As employees and teams contemplate ways to save the Agency money with the Center’s newly introduced “BHAG,” a big hairy audacious goal of having a cost savings or cost avoidance of $20M by fiscal year 2020, a list of guidelines have been created.

1. Determination of Savings:
   Savings is categorized as either “soft” or “hard” savings. The term “soft savings” correlates to cost avoidance while “hard savings” correlates to cost savings. Below are definitions of these terms:

   Soft Savings / Cost Avoidance: Indirect savings improves capacity, regains process controls, or avoids planned spending through improvements or efficiencies. This type of savings or avoidance removes the expenses from a specific process for which the savings dollar does not affect budget levels.

   Some examples of soft savings include:

   • Using electronic devices instead of printing
   • Use of Video Teleconference (VTC) to avoid travel expenses for discretionary travel (i.e. travel not specifically built into the budget)
   • Change of process that saves time or service contract costs
   • Labor hour reduction without removal of headcount

   Hard Savings / Cost Savings: The removal of expenses from a specific process is classified as hard savings or cost savings. These are savings that provide direct improvement to the bottom line. These cost savings may or may not be recognized in budgetary levels. The savings may be redirected to create more buying power for the customer.

   Some examples of hard savings include:

   • Reduction in manpower
   • Lapse in Personnel Compensation and Benefits (PC&B) due to approved vacancies not yet filled
   • Increased capacity without corresponding expense
   • Use of VTC or combining trips to save travel expenses for travel specifically required and budgeted
   • Reduction in overhead costs
   • Increased throughput of product or service as a result of a process change or equipment
   • Optimize use of resources and deliver best value solutions internally or by contracting
   • Eliminating non-value added contracts

   In some instances, the identification of an improvement as either a cost savings or cost avoidance may be difficult to determine. Organizations should try to be consistent, to the maximumextent possible, in the application of definitions.

2. Calculation and Validation of Cost Savings/Avoidances: Document the appropriate cost savings/avoidance items using the attached “20 BY 20” cost savings/avoidance template, on the individual saving worksheet. A separate worksheet should be completed for each effort. Cost line items may be adjusted as needed. Individual details are then summarized on the summary of savings worksheet.

   Validation:
   Validation will consist of reviewing line items for practicality and accuracy. First level validation is performed on each individual saving worksheet, by the organization’s financial representative. Second level validation is performed by the organization’s director (AMA-1, AMK-1, and AMP-1) on summary of saving worksheet. Please apply electronic signatures using PIV card.

   Third level validation will be performed by the Office of Budget and Performance for AMC (ABP-550).

3. Reporting: Validated details of individual savings and summary of savings worksheets should be provided to ABP-550 (attn.: Lisa.Ruhl@faa.gov) by the second Thursday of each month. On the third Monday of each Month, ABP-550 will provide a MMAC summary report to the Leadership’s Direct Report Team (DRT).

Listed below are examples of savings categories, definitions, samples of hard and soft savings, and suggested methods of measurement.

Cost Savings & Avoidance Definitions and Valuation Methods