PEP Implementing Instructions

 

1.  Purpose.  The Productivity Enhancement Program (PEP) focuses on funding projects that can quickly capture a return on investment while improving the efficiency and effectiveness of Army organizations and activities.  The PEP will provide dollars to fund promising investment opportunities that:

         a.  Generate a high return on investment (less than 5 year payback period).

         b.  Have potential for Army-wide applicability.

         c.  Support the Army’s Transformation Strategy.

 2.   Applicability and Scope.

         a.  The PEP applies to all Army organizations (TDA and TOE units) except for Nonappropriated Fund (NAF) activities.  They are not eligible to participate unless the proposed investment results in savings of appropriated funds.

         b.  Weapon Systems are not a primary focus of the PEP.  Total Ownership and Cost (TOC) office has specifically designed programs targeting weapons systems.  Details of TOC programs can be found at web site http://www.saalt.army.mil/armytoc/.

 3.   Policy and Procedures.

         a.  Investment opportunities may be derived from many sources such as:

                 (1) Organizational Self-Assessments using Baldrige-based assessment criteria such as the Army Performance Improvement Criteria (APIC) or other sound assessment criteria.

                 (2)  Reinvention/Reengineering initiatives

                 (3)  Functional Area Assessments

                 (4)  New state-of-the-art technologies

                 (5)  Results from benchmarking studies

                 (6)  Process Action Team reviews

                 (7)  Good ideas

         b.  PEP Funding Sources.  Funds for the FY04 competition are in the FY04 budget.  After the FY04 midyear budget review, there is a possibility Operations and Maintenance, Army (OMA), Operations and Maintenance, National Guard (OMARNG) and Operations and Maintenance, Army Reserve (OMAR) dollars will be committed to the program to fund worthy projects.  Initiatives that involve multi-year funding (e.g., procurement appropriation initiatives) are not eligible for consideration for this fiscal year.

         c.  Types of Investment Benefits.

                 (1)  Cost savings.   Cost savings result in a specific, quantifiable reduction to an approved Army program that is in the program or budget at the time the benefit’s results are realized.  The savings generated can be reallocated to unfunded requirements.  For example, investment in a highly efficient production machine reduces the consumption of electricity while allowing the same level of output.   The originally budgeted utilities funds for the production program are now in excess of requirements, and the excess funds can be reallocated.  Cost savings examples are:

                        (a)  Reduced manpower costs.

                        (b)  Reduced or eliminated operating costs (utilities, travel, or repair).

                        (c)  Reduced or eliminated contracts.

                 (2)  Cost avoidance.   Cost avoidance is a quantifiable reduction in a future resource requirement that is not currently included in an approved Army program.   Investment in the productivity enhancing project will eliminate the need for specific increases to current funding levels for the program.  For example, a marked, yet unanticipated increase in items needing repair in a maintenance operation becomes evident.  The workload increase has not been accounted for in the budget or program.  Investment in productivity enhancing equipment will allow the increased workload to be absorbed without increasing labor costs, and therefore, cost avoidance has been realized.  Cost avoidance examples are:

                        (a)  Increased production or absorption of additional workload at current staffing levels.

                        (b)  Eliminating the need for an increase to budgeted operating costs.

                        (c)  Prevention of future environmental compliance violations.

                 (3)  Non-quantifiable or intangible benefits.  Some investments yield benefits that do not lend themselves to direct, quantifiable measurement.  These benefits, although difficult to assess, may be addressed in a project proposal.  Though subjective in nature, qualitative statements can make a positive contribution in a proposal’s evaluation.  Examples of non-quantifiable or intangible benefits are improved morale, readiness, quality, or security.

         d.  The first priority of the PEP is to fund initiatives resulting in quantifiable cost savings.  Because cost savings provide a basis for funding other Army requirements and give installation commanders additional flexibility, this benefit type is given highest priority in the investment project evaluation.  Projects based on cost avoidance compete at a lower priority.  Non-quantifiable and intangible benefits in conjunction with either cost savings or cost avoidance increase a project’s competitiveness.

         e.  Benefit measures calculation.  Cost savings and cost avoidance benefits and total one-time implementation and investment costs will be used to calculate the payback period for the project.  The project submission will indicate whether the benefits are cost savings or cost avoidance, or the contributions of each if both are applicable.  

                 (1)  The calculation of payback period for PEP project submissions will be done using current year dollars.   The payback period is that point when cumulative savings or cost avoidance equal total implementation (investment) costs.  Payback period is expressed in years and/or fractions thereof.

                 (2)  The evaluation of PEP project submissions gives considerable significance and weight to the payback period, which relies on the accurate calculation of costs and savings for its validity.  It is, therefore, extremely important that all details of costs and savings projections be specified in the PEP project submissions.  The higher the visibility that is afforded to elements of cost and cost savings or avoidance in proposal submissions, the better a project is able to compete in the evaluation. 

f.  Project submissions must meet all requirements relative to any restrictions on the funding source for specific types of expenditures established by public laws, DOD policies, and other regulatory restraints.  Any recurring costs and/or cost overruns resulting from project implementation will be borne by the submitting organization.

         g.  Criteria for evaluating, ranking and funding PEP projects. 

                 (1)  The process to evaluate PEP projects consists of an assessment based on:

            (a)  Completeness of project submission.

                        (b)  Compliance with PEP Implementing Instructions/Guidance.

                        (c)  Project compliance with applicable functional policy.

                        (d)  Project technical soundness.

            (e)  Project feasibility.

             

                 (2)  Factors involved in ranking and funding PEP projects are:

                        (a)  Payback period - Most important factor for the purpose of ranking projects.

            (b)  Potential for Army-wide applicability.

                        (c)  Support for the Army's Transformation Strategy.

 4.   Responsibilities:

         a.  The Assistant Secretary of the Army for Financial Management and Comptroller ASA(FM&C) will:

                 (1)  Provide policy and oversight for the PEP and will evaluate the program on an annual basis.

                 (2)  Provide guidance as required to the Major Command (MACOM)/Installation/Activity Internal Review Offices that will be auditing the PEP projects.

                 (3)  Provide the Cost and Economic Analysis Center (CEAC) to act as an advisor to the Director of Management, OCSA on cost and economic analysis matters concerning the PEP projects costs and savings analyses.

         b.  The Vice Director of the Army Staff (VDAS), OCSA will: 

                 (1)  Serve as the Army Staff Proponent for the Productivity Enhancement Program (PEP). 

                 (2)  Issue the PEP Implementing Instructions/Guidance each fiscal year announcing the PEP competition and soliciting proposed projects from HQDA FOAs/ MACOMs/Installations/Activities.

                 (3)  Manage the PEP link to the Leading Change Internet Site to facilitate the electronic submission, tracking and assessment of the PEP projects.

                 (4)  Initially screen and review proposed projects submitted to ensure that they are complete and comply with the PEP Implementing Instructions/Guidance. 

               (5)  Determine the appropriate HQDA functional proponent for each PEP project and then forward the project to the functional proponent to review for policy compliance, technical soundness and feasibility. 

               (6)  Convene a HQDA Executive Board to prioritize the projects that comply with the PEP guidance and are validated by the HQDA functional proponents. 

               (7)  Forward the recommended PEP projects through the ASA(FM&C) to the Secretary of the Army for approval.

               (8)  Announce the projects that were funded, notify the PEP project submitters and coordinate the fund distribution process.

               (9)  Review the potential for Army-wide applicability of the PEP projects and promote exportation.

               (10)  Track the overall program progress and results with all participating elements.

       c.  HQDA Functional Proponents will:

               (1) Review each project forwarded to them by the Vice Director of the Army Staff, OCSA for :

                      (a) Functional policy compliance.

                      (b) Technical soundness.

                      (c) Feasibility.

                      (d) Compatibility and support of HQDA mission and priorities.

                      (e)  Compatibility with existing and/or automation systems, as applicable.

                      (f)  Cost and return on investment.

               (2) Provide a rank-order recommendation for funding.

               (3) Provide input concerning the potential of each project for Army-wide applicability.

       d.  Major Army Commands (MACOMs), Director Army National Guard, the Army Reserve Command and HQDA Field Operating Agencies (FOAs) will:

               (1)  Establish a central point of contact (POC) for processing PEP initiatives and forward the following data to the Leading Change mailbox at leadingchange@hqda.army.mil.

                      (a)  Name a project POC and program manager preferably in the Resource Management/Comptroller area to implement the PEP.

                      (b)  Provide telephone and fax numbers (commercial and DSN).

                      (c)  Provide email addresses.

               (2)  Conduct a functional review and validation of the costs and savings analyses.  Guidelines for a cost and economic analysis can be found on the Cost & Economic Analysis Center (CEAC) web site located at http://www.ceac.army.mil/default.htm.   The CEAC Cost and Economic Analysis format is not required, however it may serve as a guide when calculating costs and savings.  

               (3)  Submit proposals as an attachment electronically via email to leadingchange@hqda.army.mil.  Instructions on project submission are also available here.

               (4)  Establish procedures to ensure that project funds received are controlled and obligated in a timely manner.  

               (5)  Submit a post-investment analysis and project update comparing projected savings/benefits with the actual results to the Leading Change Internet site 13 months after the receipt of project funding.  If a project does not become operational within 13 months following receipt of project funding, then an explanation for the delay and proposed solution should be submitted and updated quarterly until the project is operational.  The project is considered operational when it begins to function as intended, e.g., when purchased equipment is delivered, tested, accepted, and integrated either with current operations or the old operations cease to exist. 

               (6) Request the local Internal Review Office to perform an audit of each PEP project when the project has had sufficient operational life for an assessment of the projected costs and savings (usually one year of operation).  One of the audit objectives will be to determine whether the costs and savings projected for the project, when the project was approved and funded, have been realized. 

 5. FY 2004 PEP Milestones:

a. Provide PEP Implementing Instructions/Guidance to Army elements	3 Dec 03
b. Receive PEP project submissions.	27 Feb 04
c. Complete Initial Screening and Review of Projects	19 Mar 04
d. Complete HQDA Functional Proponent review and prioritization	16 Apr 04
e. Brief Vice Director of the Army Staff	30 Apr 04
f. Convene HQDA Executive Board to prioritize projects	12 May 04
f.  Notify organizations of project selection.	19 May 04
g. Complete the fund distribution process	24 May 04
h. Publish approved projects summations on AKO	1 Jun 04

Send comments to: leadingchange@hqda.army.mil

Last revision: 18 Aug 2008