Full Potential To Achieve Savings by Investing in Fast Payback Productivity Enhancing Capital Equipment Not Realized

The Department of Defense's (DOD) fast payback productivity-enhancing capital-investment program was an attempt at: (1) improving the fairness with which relatively low-value productivity-enhancing equipment competes for public funds; and (2) eliminating the long approval leadtime associated with the annual budget review process. The program was begun in 1973 to take advantage of the relatively low-value investment opportunities that were being lost because no provisions were made to fund them as they occurred. Under the program, productivity-enhancing investments are separated from others for special consideration, and qualified investments are to be financed quickly. DOD officials have included $l3.5 million for the program in the 1979 budget request.

The basic concept of the program is sound and should be supported. The program enables DOD to finance productivity-enhancing investment opportunities that may not be funded because they were not provided for in the budget and, if not obtained quickly, could result in a significant loss of savings. The program has not, however, realized its full potential to achieve savings. For the fast payback program to achieve its full potential, management needs to: insure maximum identification of investment opportunities, improve the justification and approval process, and insure adequate postanalysis/followup evaluations. Problems in the program include: insufficient assignment of priority to the identification of capital investments; reluctance of managers to utilize the program because of lack of incentives; invalid and unsupportable justifications due to erroneous, incomplete, and undocumented economic analyses; independent review of investment justifications not conducted prior to approval; and inadequate monitoring and inaccurate reporting of savings.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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