Best Practices
An Integrated Portfolio Management Approach to Weapon System Investments Could Improve DOD's Acquisition Outcomes Gao ID: GAO-07-388 March 30, 2007Over the next several years, the Department of Defense (DOD) plans to invest $1.4 trillion in major weapons programs. While DOD produces superior weapons, GAO has found that the department has failed to deliver weapon systems on time, within budget, and with desired capabilities. While recent changes to DOD's acquisition policy held the potential to improve outcomes, programs continue to experience significant cost and schedule overruns. GAO was asked to examine how DOD's processes for determining needs and allocating resources can better support weapon system program stability. Specifically, GAO compared DOD's processes for investing in weapon systems to the best practices that successful commercial companies use to achieve a balanced mix of new products, and identified areas where DOD can do better. In conducting its work, GAO identified the best practices of: Caterpillar, Eli Lilly, IBM, Motorola, and Procter and Gamble.
To achieve a balanced mix of executable development programs and ensure a good return on their investments, the successful commercial companies GAO reviewed take an integrated, portfolio management approach to product development. Through this approach, companies assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives. They weigh the relative costs, benefits, and risks of proposed products using established criteria and methods, and select those products that can exploit promising market opportunities within resource constraints and move the company toward meeting its strategic goals and objectives. Investment decisions are frequently revisited, and if a product falls short of expectations, companies make tough go/no-go decisions. The companies GAO reviewed have found that effective portfolio management requires a governance structure with committed leadership, clearly aligned roles and responsibilities, portfolio managers who are empowered to make investment decisions, and accountability at all levels of the organization. In contrast, DOD approves proposed programs with much less consideration of its overall portfolio and commits to them earlier and with less knowledge of cost and feasibility. Although the military services fight together on the battlefield as a joint force, they identify needs and allocate resources separately, using fragmented decision-making processes that do not allow for an integrated, portfolio management approach like that used by successful commercial companies. Consequently, DOD has less assurance that its investment decisions address the right mix of warfighting needs, and, as seen in the figure below, it starts more programs than current and likely future resources can support, a practice that has created a fiscal bow wave. If this trend goes unchecked, Congress will be faced with a difficult choice: pull dollars from other high-priority federal programs to fund DOD's acquisitions or accept gaps in warfighting capabilities.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-388, Best Practices: An Integrated Portfolio Management Approach to Weapon System Investments Could Improve DOD's Acquisition Outcomes
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Report to the Committee on Armed Services, U.S. Senate:
United States Government Accountability Office:
GAO:
March 2007:
Best Practices:
An Integrated Portfolio Management Approach to Weapon System
Investments Could Improve DOD's Acquisition Outcomes:
GAO-07-388:
GAO Highlights:
Highlights of GAO-07-388, a report to the Committee on Armed Services,
U.S. Senate
Why GAO Did This Study:
Over the next several years, the Department of Defense (DOD) plans to
invest $1.4 trillion in major weapons programs. While DOD produces
superior weapons, GAO has found that the department has failed to
deliver weapon systems on time, within budget, and with desired
capabilities. While recent changes to DOD‘s acquisition policy held the
potential to improve outcomes, programs continue to experience
significant cost and schedule overruns.
GAO was asked to examine how DOD‘s processes for determining needs and
allocating resources can better support weapon system program
stability. Specifically, GAO compared DOD‘s processes for investing in
weapon systems to the best practices that successful commercial
companies use to achieve a balanced mix of new products, and identified
areas where DOD can do better. In conducting its work, GAO identified
the best practices of: Caterpillar, Eli Lilly, IBM, Motorola, and
Procter and Gamble.
What GAO Found:
To achieve a balanced mix of executable development programs and ensure
a good return on their investments, the successful commercial companies
GAO reviewed take an integrated, portfolio management approach to
product development. Through this approach, companies assess product
investments collectively from an enterprise level, rather than as
independent and unrelated initiatives. They weigh the relative costs,
benefits, and risks of proposed products using established criteria and
methods, and select those products that can exploit promising market
opportunities within resource constraints and move the company toward
meeting its strategic goals and objectives. Investment decisions are
frequently revisited, and if a product falls short of expectations,
companies make tough go/no-go decisions. The companies GAO reviewed
have found that effective portfolio management requires a governance
structure with committed leadership, clearly aligned roles and
responsibilities, portfolio managers who are empowered to make
investment decisions, and accountability at all levels of the
organization.
In contrast, DOD approves proposed programs with much less
consideration of its overall portfolio and commits to them earlier and
with less knowledge of cost and feasibility. Although the military
services fight together on the battlefield as a joint force, they
identify needs and allocate resources separately, using fragmented
decision-making processes that do not allow for an integrated,
portfolio management approach like that used by successful commercial
companies. Consequently, DOD has less assurance that its investment
decisions address the right mix of warfighting needs, and, as seen in
the figure below, it starts more programs than current and likely
future resources can support, a practice that has created a fiscal bow
wave. If this trend goes unchecked, Congress will be faced with a
difficult choice: pull dollars from other high-priority federal
programs to fund DOD‘s acquisitions or accept gaps in warfighting
capabilities.
Figure: Costs Remaining Versus Annual Appropriations for Major Defense
Acquisitions:
[See PDF for image]
Source: DOD (data); GAO (analysis and presentation).
[End of figure]
What GAO Recommends:
GAO is making several recommendations for DOD to implement an
integrated portfolio management approach to weapon system investments.
DOD stated that it is undertaking several pilot efforts to improve the
department‘s approach and that implementation of any new business rules
will be contingent upon the outcomes of these efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-388].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael J. Sullivan at
(202) 512-4841 or sullivanm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Successful Companies Take a Disciplined, Integrated Approach to
Prioritize Market Needs and Initiate a Balanced Mix of Executable
Development Programs:
Lacking an Integrated, Portfolio-Based Approach, DOD Has Too Many
Programs Competing for Limited Resources:
Conclusions:
Recommendations:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Defense:
Related GAO Products:
Table:
Table 1: Cost and Cycle Time Growth for 27 Weapon Systems:
Figures:
Figure 1: DOD's Weapon System Investment Process:
Figure 2: Portfolio Management Approach to Product Investments:
Figure 3: IBM Market Segmentation:
Figure 4: Risk Versus Rewards Matrix:
Figure 5: Service Allocations of DOD's Investment Budget:
Figure 6: Governance of DOD's Investment Process:
Figure 7: Costs Remaining Versus Annual Appropriations for Major
Defense Acquisitions:
Abbreviations:
ACAT: Acquisition Category:
AOA: Analysis of Alternatives:
AT&L: Acquisition, Technology, and Logistics:
DAS: Defense Acquisition System:
DOD: Department of Defense:
FY: fiscal year:
GAO: U.S. Government Accountability Office:
IBM: International Business Machines:
ICD: Initial Capabilities Document:
IPD: Integrated Product Development:
JCIDS: Joint Capabilities Integration and Development System:
JCS: Joint Chiefs of Staff:
JROC: Joint Requirements Oversight Council:
JTRS: Joint Tactical Radio System:
MS: Milestone:
NPV: Net Present Value:
OSD: Office of the Secretary of Defense:
PA&E: Program Analysis and Evaluation:
PPBE: Planning, Programming, Budgeting, and Execution:
RDT&E: research, development, test, and evaluation:
USD: Under Secretary of Defense:
United States Government Accountability Office:
Washington, DC 20548:
March 30, 2007:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
Although the Department of Defense (DOD) produces the best weapons in
the world, it has not been able to deliver planned systems on time and
within budget. It is not unusual to see cost increases that add up to
tens or hundreds of millions of dollars, schedule delays that add up to
years, and large and expensive programs being scrapped after years of
failing to achieve promised capabilities.[Footnote 1] While recent
changes to DOD's acquisition policy held the potential to improve such
outcomes, programs have continued to experience significant cost and
schedule overruns and performance shortfalls.[Footnote 2] Over the next
several years, DOD plans to invest $1.4 trillion in major weapon system
programs--doubling what it planned to spend on such programs 5 years
ago. Continued failure to deliver weapon systems on time and within
budget not only delays providing critical capabilities to the
warfighter, but results in less funding being available for other DOD
and federal priorities.
In the commercial market, effectively developing and marketing new
products is fundamental to the continued growth and success of
companies. Without a steady stream of product innovations to meet
evolving market needs, companies are likely to see their sales and
profits fall. At the same time, if the products in development outstrip
their resources or do not meet customer needs, companies can face
financial ruin. Several recent studies issued by leading thinkers in
the area of product innovation and development have reported that
leading commercial companies achieve success in product development by
following a disciplined process for ensuring they have the right mix of
new products that meet customer needs within available resources.
In fiscal year 2006, the Senate Armed Services Committee raised
concerns that DOD's poor track record with acquisition programs was
linked not only to the department's Defense Acquisition System (DAS)
for managing product development, but also to the department's Joint
Capabilities Integration and Development System (JCIDS) for identifying
the warfighters' needs and the Planning, Programming, Budgeting and
Execution (PPBE) process for allocating resources. Consequently, the
Committee directed GAO to examine how DOD's needs identification and
resource allocation processes can better support program stability in
major weapon systems acquisition.[Footnote 3] This report (1)
identifies best practices of successful commercial companies for
ensuring that they pursue the right mix of programs to meet the needs
of their customers within resource constraints and (2) compares DOD's
enterprise-level processes for investing in weapon systems to these
practices.[Footnote 4]
To identify best practices of successful companies, we reviewed related
professional and academic publications, and interviewed knowledgeable
officials from five successful commercial companies: Caterpillar, Eli
Lilly, IBM, Motorola, and Procter & Gamble. While the products
developed by these companies range from heavy construction equipment
and high-end electronics to pharmaceuticals and household items, each
of the companies manages a large diversified portfolio of products,
spends billions of dollars annually on research and development, and
has thousands of employees worldwide. To examine DOD's processes for
making investment decisions, we reviewed related legislation and DOD
directives, instructions, and guidance; conducted interviews with and
received briefings from relevant Joint Staff, Office of the Secretary
of Defense (Comptroller, Program Analysis and Evaluation, and
Acquisition, Technology and Logistics), and other government officials;
reviewed current literature assessing DOD's decision-making processes;
and analyzed DOD requirements documents. We compared DOD's enterprise-
level practices to commercial best practices to identify potential
areas for improvement. For additional details on how we performed our
review, see appendix I. Our work was conducted between March 2006 and
February 2007 in accordance with generally accepted government auditing
standards.
Results in Brief:
Successful commercial companies use an integrated portfolio management
approach to prioritize market needs and allocate resources; thus, they
avoid pursuing more products than their resources can support and
optimize the return on their investment. Through portfolio management,
all of a company's product investments are addressed collectively from
an enterprise level, rather than as independent and unrelated
initiatives. Potential product developments are identified and assessed
through a systematic and disciplined screening process. Companies weigh
the relative costs, benefits, and risks of each proposed product using
established criteria and methods to select the best mix of products to
develop. They not only select those products that have a sound business
case to warrant further investment, but also those that help the
company balance near-and future-term market opportunities, different
product lines, and available resources against the demand for product
investments. Once initial investment decisions are made, they are
revisited at multiple stages throughout product development in a gated
review and assessment process to ensure products are still of high
value. If not, companies make tough decisions to defer or terminate
investments and rebalance their product portfolios. To be effective,
portfolio management is enabled by strong governance with committed
leadership, clearly aligned organizational roles and responsibilities,
empowered portfolio managers who determine the best way to invest
resources, and accountability at all levels of the organization.
Although the military services fight together on the battlefield as a
joint force, they do not identify warfighting needs and make weapon
system investment decisions together in an integrated manner. DOD has
taken steps to identify warfighting needs through a joint requirements
process, but its service-centric structure and fragmented decision-
making processes do not allow for the portfolio management approach
used by successful commercial companies to make investment decisions
that benefit the organization as a whole. DOD largely continues to
define warfighting needs and make investment decisions on a service-by-
service basis, an approach that has contributed to duplication in
programs and equipment that does not operate effectively together.
Also, DOD assesses warfighting needs and their funding implications
under separate decision-making processes, impeding its ability to
prioritize warfighting needs so that it pursues not only the ones that
are most important but also the ones it can afford. While DOD's JCIDS
process provides a framework for reviewing and validating the initial
need for proposed capabilities, it does not focus on the cost and
feasibility of acquiring the capability to be developed and fielded.
Instead, these considerations are addressed through separate budgeting
and acquisition processes. Moreover, although DOD policy provides for a
series of early reviews--focused on the concept refinement and
technology development phases of proposed weapon system programs--in
prior work we found that the reviews are often skipped or are not fully
implemented. Consequently, proposed programs build momentum and move
toward starting product development with little if any early department-
level assessment of the costs and feasibility. Committing to programs
before they have this knowledge contributes to poor cost, schedule, and
performance outcomes and destabilizes acquisition programs as the
department attempts to pay for poorly performing programs by taking
funds from others.
The department has begun to pilot-test several interrelated initiatives
intended to address shortfalls in its existing approach to investment
decisions. These initiatives include a new approach to an early
decision gate for reviewing proposed programs at the concept stage,
testing portfolio management approaches in selected capability areas,
and setting up capital budgeting accounts for programs in development.
However, as currently structured, the initiatives are intended to
operate within DOD's existing organizational and process framework and
may not allow for sufficient authority and control over resources to
effectively influence weapon system investments.
To improve DOD's ability to deliver a balanced mix of weapon system
programs at the right time and right cost, we are recommending the
department establish an integrated, portfolio-based approach to
investments that incorporates best practices of successful commercial
companies. To ensure the success of such an approach, we are also
recommending that DOD establish a single point of accountability at the
department level with the responsibility, authority, and accountability
for ensuring that portfolio management for weapon system investments is
effectively implemented across the department. DOD concurred with the
majority of our recommendations and partially concurred with two.
Generally, in responding to these recommendations, DOD stated that it
is undertaking several initiatives and pilot efforts to improve the
department's approach to investment and program decision making, and
that implementation of any new business rules will be contingent upon
the outcome of these initiatives. However, we believe the department's
current initiatives do not fundamentally change DOD's service-centric
framework or sufficiently integrate its decision-making processes. DOD
did not provide comments regarding our recommendation that the
Secretary establish a single point of accountability.
Background:
DOD's programs for acquiring major weapon systems have taken longer,
cost more, and delivered fewer quantities and capabilities than
planned. We have documented these problems for decades. Most recently,
we reported that 27 major weapon programs we have assessed since they
began product development have experienced cost increases of nearly 34
percent over their original research, development, test, and evaluation
(RDT&E) estimates, and increases of almost 24 percent in acquisition
cycle time (see table 1).[Footnote 5]
Table 1: Cost and Cycle Time Growth for 27 Weapon Systems:
Billions of constant 2007 dollars.
Total cost;
First full estimate: $506.4;
Latest full estimate: $603.1;
Percentage change: 19.1.
RDT&E cost;
First full estimate: $104.7;
Latest full estimate: $139.7;
Percentage change: 33.5.
Weighted average acquisition cycle time[A];
First full estimate: 137.9 months;
Latest full estimate: 170.2 months;
Percentage change: 23.5.
Source: GAO analysis of DOD data.
[A] This is a weighted estimate of average acquisition cycle time for
the 27 programs based on total program costs at the first full and
latest estimates. The simple average for these two estimates was 98.9
months for the first full estimate and 124.6 months for the latest
estimate resulting in a 26.1 percent change.
[End of table]
When cost and schedule problems occur in one program, DOD often
attempts to pay for the poorly performing program by taking funds from
others. Doing so has destabilized other programs and reduced the
overall buying power of the defense dollar as DOD and the military
services are forced to cut back on planned quantities or capabilities
to stay within budget limitations. The F-22A Raptor program is a case
in point: As costs escalated in the program, the number of aircraft the
Air Force planned to buy was drastically reduced from 648 to 183.
Similarly, as the Joint Tactical Radio System (JTRS) encountered
development problems, the number of requirements was reduced or
deferred by about one-third. As a result, several programs that were
dependent on JTRS also had to make adjustments and go forward with
alternative, less capable solutions. DOD's approach to managing weapon
system investments ultimately results in less funding being available
for other competing needs in DOD as well as other federal priorities,
as the expenditure of tax dollars within DOD reduces the amount of
funding available for those priorities.
Taking into account the differences between commercial product
development and weapons acquisitions, we have recommended that DOD
adopt a knowledge-based, incremental approach to developing and
producing weapon systems. This type of an approach requires program
officials to demonstrate that critical technologies are mature, product
designs are stable, and production processes are in control at key
junctures in the acquisition process.[Footnote 6]
DOD has three major processes involved in making weapon system
investment decisions. These processes, depicted in figure 1, are the
Joint Capabilities Integration and Development System (JCIDS), for
identifying warfighting needs; the Planning, Programming, Budgeting and
Execution (PPBE) system, for allocating resources; and the Defense
Acquisition System (DAS), for managing product development and
procurement. Much of our prior work has focused on identifying
commercial best practices that could be used to improve the Defense
Acquisition System--from the point just before product development
starts onward. In this report, however, we look at earlier stages in
DOD's investment process--from the point where gaps in warfighting
capability are assessed in JCIDS through the point where alternative
solutions to resolve those gaps are analyzed under the DAS (see fig.
1).
Figure 1: DOD's Weapon System Investment Process:
[See PDF for image]
Source: DOD (data); GAO ( analysis and presentation).
[End of figure]
Successful Companies Take a Disciplined, Integrated Approach to
Prioritize Market Needs and Initiate a Balanced Mix of Executable
Development Programs:
To ensure they achieve a balanced mix of executable development
programs, the successful commercial companies we reviewed use a
disciplined and integrated approach to prioritize market needs and
allocate resources. This approach, known as portfolio management,
requires companies to view each of their investments from an enterprise
level as contributing to the collective whole, rather than as
independent and unrelated. With this enterprise viewpoint, companies
can effectively (1) identify and prioritize market opportunities and
(2) apply available resources to potential products to select the best
mix of products to exploit the highest priority--or most promising--
opportunities. Ultimately, each of the companies we reviewed seeks to
achieve a balanced portfolio that maximizes the return on investments
and moves the company toward achieving its strategic goals and
objectives. This type of approach depends on strong governance with
committed leadership, clearly aligned responsibility, and effective
accountability at all levels of the organization.
As depicted in figure 2, a portfolio management approach begins with an
enterprise-level identification and definition of market opportunities
and then the prioritization of those opportunities within resource
constraints. Once opportunities have been prioritized, companies draft
initial business cases for alternative product ideas that could be
developed to exploit each of the highest priority opportunities. Each
alternative product proposal--represented by a black dot--enters a
gated review process. At each review gate, product proposals are
assessed against corporate resources, established criteria, competing
products, and the goals and objectives of the company as a whole. As
alternatives pass through each review gate, the number is expected to
decrease, until only those alternatives with the greatest potential to
succeed make it into the product portfolio.
Figure 2: Portfolio Management Approach to Product Investments:
[See PDF for image]
Source: GAO analysis and presentation of commercial best practices.
[End of figure]
Identifying and Prioritizing Market Opportunities Lays the Foundation
for Achieving the Right Mix of Products:
To make informed decisions about what market opportunities to target,
the companies we reviewed first establish a strategy that lays out the
overall goals, objectives, and direction for the company. As part of
their strategy, companies identify enterprise-level sales and profit
targets, strategic business areas they want to focus on, the extent to
which current products and new development efforts will support their
growth objectives, and how they will allocate resources across business
units and functional areas. This strategy provides a framework for the
companies' investment decisions. Within this framework, companies
conduct a series of market analyses to develop a comprehensive
understanding of the market environment, including product trends,
technology trends, and customer needs.
IBM for example, follows a structured market planning process to
identify, prioritize, and target attractive market segments. The first
phase of this process, called Market Definition, focuses on
understanding the marketplace, including identifying potential
customers and their needs.[Footnote 7] During this phase, IBM examines
the marketplace and technology environments and identifies attractive
market segments that contain potential market opportunities--where
customer wants or needs exist. Each segment is categorized into one of
four areas based on needs of the customers and the company's product
offerings (see fig. 3): "strike zone," "traditional," "pushing the
envelope," and "white space." The strike zone represents IBM's core
business--market segments where IBM has an established customer base
that it is successfully serving with existing product offerings. In
contrast, white space represents market segments of new customers with
wants and needs that are new and different for IBM. White space
opportunities often require discovery and innovation. The traditional
and pushing the envelope areas fall between the strike zone and white
space. Traditional opportunities exist when new customers could be
attracted to an existing market--one IBM is already active in--by
modifying or enhancing existing products or services. Pushing the
envelope opportunities exist where the needs of current customer groups
move them into a new market segment. These attractive market segments
are prioritized during the next phase of IBM's process, known as the
Capability Assessment phase. During this phase each segment's overall
attractiveness and potential profitability are assessed, along with
IBM's available resources--like capital, cash, and current products--
and its competitive position within each segment. This analysis leads
to the selection of targeted market segments.
Figure 3: IBM Market Segmentation:
[See PDF for image]
Source: IBM's IPD process (data); GAO (analysis and presentation).
[End of figure]
Motorola emphasizes the importance of targeting the right market
segments at the enterprise level to ensure that a balanced mix of
project and resource investments is maintained. Officials noted that
excessively focusing on segments that require new and innovative
products can result in long cycle times, wasted money, and lost
opportunities elsewhere. Likewise, critical opportunities can be lost
when too much emphasis is placed on simply continuing to invest in old
markets with old products. According to the officials we spoke with,
the current investment mix for Motorola's Government and Enterprise
Mobility Solutions business unit is roughly 70-20-10, where 70 percent
of its projects and resources are dedicated to maintaining its core
business, while 20 percent are invested in pursuing new markets with
existing products or introducing new or enhanced products into existing
markets, and the remaining 10 percent are dedicated to discovering new
markets and new products.
As part of their market analyses, companies increasingly refine their
understanding of who their customers are and what they need. For
several of the companies we met with, determining the needs of their
customers is complex because they have multiple groups of customers to
consider. For example, Eli Lilly has four customer groups with diverse
needs: patients, doctors, insurance companies, and government
regulators. This complexity is compounded when considering that success
in a worldwide market is critically dependent on a company's ability to
operate within different governmental systems, laws, and regulations;
and regional markets. Several of the companies we reviewed use a
variety of methods--including interviews, surveys, focus groups, and
concept tests--to actively engage their customers and help determine
what they need. Some companies also observe customer behaviors to
identify unstated wants and needs that if met--assuming corporate
knowledge and resources allow--could actually exceed customer
expectations. While companies actively seek customer input to identify
products that show the most promise and satisfy customer needs,
customers generally do not identify specific products to be developed.
Companies Follow a Disciplined Process to Identify New Products and
Achieve a Balanced Portfolio:
Once companies have identified and prioritized their market
opportunities, they follow a disciplined process to assess the costs,
benefits, and risks of potential product alternatives and allocate
resources to achieve a balanced portfolio that spreads risk across
products, aligns with the company's strategic goals and objectives, and
maximizes the company's return on investment. At an early stage, each
alternative product is expected to be accompanied by an initial
business case that contains knowledge-based information on strategic
relevance and estimates of cost, technology maturity, and the cycle
time for getting the product from concept to market. To ensure
comparability across alternatives, companies require initial business
case information to be developed in a transparent manner, to use
specific standards, and to report estimates within certain levels of
confidence or allowable deviations. Each of the companies we reviewed
also stressed the importance of having multiple management review
points, or gates, at early phases to assess and prioritize alternative
products. As products move through review gates, from ideas, to more
concrete concepts, to the start of development where a final business
case is made, companies expect uncertainties--which are typically
inherent in the early phases--to be addressed and estimates to become
more precise. Consequently, the number of viable alternatives tends to
decrease at each review gate as those with the lowest potential for
success and least value are terminated or deferred, while those that
are poised to succeed and providing the best value are approved to
proceed (illustrated in fig. 2). Companies emphasized that making tough
go/no-go decisions is critical to keeping a balanced portfolio. Over
time, as potential new products are identified, companies review them
against other product investments (proposed and existing) and rebalance
their portfolios based on those that add the most value.
The companies we visited each follow a disciplined, gated review
process to ensure that they commit to development programs that help
balance the portfolio and that are executable given available corporate
resources. This allows companies to avoid committing to more programs
than their resources can support and ensure stability in the programs
they invest in. Although the number of review gates prior to the start
of full-scale product development varied between companies--ranging
from four at Procter & Gamble, to eight at Motorola--they all required
potential products to follow an established, disciplined process and
meet specified criteria at each review point. For example, Caterpillar
assesses product alternatives at four review gates prior to the start
of development--three of which were recently added to enhance the rigor
of its investment decision making. Each alternative must be supported
by a draft business case that includes quantifiable data that can be
compared with specific standards and used to determine if the related
product can move past that gate. At each gate, alternatives are
reviewed to ensure that knowledge about critical technologies, life-
cycle costs, product reliability, and product affordability is being
acquired and that the product contributes to achieving the company's
strategic goals and objectives.
Because developing a new drug is costly and time consuming, Eli Lilly
requires that the data supporting potential new drugs must meet high
standards to ensure that managers are informed to make sound investment
decisions.[Footnote 8] Each potential new drug must be supported by an
initial business case that contains information about safety and
efficacy; forecasted revenue; expected unit demand; capital, medical,
supply and material, development, and selling and marketing expenses;
and general administrative costs. The initial business case must also
identify critical success factors, state the probability of technical
success, and provide a timeline that details when major milestone
events are expected and how long it will take to get the associated
drug to market. Eli Lilly assesses, approves, and funds proposed new
drugs incrementally. At each milestone review a contract is established
between the project team and a gatekeeper committee, which contains
deliverables, time frames, and the costs to get to the next milestone.
Once this contractual agreement is reached the budget is allocated for
the entire phase. The gatekeeper committees expect each new drug
proposal to achieve an 80-percent confidence level in their cost and
schedule estimates for the next phase. This high level of confidence is
achievable in large part because final budget estimates are not
developed by project teams until 2 months prior to the milestone
review. Projects are terminated at early points in the review process
when it is determined that their critical success factors cannot be
achieved. Because Eli Lilly's projects typically have a high degree of
technical risk, only about 1 percent of those that start early
development actually make it to the marketplace.
Motorola officials also emphasized the importance of having sound
information when assessing potential new products. They noted that a
process without sound information will not produce good outcomes.
Therefore, Motorola's Government and Enterprise Mobility Solutions
business unit expects potential products to be supported by initial
business cases containing data that meet specific standards and levels
of confidence at each review gate. For example, cost estimates for
potential products are developed in several phases and are expected to
increase in confidence with each successive phase. Early in the
investment planning, when an initial business case is first drafted,
the confidence parameters are generous, ranging from as much as 75
percent higher to as much as 25 percent lower than what the project
will likely end up costing. By the time a product alternative reaches
the beginning of product development, when a final business case is
made, Motorola expects the cost estimates to be at confidence levels of
10 percent higher and 5 percent lower. Proposed products that fail to
meet the specified criteria at early review gates are either terminated
or sent back to further mature and reenter the review process from the
beginning.
The companies we reviewed use a variety of portfolio management tools
and methods to inform the investment and resource allocation decisions
they make at each review gate. Some companies employ scoring methods,
using experts to rate products based on a number of factors--such as
strategic fit, risk, and economic value--and use that information to
prioritize alternative products. Another common tool plots alternative
products on a decision matrix that compares factors such as costs and
benefits, or risks and rewards of competing alternatives. Using this
type of matrix, alternative products are often represented by circles,
where the size of the circles provides information about key
constraints such as available annual resources or the estimated annual
costs for each alternative. For example, figure 4 compares risk and
expected rewards[Footnote 9] by plotting competing alternatives on a
matrix. Alternatives that fall into the upper left quadrant are high
risk and low reward, while alternatives that fall into the lower right
quadrant are low risk and high reward. By weighing risk against rewards
and considering constraints such as annual resources or annual cost,
this tool provides critical information and a structured means to help
managers make informed decisions. Company officials at Procter & Gamble
emphasized the importance of selecting a balanced mix of products to
pursue. They noted that pursuing only low-risk and high-reward products
at the expense of more innovative, higher-risk products could cause the
company to miss out on opportunities to improve their competitive
standing in the marketplace. Likewise, excessive pursuit of higher-risk
products with the potential for high returns could also result in lost
opportunities to elsewhere.
Figure 4: Risk Versus Rewards Matrix:
[See PDF for image]
Source: GAO.
[End of figure]
Recognizing the inherent risks in pursuing a new development program--
that overruns or underruns in one business case result in lost
opportunity to invest resources in another worthwhile project--IBM
permits products to deviate from their original business case estimates
as long as the deviation is within established limits. These limits are
specified in a contractual document resulting from negotiations between
senior management and project managers and signed at the beginning of
product development. Product development teams are expected to execute
according to the contract; if established thresholds are breached,
action is taken immediately to reassess the product within the context
of the portfolio and determine whether it is still a relevant and
affordable investment to pursue.
Successful Portfolio Management Requires Strong Governance with
Committed Leadership, Empowered Decision Makers, and Effective
Accountability:
Successful portfolio management requires strong governance with
committed leadership that empowers portfolio managers to make decisions
about the best way to invest resources and holds those managers
accountable for the outcomes they achieve. The companies we reviewed
indicated that it is critical to have commitment from the top leaders
of the organization and recognition at all levels that what is best for
the company must be a priority, and not simply what is best for a
particular business unit or product line. In addition, the companies
emphasized that roles and responsibilities for implementing portfolio
management, including the designation of who is responsible for product
investment decisions and oversight, must be clearly defined. Because
portfolio managers are on the front line, the companies we reviewed
empower these managers to make product investment decisions and hold
them accountable for outcomes, not just for individual products but
also for the overall performance of their portfolios. To support their
portfolio managers, the companies encourage collaboration and
communication, including sharing bad news early. Several companies also
emphasized the importance of supporting their portfolio managers with
cross-functional teams, composed of representatives from the key
functional areas within the company--such as science and technology,
marketing, engineering, and finance--to ensure that they are adequately
informed when making investment decisions. To ensure accountability,
companies often use incentives and disincentives, including promotion
and termination. We have previously reported that high-performing
organizations have monetary and other rewards that clearly link
employee knowledge, skills, and contributions to achieving the
organization's goals and objectives.[Footnote 10] These organizations
underscore the importance of holding individuals accountable and
aligning performance expectations with organizational goals and cascade
those expectations down to lower levels. Companies stressed that the
transformation to portfolio management takes time and requires not only
process changes but cultural changes throughout the company.
Eli Lilly emphasized that a key to making its portfolio management
process work is having a single committee with a high-level official in
charge responsible for making product investment decisions. Previously,
the company had a multi-layered committee structure in place, and
decisions were made based on reaching a consensus--an approach that was
viewed as cumbersome and lengthy. Eli Lilly also ensures accountability
by directly linking management and employee bonuses to the overall
success of the company. Individual employee performance objectives are
aligned with specific company objectives, such as meeting budgetary
goals, time frames, and data quality levels for a given project.
Achievement of individual employee objectives is measured periodically
to provide feedback to the employee. Eli Lilly officials stressed that
having the right performance metrics in place is important because
ultimately you get what you measure; therefore, be sure to measure the
right things.
Motorola considers accountability to be the critical factor in making
its portfolio management process successful. In addition, Motorola's
culture is not averse to reporting bad news to management. Project
managers are encouraged to report problems early so that they can be
addressed before they get out of control. Senior managers, however, are
not intimately involved in the day-to-day decision making for
individual products. That responsibility, in nearly every case, is
delegated to the business unit general manager. The general manager of
a business unit is held accountable for ensuring that the products
within his unit succeed at all levels. The general manager is
responsible for holding product managers accountable for the attainment
of critical knowledge at key points and the performance of their
individual products overall. General managers and product managers can
be fired for not meeting objectives. Motorola believes that if managers
are held accountable for results, then they have more desire to get it
right.
Lacking an Integrated, Portfolio-Based Approach, DOD Has Too Many
Programs Competing for Limited Resources:
Although the military services fight together on the battlefield as a
joint force, they do not identify warfighting needs and make weapon
system investment decisions together. DOD has taken steps to identify
warfighting needs through a more joint requirements process, but the
department's service-centric structure and fragmented decision-making
processes are at odds with the integrated, portfolio management
approach used by successful commercial companies to make enterprise-
level investment decisions. Consequently, DOD has less assurance that
its weapon system investment decisions address its most important
warfighting needs and are affordable in the context of its overall
fiscal resources. In addition, DOD commits to products earlier than the
companies we reviewed and with far less knowledge about their cost and
feasibility. This leads to poor program outcomes and funding
instability, as the department attempts to fix troubled programs by
taking funds from others.
Service-centric Structure and Fragmented Decision-making Processes
Impede DOD's Ability to Prioritize Warfighting Needs:
Although recent DOD policy emphasizes a more joint approach to
identifying and prioritizing warfighting needs,[Footnote 11] DOD's
service-centric structure and fragmented decision-making processes
hinder the policy's successful implementation. This policy, which
introduced the JCIDS process, calls for a wider range of stakeholders
than before, including more customer (i.e., combatant command)
involvement; introduces new methodologies intended to foster jointness;
and groups warfighting needs into eight functional areas based on
warfighting capabilities--such as netcentric, force application, and
battlespace awareness[Footnote 12]--that cut across the military
services and defense agencies. The JCIDS process emphasizes early
attention to the fiscal implications of newly identified needs,
including identifying ways to pay for new capabilities by divesting the
department of lower priority or redundant capabilities. Despite these
provisions, assessments of warfighting needs continue to be driven by
the services and to be based on investment decision-making processes
that do not function together to ensure that DOD pursues needs that its
resources can support.
The military services identify warfighting needs individually, and
department-level organizations are not optimized to integrate the
services' results or evaluate their fiscal implications early on.
Historically, this approach has contributed to duplication in weapon
systems and equipment that does not interoperate. At the department
level, Functional Capability Boards oversee each of the eight
functional areas, reviewing the services' assessments, and providing
recommendations to the Joint Requirements Oversight Council (JROC),
which leads the JCIDS process. However, defense experts and DOD
officials report that the Functional Capability Boards do not have the
staff or analytical resources required to effectively evaluate service
assessments within the context of the broader capability portfolio and
assess whether the department can afford to address a particular
capability gap. Several recent studies have recommended that DOD
increase joint analytical resources for a less stovepiped understanding
of warfighting needs.[Footnote 13] In addition, the boards lack the
authority to allocate resources and to make or enforce decisions to
divest their capability area of existing programs to pay for new ones-
-authority successful companies provide to their portfolio managers.
Finally, some defense experts contend that the service ties of JROC's
members--that is, the services' Vice Chiefs and the Assistant
Commandant of the Marine Corps--reinforce service stovepipes. To better
ensure a more joint perspective, they recommend a more diverse JROC,
with representatives from other department-level organizations and the
combatant commands.[Footnote 14]
Resource allocation decisions are made through a separate process--the
Planning, Programming, Budgeting, and Execution system (PPBE)--which
hinders the department's ability to weigh the relative costs, benefits,
and risks of investing in new weapon systems early on. Within the PPBE
system, the individual military services are responsible for budgeting
and allocating resources under authority that is commonly understood to
be based on Title 10 of the United States Code.[Footnote 15] PPBE is
structured by military service and defense program, although the
department integrates data on the services' current and projected
budget requests under 11 crosscutting mission areas called Major Force
Programs. The cross-cutting view provided by the Major Force Program
structure is intended to facilitate a strategic basis for resource
allocation, allowing the Secretary of Defense to more easily see where
the greatest mission needs are and to re-allocate funds to meet those
needs regardless of which service stands to gain or lose. However, we
have reported in the past that the Major Force Program structure has
not provided sufficient visibility in certain mission areas.[Footnote
16] Moreover, although they cut across the services, the program
mission areas are not consistent with the more recently established
capability areas used in the JCIDS process,[Footnote 17] and as a
result, it is difficult to relate resources to capabilities. For
example, in prior work, we observed that the Major Force Programs
contain large numbers of programs with varied capabilities,
complicating comparisons needed to understand defense capabilities and
associated trade-off decisions.[Footnote 18] We have recommended that
DOD report funding levels for defense capabilities in its Future Years
Defense Program report to the Congress, which is currently organized by
the Major Force Programs.
In addition, our analysis of DOD's investment accounts--which pay for
developing, testing, and buying weapon systems and other equipment--
indicates that DOD generally does not allocate resources on a strategic
basis. Figure 5 illustrates that the service allocations as a
percentage of the department's overall investment budget have remained
relatively static for the 25-year period we examined, even though DOD's
strategic environment and warfighting needs have changed dramatically
during that time, with the demise of the cold war and the emergence of
the global war on terror.[Footnote 19] In contrast, successful
commercial companies using portfolio management would expect to see
their resource allocations across business areas to reflect changes in
the marketplace and the competitive environment.
Figure 5: Service Allocations of DOD's Investment Budget (FY1986
through FY2011):
[See PDF for image]
Source: DOD (data); GAO (analysis and presentation).
[End of figure]
PPBE and JCIDS are led by different organizations (see fig. 6), as is
the third of the three processes involved in DOD's weapon system
investment decisions, the Defense Acquisition System (DAS), making it
difficult to hold any one person or organization accountable for
investment outcomes. The 2006 Quadrennial Defense Review highlighted
the need for governance reforms,[Footnote 20] and a 2006 study
commissioned by DOD observed that the budget, acquisition, and
requirements processes are not connected organizationally at any level
below the Deputy Secretary of Defense, concluding that this structure
induces instability and erodes accountability.[Footnote 21] The Under
Secretary of Defense/Acquisitions, Technology, and Logistics (USD/
AT&L) has stated that weapon system investment decisions are a shared
responsibility, and, therefore, no one individual is accountable for
these decisions. At a broader, strategic level, we have stated in prior
work that DOD has lacked sustained leadership and accountability for
various department-wide management reform efforts,[Footnote 22]
including the establishment of an effective risk management approach as
a framework for decision making.[Footnote 23] This approach would link
strategic goals to plans and budgets, assess the value and risks of
various courses of action as a tool for setting investment priorities
and allocating resources at the department level, and use performance
measures to assess outcomes. To address the lack of sustained
leadership, we have supported legislation to create a chief management
official at DOD.[Footnote 24]
Figure 6: Governance of DOD's Investment Process:
[See PDF for image]
Source: DOD (data); GAO (analysis and presentation).
[End of figure]
The Office of the Secretary of Defense (OSD) does not assess the
funding implications of a proposed program at the front end of the
investment process, when it is initially validated by JROC. JCIDS is a
continuous, need-driven process that unfolds in response to warfighting
needs as they are identified. However, PPBE is a calendar-driven
process comprised of phases that occur over a 2-year cycle, thus OSD's
formal review of a proposed program is not often synchronized with
JROC's, and can occur several years later.[Footnote 25] Nevertheless,
according to Joint Staff and AT&L officials we met with, proposed
programs begin to gain momentum when they are validated by JROC, and
they become very difficult to stop. These officials indicated that
momentum begins to gather because the services start programming and
budgeting for the proposed capability right away to secure funding,
generally several years before actual product development begins and
before OSD formally reviews the services' programming and budgeting
proposals. In the interim, the services have not only budgeted for
their proposed programs, but established a program office, conducted
their Analysis of Alternatives, and identified specific user
requirements. OSD's programming and budgeting review occurs at the back
end of the investment process, when it is difficult and disruptive to
make changes, such as terminating existing programs to pay for new,
higher priority programs.
These practices have contributed to the department starting more
programs than its resources can support. DOD defers much of the
additional cost of its programs into the future, resulting in what some
have characterized as a fiscal bow wave (illustrated in fig. 7). This
bow wave has grown at a pace that greatly exceeds DOD's annual funding
increases. The cost remaining for DOD's major weapons programs
increased almost 135 percent between 1992 and 2006, while the
department's annual funding level only increased 57 percent over that
same time period. If this trend goes unchecked, Congress will likely be
faced with a difficult choice: pull funds from other high-priority
federal programs to support DOD's acquisitions or accept less
warfighting capability than originally promised.
Figure 7: Costs Remaining Versus Annual Appropriations for Major
Defense Acquisitions:
[See PDF for image]
Source: DOD (data); GAO (analysis and presentation).
[End of figure]
DOD Commits to a Solution Earlier and with Less Knowledge:
DOD commits to a solution to address a warfighting need earlier in the
investment process than commercial companies do and before it has
adequate knowledge about cost and technical feasibility. Proposed
options for resolving a gap in military capability are submitted in an
Initial Capabilities Document (ICD). DOD guidance states that this
document should contain a range of approaches based in part on the cost
and technological feasibility posed by the approaches, laying the
foundation for a more detailed Analysis of Alternatives to be conducted
under the Defense Acquisition System. In addition, JROC is to receive a
briefing on the ICD that follows a standard format and addresses such
issues as:
* linkage of the proposal to strategic guidance;
* the time frame within which the capability is needed;
* the threat/operational environment;
* risks and assumptions (including the risk associated with proceeding
and not proceeding with solutions to each); and:
* a description of the best materiel and non-materiel approaches based
upon cost, efficacy, performance, technology maturity, and risk.
Although DOD guidance calls for the analysis of a solution's cost and
feasibility, we found that ICDs contained little of this type of
information. Several DOD officials we met with, who are directly
involved in the JCIDS process, did not believe cost and feasibility
information was mandated at this point. In our review of 14
unclassified ICDs approved by JROC from 2003-06, we found that 11 did
not contain acquisition cost estimates and 12 did not contain estimates
of the technical feasibility of proposed solutions.[Footnote 26] We
also found that JCIDS guidance does not specify the level of accuracy
sought in cost and feasibility estimates, and a white paper that does
provide recommendations in this regard is advisory.[Footnote 27]
We found that ICDs generally focused on the strategic, or operational,
relevance of proposed solutions, but a lack of guidance and an evolving
methodology have raised questions about the accuracy of data supporting
those assessments. JCIDS uses new joint warfighting concepts[Footnote
28] to translate top-level military strategy into the capabilities a
commander might need on the battlefield. The joint concepts underpin a
capabilities-based approach[Footnote 29] to identifying requirements,
in which analyses are expected to focus on broad military capabilities
rather than service-specific platforms. However, the joint concepts and
capabilities-based assessments are works in progress. The concepts are
being updated due to concerns about their scope, and guidance on
conducting a capabilities-based analysis has been lacking. Several DOD
officials we met with stated that assessments vary in their rigor, and
a senior Joint Staff official said that training on requirements
development is one of three central challenges at present. In January
2007, we reported that DOD officials described concerns about the
analytical framework for a capabilities-based assessment on joint
seabasing, which could lead to inaccurately identifying gaps in
implementing the concept.[Footnote 30] Enhancing a seabasing capability
is expected to be costly and could be the source of billions of dollars
of investment if DOD chooses an option involving the development of new
ships.
DOD does not consistently follow a disciplined review process to ensure
that proposed solutions are making progress toward an executable
development program, although DOD policy emphasizes that such reviews
are necessary.[Footnote 31] DOD's policy identifies several key
decision points prior to starting a new weapon system development
program:
* an initial decision point, where the Initial Capabilities Document is
reviewed, validated, and approved by the JROC;
* a Concept Decision review, where entry into the concept refinement
phase of the Defense Acquisition System should be authorized; and:
* a Milestone A decision point, where a preferred solution and a
technology development strategy should be reviewed and
approved.[Footnote 32]
Since Initial Capabilities Documents generally do not contain
information on cost and technical feasibility, the JROC does not have a
sufficient basis for making go/no-go decisions at the initial decision
point. In the 4 years since JCIDS was implemented, nearly all of the
warfighting needs identified by the services and submitted for review
in an ICD have been validated and sent into the acquisition pipeline
for further analysis as potential programs, which calls into question
whether go/no-go decisions are the point of this first key gate.
Information on cost and feasibility is generally developed after the
ICD is approved and proposed solutions undergo further refinement
through an Analysis of Alternatives (AOA). An AOA should compare
alternative solutions in terms of life-cycle cost, schedule, and
operational effectiveness, leading up to the identification of a
preferred alternative. However, officials from PA&E and the Joint Staff
indicate that AOAs often make a case for a single preferred solution.
Several of them indicated other concerns about AOAs, such as not
setting up trade-off discussions, lack of analytical rigor, length, and
timeliness.
In any case, the next review points--the Concept Decision and Milestone
A--are often skipped; thus, the opportunity to review an evolving
business case and to make go/no-go decisions is bypassed. In prior
work, we found that 80 percent of the programs we reviewed entered the
Defense Acquisition System at Milestone B without holding any prior
major reviews,such as a Milestone A review.[Footnote 33] Such reviews
are intended to provide acquisition officials with an opportunity to
assess whether program officials had the knowledge needed to develop an
executable business case. Senior officials with OSD confirmed that this
is a common practice among defense acquisition programs. We concluded
that this practice eliminates a key opportunity for decision makers to
assess the early product knowledge needed to establish a business case
that is based on realistic cost, schedule, and performance
expectations. In addition, we found that programs are regularly
approved to begin development even though officials reported levels of
knowledge below the criteria suggested in DOD's acquisition policy.
There is, then, generally little department-level oversight between the
point at which an ICD is approved and when system-level requirements
are validated and product development is initiated. At this point, as
we indicated earlier, there is generally no turning back, because the
services have invested considerable time and money, established a
budget, and formed a constituency for a proposed program, and decision
makers become reluctant to terminate a program or send it back for
further study.
DOD Is Piloting Several Initiatives to Address Disconnects in
Investment Decision-making:
In response to the 2006 Quadrennial Defense Review and other recent
acquisition reform studies,[Footnote 34] DOD has undertaken several
key, interrelated initiatives intended to strengthen the department's
approach to investment decisions. The initiatives include (1) taking a
new approach to reviewing proposed concepts that will provide decision
makers with an early opportunity to evaluate trade-offs among
alternative approaches to meeting a capability need, (2) testing
portfolio management approaches in selected capability areas to
facilitate more strategic choices about how to allocate resources
across programs, and (3) using capital budgeting as a potential means
to stabilize program funding. While promising, these initiatives do not
fundamentally change DOD's existing service-centric framework for
making weapon system investment decisions.
To address a perceived gap between DOD's major decision-making
processes and provide a department-level means to assess potential
solutions (materiel and non-materiel) to fill a validated capability
need, DOD is testing a new approach to a Concept Decision review, which
will take place after a warfighting need is validated by the JROC. This
new approach is intended to focus attention on the affordability and
feasibility of potential solutions and generate early cost, schedule,
and performance trade-offs prior to the point of a significant
investment commitment. As currently proposed, the Concept Decision will
be informed by a newly required Evaluation of Alternatives that will
integrate the Functional Solutions Analysis conducted under JCIDS with
the Analysis of Alternatives conducted under the acquisition system and
lay out the relative merits and limitations of potential solutions.
Furthermore, concept decision reviews will be implemented by a tri-
chair board consisting of lead decision makers from the JCIDS, PPBE,
and DAS processes. While promising, the Concept Decision review largely
reinstitutes a review point that already existed but was only
intermittingly used. For Concept Decision reviews to be effective, DOD
will have to establish enforcement and accountability mechanisms to
ensure the reviews are actually implemented. In addition, the extent to
which the concept reviews can achieve desired effects will depend on
what authority Concept Decisions carry and who will be held
accountable, particularly in light of the service-dominated investment
structure that currently exists.
The department has also begun to pilot-test capability-based portfolio
management, selecting four joint capability areas to focus on--joint
command and control, joint net-centric operations, battlespace
awareness, and joint logistics. The intent is to enable the department
to develop and manage capabilities, as opposed to simply individual
programs, and enhance the integration and interoperability within and
across sets of capabilities. Each portfolio is being structured
somewhat differently to help the department determine how best to
proceed with portfolio management. All, however, are intended to focus
initially on existing programs and to operate within DOD's existing
decision-making framework. The portfolios are largely advisory and
will, as a first step, provide input to decisions made through the
JCIDS, PPBE, and DAS processes. At this point, the capability portfolio
managers have not been given direct authority to manage fiscal
resources and make investment decisions. Without portfolios in which
managers have authority and control over resources, DOD is at risk of
continuing to develop and acquire systems in a stovepiped manner and of
not knowing whether its systems are being developed within available
resources.
DOD is also examining the use of capital accounts as a potential means
of stabilizing program funding, which has long been cited as a
significant issue in program management. This capital budgeting pilot
initiative is in the early stages of planning, and the specifics of how
such accounts will be implemented are being developed, but the intent
is for DOD to commit a set amount of funding for the development
portion of a project and hold to that commitment by not adjusting
funding up or down until the product is delivered. In addition to
resource constraints, programs would be given a fixed amount of time to
get from one milestone to the next. If successful, this initiative
could represent a step toward stabilizing long-term costs within major
defense acquisition programs, as well as a strengthening of the ability
of program managers to conduct long-term planning and control costs.
However, for this initiative to be effective, DOD will need to overcome
long-standing problems it has had in starting programs without
sufficient knowledge of the costs, requirements, and technologies
needed to develop proposed weapon systems. Unless this changes, it is
unlikely that capital accounts will lead to increased program
stability.
Conclusions:
While DOD has increasingly strengthened its ability to operate as a
joint force on the battlefield, the department's organizational
structures, processes, and practices for planning and acquiring weapon
systems are not similarly joint. Put simply, DOD largely continues to
base its investment decisions on service-driven analyses that do not
provide an enterprise-level understanding of overall warfighting needs
and on individual platforms rather than broader sets of capabilities.
In contrast, successful commercial companies use an integrated
portfolio management approach to focus early investment decisions on
products collectively at an enterprise level and to ensure there is a
sound basis to justify the commitment of resources. By following a
disciplined, integrated process--where the relative pros and cons of
market opportunities and competing product proposals are assessed based
on available resources and customer needs, and where tough decisions
about which investments to pursue are made--companies are able to
reduce duplication between business units, move away from
organizational stovepipes, and effectively support each new development
program they commit to. Until DOD takes a joint, portfolio management
approach to weapon system acquisition--with functionally aligned
entities that have the requisite responsibility, authority, and control
over resources--it will continue to struggle to effectively prioritize
warfighting needs, make informed trade-offs, and achieve a balanced mix
of weapon systems that are affordable, feasible, and provide the best
military value to the warfighter. Committing to more programs than the
budget can support and approving programs based on insufficient
knowledge to effectively manage risks will further delay providing
critical capabilities to the warfighter and lead to lost opportunities
to address other current and emerging needs.
Recommendations:
We recommend that the Secretary of Defense implement an enterprise-wide
portfolio management approach to making weapon system investments that
integrates the assessment and determination of warfighting needs with
available resources and cuts across the services by functional or
capability area. To ensure the success of such an approach, the
Secretary should establish a single point of accountability at the
department level with the authority, responsibility, and tools to
ensure that portfolio management for weapon system investments is
effectively implemented across the department.
In addition, the Secretary should ensure that the following commercial
best practices, identified in this report, are incorporated:
* implement a review process in which needs and resources are
integrated early and in which resources are committed incrementally
based on the achievement of specific levels of knowledge at established
decision points;
* prioritize programs based on the relative costs, benefits, and risks
of each investment to ensure a balanced portfolio;
* require increasingly precise cost, schedule, and performance
information for each alternative that meets specified levels of
confidence and allowable deviations at each decision point leading up
to the start of product development;
* establish portfolio managers who are empowered to prioritize needs,
make early go/no-go decisions about alternative solutions, and allocate
resources within fiscal constraints; and:
* hold officials at all levels accountable for achieving and
maintaining a balanced, joint portfolio of weapon system investments
that meet the needs of the warfighter within resource constraints.
We also recommend that the Secretary take steps to support department-
level decision makers and portfolio managers by developing a stronger
joint analytical capability to assess and prioritize warfighting needs.
Agency Comments and Our Evaluation:
DOD provided us with written comments on a draft of this report. The
comments appear in appendix II.
DOD concurred with the majority of our recommendations and partially
concurred with two. Generally, in responding to these recommendations,
DOD stated that it is undertaking several initiatives and pilot efforts
to improve the department's approach to investment and program decision
making, and that implementation of any new business rules will be
contingent upon the outcome of these initiatives. The department also
stated that it is experimenting with portfolio management, related
authorities and organizational constructs, and integrated decision-
making processes.
We believe that these initiatives and pilot efforts may be steps in the
right direction, but we are concerned that they do not go far enough to
address the systemic cultural and structural problems identified in
this report. DOD has attempted many similar acquisition reform efforts
over the past 3 decades, including significant revisions to both
defense requirements and acquisition policy. However, despite these
efforts, weapon system acquisition programs continued to experience
cost overruns, schedule slips, and performance shortfalls. The
department's current initiatives are likely to face the same fate
because they do not fundamentally change DOD's service-centric
framework or sufficiently integrate its decision-making processes for
making weapon system investments.
DOD did not provide comments regarding our recommendation that the
Secretary establish a single point of accountability at the department
level with the authority, responsibility, and tools to ensure that
portfolio management for weapon system investments is effectively
implemented across the department. We believe that a single point of
accountability is necessary to successfully implement a portfolio
management approach and integrate DOD's fragmented decision-making
processes under one senior official who is accountable for weapon
system investment outcomes. We further believe that our recommendations
would better position DOD to make tough, knowledge-based choices among
potential weapon system investments.
We are sending copies of this report to the Secretary of Defense; the
Secretaries of the Air Force, Army, and Navy; and the Director of the
Office of Management and Budget. We will provide copies to others on
request. This report will also be available at no charge on GAO's Web
site at http://www.gao.gov.
If you have any questions about this report or need additional
information, please call me at (202) 512-4841 (sullivanm@gao.gov). Key
contributors to this report were John Oppenheim, Assistant Director;
Lily Chin; John Krump; Matthew Lea; Travis Masters; Sean Seales; Karen
Sloan; Susan Woodward; and Rebecca Yurman.
Signed by:
Michael J. Sullivan:
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report examines the Department of Defense's (DOD) requirements
identification and resource allocation processes for major weapons
systems. The primary focus is on identifying successful private-sector
principles and practices that could be adopted by DOD to help improve
stability in weapon system acquisition programs. Specifically, our
objectives were to (1) identify best practices of successful commercial
companies for ensuring that they pursue the right mix of programs to
meet the needs of their customers within resource constraints and (2)
compare DOD's enterprise-level processes for investing in weapon
systems to those practices. Our work was conducted between March 2006
and February 2007, in accordance with generally accepted government
auditing standards.
We analyzed the outputs of DOD's investment decision-making support
processes--the requirements determination process known as JCIDS and
the resource allocation process known as PPBE--using criteria
established in DOD policy and in previous GAO reports. We identified
impacts of the existing processes by analyzing quantitative and
qualitative data on DOD spending trends, conducting interviews with DOD
officials, and reviewing previous reports by GAO and by other
knowledgeable audit and research organizations. In addition, we met
with officials representing the Office of the Secretary of Defense,
Joint Staff, and military services. At each of these locations, we
conducted interviews that helped us describe the current condition of
DOD's requirements identification and resource allocation processes. We
also reviewed DOD and military service policies and funding documents
pertaining to the DOD requirements identification process and resource
allocation decisions for major weapons systems. Specifically, we
reviewed the contents of 14 unclassified Initial Capability Documents
that were finalized after June 24, 2003--the publication date for the
JCIDS instruction--to assess the extent to which they contained cost
and technical feasibility information. Those 14 ICDs were unclassified,
weapon system-related ACAT I, II, or III ICDs that were contained in
the Joint Staff requirements database. We relied on previous GAO
reports that highlight both the symptoms and causes of unstable
requirements and funding in DOD weapons acquisition programs. A list of
these reports can be found at the end of this report. In addition, we
reviewed recent key studies and reports addressing acquisition reform
issues by the Center for Strategic International Studies, Institute for
Defense Analysis, the U.S. Naval War College, the Defense Acquisition
Performance Assessment Project, the Joint Defense Capabilities Study
Team, the Joint C4ISR Decision Support Center, the Defense Science
Board, and the 2001 and 2005 Quadrennial Defense Reviews.
We also reviewed pertinent literature from authoritative corporate,
academic, and professional organizations, to identify commercial best
practices and processes that could be used by DOD to improve its weapon
system investment decision-making processes. In addition we conducted
case studies of five leading commercial companies. In selecting them,
we sought to identify companies that were recognized in the literature
for best practices, had large and diversified portfolios of products,
and make significant investments in the development and production of
new products. For each of the companies, we interviewed management
officials knowledgeable about their requirements identification and
resource allocation activities, to gather consistent information about
processes, practices, and metrics the companies use to help achieve
successful product development outcomes. Below are descriptions of the
five companies featured in this report:
Motorola:
Motorola is a Fortune 100 global communications leader that provides
seamless mobility products and solutions across broadband, embedded
systems, and wireless networks. According to Motorola's 2005 Corporate
Profile, the company is the market leader in mission critical wireless
communication systems, two-way radios, embedded telematics systems,
digital set-top shipments, cable modem shipments, digital head-ends,
embedded computer systems for communication applications, CDMA
infrastructure sales (excluding the United States), and second in world
wide wireless handsets. Motorola achieved net sales of $31.323 billion
and spent $3.060 billion on research and development in 2004. The
corporation has approximately 68,000 employees, in 320 facilities,
spanning 73 countries. We met with the management of Motorola's
Government & Enterprise Mobility Solutions and Global Telecom Solutions
sectors in Schaumburg, Illinois.
International Business Machines (IBM):
IBM is one of the world's largest technological companies, spending
about $3 billion annually on research and development activities. It is
the largest supplier of hardware, software, and information technology
services. With 3,248 U.S. patents, IBM earned more patents than any
other company for the 12th consecutive year in 2004. In the past 4
years, IBM inventors received more than 13,000 patents--approximately
5,400 more than any other patent recipient. IBM has over 329,000
employees worldwide. We met with managers from IBM Integrated Product
Development (IPD) in Somers, New York.
Procter & Gamble (P&G):
Procter & Gamble Corp. (P&G) is a leading producer of consumer goods.
It currently leads in global sales and marketshare among all fabric
care, baby care, feminine care, and hair care products. It currently
has over 130,000 employees in 80+ countries. Twenty-two of its brands
have annual gross sales exceeding $1 billion each. In fiscal year 2005/
2006, P&G invested $2.075 billion or 3 percent of net sales in research
and development (R&D). This ranks them as one of the top 20 largest
research & development investors among U.S.-based companies. P&G has
more Ph.D.s working in labs around the world than the combined science
and engineering faculties of Harvard, MIT, and Berkeley. We met with
the management of P&G's New Initiative Delivery team in Cincinnati,
Ohio.
Eli Lilly Corporation:
Eli Lilly is a global pharmaceutical company and one of the world's
largest corporations. It was founded over 130 years ago and currently
employs approximately 42,000 people worldwide, including 13,991
employed at its headquarters in Indianapolis, Ind. Approximately 8,336
employees (19 percent of the total work force) are engaged in research
and development (R&D); clinical research is conducted in over 50
countries; there are R&D facilities in 9 countries; and manufacturing
plants in 13 countries. Its products are marketed in 143 countries.
Lilly's net sales in 2005 were $14.6 billion. Eli Lilly strives to grow
sales by 6 percent to 7 percent each year. In 2005, $3 billion was
spent on R&D, a $334.4 million increase from the previous year.
Currently, R&D represents 20.7 percent of sales. Lilly's total R&D
investment in the last 5 years from continuing operations was $12.5
billion. We met with managers from Eli Lilly's Corporate Headquarters
in Indianapolis, Ind.
Caterpillar Corporation:
Caterpillar is a technology leader and the world's leading manufacturer
of construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines. In 2005, its total sales and revenues were
$36.3 billion, and its total R&D expenditures exceeded $1 billion,
compared with $20.5 billion sales and $696 million R&D in 2001. Between
2001 and 2005, the average return on equity of its stockholders' shares
more than doubled. Caterpillar has over 85,000 employees, and over
105,000 people are employed by Caterpillar's dealers worldwide. We met
with managers responsible for Caterpillar's New Product Introduction
(NPI) process in Peoria, Illinois.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
3000 Defense Pentagon:
Washington, DC 20301-3000:
Acquisition, Technology And Logistics:
Mr. Michael J. Sullivan:
Director, Acquisition and Sourcing Management:
U. S. Government Accountability Office:
441 G. Street, N. W.
Washington, DC 20548:
Mar 21 2007:
Dear Mr. Sullivan:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-07-388 "Best Practices: An Integrated Portfolio Management
Approach to Weapon System Investments Could Improve DoD's Acquisition
Outcomes," dated February 14, 2007 (GAO Code 120516).
The DoD concurs with five recommendations and partially concurs with
two of the draft report recommendations. The rationale for our position
is included in the enclosure.
We appreciate the opportunity to comment on the draft report. My point
of contact for this effort is Mr. David Crim, (703) 697-5385,
david.crim@osd.mil:
Sincerely,
Signed by:
Dave G. Ahem:
Director:
Portfolio Systems Acquisition:
Enclosure:
As stated:
GAO Draft Report Dated February 14, 2007 GAO-07-388 (GAO Code 120516):
"Best Practices: An Integrated Portfolio Management Approach To Weapon
System Investments Could Improve Dod's Acquisition Outcomes"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: The GAO recommended that the Secretary of Defense
implement an enterprise-wide portfolio management approach to making
weapon system investments that integrates the assessment and
determination of warfighting needs with available resources and cuts
across the services by functional or capability area. (p. 25/GAO Draft
Report):
DOD Response: Concur. As noted in the report, in response to the 2006
Quadrennial Defense Review (QDR) and other recent acquisition reform
studies, the DoD is undertaking several initiatives and pilot
activities to improve the department's approach to investment and
program decision making. These initiatives take into account many of
the best practices employed by commercial industry as described in the
report, including corporate-level priorities, a framework linking
strategic goals to plans and budgets, and performance metrics.
Implementation of any new business rules will be contingent upon the
outcome of these pilot initiatives, a thorough understanding of the
best overall approach, and the overall benefits gained.
Recommendation 2: The GAO recommended that the Secretary of Defense
implement a review process in which needs and resources are integrated
early and in which resources are.committed incrementally based on the
achievement of specific levels of knowledge at decision points. (p. 26/
GAO Draft Report):
DOD Response: Concur. As noted in the report, in response to the 2006
QDR and other recent acquisition reform studies, the DoD is undertaking
several initiatives and pilot activities to integrate the department's
major decision processes. Concept Decision and Capital Accounts are two
examples of such initiatives that are consistent with this report
recommendation. Foundational to these and other pilot activities is
available knowledge to support senior leader decision making at key
points in the life cycle. The Department's efforts to promote
transparent data, along with its major decision processes support the
incremental commitment of resources. Implementation of any new business
rules will be contingent upon the outcome of these initiatives, a
thorough understanding of the best overall approach and the overall
benefits gained.
Recommendation 3: The GAO recommended that the Secretary of Defense
prioritize programs based on the relative costs, benefits, and risks of
each investment to ensure a balanced portfolio. (p. 26/GAO Draft
Report):
DOD Response: Partially Concur. As noted in the report, in response to
the 2006 QDR and other recent acquisition reform studies, the DoD is
undertaking several initiatives to enable strategic choice. This
involves balancing resources at three levels: strategic, portfolio and
program levels. Implementation of any new business rules will be
contingent upon the outcome of initiatives focused in this area, a
thorough understanding of the best overall approach and the overall
benefits gained.
Recommendation 4: The GAO recommended that the Secretary of Defense
require increasingly precise cost, schedule, and performance
information for each alternative that meet specified levels of
confidence and allowable deviations at each decision point leading up
to the start of product development. (p. 26/GAO Draft Report):
DOD Response: Concur. As noted in the report, in response to the 2006
QDR and other recent acquisition reform studies, the DoD is undertaking
several initiatives and pilot activities to improve the department's
approach to investment and program decision making. Implementation of
any new business rules will be contingent upon a thorough understanding
of the best overall approach and the overall benefits gained.
Recommendation 5: The GAO recommended that the Secretary of Defense
establish portfolio managers who are empowered to prioritize needs,
make early go/no-go decisions about alternative solutions, and allocate
resources within fiscal constraints. (p. 26/GAO Draft Report):
DOD Response: Partially Concur. As noted in the report, in response to
the 2006 QDR and other recent acquisition reform studies, the DoD is
undertaking several initiatives and pilot activities to experiment with
Capability Portfolio Management. We have selected four highly joint
areas with which to initiate a portfolio construct, and are
experimenting with their participation and integration in the
Department's major processes, as well as with their authorities and
organizational constructs. Implementation of any new business rules
will be informed by the experience gained and information gathered from
the Capability Portfolio management effort and based on a thorough
understanding of the best overall approach and the overall benefits
gained.
Recommendation 6: The GAO recommended that the Secretary of Defense
hold officials at all levels accountable for achieving and maintaining
a balanced, joint portfolio of weapon system investments that meet the
needs of the warfighter within resource constraints. (p. 26/GAO Draft
Report):
DOD Response: Concur. In response to the 2006 QDR, the Department
developed an execution roadmap for Institutional Reform and Governance.
This roadmap is aimed at improving the defense enterprise by creating
more integrated and responsive decision making processes, organizations
and business practices. The roadmap seeks to develop a decision
management approach that enables a clear and transparent link from
strategy to outcomes. The approach will clearly delineate decision
making responsibilities of the governance, management and execution
levels of the Department. It will also enable senior leadership to
focus on strategic choice and empower management to carry out their
responsibilities in a manner that ensures transparency, accountability,
and sound performance management. An example acquisition transformation
initiative is the utilization of a senior-level Tri-Chaired Committee
that integrates Department-wide acquisition processes to conduct
Concept Decision Reviews. The Concept Decision Review goal is to
ensure, as early as possible, that DoD is making the right corporate
investment choices, balancing operational and programmatic risks, to
ensure that those choices are affordable, and that any resulting non-
materiel solutions and/or materiel acquisitions are designed for
lifecycle success.
Recommendation 7: The GAO recommended that the DoD take steps to
support department level decisions-makers and portfolio managers by
developing a stronger joint analytical capability to assess and
prioritize warfighting needs. (p. 26/GAO Draft Report):
DOD Response: Concur. As part of the overall Institutional Reform and
Governance effort described above, we will work to improve the
Department's analytic framework, build more transparent business
information across the Department, integrate decision processes to
enable strategic choice and align roles and responsibilities in a way
that maximizes decision making effectiveness across the enterprise. As
an example, the Department is continuing to develop its weapon system
readiness and sustainment modeling capabilities. Such models are aimed
at enhancing the ability of acquisition and sustainment professionals
to assess, for example, trade-offs between alternative investments in
elements such as sustainment capabilities, support structures, cycle
times, reliability, and alternative policies. The goal of these
modeling capabilities is to ensure that DoD can make the intelligent,
informed resource application decisions that will optimize acquisition
and sustainment operations and maximize achieved materiel readiness at
optimum total weapon systems ownership cost. Such modeling capabilities
support the ongoing integration of acquisition and sustainment
activities into an end-to-end continuum.
[End of section]
Related GAO Products:
Best Practices: Stronger Practices Needed to Improve DOD Technology
Transition Processes. GAO-06-883. Washington, D.C.: September 14, 2006.
Defense Acquisitions: Major Weapon Systems Continue to Experience Cost
and Schedule Problems under DOD's Revised Policy. GAO-06-368.
Washington, D.C.: April 13, 2006.
DOD Acquisition Outcomes: A Case for Change. GAO-06-257T. Washington,
D.C.: November 15, 2005.
Defense Acquisitions: Stronger Management Practices Are Needed to
Improve DOD's Software-Intensive Weapon Acquisitions. GAO-04-393.
Washington, D.C.: March 1, 2004.
Best Practices: Setting Requirements Differently Could Reduce Weapon
Systems' Total Ownership Costs. GAO-03-57. Washington, D.C.: February
11, 2003.
Best Practices: Capturing Design and Manufacturing Knowledge Early
Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.: July 15,
2002.
Defense Acquisitions: DOD Faces Challenges in Implementing Best
Practices. GAO-02-469T. Washington, D.C.: February 27, 2002.
Best Practices: Better Matching of Needs and Resources Will Lead to
Better Weapon System Outcomes. GAO-01-288. Washington, D.C.: March 8,
2001.
Best Practices: A More Constructive Test Approach Is Key to Better
Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.: July 31,
2000.
Defense Acquisition: Employing Best Practices Can Shape Better Weapon
System Decisions. GAO/T-NSIAD-00-137. Washington, D.C.: April 26, 2000.
Best Practices: DOD Training Can Do More to Help Weapon System Programs
Implement Best Practices. GAO/NSIAD-99-206. Washington, D.C.: August
16, 1999.
Best Practices: Better Management of Technology Development Can Improve
Weapon System Outcomes. GAO/NSIAD-99-162. Washington, D.C.: July 30,
1999.
Defense Acquisitions: Best Commercial Practices Can Improve Program
Outcomes. GAO/T-NSIAD-99-116. Washington, D.C.: March 17, 1999.
Defense Acquisition: Improved Program Outcomes Are Possible. GAO/T-
NSIAD-98-123. Washington, D.C.: March 17, 1998.
Best Practices: DOD Can Help Suppliers Contribute More to Weapon System
Programs. GAO/NSIAD-98-87. Washington, D.C.: March 17, 1998.
Best Practices: Successful Application to Weapon Acquisition Requires
Changes in DOD's Environment. GAO/NSIAD-98-56. Washington, D.C.:
February 24, 1998.
Best Practices: Commercial Quality Assurance Practices Offer
Improvements for DOD. GAO/NSIAD-96-162. Washington, D.C.: August 26,
1996.
FOOTNOTES
[1] GAO, Defense Acquisitions: Actions Needed to Get Better Results on
Weapons Systems Investments, GAO-06-585T (Washington, D.C.: Apr. 5,
2006).
[2] GAO, Defense Acquisitions: Major Weapon Systems Continue to
Experience Cost and Schedule Problems under DOD's Revised Policy, GAO-
06-368 (Washington, D.C.: Apr. 13, 2006).
[3] S.Rep.No. 109-69 at 343-346 (2005).
[4] The Senate mandate specifically asked GAO to review the
requirements and budgeting portions of DOD weapon system acquisition.
Therefore, we do not focus on the DAS in this report. GAO has, however,
produced a body of best practices work focusing on the DAS; many of
those reports are listed in the related GAO products section of this
report.
[5] GAO, Defense Acquisitions: Assessments of Selected Major Weapon
Programs, GAO-07-406SP (Washington, D.C.: Mar. 30, 2007).
[6] GAO, Best Practices: Capturing Design and Manufacturing Knowledge
Early Improves Acquisition Outcomes, GAO-02-701 (Washington, D.C.: July
15, 2002); Best Practices: Better Matching of Needs and Resources Will
Lead to Better Weapon System Outcomes, GAO-01-288 (Washington, D.C.:
Mar. 8, 2001); and Best Practices: Better Management of Technology
Development Can Improve Weapon System Outcomes, GAO/NSIAD-99-162
(Washington, D.C.: July 30, 1999).
[7] IBM focuses on providing its customers with what it calls "industry
integrated solutions." As a result, portfolios within IBM are
structured around the customers' and buyers' behaviors and needs and
not on specific product offerings. In other words, the company focuses
on providing functional solutions to the customers, which could be done
with a number of product offerings and services, and not simply
limiting themselves to narrowly focused, single product solutions that
the customer can take or leave, an approach that IBM believes caused
problems for the company in the past.
[8] According to Eli Lilly representatives, the average cost to
discover and develop a new drug ranges from $800 million to $1 billion,
and the average length of time to get a new drug from discovery to the
market is 10 to 15 years.
[9] Companies commonly measure rewards and benefits using cash flow
analysis known as net present value (NPV) analysis. NPV techniques can
show, in today's dollars, the relative net cash flow of various
alternatives over a long period of time. Simply stated, net cash flow
is the amount of dollars that is left after sales and revenues have
offset expenses. In general, the greater the net cash flow for a
particular investment, the greater the return on the investment.
[10] GAO, Results-Oriented Cultures: Creating a Clear Linkage between
Individual Performance and Organizational Success, GAO-03-488
(Washington, D.C.: Mar. 14, 2003).
[11] Chairman of the Joint Chiefs of Staff Instruction, Joint
Capabilities Integration and Development System, CJCSI 3170.01E (May
11, 2005). The original instruction was CJCSI 3170.01C (June 24, 2003).
[12] The other capability areas are command and control, focused
logistics, force management, force protection, and joint training.
[13] Institute for Defense Analyses, Improving Integration of
Department of Defense Processes for Capabilities Development and
Planning (Sept. 2006); Center for Strategic and International Studies,
Beyond Goldwater-Nichols: Defense Reform for a New Strategic Era, Phase
1 Report (Mar. 2004); and Joint Defense Capabilities Study Team (DOD),
Joint Defense Capabilities Study: Improving DoD Strategic Planning,
Resourcing and Execution to Satisfy Joint Capabilities. Final Report
(Jan. 2004).
[14] Assessment Panel of the Defense Acquisition Performance Assessment
Project for the Deputy Secretary of Defense, Defense Acquisition
Performance Assessment Report (Jan. 2006); Center for Strategic and
International Studies, Beyond Goldwater-Nichols: U.S. Government and
Defense Reform for a New Strategic Era, Phase 2 Report (July 2005); and
M. Thomas Davis, "The JROC: Doing What? Going Where?" National Security
Studies Quarterly (Summer 1998).
[15] Sections 3013, 5013, and 8013 of Title 10 grant authority to the
Secretaries of the Army, the Navy, and the Air Force, respectively, to
conduct all affairs of their departments, including recruiting,
organizing, supplying, equipping, training, servicing, mobilizing,
demobilizing, administering, maintaining, and military construction and
maintenance.
[16] GAO, Military Transformation: Actions Needed by DOD to More
Clearly Identify Triad Spending and Develop a Long-term Investment
Approach, GAO-05-540 (Washington, D.C.: June 30, 2005).
[17] The Major Force Programs are as follows: Strategic Forces; General
Purpose Forces; Command, Control, Communications, and Intelligence;
Mobility Forces; Guard and Reserve Forces; Research and Development;
Central Supply and Maintenance; Training, Medical, and other General
Personnel Activities; Administration and Associated Activities; Support
of Other Nations; and Special Operations Forces.
[18] 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).
[19] The fiscal framework of the federal government constrains DOD's
ability to totally control its investment allocations. Ultimately
resource allocation decisions are made by the Congress in the annual
authorization and appropriations process.
[20] The 2006 Quadrennial Defense Review led to the Institutional
Reform and Governance project, which is focusing on (1) integrating
core decision processes, (2) aligning and focusing the department's
governance and management functions under an integrated enterprise
model, as well as (3) establishing a common and authoritative
analytical framework to link strategic decisions to execution.
[21] Assessment Panel of the Defense Acquisition Performance Assessment
Project for the Deputy Secretary of Defense, Defense Acquisition
Performance Assessment Report (January 2006).
[22] GAO, Department of Defense: Sustained Leadership Is Critical to
Effective Financial and Business Transformation, GAO-06-1000T
(Washington, D.C.: Aug. 3, 2006); and 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).
[23] GAO, Defense Management: Additional Actions Needed to Enhance
DOD's Risk-Based Approach for Making Resource Decisions, GAO-06-13
(Washington, D.C.: Nov. 15, 2005).
[24] S. 780, 109th Cong. §1 (2005).
[25] DAS is an event-driven process structured into discrete phases
separated by major decision points called milestones that can be
tailored to individual programs.
[26] The 14 ICDs we reviewed are related to weapon systems and were
finalized after June 24, 2003 (the publication date for the initial
JCIDS instruction). They are unclassified ACAT I, II, or III ICDs
contained in the Joint Staff's Knowledge Management Decision Support
Tool database, which serves in part as a repository for JCIDS
documents.
[27] The white paper suggests roughly characterizing the 20-year-
lifecycle costs of proposed solutions in terms of developmental costs,
facility or infrastructure costs, per-unit and rough force-level
acquisition costs, and recurring operating costs. It states that rough
estimates of the technical feasibility of proposed solutions should be
developed, not at the engineering level because of the broad range of
possibilities, but at the least to characterize as no risk, very low
risk, low risk, medium risk, and high risk using legitimate technology
experts. "Whitepaper on Conducting a Capabilities-Based Assessment
Under the Joint Capabilities Integration and Development System," Joint
Chiefs of Staff J-8/Force Application Assessment Division (Jan. 2006).
[28] Joint future concepts are visualizations of future operations that
describe how a commander might employ warfighting capabilities to
achieve effects and objectives.
[29] The 2001 Quadrennial Defense Review directed DOD to implement a
capabilities-based planning approach. Capabilities-based planning has
been described as a framework for defense planning and decision making
in a strategic environment characterized by uncertainty and a fiscal
environment characterized by limited resources. See Paul K. Davis,
Analytic Architectures for Capabilities-Based Planning, Mission System
Analysis, and Transformation (Santa Monica, Calif.: RAND, 2002).
[30] GAO, Force Structure: Joint Seabasing Would Benefit from a
Comprehensive Management Approach and Rigorous Experimentation before
Services Spend Billions on New Capabilities, GAO-07-211 (Washington,
D.C.: Jan. 26, 2007). Joint seabasing is one of several evolving
concepts describing how commanders in the future will project and
sustain forces for conducting joint military operations without relying
on immediate access to nearby land bases.
[31] CJCSI 3170.01E , Joint Capabilities Integration and Development
System; DODI 5000.2, Operation of the Defense Acquisition System.
[32] The JROC has another decision point just prior to program
initiation, when it reviews, validates, and approves a Capabilities
Development Document. Approval and validation of a Capabilities
Development Document is a key entrance criteria for initiating a new
development program at Milestone B. We did not include the Capabilities
Development Document decision point in our current review because it is
closely associated with Milestone B, the focus of many of our former
reviews. See the list of related GAO products on the last pages of this
report.
[33] GAO, Defense Acquisitions: Major Weapon Systems Continue to
Experience Cost and Schedule Problems under DOD's Revised Policy, GAO-
06-368 (Washington, D.C.: Apr. 13, 2006). Our review focused on the
Concept Decision and Milestone A reviews points and did not assess the
extent to which JROC reviews were held.
[34] Defense Acquisition Performance Assessment (January 2006); Defense
Science Board Summer Study on Transformation: A Progress Assessment
(February 2006); Beyond Goldwater-Nichols: U.S. Government and Defense
Reform for a New Strategic Era, Phase 2 Report (July 2005); and Joint
Defense Capabilities Study (January 2004).
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