Page 1 GAO-01-514R Defense Planning

United States General Accounting Office

Washington, DC 20548 

March 20, 2001 

The Honorable Donald H. Rumsfeld 

Secretary of Defense 

Subject: Defense Planning: Opportunities to Improve Strategic Reviews 

Dear Mr. Secretary: 

For the past several years, the General Accounting Office (GAO) has reviewed the 

Department of Defense’s (DOD) efforts to strategically plan for the nation’s defense 

needs and prepare related budgets. In particular, we evaluated DOD’s methodology 

for conducting the 1993 Bottom-Up Review and the 1997 Quadrennial Defense 

Review (QDR), and its preparation of several Future Years Defense Programs 

(FYDP). As the Department begins a new effort to review its strategic priorities, 

consider alternatives to current forces, weapons programs, and support operations, 

and reach investment decisions, we would like to share some observations based on 

our past work for your consideration. In particular, these areas relate to the 

importance of 1) using realistic assumptions and integrated analyses to reach force 

structure and modernization decisions, 2) preparing FYDPs that clearly link strategy 

and resources, and 3) ensuring the Department’s review efforts carefully scrutinize 

opportunities to reduce support infrastructure and improve business processes. 

USE OF REALISTIC ASSUMPTIONS AND 

INTEGRATED ANALYSES NEEDED TO FULLY 

ASSESS FORCE STRUCTURE AND 

MODERNIZATION ALTERNATIVES 

Our evaluation of the 1993 Bottom-Up Review and the 1997 QDR identified 

limitations in DOD’s analytical approach to assessing defense needs and 

opportunities to strengthen future review efforts.1

 

 

1

 Bottom-Up Review: Analysis of Key DOD Assumptions (GAO/NSIAD-95-56, Jan. 31, 1995) and 

Quadrennial Defense Review: Opportunities to Improve the Next Review (GAO/NSIAD-97-144, 

June 25, 1998). 
Page 2 GAO-01-514R Defense Planning 

1993 Bottom-Up Review

In the Bottom-Up Review, DOD judged that it was prudent to maintain the capability 

to fight and win two nearly simultaneous major regional conflicts and determined the 

forces, capability improvements, and funding necessary to do so. However, DOD 

reached its conclusions without fully analyzing the validity of key assumptions it 

made regarding the availability of forces, supporting capabilities, and enhancements. 

Furthermore, some of DOD’s assumptions were questionable. 

For example, DOD assumed that forces would be redeployed from other operations, 

such as peacekeeping, to regional conflicts or between regional conflicts. However, 

our work showed that critical combat and support forces needed in the early stages 

of a conflict may not be able to quickly redeploy from peace operations because 

(1) certain Army support forces would need to remain to facilitate the redeployment 

of other forces and (2) logistics and maintenance support for specialized Air Force 

aircraft would have to wait for available airlift. DOD also assumed sufficient 

strategic lift assets, prepositioned equipment, and support forces would be available. 

However, at the time of our review in 1994 and 1995, our work showed that the Army 

lacked sufficient numbers of certain support units to meet requirements for a single 

conflict and that DOD had encountered problems or funding uncertainties in 

acquiring additional airlift and sealift and prepositioned equipment. 

Based on our work, we concluded that until DOD fully analyzed its assumptions, it 

would not have a firm basis for determining the forces, supporting capabilities, and 

funding needed for the strategy. We recommended that DOD thoroughly examine 

key Bottom-Up Review assumptions. In a subsequent war game called Nimble 

Dancer, DOD further analyzed its Bottom-Up Review assumptions and conclusions. 

While the war game provided a useful forum for identifying critical issues, we found 

limitations in its analysis.2

 For example, DOD examined the impact of extracting 

forces from peace operations and redeploying them to a major regional conflict, but 

did not test the sensitivity of its assumption that strategic lift would be available. 

 

2

 Bottom-Up Review: Analysis of DOD War Game to Test Key Assumptions (GAO/NSIAD-96-170, 

 June 21, 1996). 
Page 3 GAO-01-514R Defense Planning 

1997 QDR

The 1997 QDR, while broader in scope and more rigorous in some aspects than the 

1993 Bottom-Up Review, also had some limitations that precluded a full analysis of 

defense needs. One limitation was that it did not examine some alternatives that 

would have provided greater assurance that the review identified the force structure 

and the modernization program that were best suited to implement the defense 

strategy. For example, the QDR’s force assessments only modeled alternatives to cut 

the services’ forces proportionately by 10, 20, and 30 percent. It did not examine 

alternatives that would reduce or increase only ground forces or air power or naval 

forces. Furthermore, none of the assessments fully examined the potential effects of 

new technologies and war-fighting concepts on DOD’s planned force structure. 

The 1997 QDR also did not include a thorough mission-oriented review of the mix of 

capabilities the United States would need to counter future threats. For example, 

DOD analyzed modernization options that would reduce or increase planned funding 

for systems by up to 10 percent. It did not examine trade-offs or fundamentally 

reassess modernization needs in light of emerging threats and technological 

advances. 

Furthermore, the modernization and force structure analyses were not fully 

integrated. As a result, the QDR did not sufficiently examine linkages and trade-offs 

between force structure and modernization decisions. 

In addition to our Bottom-Up Review and QDR analyses, we previously reported on 

the benefits of looking at modernization and force structure from an integrated 

perspective. 

For example, in two 1996 reports on combat air power,3

 we noted that DOD was not 

developing sufficient information from a joint perspective to enable the Secretary of 

Defense to prioritize programs, objectively weigh the merits of new investments, and 

decide whether current programs should continue to receive funding. As a result, we 

concluded that DOD was proceeding with some major investments without clear 

evidence the programs were justified. Our assessments indicated that some 

modernization programs would add only marginally to already formidable 

capabilities. Moreover, the changed security environment had altered the need for 

some programs and, in some cases, less costly alternatives existed. Also, in a June 

1997 report on overseas presence,4

 we concluded that DOD’s process for determining 

presence requirements did not analyze whether more cost-effective alternatives—

different levels and mixes of forces and activities—might exist. 

Currently, DOD faces the same challenge as it did during the Bottom-Up Review and 

1997 QDR—developing an affordable defense program that provides the necessary 

 

3

 U.S. Combat Air Power: Reassessing Plans to Modernize Interdiction Capabilities Could Save Billions 

(GAO/NSIAD-96-72, May 13, 1996) and Combat Air Power: Joint Mission Assessments Needed Before 

Making Program and Budget Decisions (GAO/NSIAD-96-177, Sept. 20, 1996). 4

 Overseas Presence: More Data and Analysis Needed to Determine Whether Cost-Effective 

Alternatives Exist (GAO/NSIAD-97-133, June 3, 1997). 
Page 4 GAO-01-514R Defense Planning 

current and future military capabilities to support the U.S. strategy. While the DOD 

may approach the current effort differently, the need for strong analytic rigor in its 

review methodology remains. In this regard, our observations on the past efforts 

remain relevant today and can provide some useful insights as the Department plans 

and conducts its ongoing review (see enclosure II). 

NEED FOR MORE REALISTIC BUDGETING

Since the mid-1980s, we have reported that DOD employs overly optimistic planning 

assumptions in its budget formulation. As a result, DOD has too many programs for 

available dollars, which often leads to program instability, costly program stretchouts, and program terminations. In particular, our analysis of DOD’s budget 

formulation efforts since the mid-1980s and specific FYDPs for fiscal years 1995 

through 2001 shows that DOD’s FYDPs repeatedly include unrealistic estimates of 

savings from plans to reduce infrastructure, competitive sourcing, reengineering, and 

other defense reform initiatives. Also, it continues to underestimate operating costs 

for various activities such as real property maintenance, the Defense Health Program, 

and operations such as U.S. involvement in Kosovo and Bosnia. Furthermore, DOD 

continues to use projections for increased procurement funding that do not recognize 

significant historical experience with the proportional rise and fall of procurement 

funding to movements in the total budget. Because of these deficiencies, DOD’s 

ability to implement its program as planned is at risk, year after year. 

While DOD has made some adjustments to achieve a better balance in its financial 

plans to meet current requirements and address long-term modernization needs, a 

“mismatch” between strategy and resources continues to exist. The most recent 

FYDP covering fiscal years 2001 through 2005 continues this trend. As the 

Department prepares future FYDPs, we suggest you consider our observations on its 

past efforts (see enclosure III). 

IMPORTANCE OF FULLY EXAMINING 

SUPPORT INFRASTRUCTURE

AND BUSINESS PROCESSES DURING 

CURRENT REVIEW EFFORTS

The 1993 Bottom-Up Review and 1997 QDR emphasized the need to reduce DOD’s 

infrastructure to offset the cost of future modern weapons systems and to improve 

the effectiveness and efficiency of business processes. In November 1997, DOD 

announced the Defense Reform Initiative—a major effort to modernize the 

Department’s business processes and reduce its infrastructure costs. In 1999 and 

2000, we reported that DOD had made progress in implementing the reform 

initiative. 5 For example, DOD established a management oversight structure that 

helped get the initiative off to a good start and had completed or was likely to 

complete certain initiatives on schedule such as reorganizing and reducing staff in 

certain headquarters offices. To provide a roadmap for reform and help sustain 

 

5

 Defense Management: Actions Needed to Sustain Reform Initiatives and Achieve Greater Results

(GAO/NSIAD-00-72, Jul. 25, 2000) and Defense Reform Initiative: Organization, Status and Challenges

(GAO/NSIAD-99-87, Apr. 21, 1999). 
Page 5 GAO-01-514R Defense Planning 

momentum, we recommended that DOD develop a comprehensive, integrated 

strategy and action plan for reforming its major business processes and support 

activities, and an investment plan for implementing reforms. While the Department 

agreed with our recommendation, it did not specify what actions it would take and 

has not yet developed a long term integrated plan for implementing reform initiatives. 

In January 2001, we reported on the major management challenges facing DOD and 

risks in several interrelated areas of the defense program.6

 Focusing on strategic 

planning, support infrastructure, and key business processes such as financial 

management and information systems, weapons system acquisition, and logistics 

support systems, we summarized the Department’s progress in initiating reforms and 

areas requiring further improvements. For example, despite reform efforts, 

infrastructure costs continue to consume a larger than necessary portion of the 

defense budget and serious weaknesses continue to exist in logistics activities. 

In its past strategic reviews, the Department has focused substantial attention on 

analyzing force structure and modernization requirements. However, if problems on 

the business side of DOD’s mission are not addressed, inefficiencies will continue to 

make the cost of carrying out unassigned missions unnecessarily high and increase 

the risk associated with these missions. In this regard, each dollar that is spent 

inefficiently on support activities is a dollar that is unavailable to meet other internal 

priorities such as modernization and readiness. The current review offers an 

indispensable opportunity for the Department to assign high priority to addressing 

longstanding problems in its infrastructure and key business processes as we have 

recommended in our reports. 

I recognize the issues raised in this letter are not new and that you have already 

begun a strategic review as a precursor to determining specific defense needs and the 

appropriate level of resources for the defense program. A recurring theme of our 

work is that results-oriented management and decisionmaking based on sound 

strategic planning is essential to achieving desired outcomes. In this regard, major 

statutes such as the Government Performance and Results Act, the Clinger-Cohen 

Act, and the Chief Financial Officers Act provide a powerful framework for DOD to 

identify missions and strategic priorities, establish performance goals and data to 

measure the level of achievement of these goals, and make investment decisions 

based on strategic priorities and performance outcomes. I encourage you to 

seriously consider using this legislative framework as the foundation for the 

Department’s review efforts. 

- - - - 

 

6

 Major Management Challenges and Program Risks: Department of Defense (GAO-01-244, Jan. 2001). 
Page 6 GAO-01-514R Defense Planning 

I hope that the Department will consider our observations in its review efforts. If you 

think it beneficial, I would be glad to make members of my staff available to brief the 

Department in more detail on any of the subjects discussed in this letter. If you have 

any questions, please contact me at (202) 512-4300. 

Sincerely yours, 

Henry L. Hinton, Jr. 

Managing Director, 

Defense Capabilities and 

 Management 

 
Enclosure I Enclosure I 

 

Page 6 GAO-01-514R Defense Planning

Relevant GAO Products 

Future Years Defense Program: Risks in Operation and Maintenance Procurement 

Programs (GAO-01-33, Oct. 5, 2000). 

Future Years Defense Program: Comparison of Planned Funding Levels for the 2000 and 

2001 Programs (GAO/NSIAD-00-179, June 14, 2000). 

Future Years Defense Program: Funding Increase and Planned Savings in Fiscal Year 

2000 Program Are at Risk (GAO/NSIAD-00-11, Nov. 22, 1999). 

DOD Budget: Substantial Risks in Weapons Modernization Plans (GAO/T-NSIAD-99-20, 

Oct. 8, 1998). 

Future Years Defense Program: Substantial Risks Remain in DOD’s 1999-2003 Plan

(GAO/NSIAD-98-204, July 31, 1998). 

Defense Budget: Projected Inflation Savings (GAO/NSIAD-98-177R, May 11, 1998). 

Future Years Defense Program: DOD’s 1998 Plan Has Substantial Risk in Execution

(GAO/NSIAD-98-26, Oct. 23, 1997). 

Future Years Defense Program: Lower Inflation Outlook Was Most Significant Change 

From 1996 to 1997 Program (GAO/NSIAD-97-36, Dec. 12, 1996). 

Future Years Defense Program: 1996 Program Is Considerably Different From the 1995 

Program (GAO/NSIAD-95-213, Sept. 15, 1995). 

Future Years Defense Program: Optimistic Estimates Lead to Billions in 

Overprogramming (GAO/T-NSIAD-95-83, Jan. 19, 1995). 

Future Years Defense Program: Optimistic Estimates Lead to Billions in 

Overprogramming (GAO/NSIAD-94-210, July 29, 1994). 
Enclosure II Enclosure II 

Page 7 GAO-01-514R Defense Planning

GAO’s Key Observations and Recommendations or Suggestions on the Department of 

Defense’s 1993 Bottom-Up Review and 1997 Quadrennial Defense Review 

Area of focus Our observations Our recommendations or suggestions 

Bottom-Up 

Review analysis 

The Department of Defense (DOD) did not 

fully test or analyze key assumptions 

regarding the availability of forces and 

assets to redeploy from one theater to 

another, deployability of reserve forces, 

sufficiency of support capabilities such as 

mobility and support forces, and planned 

capability enhancements such as precision 

munitions were not fully tested and some 

were questionable. 

DOD should thoroughly examine 

assumptions related to the 

redeployment of forces and assets from 

lesser operations to major conflicts or 

between major conflicts, availability of 

mobility, support and reserve forces, 

and planned enhancements to strategic 

lift and firepower. 

QDR preparation DOD had not developed a formal process to 

prepare for and coordinate activities 

related to future Quadrennial Defense 

Reviews (QDR). DOD did not finalize the 

defense strategy until the force structure 

and modernization panels had completed 

much of their work. 

DOD should assign overall 

responsibility and coordination of 

preparation efforts for future QDRs. 

Such efforts should include to identify 

analytic tools and data needed for 

assessments, monitor efforts to 

upgrade models, summarize lessons 

learned, and consider changing the 

QDR structure and timing to allow 

sufficient time to conduct a strategy 

review and good analytic base. 

QDR structure 

and 

methodology 

DOD’s force structure assessments 

modeled only major theater warfare and 

did not examine alternatives other than 

proportional reductions to the services’

combat capabilities. 

In a QDR-war game, Dynamic Commitment, 

DOD analyzed the effect of small scale 

contingencies but did not identify or 

analyze changes to force structure. 

DOD’s modernization assessment reviewed 

proportional changes to existing plans but 

did not examine alternative mixes of air, 

ground, and maritime modernization. 

Modernization and force structure panels 

completed their analyses separately and did 

not model trade-offs between force 

structure and modernization alternatives. 

DOD did not examine the potential effects 

of new or advanced technologies or enemy 

use of asymmetric concepts of warfare 

used by U.S. and enemy forces on 

operational concepts or force structure 

because of limitations in available models. 

DOD could model existing force 

structure prior to next QDR to 

establish a baseline to use as a basis for 

comparison and allow more emphasis 

on modeling alternative structures. 

DOD could examine ways to improve 

the war game. These improvements 

can be used to examine force structure 

alternatives. 

DOD could vary the mix to provide 

more insight into modernization 

tradeoffs. 

To ensure better integration, DOD 

could form one panel to analyze force 

structure and modernization issues or 

maintain separate panels but provide 

guidance to ensure that panels 

collaborate and examine trade-offs. 

DOD needs to determine how it can 

improve its analysis of the impact of 

technological advances and 

asymmetric concepts of warfare. 

Source: Our analysis. 
Enclosure III Enclosure III 

Page 8 GAO-01-514R Defense Planning

GAO’s Observations on DOD’s Budget Formulation Efforts and 

 Future Years Defense Programs for Fiscal Years 1995 through 2001 

Area of focus Our observations Results of DOD’s actions 

Planning assumptions Since the mid-1980s, we have reported 

and testified that DOD employs overly 

optimistic planning assumptions in its 

budget formulation, which leads to far 

too many programs for the available 

dollars. 

Optimistic planning assumptions used 

in DOD’s Future Year Defense Programs 

(FYDP) often fall into one or more of 

the following categories: overestimation 

of future savings to be generated from 

management initiatives, competitive 

sourcing, and reengineering; 

underestimation of costs; and use of 

overly optimistic inflation forecasts and 

fuel costs and favorable foreign 

currency exchange rates. 

DOD has too many programs for 

the available dollars, which often 

leads to program instability, 

costly program stretch-outs, and 

program terminations. 

Optimistic planning makes 

defense priorities unclear 

because tough decisions and 

trade-offs between needs and 

wants are avoided. It also 

increases the risk that DOD will 

not be able to execute its 

programs as planned. For 

example, our reviews of DOD’s 

FYDPs over the past few years 

have shown that DOD has not 

been able to reduce its 

infrastructure and increase 

procurement funding to the 

extent desired. This problem 

can be attributed somewhat to 

optimistic projections of future 

savings that did not materialize. 

Shifting of funds Based on our analysis of DOD’s FYDPs, 

we have consistently reported that DOD 

has had difficulty meeting its planned 

growth in procurement funds and as a 

result, increases in procurement funds 

were shifted to the future. This pattern 

was caused by the need to use 

procurement funds for operation and 

maintenance activities, which have 

continued to represent a large 

proportion of DOD’s budget. 

Further shifting of planned 

procurement funding creates a 

large demand for procurement 

funding in later years. This 

movement raises the risk that 

budgeted funds will be 

insufficient to cover needs. As a 

result, existing equipment could 

deteriorate and become obsolete, 

which could compromise the 

technological superiority of 

future forces. 

Budgets do not reflect realistic 

estimates for procurement 

funding due to the long-standing 

problem of cost growth. Costs of 

several weapons systems could 

exceed current project costs. 

Source: Our analysis. 

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