was intellectually sound.

Mike devised a method to insert the data into the Cpk model. Chart 1 provides the quality index over an 18-month period. This index is the combination of four indices that we developed: Accounting, Personnel Pay, Commercial Pay, and Travel Pay. Each index has 5 to 6 metrics that have been factored into a Cpk formula to achieve individual scores, which are averaged to give us the composite index and associated indices. The advantages of this quality index are substantial. First, it provides trend data for both managers and customers. Our knowledge was often anecdotal, the result of the last interaction we may have had with any particular customer. We could see and judge the effect of changes in processes or environment. Another strength is that it can be linked to Six Sigma. The chosen metrics are linked to defects, and defects are linked to the cost of poor quality. You can see we appear to be stable with common cause variation at work and the special cause we noted above. The good news was that we approximat e a 99.6% average on our index, not world class, yet certainly better than what many of the critics maintained. Finally, the index allows us to compare our different business lines with each other. We can compare the' quality of a payment made with the quality of the accounting for that payment. (See Chart 1, page 30.)

One of the offshoots of publishing this index has been the action taken to identify and eliminate accounting rework to increase quality and reduce unit cost. Time will tell if we can convince our managers that poor quality costs more than good quality. However, I have great hopes.

The Quality Index is just the beginning. We are working to instill a passion for quality in everything that we do. We have a Six Sigma Scholarship for some of our top flight personnel; we are prototyping the application of the Baldrige Criteria for Organizational Performance at one of our sites; we facilitated individual improvement projects focusing on the return on investment; and we established a DFAS Quality Website with standard improvement models and other resource material for our people to apply in their work. The slogan "good enough for government work" originated when the government had strict standards for surveying. It meant a product was precise and of high quality. We hope to bring that same meaning back to the quality of DoD accounting. Our soldiers, sailors, airmen, and marines, our civilians, our nation, and our taxpayers deserve nothing less.
Table 1

Monthly PMIS Report


 CORP Report
ACCOUNTING SERVICES GOAL Cycle

(175)Timeliness of Accounting Reports to 95% MONTH
 Customers

(175 DFAS Only) Timeliness of Accounting 95% MONTH
 Reports to Customers

(178)Reduction of Negative Unliquidated -80% MONTH
 Obligations (NULOs)

(179)Reduction of Unmatched -80% MONTH
 Disbursements (UMDs)

(180)Reduction of Aged Intransit -80% MONTH
 Disbursements

(199)All Pay Instruments Delivered On Or 99.7% MONTH
 Before Designated Payday

(199)Civilian Pay Instruments Delivered 99.7% MONTH
 On Or Before Designated Payday

(199)Military Pay Instruments Delivered 99.7% MONTH
 On Or Before Designated Payday

(250)Accuracy of Accounting Data 95% MONTH

(260)Check Issue Discrepancies <61 Days MONTH

(261)Reconciliation of On-Line Payment & <61 Days MONTH
 Collection (OPAC)Statement of
 Differences

(262)Improve Timeliness and Accuracy of <61 Days
 reconciling Statement of MONTH
 Differences, Deposit Transactions


COMMERCIAL PAY SERVICES

(171)Minimize interest penalty payments 0.035% MONTH

(171 DFAS Only)Minimize interest penalty 0.035% MONTH
 payments

(173)Number of discounts lost subject to 10% MONTH
 the PPA

(173 DFAS Only)Number of discounts lost 10% MONTH
 subject to the PPA

(174)Dollar value of discounts lost 10% MONTH
 subject to the PPA

(174 DFAS Only)Dollar value of discounts 10% MONTH
 lost subject to the PPA

(230)Improve the Payment Timeliness of 94% MONTH
 all PPA covered Invoices

(230 DFAS only)Improve the Payment 94% MONTH
 Timeliness of all PPA covered
 Invoices

(232)Reduction in the over aged backlog -15% MONTH
 of commercial payments

(247)Paid voucher payments processed 95% MONTH
 accurately

(249)Reduce the volume of "reworked" 10% MONTH
 commercial invoices

(269)Commercial Invoices on Hand <5% MONTH


MILITARY AND CIVILIAN PAY SERVICES

(168)Timeliness of TDY Actions (8 days) 95% MONTH

(200)All Pay Transactions Processed 99.2% MONTH
 Within one pay Period

(201)Pay Entitlement Calculations 98.2% MONTH
 Processed Accurately

(202)Resolve pay problems within 30 days 97% MONTH

(246)Report timeliness and accuracy of Satisfactory
 component personnel metrics (3) QTRLY

(255)Temporary duty travel payments 97% (Site)
 processed accurately 95% (AG) MONTH

SUPPORT SERVICES

(196)Overall customer satisfaction =>FY01 ANNUAL
 rating for DFAS based upon surveys
 received from military and
 civilian customers (%)

(197)Overall customer satisfaction =>80% QTRLY
 survey progress for customer
 surveys as sheduled within the
 Agency Performance Contract

(207)Complete all A-76 initiatives =>5% QTRLY
 per Defense Agency Task Force
 briefing schedule

(215)Benchmarking/Activity Based =>80% QTRLY
 Costing and work process
 improvement studies of vendor
 pay


 Accounting CE for
ACCOUNTING SERVICES Business Line Navy

(175)Timeliness of Accounting Reports to G G
 Customers

(175 DFAS Only) Timeliness of Accounting G G
 Reports to Customers

(178)Reduction of Negative Unliquidated G G
 Obligations (NULOs)

(179)Reduction of Unmatched G G
 Disbursements (UMDs)

(180)Reduction of Aged Intransit G G
 Disbursements

(199)All Pay Instruments Delivered On Or G
 Before Designated Payday

(199)Civilian Pay Instruments Delivered G G
 On Or Before Designated Payday

(199)Military Pay Instruments Delivered G G
 On Or Before Designated Payday

(250)Accuracy of Accounting Data G G

(260)Check Issue Discrepancies R R

(261)Reconciliation of On-Line Payment & R R
 Collection (OPAC)Statement of
 Differences

(262)Improve Timeliness and Accuracy of
 reconciling Statement of R R
 Differences, Deposit Transactions

 Commercial Contract
COMMERCIAL PAY SERVICES Pay Pay

(171)Minimize interest penalty payments G G

(171 DFAS Only)Minimize interest penalty G G
 payments

(173)Number of discounts lost subject to G G
 the PPA

(173 DFAS Only)Number of discounts lost G G
 subject to the PPA

(174)Dollar value of discounts lost Y + G
 subject to the PPA

(174 DFAS Only)Dollar value of discounts G G
 lost subject to the PPA

(230)Improve the Payment Timeliness of G + G
 all PPA covered Invoices

(230 DFAS only)Improve the Payment G G
 Timeliness of all PPA covered
 Invoices

(232)Reduction in the over aged backlog G G
 of commercial payments

(247)Paid voucher payments processed G G
 accurately

(249)Reduce the volume of "reworked" G G
 commercial invoices

(269)Commercial Invoices on Hand R G

 Mil & Civ Civilian
MILITARY AND CIVILIAN PAY SERVICES Total Pay Pay

(168)Timeliness of TDY Actions (8 days) G

(200)All Pay Transactions Processed G G
 Within one pay Period

(201)Pay Entitlement Calculations G G
 Processed Accurately

(202)Resolve pay problems within 30 days G G

(246)Report timeliness and accuracy of
 component personnel metrics

(255)Temporary duty travel payments
 processed accurately G

SUPPORT SERVICES AR DIR Support

(196)Overall customer satisfaction C
 rating for DFAS based upon surveys
 received from military and
 civilian customers (%)

(197)Overall customer satisfaction C
 survey progress for customer
 surveys as sheduled within the
 Agency Performance Contract

(207)Complete all A-76 initiatives C
 per Defense Agency Task Force
 briefing schedule

(215)Benchmarking/Activity Based C
 Costing and work process
 improvement studies of vendor
 pay

 CE for CE for
 DLA and Air Force
ACCOUNTING SERVICES DECA and FMS

(175)Timeliness of Accounting Reports to G G
 Customers

(175 DFAS Only) Timeliness of Accounting G G
 Reports to Customers

(178)Reduction of Negative Unliquidated G G
 Obligations (NULOs)

(179)Reduction of Unmatched G ++ G
 Disbursements (UMDs)

(180)Reduction of Aged Intransit R -- G +
 Disbursements

(199)All Pay Instruments Delivered On Or
 Before Designated Payday

(199)Civilian Pay Instruments Delivered G
 On Or Before Designated Payday

(199)Military Pay Instruments Delivered G
 On Or Before Designated Payday

(250)Accuracy of Accounting Data G G

(260)Check Issue Discrepancies R

(261)Reconciliation of On-Line Payment & G R
 Collection (OPAC)Statement of
 Differences

(262)Improve Timeliness and Accuracy of
 reconciling Statement of R R
 Differences, Deposit Transactions

 Vendor
COMMERCIAL PAY SERVICES Pay Army

(171)Minimize interest penalty payments R R

(171 DFAS Only)Minimize interest penalty G G
 payments

(173)Number of discounts lost subject to G G +
 the PPA

(173 DFAS Only)Number of discounts lost G G
 subject to the PPA

(174)Dollar value of discounts lost Y + R
 subject to the PPA

(174 DFAS Only)Dollar value of discounts G Y -
 lost subject to the PPA

(230)Improve the Payment Timeliness of Y Y
 all PPA covered Invoices

(230 DFAS only)Improve the Payment G G
 Timeliness of all PPA covered
 Invoices

(232)Reduction in the over aged backlog G G
 of commercial payments

(247)Paid voucher payments processed G G
 accurately

(249)Reduce the volume of "reworked" G G
 commercial invoices

(269)Commercial Invoices on Hand R R

 Millitary Travel
MILITARY AND CIVILIAN PAY SERVICES Pay Pay

(168)Timeliness of TDY Actions (8 days) G

(200)All Pay Transactions Processed G
 Within one pay Period

(201)Pay Entitlement Calculations G
 Processed Accurately

(202)Resolve pay problems within 30 days G

(246)Report timeliness and accuracy of
 component personnel metrics

(255)Temporary duty travel payments
 processed accurately G

SUPPORT SERVICES

(196)Overall customer satisfaction
 rating for DFAS based upon surveys
 received from military and
 civilian customers (%)

(197)Overall customer satisfaction
 survey progress for customer
 surveys as sheduled within the
 Agency Performance Contract

(207)Complete all A-76 initiatives
 per Defense Agency Task Force
 briefing schedule

(215)Benchmarking/Activity Based
 Costing and work process
 improvement studies of vendor
 pay


Michael W. Dugan is the director of Quality and Performance Assessment for the defense Finance and Accounting Service. He has worked for DoD for over 30 years in a variety of locations and organizations, including the DoD Comptroller's staff in program and budget as the senior analyst in the implementation of Gramm-Rudman legislation and as the crisis management representative. For the past decade, Mr. Dugan has been with DFAS. His recent study to determine the future organization, structure, and processes far all contract and vendor payments in DFAS resulted in the formation of the Commercial Pay Business Line, which unified vendor and contract payments into a single business entity. Currently, as director of Quality and Performance, he is focused on reducing casts and improving the quality of DFAS products and services. Mr. Dugan holds a master's degree in business administration from Syracuse University. He is a member of the Indianapolis Chapter of ASMC.
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Author:Dugan, Michael W.
Publication:Armed Forces Comptroller
Article Type:Industry Overview
Geographic Code:1USA
Date:Mar 22, 2002
Words:3214
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