Defense Management
Key Elements Needed to Successfully Transform DOD Business Operations Gao ID: GAO-05-629T April 28, 2005In addition to external security threats, our nation is threatened from within by growing fiscal imbalances. The combination of additional demands for national and homeland security resources, the long-term rate of growth of entitlement programs, and rising health care costs create the need to make difficult choices about the affordability and sustainability of the recent growth in defense spending. At a time when the Department of Defense (DOD) is challenged to maintain a high level of military operations while competing for resources in an increasingly fiscally constrained environment, DOD's business management weaknesses continue to result in billions in annual waste, as well as reduced efficiencies and effectiveness. Congress asked GAO to provide its views on (1) the fiscal trends that prompt real questions about the affordability and sustainability of the rate of growth of defense spending, (2) business management challenges that DOD needs to address to successfully transform its business operations, and (3) key elements for achievement of reforms. One key element would be to establish a full-time chief management official (CMO) to take the lead in DOD for the overall business transformation effort. In this regard, we support the need for legislation to create a CMO in DOD with "good government" responsibilities that are professional and nonpartisan in nature, coupled with an adequate term in office.
Our nation's current fiscal policy is on an imprudent and unsustainable course and the projected fiscal gap is too great to be solved by economic growth alone or by making modest changes to existing spending and tax policies. In fiscal year 2004, DOD's spending represented about 51 percent of discretionary spending, raising concerns about the affordability and sustainability of the current growth in defense spending and requiring tough choices about how to balance defense and domestic needs against available resources and reasonable tax burdens. GAO has reported that DOD continues to confront pervasive, decades-old management problems related to business operations that waste billions of dollars annually. These management weaknesses cut across all of DOD's major business areas. These areas, along with six government-wide areas that also apply to the department, mean that DOD is responsible for 14 of 25 high-risk areas. To move forward, in our view, there are three key elements that DOD must incorporate into its business transformation efforts to successfully address its systemic business management challenges. First, these efforts must include an integrated strategic plan, coupled with a well-defined blueprint--referred to as a business enterprise architecture--to guide and constrain implementation of such a plan. Second, central control of system investments is crucial for successful business transformation. Finally, a CMO is essential for providing the sustained leadership needed to achieve lasting transformation. The CMO would not assume the day-to-day management responsibilities of other DOD officials nor represent an additional hierarchical layer of management, but rather would serve as a strategic integrator who would lead DOD's overall business transformation efforts. Additionally, a 7-year term would also enable the CMO to work with DOD leadership across administrations to sustain the overall business transformation effort.
GAO-05-629T, Defense Management: Key Elements Needed to Successfully Transform DOD Business Operations
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Testimony:
Before the Subcommittee on Oversight of Government Management, the
Federal Workforce, and the District of Columbia, Committee on Homeland
Security and Governmental Affairs, U.S. Senate:
For Release on Delivery Expected at 2:00 p.m. EDT Thursday, April 28,
2005:
Defense Management:
Key Elements Needed to Successfully Transform DOD Business Operations:
Statement of David M. Walker: Comptroller General of the United States:
GAO-05-629T:
GAO Highlights:
Highlights of GAO-05-629T, a testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
In addition to external security threats, our nation is threatened from
within by growing fiscal imbalances. The combination of additional
demands for national and homeland security resources, the long-term
rate of growth of entitlement programs, and rising health care costs
create the need to make difficult choices about the affordability and
sustainability of the recent growth in defense spending. At a time when
the Department of Defense (DOD) is challenged to maintain a high level
of military operations while competing for resources in an increasingly
fiscally constrained environment, DOD‘s business management weaknesses
continue to result in billions in annual waste, as well as reduced
efficiencies and effectiveness.
The Subcommittee asked GAO to provide its views on (1) the fiscal
trends that prompt real questions about the affordability and
sustainability of the rate of growth in defense spending, (2) business
management challenges that DOD needs to address to successfully
transform its business operations, and (3) key elements for achievement
of reforms. One key element would be to establish a full-time chief
management official (CMO) to take the lead in DOD for the overall
business transformation effort. In this regard, we support the need for
legislation to create a CMO in DOD with ’good government“
responsibilities that are professional and nonpartisan in nature,
coupled with an adequate term in office.
What GAO Found:
Our nation‘s current fiscal policy is on an imprudent and unsustainable
course and the projected fiscal gap is too great to be solved by
economic growth alone or by making modest changes to existing spending
and tax policies. In fiscal year 2004, DOD‘s spending represented about
51 percent of discretionary spending, raising concerns about the
affordability and sustainability of the current growth in defense
spending and requiring tough choices about how to balance defense and
domestic needs against available resources and reasonable tax burdens.
GAO has reported that DOD continues to confront pervasive, decades-old
management problems related to business operations that waste billions
of dollars annually. As shown below, these management weaknesses cut
across all of DOD‘s major business areas. These areas, along with six
government-wide areas that also apply to the department, mean that DOD
is responsible for 14 of 25 high-risk areas.
To move forward, in our view, there are three key elements that DOD
must incorporate into its business transformation efforts to
successfully address its systemic business management challenges.
First, these efforts must include an integrated strategic plan, coupled
with a well-defined blueprint”referred to as a business enterprise
architecture”to guide and constrain implementation of such a plan.
Second, central control of system investments is crucial for successful
business transformation. Finally, a CMO is essential for providing the
sustained leadership needed to achieve lasting transformation. The CMO
would not assume the day-to-day management responsibilities of other
DOD officials nor represent an additional hierarchical layer of
management, but rather would serve as a strategic integrator who would
lead DOD‘s overall business transformation efforts. Additionally, a 7-
year term would also enable the CMO to work with DOD leadership across
administrations to sustain the overall business transformation effort.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-629T].
To view the full product, click on the link above. For more
information, contact Sharon Pickup at (202) 512-9619 or [Hyperlink,
pickups@gao.gov] or Gregory Kutz at (202) 512-9505 or [Hyperlink,
kutzg@gao.gov].
[End of Section]
Mr. Chairman and Members of the Subcommittee:
I appreciate the opportunity to be here today to discuss business
transformation at the Department of Defense (DOD). At the onset, I
would like to thank the Subcommittee for its continued oversight of key
government operations and management issues, including DOD's related
activities. The active involvement of this Subcommittee is essential to
ultimately assuring DOD's continued progress in business
transformation, including human capital reform, while enhancing public
confidence in DOD's stewardship of the hundreds of billions of taxpayer
funds it receives each year. Senator Voinovich and Senator Akaka, along
with Senator Ensign, I would also like to commend your leadership in
sponsoring proposed legislation to establish a position at the highest
levels of DOD that would be accountable and responsible for overall
business transformation efforts--a position that we believe is critical
to successfully transforming DOD's business operations.
In addition to external security threats, our nation is threatened from
within by growing fiscal imbalances. Over the long term, the nation's
growing fiscal imbalance stems primarily from the aging of the
population and rising health care costs. These trends are compounded by
the presence of near-term deficits arising from new discretionary and
mandatory spending as well as lower revenues as a share of the
economy.[Footnote 1] If left unchecked, these fiscal imbalances will
ultimately impede economic growth, have an adverse effect on our future
standard of living, and in due course impact our ability to address key
national and homeland security needs. These factors create the need to
make choices that will only become more difficult the longer they are
postponed. Among these difficult choices will be decisions about the
affordability and sustainability of the recent growth in defense
spending. In fiscal year 2004, DOD spending represented 20 percent of
federal spending and 51 percent of discretionary spending. Therefore,
it is increasingly important that DOD gets the most from every defense
dollar and helps to assure that its funds are targeted to addressing
specific needs versus a long list of unaffordable and unsustainable
wants. The Secretary of Defense has estimated that improving business
operations could save 5 percent of DOD's annual budget, which, based on
the fiscal year 2004 budget, represents a savings of about $22 billion.
It is also critically important to ensure that DOD's unmatched military
capabilities are supported by a sound management structure and systems
designed to support the warfighter in an economic, efficient, and
effective manner.
At a time when DOD is challenged to maintain a high level of military
operations while competing for resources in an increasingly fiscally
constrained environment, DOD's business management weaknesses continue
to result in reduced efficiencies and effectiveness that waste billions
of dollars every year. These business management weaknesses touch on
all of DOD's major business operations, ranging from the department's
inadequate management of overall business transformation to decades-old
financial management problems to various contracting and selected
supply chain challenges. In fact, all the business areas that I will
discuss today are on our 2005 "high-risk" list of programs and
activities that need urgent attention and fundamental transformation to
ensure that our national government functions in the most economical,
efficient, and effective manner possible.[Footnote 2] In addition to
human capital management, DOD also shares responsibility for five other
governmentwide high-risk areas, such as managing federal real property.
Senior administration leaders and advisors--including the Secretary of
Defense, the nominee for Deputy Secretary of Defense, the Deputy
Director of the Office of Management and Budget (OMB), and members of
the Defense Business Board--have demonstrated a commitment to
addressing DOD's management challenges. However, little sustainable
progress has been made to date, and, at present, no one individual at
the right organizational level with an adequate term in office is
responsible for overall business transformation efforts. Although OMB
has worked closely with a number of agencies that have high-risk
issues, historically it has been much less involved with DOD. To his
credit, Clay Johnson, OMB's Deputy Director for Management, recently
reaffirmed plans to refocus on GAO's high-risk list in order to make as
much progress as possible during the Bush Administration's second term.
He also committed to placing additional emphasis on DOD's high-risk
areas, including working to help ensure that DOD has action plans for
addressing all its "high-risk" areas. Given the magnitude of DOD's
problems and the stakes involved, it is critical that OMB actively
collaborate with the department to ensure it establishes these action
plans. It is also clear that, given the number and nature of DOD's
business challenges, it will take far longer than the balance of this
administration to address all of the department's high-risk areas.
Today, I would like to provide our perspectives on (1) the fiscal
trends that prompt real questions about the affordability and
sustainability of the rate of growth in defense spending, (2) business
management challenges that DOD needs to address to successfully
transform its business operations, and (3) key elements to successfully
achieve needed reforms. In particular, I will emphasize the need for a
strategic plan for business transformation and offer suggestions that
require legislative action--the need for central control of systems
investment funding and the need for a chief management official (CMO)
to be dedicated full-time to leading DOD's business transformation
effort. Implementation of these two suggestions would provide the
sustained top-level leadership and accountability needed by DOD to
better permit the development and successful implementation of the
various plans necessary to successfully achieve business transformation.
I would like to further emphasize two points about the CMO. First, the
position divides and institutionalizes the current functions of the
Deputy Secretary of Defense into a Deputy Secretary who, as the alter
ego of the Secretary, would focus on policy-related issues such as
military transformation, and a Deputy Secretary of Defense for
Management, the CMO, who would be responsible and accountable for the
overall business transformation effort. Serving as the strategic
integrator for DOD's business transformation effort, the CMO would
develop and implement a strategic plan for business transformation.
This new executive would have sufficient clout to work with the
Secretary of Defense, the Deputy Secretary of Defense, the
undersecretaries of defense, and the service secretaries to make
business transformation a reality. Second, I would also like to
emphasize what the CMO would not do. The CMO would not assume the
responsibilities of the undersecretaries of defense, the service
secretaries, or other DOD officials for the day-to-day management of
business activities. Therefore, in our view, creating a CMO would not
be adding another hierarchical layer to oversee the day-to-day
management of the department. Instead, the CMO would be responsible and
accountable for planning, integrating, and executing the overall
business transformation effort.
My statement is based on previous GAO reports and our work was
performed in accordance with generally accepted government auditing
standards.
Summary:
As I testified before the full committee in February,[Footnote 3] our
nation is on an unsustainable fiscal path. Long-term budget simulations
by GAO, the Congressional Budget Office (CBO), and others show that,
over the long term, we face a large and growing structural deficit due
primarily to known demographic trends and rising health care costs.
Continuing on this unsustainable fiscal path will gradually erode, if
not suddenly damage, our economy, our standard of living, and
ultimately our national security. All reasonable simulations indicate
that the problem is too big to be solved by economic growth alone or by
making modest changes to existing spending and tax policies. Rather, a
fundamental reexamination of major spending and tax policies and
priorities will be important to recapture our fiscal flexibility and
ensure that our programs and priorities respond to emerging social,
economic, and security changes and challenges. Traditional, incremental
approaches to budgeting at DOD will need to give way to much more
fundamental and periodic reexaminations of defense programs than we
have seen in the past, to ensure that DOD gets the most from every
defense dollar.
Given its size and mission, DOD is one of the largest and most complex
organizations in the world to effectively manage. While DOD maintains
military forces with unparalleled capabilities, it continues to
confront pervasive, decades-old management problems related to its
business operations--which include outdated organizational structures,
systems, and processes--that support these forces. These management
weaknesses cut across all of DOD's major business areas, such as human
capital management, including the department's national security
personnel system initiative; the personnel security clearance program;
support infrastructure management; business systems modernization;
financial management; weapon systems acquisition; contract management;
and selected supply chain management issues. As I previously noted, all
of these areas are on GAO's high-risk list of major government programs
and operations that either need urgent attention and transformation to
ensure that the U.S. government functions in the most economical,
efficient, and effective manner possible, or that are at high risk
because of their greater vulnerability to fraud, waste, abuse, and
mismanagement. We also added DOD's overall approach to business
transformation to our high-risk list this year because of our concerns
over DOD's lack of adequate management responsibility and
accountability, along with the absence of a strategic and integrated
business transformation plan that is needed to achieve and sustain
business reform on a broad, strategic, departmentwide, and integrated
basis.
Regarding the way forward, in our view, there are three essential
elements that DOD must incorporate into its business transformation
efforts if it is to successfully address the systemic management
problems related to its high-risk areas. First, in our experience, a
successful business transformation effort must include a comprehensive,
integrated business transformation strategic plan and a well-defined
blueprint, referred to as a business enterprise architecture, to guide
and constrain implementation of such a plan. The strategic plan should
contain results-oriented performance measures that link institutional,
unit, and individual goals, measures, and expectations. Second, we
believe that additional central control for the allocation and
execution of funds associated with business systems modernization is
necessary. Finally, due to the complexity and long-term nature of these
efforts, strong and sustained executive leadership is needed if they
are to succeed.
We believe one way to ensure this strong and sustained leadership over
DOD's business management reform efforts would be to create a full-
time, executive-level II position for a CMO, who would serve as the
Deputy Secretary of Defense for Management. For this reason, we support
the need for this position to divide and institutionalize the functions
of the Deputy Secretary of Defense by creating a separate Deputy
Secretary of Defense for Management. I'd like to note that over 30
years ago, then Secretary of Defense, Melvin Laird, asked Congress to
establish an additional Deputy Secretary of Defense for many of the
same reasons we are proposing that a CMO is needed. In a letter to
Congress, Secretary Laird stated that the most efficient management of
DOD resources could not be achieved with just the Secretary and Deputy
Secretary, and that DOD deficiencies were in large measure due to
insufficient senior management attention to the department's affairs.
At that time, the legislation establishing a second deputy secretary
did not specifically distinguish between the two deputies. As we
envision it, the roles and responsibilities of a CMO would be more
clearly defined and have the added feature of a term of office that
spans administrations, which would serve to underscore the importance
of taking a professional, nonpartisan, sustainable, and institutional
approach to this business transformation effort.
Growing Fiscal Imbalance Raises Questions about the Affordability and
Sustainability of Current Defense Spending:
The federal government's financial condition and long-term fiscal
outlook present enormous challenges to the nation's ability to respond
to emerging forces reshaping American society, the place of the United
States in the world, and the future role of DOD as well as the rest of
the federal government. The near-term deficits are daunting--a $412
billion unified budget deficit in fiscal year 2004 (including a $567
billion on-budget deficit and a $155 billion off-budget surplus) and a
$368 billion deficit (not including any supplemental appropriations)
forecast for fiscal year 2005 by the CBO. If these near-term deficits
represented only a short-term phenomenon--prompted by such factors as
economic downturn or national security crises--there would be less
cause for concern. However, deficits have grown notwithstanding the
economy recovery from the recession in 2001, and the incremental costs
of responding to homeland security and the nation's global war against
terrorism represent only a relatively small fraction of current and
projected deficits. Moreover, based on our long-range fiscal
simulations, the current fiscal condition is but a prelude to a much
more daunting long-term fiscal outlook. GAO's long-term simulations
illustrate the magnitude of the fiscal challenges associated with an
aging society and the significance of the related challenges the
government will be called upon to address. Absent significant policy
changes on the spending or revenue side of the budget, our simulations
show that growth in spending on federal retirement and health
entitlements will encumber an escalating share of the government's
resources. Indeed, when we assume that recent tax reductions are made
permanent and discretionary spending keeps pace with the economy, our
long-term simulations suggest that by 2040 federal revenues may be
adequate to pay little more than interest on the federal debt.[Footnote
4]
In fact, the cost implications of the baby boom generation's retirement
have already become a factor in CBO's baseline projections and will
only intensify as the baby boomers age. According to CBO, total federal
spending for Social Security, Medicare, and Medicaid is projected to
grow by about 25 percent over the next 10 years--from 8.4 percent of
Gross Domestic Product in 2004 to 10.4 percent in 2015. In addition,
CBO reported that excluding supplemental funding appropriated in 2004
and requested in 2005 (mostly for activities in Iraq and Afghanistan),
discretionary budget authority for defense programs is estimated to
grow from $394 billion in 2004 to $421 billion in 2005, a 6.8 percent
increase. The expected growth combined with the fact that DOD accounted
for more than half of all discretionary spending in fiscal year 2004
raises concerns about the sustainability and affordability of increased
defense spending.
Despite the need to make strategic investment decisions to address
these fiscal pressures, DOD's current approach to planning often
supports the status quo and results in a mismatch between programs and
budgets. As we have reported, DOD has difficulties overcoming cultural
resistance to change and the inertia of various organizations,
policies, and procedures rooted in the Cold War era.[Footnote 5] Long-
standing organizational and budgetary programs need to be addressed,
such as the existence of stovepiped or siloed organizations, the
involvement of many layers and players in decision making, and the
allocation of budgets on a proportional rather than a strategic basis
across the military services. DOD's approach to planning does not
always provide reasonable visibility to decision makers, including
Congress, over the projected cost of defense programs. As we have
reported in the past, DOD uses overly optimistic estimations of future
program costs that often lead to costs being understated.[Footnote 6]
For example, in January 2003 we reported that the estimated cost of
developing eight major weapon systems had increased from about $47
billion in fiscal year 1998 to about $72 billion by fiscal year
2003.[Footnote 7] As a result of these inaccurate estimates, DOD has
more programs than it can support with its available dollars, which
often leads to program instability, costly program stretch-outs, and
program termination.
Increasingly limited fiscal resources across the federal government,
coupled with emerging requirements from the changing security
environment, emphasize the need for DOD to address its current
inefficient approach to planning and develop a risk-based strategic
investment framework for establishing goals, evaluating and setting
priorities, and making difficult resource decisions. In its strategic
plan, the September 2001 Quadrennial Defense Review, DOD outlined a new
risk management framework consisting of four dimensions of risk--force
management, operational, future challenges, and institutional--to use
in considering trade-offs among defense objectives and resource
constraints. We recognize what a large undertaking developing a
departmentwide risk management framework will be and understand that
DOD is still in the process of implementing this approach. However, it
remains unclear how DOD will use the risk management framework to
measure progress in achieving business and force transformation. It
also remains unclear how the framework will be used to correct
limitations we have previously identified in DOD's strategic planning
and budgeting. We are currently monitoring DOD's efforts to implement
the risk management framework.
Pervasive Business Management Weaknesses Place DOD's Overall Business
Transformation at Risk:
Numerous management problems, inefficiencies, and wasted resources
continue to trouble DOD's business operations, resulting in billions of
dollars of wasted resources annually at a time when our nation is
facing an increasing fiscal imbalance. Specific business management
challenges that DOD needs to address to successfully transform its
business operations include DOD's approach to business transformation,
its personnel security clearance program, support infrastructure
management, business systems modernization, financial management,
weapons systems acquisition, contract management, supply chain
management, and strategic human capital management. These management
challenges are on our 2005 high-risk list of programs and activities
that need urgent and fundamental transformation if the federal
government is to function in the most economical, efficient, and
effective manner possible. The 8 DOD specific high-risk areas, along
with 6 government-wide areas that apply to DOD, mean that the
department is responsible for 14 of 25 high-risk areas. As shown in
table 1, we added DOD's approach to business management transformation
to this list in 2005 because it represents an overarching high-risk
area that encompasses the other individual, DOD specific, high-risk
areas, but many of these other management challenges have been on the
list for a decade or more.
Table 1: Years When Specific DOD Areas on GAO's 2005 High-Risk List
Were First Designated as High Risk:
Area: DOD approach to business transformation; Year designated high
risk: 2005.
Area: * DOD personnel security clearance program; Year designated high
risk: 2005.
Area: * DOD support infrastructure management; Year designated high
risk: 1997.
Area: * DOD business systems modernization; Year designated high risk:
1995.
Area: * DOD financial management;
Year designated high risk: 1995.
Area: * DOD weapon systems acquisition;
Year designated high risk: 1990.
Area: * DOD contract management;
Year designated high risk: 1992.
Area: * DOD supply chain management[A]; Y ear designated high risk:
1990[A].
Source: GAO.
[A] This area, formerly entitled DOD inventory management, was expanded
to include distribution and asset visibility.
[End of table]
DOD's Approach to Business Transformation:
DOD's approach to business management transformation represents an
overarching high-risk area, encompassing several other key business
management challenges. Over the years, DOD has embarked on a series of
efforts to reform its business management operations, including
modernizing underlying information technology (business) systems.
However, serious inefficiencies remain. As a result, the areas of
support infrastructure management,[Footnote 8] business systems
modernization, financial management, weapon systems acquisition,
contract management, and supply chain management remain high-risk DOD
business operations. We now consider DOD's overall approach to business
management transformation to be a high-risk area because (1) DOD's
business improvement initiatives and control over resources are
fragmented; (2) DOD lacks a clear strategic and integrated business
transformation plan and an investment strategy, including a well-
defined enterprise architecture, to guide and constrain implementation
of such a plan; and (3) DOD has not designated a senior management
official responsible and accountable for overall business
transformation reform and related resources.
Unless DOD makes progress in overall business transformation, we
believe it will continue to have difficulties in confronting other
problems in its business operations. DOD spends billions of dollars to
sustain key business operations intended to support the warfighter. We
have previously testified on inefficiencies in DOD's business
operations, such as the lack of sustained leadership, the lack of a
strategic and integrated business transformation plan, and inadequate
incentives.[Footnote 9] Moreover, the lack of adequate transparency and
accountability across DOD's major business areas results in billions of
dollars of wasted resources annually at a time of increasing military
operations and growing fiscal constraints.
Business transformation requires long-term cultural change, business
process reengineering, and a commitment from both the executive and
legislative branches of government. Although sound strategic planning
is the foundation on which to build, DOD needs clear, capable,
sustained, and professional leadership to maintain the continuity
necessary for success. Such leadership could facilitate the overall
business transformation effort within DOD by providing the momentum
needed to overcome cultural resistance to change, military service
parochialism, and stovepiped operations, all of which have contributed
significantly to the failure of previous attempts to implement broad-
based management reform at DOD. Without such leadership, it is also
likely that DOD will continue to spend billions of dollars on
stovepiped, duplicative, and nonintegrated systems that do not optimize
mission performance or effectively support the warfighter.
Personnel Security Clearance Program:
Delays in completing hundreds of thousands of background investigations
and adjudications (reviews of investigative information to determine
eligibility for a security clearance) have led us to identify as a
business management challenge the DOD personnel security clearance
program, which we just added to our high-risk list in 2005. Personnel
security clearances allow individuals to gain access to classified
information. In some cases, unauthorized disclosure of classified
information could reasonably be expected to cause exceptionally grave
damage to national defense or foreign relations. DOD has approximately
2 million active clearances as a result of worldwide deployments,
contact with sensitive equipment, and other security requirements.
While our work on the clearance process has focused on DOD, clearance
delays in other federal agencies suggest that similar impediments and
their effects may extend beyond DOD.
Since at least the 1990s, we have documented problems with DOD's
personnel security clearance process, particularly problems related to
backlogs and the resulting delays in determining clearance
eligibility.[Footnote 10] Since fiscal year 2000, DOD has declared its
personnel security clearance investigations program to be a systemic
weakness[Footnote 11]--a weakness that affects more than one DOD
component and may jeopardize the department's operations. An October
2002 House Committee on Government Reform report also recommended
including DOD's adjudicative process as a material weakness.[Footnote
12] As of September 30, 2003 (the most recent data available), DOD
could not estimate the full size of its backlog, but we identified over
350,000 cases exceeding established time frames for determining
eligibility.[Footnote 13]
DOD has taken steps to address the backlog--such as hiring more
adjudicators and authorizing overtime for adjudicative staff--but a
significant shortage of trained federal and private-sector
investigative personnel presents a major obstacle to timely completion
of cases. Other impediments to eliminating the backlog include the
absence of an integrated, comprehensive management plan for addressing
a wide variety of problems identified by us and others. In addition to
matching adjudicative staff to workloads and working with OPM to
develop an overall management plan, DOD needs to develop and use new
methods for forecasting clearance needs and monitoring backlogs;
eliminate unnecessary limitations on reciprocity (the acceptance of a
clearance and access granted by another department, agency, or military
service); determine the feasibility of implementing initiatives that
could decrease the backlog and delays; and provide better oversight for
all aspects of its personnel security clearance process. The National
Defense Authorization Act for Fiscal Year 2004[Footnote 14] authorized
the transfer of DOD's personnel security investigative function and
over 1,800 investigative employees to OPM. This transfer took place in
February 2005. While the transfer eliminated DOD's responsibility for
conducting the investigations, it did not eliminate the shortage of
trained investigative personnel needed to address the backlog. Although
DOD retained the responsibility for adjudicating clearances, OPM is now
accountable for ensuring that investigations are completed in a timely
manner. By the end of fiscal year 2005, OPM projects that it will have
6,500 of the estimated 8,000 full-time equivalent federal and contract
investigators it needs to help eliminate the investigations backlog.
Support Infrastructure Management:
DOD has made progress and expects to continue making improvements in
its support infrastructure management, but much work remains to be
done. DOD's support infrastructure includes categories such as force
installations, central logistics, the defense health program, and
central training. DOD's infrastructure costs continue to consume a
larger-than-necessary portion of its budget than DOD believes is
desirable, despite reductions in the size of the military force
following the end of the Cold War. For several years, DOD also has been
concerned about its excess facilities infrastructure, which affects its
ability to devote more funding to weapon systems modernization and
other critical needs. DOD has reported that many of its business
processes and much of its infrastructure are outdated and must be
modernized. Left alone, the current organizational arrangements,
processes, and systems will continue to drain scarce resources.
DOD officials recognize that they must achieve greater efficiencies in
managing their support operations. DOD has achieved some operating
efficiencies and reductions from such efforts as base realignments and
closures, consolidations, organizational and business process
reengineering, and competitive sourcing. It also has achieved
efficiencies by eliminating unneeded facilities through such means as
demolishing unneeded buildings and privatizing housing at military
facilities. In addition, DOD and the services are currently gathering
and analyzing data to support a new round of base realignments and
closures in 2005 and facilitating other changes as a result of DOD's
overseas basing study.
Despite this progress, much work remains for DOD to transform its
support infrastructure to improve operations, achieve efficiencies, and
allow it to concentrate resources on the most critical needs.
Organizations throughout DOD need to continue reengineering their
business processes and striving for greater operational effectiveness
and efficiency. DOD needs to develop a plan to better guide and sustain
the implementation of its diverse business transformation initiatives
in an integrated fashion. DOD also needs to strengthen its recent
efforts to develop and refine its comprehensive long-range plan for its
facilities infrastructure to ensure adequate funding to support
facility sustainment, modernization, recapitalization, and base
operating support needs. DOD generally concurs with our prior
recommendations in this area and indicates it is taking actions to
address them. A key to any successful approach to resolving DOD's
support infrastructure management issues will be addressing this area
as part of a comprehensive, integrated business transformation effort.
Business Systems Modernization:
We continue to categorize DOD's business systems modernization program
as a management challenge because of a lack of an enterprise
architecture to guide and constrain system investments and because of
ineffective management oversight, system acquisition, and investment
management practices. As a result, DOD's current operating practices
and over 4,000 systems function in a stovepiped, duplicative, and
nonintegrated environment that contributes to DOD's operational
problems. For years, DOD has attempted to modernize these systems, and
we have provided numerous recommendations to help guide its efforts.
For example, in 2001 we provided DOD with a set of recommendations to
help it develop and implement an enterprise architecture (or
modernization blueprint) and establish effective investment management
controls.[Footnote 15] Such an enterprise architecture is essential for
DOD to guide and constrain how it spends billions of dollars annually
on information technology systems. We also made numerous project-
specific and DOD-wide recommendations aimed at getting DOD to follow
proven best practices when it acquired system:
solutions.[Footnote 16] While DOD agreed with most of these
recommendations, to date the department has made limited progress in
addressing them.
In May 2004, we reported that after 3 years and over $203 million in
obligations, DOD had not yet developed a business enterprise
architecture containing sufficient scope and detail to guide and
constrain its departmentwide systems modernization and business
transformation.[Footnote 17] One reason for this limited progress is
DOD's failure to adopt key architecture management best practices that
we recommended,[Footnote 18] such as developing plans for creating the
architecture; assigning accountability and responsibility for
directing, overseeing, and approving the architecture; and defining
performance metrics for evaluating the architecture. Under a provision
in the Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005,[Footnote 19] DOD must develop an enterprise architecture to
cover all defense business systems and related business functions and
activities that is sufficiently defined to effectively guide,
constrain, and permit implementation of a corporatewide solution and is
consistent with the policies and procedures established by OMB.
Additionally, the act requires the development of a transition plan
that includes an acquisition strategy for new systems and a listing of
the termination dates of current legacy systems that will not be part
of the corporatewide solution, as well as a listing of legacy systems
that will be modified to become part of the corporatewide solution for
addressing DOD's business management deficiencies.
In May 2004, we also reported that the department's approach to
investing billions of dollars annually in existing systems had not
changed significantly.[Footnote 20] As a result, DOD lacked an
effective investment management process for selecting and controlling
ongoing and planned business systems investments. While DOD issued a
policy that assigns investment management responsibilities for business
systems, in May 2004 we reported that DOD had not yet defined the
detailed procedures necessary for implementing the policy, clearly
defined the roles and responsibilities of the business domain owners
(now referred to as core business mission areas), established common
investment criteria, or ensured that its business systems are
consistent with the architecture.[Footnote 21]
To address certain provisions and requirements of the Ronald W. Reagan
National Defense Authorization Act for Fiscal Year 2005,[Footnote 22]
on March 24, 2005, the Deputy Secretary of Defense directed the
transfer of program management, oversight, and support responsibilities
regarding DOD business transformation efforts from the Office of the
Under Secretary of Defense, Comptroller, to the Office of the Under
Secretary of Defense for Acquisition, Technology, and Logistics
(OUSD(AT&L)). According to the directive, this transfer of functions
and responsibilities will allow the OUSD(AT&L) to establish the level
of activity necessary to support and coordinate activities of the newly
established Defense Business Systems Management Committee (DBSMC). As
required by the act, the DBSMC--with representation including the
Deputy Secretary of Defense, the designated approval
authorities,[Footnote 23] and secretaries of the military services and
heads of the defense agencies--is the highest ranking governance body
responsible for overseeing DOD business systems modernization efforts.
While this committee may serve as a useful planning and coordination
forum, it is important to remember that committees do not lead, people
do. In addition, DOD still needs to designate a person to have overall
responsibility and accountability for this effort. This person must
have the background and authority needed to successfully achieve the
related objectives for business systems modernization efforts.
According to DOD's annual report to congressional defense committees on
the status of the department's business management modernization
program, DOD has not yet established investment review boards below the
DBSMC for each core business mission. The statutory requirements
enacted as part of the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005 further require that the DBSMC must agree with
the designated approval authorities' certification of funds exceeding
$1 million for the modernization of business systems before funds can
be obligated.[Footnote 24] More important, the obligation of these
funds without the requisite approval by the DBSMC is deemed a violation
of the Anti-Deficiency Act.[Footnote 25] As DOD develops a
comprehensive, integrated business transformation plan, such a plan
must include an approach to resolve the business systems modernization
problems. To this end, it is critical that this plan provide for the
implementation of our many recommendations related to business systems
modernization.
Financial Management:
DOD continues to face financial management problems that are pervasive,
complex, long-standing, and deeply rooted in virtually all of its
business operations. DOD's financial management deficiencies adversely
affect the department's ability to control costs, ensure basic
accountability, anticipate future costs and claims on the budget,
measure performance, maintain funds control, prevent fraud, and address
pressing management issues. As I testified before the House Committee
on Government Reform in February 2005,[Footnote 26] and as discussed in
our report on the U.S. government's consolidated financial statements
for fiscal year 2004,[Footnote 27] DOD's financial management
deficiencies, taken together, represent a major impediment to achieving
an unqualified opinion on the U.S. government's consolidated financial
statements.
Our recent reports and testimonies on Army reserve and national guard
pay issues clearly illustrate the impact deficiencies in DOD's
financial management have had on the very men and women our country is
depending on to perform our military operations. For example, in
February 2005, we reported that the Army's process for extending active
duty orders for injured soldiers lacks an adequate control environment
and management controls,[Footnote 28] including (1) clear and
comprehensive guidance, (2) a system to provide visibility over injured
soldiers, and (3) adequate training and education programs. The Army
also has not established user-friendly processes, including clear
approval criteria and adequate infrastructure and support services.
Poorly defined processes for extending active duty orders for injured
and ill reserve component soldiers have caused soldiers to be
inappropriately dropped from their active duty orders. For some, this
has led to significant gaps in pay and health insurance, which have
created financial hardships for these soldiers and their families.
Based on our analysis of Army manpower data during the period from
February 2004 through April 7, 2004, almost 34 percent of the 867
soldiers who applied for extension of active duty orders because of
injuries or illness lost their active duty status before their
extension requests were granted. For many soldiers, this resulted in
being removed from active duty status in the automated systems that
control pay and access to benefits such as medical care and access to a
commissary or post exchange that allows soldiers and their families to
purchase groceries and other goods at a discount. Many Army locations
have used ad hoc procedures to keep soldiers in pay status; however,
these procedures often circumvent key internal controls and put the
Army at risk of making improper and potentially fraudulent payments.
Finally, the Army's nonintegrated systems, which require extensive
error-prone manual data entry, further delay access to pay and benefits.
The Army recently implemented the Medical Retention Processing (MRP)
program, which takes the place of the previously existing process in
most cases. The MRP program, which authorizes an automatic 179 days of
pay and benefits, may resolve the timeliness of the front-end approval
process. However, the MRP program has some of the same problems as the
existing process and may also result in overpayments to soldiers who
are released early from their MRP orders.
DOD's senior civilian and military leaders have taken positive steps to
begin reforming the department's financial management operations.
However, to date, tangible evidence of improvement has been seen in
only a few specific areas, such as internal controls related to DOD's
purchase card and individually billed travel card programs. Further, we
reported in September 2004 that, while DOD had established a goal of
obtaining a clean opinion on its financial statements by 2007, it
lacked a written and realistic plan to make that goal a
reality.[Footnote 29] DOD's continuing, substantial financial
management weaknesses adversely affect its ability to produce auditable
financial information as well as provide accurate and timely
information for management and Congress to use in making informed
decisions.
Overhauling the financial management and related business operations of
one of the largest and most complex organizations in the world
represents a daunting challenge. Such an overhaul of DOD's financial
management operations goes far beyond financial accounting to the very
fiber of the department's wide-ranging business operations and its
management culture. It will require (1) sustained leadership and
resource control, (2) clear lines of responsibility and accountability,
(3) plans and related results-oriented performance measures, and (4)
appropriate individual and organizational incentives and consequences.
DOD is still in the very early stages of a departmentwide overhaul that
will take years to accomplish. DOD has not yet established a framework
to integrate improvement efforts in this area with related broad-based
DOD initiatives, such as human capital reform. However, successful,
lasting reform in this area will only be possible if implemented as
part of a comprehensive and integrated approach to transforming all of
DOD's business operations.
Weapon Systems Acquisition:
Another business management challenge DOD faces is its weapon systems
acquisition program. While DOD's acquisition process has produced the
best weapons in the world, it also consistently yields undesirable
consequences--such as cost increases, late deliveries to the
warfighter, and performance shortfalls. Such problems were highlighted,
for example, in our reviews of DOD's F/A-22 Raptor, Space-Based
Infrared System, Airborne Laser, and other programs. Problems occur
because DOD's weapon programs do not capture early on the requisite
knowledge that is needed to efficiently and effectively manage program
risks. For example, programs move forward with unrealistic program cost
and schedule estimates, lack clearly defined and stable requirements,
use immature technologies in launching product development, and fail to
solidify design and manufacturing processes at appropriate junctures in
development.
When programs require more resources than planned, the buying power of
the defense dollar is reduced and funds are not available for other
competing needs. It is not unusual for estimates of time and money to
be off by 20 to 50 percent. When costs and schedules increase,
quantities are cut and the value for the warfighter--as well as the
value of the investment dollar--is reduced. In these times of
asymmetric threats and netcentricity, individual weapon system
investments are getting larger and more complex. Just 4 years ago, the
top five weapon systems cost about $281 billion; today, in the same
base year dollars, the five weapon systems cost about $521 billion. If
these megasystems are managed with traditional margins of error, the
financial consequences--particularly the ripple effects on other
programs--can be dire.
While weapon systems acquisition continues to remain on our high-risk
list, DOD has undertaken a number of acquisition reforms over the past
5 years. Specifically, DOD has restructured its acquisition policy to
incorporate attributes of a knowledge-based acquisition model and has
reemphasized the discipline of systems engineering. In addition, DOD
recently introduced new policies to strengthen its budgeting and
requirements determination processes in order to plan and manage weapon
systems based on joint warfighting capabilities. While these policy
changes are positive steps, implementation in individual programs will
continue to be a challenge because of inherent funding, management, and
cultural factors that lead managers to develop business cases for new
programs that over-promise on cost, delivery, and performance of weapon
systems.
It is imperative that needs be distinguished from wants and that DOD's
limited resources be allocated to the most appropriate weapon system
investments. Once the best investments that can be afforded are
identified, then DOD must follow its own policy to employ the
knowledge- based strategies essential for delivering the investments
within projected resources. Making practice follow policy is not a
simple matter. It is a complex challenge involving many factors. One of
the most important factors is putting the right managers in their
positions long enough so that they can be both effective and
accountable for getting results.
Contract Management:
Another long-standing business management challenge is DOD's contract
management program. As the government's largest purchaser at over $200
billion in fiscal year 2003, DOD is unable to assure that it is using
sound business practices to acquire the goods and services needed to
meet the warfighters' needs. For example, over the past decade DOD has
significantly increased its spending on contractor-provided information
technology and management support services, but it has yet to fully
implement a strategic approach to acquiring these services. In 2002,
DOD and the military departments established a structure to review
individual service acquisitions valued at $500 million or more, and in
2003 they launched a pilot program to help identify strategic sourcing
opportunities. To further promote a strategic orientation, however, DOD
needs to establish a departmentwide concept of operations; set
performance goals, including savings targets; and ensure accountability
for achieving them. In March 2004, we reported that if greater
management focus were given to opportunities to capture savings through
the purchase card program, DOD could potentially save tens of millions
of dollars without sacrificing the ability to acquire items quickly or
compromising other goals.[Footnote 30]
DOD also needs to have the right skills and capabilities in its
acquisition workforce to effectively implement best practices and
properly manage the goods and services it buys. However, DOD reduced
its civilian workforce by about 38 percent between fiscal years 1989
and 2002 without ensuring that it had the specific skills and
competencies needed to accomplish current and future DOD acquisition/
contract administration missions, and more than half of its current
workforce will be eligible for early or regular retirement in the next
5 years. We found that inadequate staffing and the lack of clearly
defined roles and responsibilities contributed to contract
administration challenges encountered in Operation Iraqi Freedom
(OIF).[Footnote 31] Further, we have reported that DOD's extensive use
of military logistical support contracts in OIF and elsewhere required
strengthened oversight.[Footnote 32] Just recently, we identified
surveillance issues in almost a third of the contracts we reviewed. We
also noted that some personnel performing surveillance had not received
required training, while others felt that they did not have sufficient
time in a normal workday to perform their surveillance duties.[Footnote
33] DOD has made progress in laying a foundation for reshaping its
acquisition workforce by initiating a long-term strategic planning
effort, but as of June 2004 it did not yet have the comprehensive
strategic workforce plan needed to guide its efforts.
DOD uses various techniques--such as performance-based service
contracting, multiple-award task order contracts, and purchase cards--
to acquire the goods and services it needs. We have found, however,
that DOD personnel did not always make sound use of these tools. For
example, in June 2004, we reported that more than half of the task
orders to support Iraq reconstruction efforts we reviewed were, in
whole or in part, outside the scope of the underlying
contract.[Footnote 34] In July 2004, we found that DOD personnel waived
competition requirements for nearly half of the task orders
reviewed.[Footnote 35] As a result of the frequent use of waivers, DOD
had fewer opportunities to obtain the potential benefits of
competition--improved levels of service, market-tested prices, and the
best overall value. We also found that DOD lacked safeguards to ensure
that waivers were granted only under appropriate circumstances.
Our work has shown that DOD would benefit by making use of commercial
best practices, such as taking a strategic approach to acquiring
services; building on initial efforts to develop a strategic human
capital plan for its civilian workforce; and improving safeguards,
issuing additional guidance, and providing training to its workforce on
the appropriate use of contracting techniques and approaches.[Footnote
36] DOD is undertaking corrective actions, but because most efforts are
in their early stages, it is uncertain whether they can be fully and
successfully implemented in the near term. A key to resolving DOD's
contract management issues will be addressing them as part of a
comprehensive and integrated business transformation plan.
Supply Chain Management:
In 1990, we identified DOD's inventory management as a management
challenge, or a high-risk area, because inventory levels were too high
and the supply system was not responsive to the needs of the
warfighter. We have since expanded the inventory management high-risk
area to include DOD's management of certain key aspects of its supply
chain, including distribution, inventory management, and asset
visibility, because of significant weaknesses we have uncovered since
our 2003 high-risk series was published. For example, during OIF, the
supply chain encountered many problems, including backlogs of hundreds
of pallets and containers at distribution points, a $1.2 billion
discrepancy in the amount of material shipped to--and received by--Army
activities, cannibalized equipment because of a lack of spare parts,
and millions of dollars spent in late fees to lease or replace storage
containers because of distribution backlogs and losses. Moreover, we
identified shortages of items such as tires, vehicle track shoes, body
armor, and batteries for critical communication and electronic
equipment. These problems were the result of systemic deficiencies in
DOD's supply chain, including inaccurate requirements, funding delays,
acquisition delays, and ineffective theater distribution.
While DOD reports show that the department currently owns about $67
billion worth of inventory, shortages of certain critical spare parts
are adversely affecting equipment readiness and contributing to
maintenance delays. The Defense Logistics Agency (DLA) and each of the
military services have experienced significant shortages of critical
spare parts, even though more than half of DOD's reported inventory--
about $35 billion--exceeded current operating requirements. In many
cases, these shortages contributed directly to equipment downtime,
maintenance problems, and the services' failure to meet their supply
availability goals. DOD, DLA, and the military services each lack
strategic approaches and detailed plans that could help mitigate these
critical spare parts shortages and guide their many initiatives aimed
at improving inventory management.[Footnote 37]
DOD's continued supply chain problems also resulted in shortages of
items in Iraq. In an April 8, 2005, report, we reported that demands
for items like vehicle track shoes, batteries, and tires exceeded their
availability because the department did not have accurate or adequately
funded Army war reserve requirements and had inaccurate forecasts of
supply demands for the operation.[Footnote 38] Furthermore, the Army's
funding approval process delayed the flow of funds to buy them.
Meanwhile, rapid acquisition of other items faced obstacles. Body armor
production was limited by the availability of Kevlar and other critical
materials, whereas the delivery of up-armored High Mobility Multi-
Purpose Wheeled Vehicles and armor kits was slowed by DOD's decisions
to pace production. In addition, numerous problems, such as
insufficient transportation, personnel, and equipment, as well as
inadequate information systems, hindered DOD's ability to deliver the
right items to the right place at the right time for the warfighter.
Among the items the department had problems delivering were generators
for Assault Amphibian Vehicles, tires, and Meals Ready-to-Eat.
In addition to supply shortages, DOD also lacks visibility and control
over the supplies and spare parts it owns. Therefore, it cannot monitor
the responsiveness and effectiveness of the supply system to identify
and eliminate choke points.[Footnote 39] Currently, DOD does not have
the ability to provide timely or accurate information on the location,
movement, status, or identity of its supplies. Although total asset
visibility has been a departmentwide goal for over 30 years, DOD
estimates that it will not achieve this visibility until the year 2010.
DOD may not meet this goal by 2010, however, unless it overcomes three
significant impediments: developing a comprehensive plan for achieving
visibility, building the necessary integration among its many inventory
management information systems, and correcting long-standing data
accuracy and reliability problems within existing inventory management
systems.
DOD, DLA, and the services have undertaken a number of initiatives to
improve and transform DOD's supply chain. Many of these initiatives
were developed in response to the logistics problems reported during
OIF. While these initiatives represent a step in the right direction,
the lack of a comprehensive, departmentwide logistics reengineering
strategy to guide their implementation may limit their overall
effectiveness. A key to successful implementation of a comprehensive
logistics strategy will be addressing these initiatives as part of a
comprehensive, integrated business transformation.
Strategic Human Capital Management:
DOD is attempting to address the critically important governmentwide
high-risk challenge of strategic human capital management through its
proposed human resources management system, the National Security
Personnel System (NSPS). Successful implementation of NSPS is essential
for DOD as it attempts to transform its military forces and defense
business practices in response to 21st century challenges. In addition,
this new human resources management system, if properly designed and
effectively implemented, could serve as a model for governmentwide
human capital transformation. DOD is one of several federal agencies
that have been granted the authority by Congress to design a new human
capital system as a way to address the governmentwide high-risk area of
strategic human capital management. This effort represents a huge
undertaking for DOD, given its massive size and geographically and
culturally diverse workforce.
As I recently testified on DOD's proposed NSPS regulations,[Footnote
40] our ongoing work continues to raise questions about DOD's chances
of success in its efforts to effect fundamental business management
reform, such as NSPS. I would like to acknowledge, however, that DOD's
NSPS regulations take a valuable step toward a modern performance
management system as well as a more market-based and results-oriented
compensation system.
On February 14, 2005, the Secretary of Defense and the Acting Director
of Office of Personnel Management (OPM) released the proposed NSPS
regulations for public comment. Many of the principles underlying those
regulations are generally consistent with proven approaches to
strategic human capital management. For instance, the proposed
regulations provide for (1) elements of a flexible and contemporary
human resources management system, such as pay bands and pay for
performance; (2) right-sizing of DOD's workforce when implementing
reduction-in-force orders by giving greater priority to employee
performance in its retention decisions; and (3) continuing
collaboration with employee representatives. (It should be noted,
however, that 10 federal labor unions have filed suit alleging that DOD
failed to abide by the statutory requirements to include employee
representatives in the development of DOD's new labor relations system
authorized as part of NSPS.)
Despite this progress, we have three primary areas of concern about the
proposed NSPS regulations. DOD's proposed regulations do not (1) define
the details of the implementation of the system, including such issues
as adequate safeguards to help ensure fairness and guard against abuse;
(2) require, as we believe they should, the use of core competencies to
communicate to employees what is expected of them on the job; and (3)
identify a process for the continuing involvement of employees in the
planning, development, and implementation of NSPS.
DOD also faces multiple implementation challenges once it issues its
final NSPS regulations. Given the huge undertaking NSPS represents,
another challenge is to elevate, integrate, and institutionalize
leadership responsibility for this large-scale organizational change
initiative to ensure its success. A chief management official or
similar position can effectively provide the continuing, focused
leadership essential to successfully completing these multiyear
transformations. Additionally, DOD could benefit if it develops a
comprehensive communications strategy that provides for ongoing,
meaningful two-way communication to create shared expectations among
employees, employee representatives, managers, customers, and
stakeholders. Finally, appropriate institutional infrastructure could
enable DOD to make effective use of its new authorities. At a minimum,
this infrastructure would include a human capital planning process that
integrates DOD's human capital policies, strategies, and programs with
its program goals, mission, and desired outcomes; the capabilities to
effectively develop and implement a new human capital system; and a set
of adequate safeguards--including reasonable transparency and
appropriate accountability mechanisms--to help ensure the fair,
effective, and credible implementation and application of a new system.
We strongly support the need for government transformation and the
concept of modernizing federal human capital policies within both DOD
and the federal government at large. There is general recognition that
the federal government needs a framework to guide human capital reform.
Such a framework would consist of a set of values, principles,
processes, and safeguards that would provide consistency across the
federal government but be adaptable to agencies' diverse missions,
cultures, and workforces.
Key Elements for Successful Business Transformation:
Although DOD has a number of initiatives to address its high-risk
areas, we believe that DOD must fundamentally change its approach to
overall business transformation effort before it is likely to succeed.
We believe there are three critical elements of successful
transformation: (1) developing and implementing an integrated and
strategic business transformation plan, along with an enterprise
architecture to guide and constrain implementation of such a plan; (2)
establishing central control over systems investment funds; and (3)
providing sustained leadership for business reform efforts. To ensure
these three elements are incorporated into the department's overall
business management, we believe Congress should legislatively create a
full-time, high-level executive with long-term "good government"
responsibilities that are professional and nonpartisan in nature. This
executive, the Chief Management Official (CMO), would be a strategic
integrator responsible for leading the department's overall business
transformation, including developing and implementing a related
strategic plan. The CMO would not assume the responsibilities of the
undersecretaries of defense, the services, and other DOD entities for
the day-to-day management of business activities. However, the CMO
would be accountable for ensuring that all DOD business policies,
procedures, and reform initiatives are consistent with an approved
strategic plan for business transformation.
Reform Efforts Must Include an Integrated, Comprehensive Strategic Plan:
Our prior work indicates that agencies that are successful in achieving
business management transformation undertake strategic planning and
strive to establish goals and measures that align at all levels of the
agency. The lack of a comprehensive and integrated strategic
transformation plan linked with performance goals, objectives, and
rewards has been a continuing weakness in DOD's business
transformation. Since 1999, for example, we have recommended that a
comprehensive and integrated strategic business transformation plan be
developed for reforming DOD's major business operations and support
activities. In 2004, we suggested that DOD clearly establish management
accountability for business reform. While DOD has been attempting to
develop an enterprise architecture for modernizing its business
processes and supporting information technology assets for the last 4
years, it has not developed a strategic and integrated transformation
plan for managing its many business improvement initiatives. Nor has
DOD assigned overall management responsibility and accountability for
such an effort. Unless these initiatives are addressed in a unified and
timely fashion, DOD will continue to see billions of dollars, which
could be directed to other higher priorities, wasted annually to
support inefficiencies in its business functions.
At a programmatic level, the lack of clear, comprehensive, and
integrated performance goals and measures has handicapped DOD's past
reform efforts. For example, we reported in May 2004 that the lack of
performance measures for DOD's business transformation initiative--
encompassing defense policies, processes, people, and systems--made it
difficult to evaluate and track specific program progress, outcomes,
and results. As a result, DOD managers lacked straightforward road maps
showing how their work contributed to attaining the department's
strategic goals, and they risked operating autonomously rather than
collectively. As of March 2004, DOD formulated departmentwide
performance goals and measures and continued to refine and align them
with outcomes described in its strategic plan--the September 2001
Quadrennial Defense Review (QDR). As previously discussed, DOD outlined
a new risk management framework in the QDR that DOD was to use in
considering trade-offs among defense objectives and resource
constraints, but as of March 2005 DOD was still in the process of
implementing it.
Finally, DOD has not established a clear linkage among institutional,
unit, and individual results-oriented goals, performance measures, and
reward mechanisms for undertaking large-scale organizational change
initiatives that are needed for successful business management reform.
Traditionally, DOD has justified its need for more funding on the basis
of the quantity of programs it has pursued rather than on the outcomes
its programs have produced. DOD has historically measured its
performance by resource components, such as the amount of money spent,
people employed, or number of tasks completed. Incentives for its
decision makers to implement behavioral changes have been minimal or
nonexistent. The establishment of a strategic and integrated business
transformation plan could help DOD address these systemic management
problems.
Central Control over Business Systems Investment Funds Is Crucial:
DOD's current business systems investment process, in which system
funding is controlled by DOD components, has contributed to the
evolution of an overly complex and error-prone information technology
environment containing duplicative, nonintegrated, and stovepiped
systems. We have made numerous recommendations to DOD to improve the
management oversight and control of its business systems modernization
investments. However, as previously discussed, a provision of the
Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, consistent with the suggestion I have made in prior testimonies,
established specific management oversight and accountability with the
"owners" of the various core business mission areas. This legislation
defined the scope of the various business areas (e.g., acquisition,
logistics, finance, and accounting), and established functional
approval authority and responsibility for management of the portfolio
of business systems with the relevant under secretary of defense for
the departmental core business mission areas and the Assistant
Secretary of Defense for Networks and Information Integration
(information technology infrastructure). For example, the Under
Secretary of Defense for Acquisition, Technology, and Logistics is now
responsible and accountable for any defense business system intended to
support acquisition activities, logistics activities, or installations
and environment activities for DOD.
This legislation also requires that the responsible approval
authorities establish a hierarchy of investment review boards, the
highest level being the Defense Business Systems Management Committee
(DBSMC), with DOD-wide representation, including the military services
and defense agencies. The boards are responsible for reviewing and
approving investments to develop, operate, maintain, and modernize
business systems for their business-area portfolio, including ensuring
that investments are consistent with DOD's business enterprise
architecture. However, as I pointed out earlier, DOD has not yet
established the lower level investment review boards as required by the
legislation.
Although this recently enacted legislation clearly defines the roles
and responsibilities of business systems investment approval
authorities, control over the budgeting for and execution of funding
for systems investment activities remains at the DOD component level.
As a result, DOD continues to have little or no assurance that its
business systems modernization investment money is being spent in an
economical, efficient, and effective manner. Given that DOD spends
billions on business systems and related infrastructure each year, we
believe it is critical that those responsible for business systems
improvements control the allocation and execution of funds for DOD
business systems. However, implementation may require review of the
various statutory authorities for the military services and other DOD
components. Control over business systems investment funds would
improve the capacity of DOD's designated approval authorities to
fulfill their responsibilities and gain transparency over DOD
investments, and minimize the parochial approach to systems development
that exists today. In addition, to improve coordination and integration
activities, we suggest that all approval authorities coordinate their
business systems modernization efforts with a CMO who would chair the
DBSMC. Cognizant business area approval authorities would also be
required to report to Congress through a CMO and the Secretary of
Defense on applicable business systems that are not compliant with
review requirements and to include a summary justification for
noncompliance.
Chief Management Official Is Essential for Sustained Leadership of
Business Management Reform:
As DOD embarks on large-scale business transformation efforts, we
believe that the complexity and long-term nature of these efforts
requires the development of an executive position capable of providing
strong and sustained change management leadership across the
department--and over a number of years and various administrations. One
way to ensure such leadership would be to create by legislation a full-
time executive-level II position for a CMO, who would serve as the
Deputy Secretary of Defense for Management. This position would
elevate, integrate, and institutionalize the high-level attention
essential for ensuring that a strategic business transformation plan--
as well as the business policies, procedures, systems, and processes
that are necessary for successfully implementing and sustaining overall
business transformation efforts within DOD--are implemented and
sustained. An executive-level II position for a CMO would provide this
individual with the necessary institutional clout to overcome service
parochialism and entrenched organizational silos, which in our opinion
need to be streamlined below the service secretaries and other levels.
The CMO would function as a change agent, while other DOD officials
would still be responsible for managing their daily business
operations. The position would divide and institutionalize the current
functions of the Deputy Secretary of Defense into a Deputy Secretary
who, as the alter ego of the Secretary, would focus on policy-related
issues such as military transformation, and a Deputy Secretary of
Defense for Management, the CMO, who would be responsible and
accountable for the overall business transformation effort and would
serve full-time as the strategic integrator of DOD's business
transformation efforts by, for example, developing and implementing a
strategic and integrated plan for business transformation efforts. The
CMO would not conduct the day-to-day management functions of the
department; therefore, creating this position would not add an
additional hierarchical layer to the department. Day-to-day management
functions of the department would continue to be the responsibility of
the undersecretaries of defense, the service secretaries, and others.
Just as the CMO would need to focus full-time on business
transformation, we believe that the day-to-day management functions are
so demanding that it is difficult for these officials to maintain the
oversight, focus, and momentum needed to implement and sustain needed
reforms of DOD's overall business operations. This is particularly
evident given the demands that the Iraq and Afghanistan postwar
reconstruction activities and the continuing war on terrorism have
placed on current leaders. Likewise, the breadth and complexity of the
problems and their overall level within the department preclude the
under secretaries, such as the DOD Comptroller, from asserting the
necessary authority over selected players and business areas while
continuing to fulfill their other responsibilities.
If created, we believe that the new CMO position could be filled by an
individual appointed by the President and confirmed by the Senate, for
a set term of 7 years with the potential for reappointment. As prior
GAO work examining the experiences of major change management
initiatives in large private and public sector organizations has shown,
it can often take at least 5 to 7 years until such initiatives are
fully implemented and the related cultures are transformed in a
sustainable way. Articulating the roles and responsibilities of the
position in statute would also help to create unambiguous expectations
and underscore Congress's desire to follow a professional, nonpartisan,
sustainable, and institutional approach to the position. In that
regard, an individual appointed to the CMO position should have a
proven track record as a business process change agent in large,
complex, and diverse organizations--experience necessary to spearhead
business process transformation across DOD.
Furthermore, to improve coordination and integration activities, we
suggest that all business systems modernization approval authorities
designated in the Ronald W. Reagan National Defense Act of 2005
coordinate their efforts with the CMO, who would chair the DBSMC that
DOD recently established to comply with the act. We also suggest that
cognizant business area approval authorities would also be required to
report to Congress through the CMO and the Secretary of Defense on
applicable business systems that are not compliant with review
requirements and include a summary justification for noncompliance. In
addition, the CMO would enter into an annual performance agreement with
the Secretary that sets forth measurable individual goals linked to
overall organizational goals in connection with the department's
business transformation efforts. Measurable progress toward achieving
agreed-upon goals should be a basis for determining the level of
compensation earned, including any related bonus. In addition, the
CMO's achievements and compensation should be reported to Congress each
year.
Concluding Observations:
The long-term fiscal pressures we face as a nation are daunting and
unprecedented. The size and trend of our projected longer-term deficits
mean that the nation cannot ignore the resulting fiscal pressures--it
is not a matter of whether the nation deals with the fiscal gap, but
when and how. Unless we take effective and timely action, our near-term
and longer-term deficits present the prospect of chronic and seemingly
perpetual budget shortfalls and constraints becoming a fact of life for
years to come. These pressures will intensify the need for DOD to make
disciplined and strategic investment decisions that identify and
balance risks across a wide range of programs, operations, and
functions. To its credit, DOD is in the process of implementing a risk
management framework to use in considering trade-offs among defense
objectives and resource constraints and establishing department-level
priorities, rather than relying on incremental changes to existing
budget levels. We recognize what a large undertaking developing a
departmentwide risk management framework will be and, while we are
still monitoring DOD's efforts to implement the framework, we have
preliminary concerns based on our work reviewing other DOD reform
efforts. Unless DOD is better able to balance its resources, DOD will
continue to have a mismatch between programs and budgets, and will be
less likely to maximize the value of the defense dollars it spends.
DOD continues to face pervasive, decades-old management problems
related to its business operations and these problems affect all of
DOD's major business areas. While DOD has taken steps to address these
problems, our previous work has uncovered a persistent pattern among
DOD's reform initiatives that limits their overall impact on the
department. These initiatives have not been fully implemented in a
timely fashion because of the absence of comprehensive, integrated
strategic planning, inadequate transparency and accountability, and the
lack of sustained leadership. As previously mentioned, the Secretary of
Defense has estimated that improving business operations could save 5
percent of DOD's annual budget. This represents a savings of about $22
billion a year, based on the fiscal year 2004 budget. In this time of
growing fiscal constraints, every dollar that DOD can save through
improved economy and efficiency of its operations is important to the
well-being of our nation. Until DOD resolves the numerous problems and
inefficiencies in its business operations, billions of dollars will
continue to be wasted every year.
DOD's senior leaders have demonstrated a commitment to transforming the
department and have taken several positive steps to begin this effort.
To overcome the previous cycle of failure at DOD in implementing broad-
based management reform, however, we believe that three elements are
key to successfully achieve needed reforms. First, DOD needs to
implement and sustain a strategic and integrated business
transformation plan. Second, we believe that the implementation of two
proposed legislative initiatives--establishing central control of
business system funds and creating a CMO--is crucial. We believe that
central control over business system investment funds would better
enable DOD to ensure that its resources are being invested in an
economical, efficient, and effective manner. As long as funding is
controlled by the components, it is likely that the existing problems
with stovepiped, duplicative, and nonintegrated systems will continue.
We support the need for legislation to create a CMO, in part, because
we doubt that there is a single individual--no matter how talented and
experienced--who could effectively address all that needs to be
addressed at DOD, including conducting a global war on terrorism,
transforming the military, and tackling long-standing, systemic
business transformation challenges. We believe that a CMO, serving a 7-
year term with the potential for reappointment, would have the
institutional clout and an adequate term in office to work with DOD's
senior leadership across administrations to make business
transformation a reality. Since the CMO would not have responsibility
for day-to-day management, this position would not superimpose another
hierarchical layer over the department to oversee daily business
operations. Instead, the CMO would be responsible and accountable for
strategic planning, performance and financial management, and business
system modernization, while facilitating overall business
transformation. Without the strong and sustained leadership provided by
a CMO, DOD will likely continue to have difficulties in maintaining the
oversight, focus, and momentum needed to implement and sustain the
reforms to its business operations.
Mr. Chairman and Members of the Subcommittee, this concludes my
prepared statement. I would be happy to answer any questions you may
have at this time.
(350699):
FOOTNOTES
[1] Funds for discretionary programs are provided in appropriation
acts, while funds for mandatory programs are controlled by funds other
than appropriations acts.
[2] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[3] 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-352T (Washington, D.C.: Feb. 16, 2005).
[4] Additional information on GAO's long-term budget simulations and
the nation's fiscal outlook can be found at
http://www.gao.gov/special.pubs/longterm/.
[5] GAO-05-325SP.
[6] GAO, Future Years Defense Program: Actions Needed to Improve
Transparency of DOD's Projected Resource Needs, GAO-04-514 (Washington,
D.C.: May 7, 2004).
[7] GAO, Major Management Challenges and Program Risks: Department of
Defense, GAO-03-98 (Washington, D.C.: January 2003). These amounts are
in constant fiscal year 2003 dollars.
[8] Support infrastructure includes categories such as force
installations, central logistics, the defense health program, and
central training.
[9] GAO, Department of Defense: Further Actions Are Needed to
Effectively Address Business Management Problems and Overcome Key
Business Transformation Challenges, GAO-05-140T (Washington, D.C.: Nov.
18, 2004); and GAO, DOD's High-Risk Areas: Successful Business
Transformation Requires Sound Strategic Planning and Sustained
Leadership, GAO-05-520T (Washington, D.C.: Apr. 13, 2005).
[10] GAO, DOD Personnel: Inadequate Personnel Security Investigations
Pose National Security Risks, GAO/NSIAD-00-12 (Washington, D.C.: Oct.
27, 1999).
[11] Department of Defense Annual Statement of Assurance, Fiscal Year
2000 and Fiscal Year 2001; Department of Defense Performance and
Accountability Report, Fiscal Year 2002 (Jan. 31, 2003) and Fiscal Year
2003 (Dec. 23, 2003).
[12] Committee on Government Reform, Defense Security Service: The
Personnel Security Investigations (PSI) Backlog Poses a Threat to
National Security, H.R. Rep. No. 107-767 (Washington, D.C.: Oct. 24,
2002).
[13] GAO, DOD Personnel Clearances: DOD Needs to Overcome Impediments
to Eliminating Backlog and Determining Its Size, GAO-04-344
(Washington, D.C.: Feb. 9, 2004).
[14] Pub. L. No. 108-136 § 906 (Nov. 24, 2003).
[15] GAO, Information Technology: Architecture Needed to Guide
Modernization of DOD's Financial Operations, GAO-01-525 (Washington,
D.C.: May 17, 2001).
[16] GAO-04-615; Department of Defense: Further Actions Needed to
Establish and Implement a Framework for Successful Financial and
Business Management Transformation, GAO-04-551T (Washington, D.C.: Mar.
23, 2004); DOD Business Systems Modernization: Important Progress Made
to Develop Business Enterprise Architecture, but Much Work Remains,
GAO- 03-1018 (Washington, D.C.: Sept. 19, 2003); DOD Financial
Management: Integrated Approach, Accountability, Transparency, and
Incentives Are Keys to Effective Reform, GAO-02-497T (Washington, D.C.:
Mar. 6, 2002); Defense Management: New Management Reform Program Still
Evolving, GAO- 03-58 (Washington, D.C.: Dec. 12, 2002); Information
Technology: Architecture Needed to Guide Modernization of DOD's
Financial Operations, GAO-01-525 (Washington, D.C.: May 17, 2001); and
DOD Financial Management: Integrated Approach, Accountability, and
Incentives Are Keys to Effective Reform, GAO-01-681T (Washington, D.C.:
May 8, 2001).
[17] GAO, DOD Business Systems Modernization: Limited Progress in
Development of Business Enterprise Architecture and Oversight of
Information Technology Investments, GAO-04-731R (Washington, D.C.: May
17, 2004).
[18] GAO-01-525.
[19] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, §332, 118 Stat. 1811, 1851 (Oct. 28,
2004) (codified, in part, at 10 U.S.C. §§186, 2222).
[20] GAO-04-731R.
[21] GAO-04-731R.
[22] 10 U.S.C. § 2222.
[23] Approval authorities include the Under Secretary of Defense for
Acquisition, Technology, and Logistics; the Under Secretary of Defense
(Comptroller); the Under Secretary of Defense for Personnel and
Readiness; and the Assistant Secretary of Defense for Networks and
Information Integration/Chief Information Officer of the Department of
Defense. These approval authorities are responsible for the review,
approval, and oversight of business systems and must establish
investment review processes for systems under their cognizance.
[24] Pub. L. No. 108-875, § 332, 118 Stat. 1811, 1854 (Oct. 28, 2004)
(codified at 10 U.S.C. § 2222(a)(2)).
[25] 31 U.S.C. § 1341(a)(1)(A); see 10 U.S.C. § 2222(b).
[26] GAO, Fiscal Year 2004 U.S. Government Financial Statements:
Sustained Improvement in Federal Financial Management Is Crucial to
Addressing Our Nation's Future Fiscal Challenges, GAO-05-284T
(Washington, D.C.: Feb. 9, 2005).
[27] For our report on the U.S. government's consolidated financial
statements for fiscal year 2004, see U.S. Department of the Treasury,
Financial Report on the United States Government (Washington, D.C.:
December 2004), 33-53, which can be found on GAO's Web site at
www.gao.gov.
[28] GAO, Military Pay: Gaps in Pay and Benefits Create Financial
Hardships for Injured Army National Guard and Reserve Soldiers, GAO-05-
125 (Washington, D.C.: Feb. 17, 2005).
[29] GAO, Financial Management: Further Actions Are Needed to Establish
Framework to Guide Audit Opinion and Business Management Improvement
Efforts at DOD, GAO-04-910R (Washington, D.C.: Sept. 20, 2004).
[30] GAO, Contract Management: Agencies Can Achieve Significant Savings
on Purchase Card Buys, GAO-04-430 (Washington, D.C.: Mar. 12, 2004).
[31] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures
and Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).
[32] GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C.: July 19, 2004); and Defense Logistics: High-Level DOD
Coordination Is Needed to Further Improve the Management of the Army's
LOGCAP Contract, GAO-05-328 (Washington, D.C.: Mar. 21, 2005).
[33] GAO, Contract Management: Opportunities to Improve Surveillance on
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.:
Mar. 17, 2005).
[34] GAO-04-605.
[35] GAO, Contract Management: Guidance Needed to Promote Competition
for Defense Task Orders, GAO-04-874 (Washington, D.C.: July 30, 2004).
[36] GAO, Best Practices: Improved Knowledge of DOD Service Contracts
Could Reveal Significant Savings, GAO-03-661 (Washington, D.C.: June 9,
2003); and Best Practices: Taking a Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18,
2002).
[37] GAO-05-207.
[38] GAO, Defense Logistics: Actions Needed to Improve the Availability
of Critical Items during Current and Future Operations, GAO-05-275
(Washington, D.C.: Apr. 8, 2005).
[39] GAO, Defense Inventory: Improvements Needed in DOD's
Implementation of Its Long-Term Strategy for Total Asset Visibility of
Its Inventory, GAO-05-15 (Washington, D.C.: Dec. 6, 2004).
[40] GAO, Human Capital: Preliminary Observations on Proposed DOD
National Security Personnel System Regulations, GAO-05-432T
(Washington, D.C.: Mar. 15, 2005).
