U.S. Postal Service: Actions Needed to Strengthen the Capital Investment Process
Published: 2014-01-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: USPS has reached its statutory borrowing limit and has projected unsustainable losses. GAO's prior work has stated USPS's financial challenges hinder its ability to make capital investments. GAO was asked to review USPS's capital investment process.
This report addresses the extent to which USPS follows leading practices for four phases of capital investments: planning, selecting, managing, and evaluating. GAO identified the phases and leading practices primarily by analyzing the Office of Management and Budget's capital investment guide and compared them with USPS's policies and practices. External stakeholders with both public and private-sector experience reviewed the leading practices and found them to be reasonable for USPS. To examine how USPS policies were applied in specific cases, GAO reviewed 5 of 28 capital investments greater than $25 million that were approved for funding since fiscal year 2007.
section_title: What GAO Found
paragraphs: For each of the four phases of capital investments, USPS's conformance with leading practices varied. There are several practices within each of the phases. GAO assessed conformance as "substantial" if USPS's policy conformed to all or almost all elements of the practice, and as "partial" if USPS's policy conformed to some elements, or GAO identified cases in the five projects reviewed where the policies were not consistently applied.
capital investments, USPS substantially conformed to most of the leading practices, such as identifying mission needs and gaps in services, reviewing and approving a framework for selecting its investments, and developing a long-term capital investment plan. However, USPS did not substantially conform to other practices such as evaluating alternative investments by considering whether an external entity could perform all or part of a function because USPS's investment policies do not require such evaluations. However, USPS is not precluded from conducting such evaluations. Modifying its policies to require such evaluations could place USPS in a better position to ensure the evaluations are completed and to identify the best option for reducing costs and increasing the quality of investments.
For selecting capital investments, USPS substantially conformed to most of the leading practices, such as ranking and prioritizing, and linking its investments with budget considerations. However, consistent with its investment policy, USPS developed business cases for approval by project rather than following leading practices that call for using a portfolio approach of allocating resources based on overall organizational goals linked to the agency's mission. Modifying policies to require a comprehensive portfolio approach would better enable USPS to consider projects alongside those that have been funded to select the mix of investments that best meets its mission needs.
For managing capital investments, USPS conformance with leading practices was mixed. For example, consistent with leading practices, USPS established oversight for its capital investments and tracks cost, schedule, and performance data for initiatives. USPS policy requires comparing the planned-investment timeline and performance metrics to actual results to reassess and determine whether to continue, amend, or terminate a project, consistent with leading practices. USPS managers, however, could only verify that such a reassessment occurred for one of the five projects GAO reviewed. Examining the extent to which managers regularly reassess projects to continue, amend, or stop a project would help to establish crucial accountability for limited resources.
For evaluating capital investments, USPS conformance with leading practices was partial. USPS policy calls for a comparison of actual return-on-investment and performance data for completed projects against expected results, consistent with leading practices. However, four of the five projects GAO reviewed did not have comparable return-on-investment data, thereby limiting the ability of managers to assess the investment's impact, identify modifications to potentially improve performance, and revise the investment process. Finally, USPS policy does not require incorporating best practices or lessons learned after project completion--another leading practice--which limits opportunities for USPS to improve its process in a way that could benefit future investments.
section_title: What GAO Recommends
paragraphs: USPS should, among other recommendations, modify some of its capital investment policies to more closely align with leading practices, particularly for planning, selecting, and evaluating capital investments and regularly examine the extent to which managers reassess projects. USPS partially concurred or concurred with all of GAO’s recommendations. GAO continues to believe that all of its recommendations are valid and implementation will help to improve USPS’s capital investment process as discussed further in this report.

section_title: Letter
paragraphs: The U.S. Postal Service (USPS) has insufficient revenues to cover its  expenses, has reached its statutory borrowing limit of $15 billion, and has  projected unsustainable losses. In its fiscal year 2013 Integrated Financial  Plan, USPS forecasted 4 months during the year when its average  available funding was estimated at or below $1 billion—enough to cover  just 4 days of expenses. USPS’s Postmaster General stated that this is  an unacceptable level of resources for an organization with $65 billion in  revenues. We added USPS to our High Risk List in 2009 due in part to  the challenges USPS faces with this deteriorating financial situation.  USPS’s limited budgetary resources heighten the importance of making  wise capital investments to modernize and improve productivity.
USPS is required to fulfill its mission of providing prompt, reliable, and  efficient universal service to the public while remaining financially self- sustaining.  USPS is bound by specific legal and other restrictions that  limit its ability to make certain types of business decisions—such as  eliminating particular lines of business, cutting back services, and/or  altering its business model in ways that inhibit its universal service  obligation. For example, in February 2013, USPS announced plans to  transition to a new delivery schedule by August 2013 that would limit its  Saturday mail delivery to packages and mail addressed to Post Office  Boxes. However, USPS postponed its plans after some legislative issues  were raised.
USPS’s limited resources have constrained its funding for capital  investments to fulfill its primary mail-delivery mission and restructure and  modernize its operations. For example, about 10 years ago, USPS was  scheduled to replace large portions of its approximately 210,000-vehicle  fleet, but has deferred the replacements—as well as other capital-  investment needs—due to a shortage of funds. As packaging and  shipping continue to be an area of revenue growth, it will be important for  USPS to invest in vehicles to effectively serve that market and meet its  mission of providing prompt, reliable, and efficient mail service to all areas  of the country. Effective capital investments can improve productivity,  provide much-needed cost savings, and prevent larger, more costly  expenses in the future. You asked us to review USPS’s capital  investments. This report addresses the extent to which USPS conformed  to leading practices for planning, selecting, managing, and evaluating its  capital investments.
To describe the extent to which USPS follows leading practices, we  compared USPS’s process for planning, selecting, managing, and  evaluating capital investments to leading practices. We identified leading  practices for the four phases—planning, selecting, managing, and  evaluating capital investments—through analysis and review of the Office  of Management and Budget’s (OMB) Capital Programming Guide  supplement to Circular A-11. This guide identifies leading practices from  government agencies and the private sector. We also reviewed examples  of executive agency implementation of the Capital Planning and  Investment Control (CPIC) process.are applicable to USPS’s distinctive situation of having certain  characteristics of a public agency and a private corporation. Internal and  external subject matter experts with experience in both the public and  private sectors reviewed the leading practices we identified and found  them to be reasonable for USPS capital investments. We then compared   We identified leading practices that  the identified leading practices to USPS’s capital investment process. To  understand USPS’s capital investment process, we reviewed USPS  policies and related documentation and interviewed USPS officials.
For more in-depth review, we also selected 5 of 28 capital investment  projects that were high cost (each greater than $25 million) and were  approved for funding after USPS experienced net losses in fiscal year  2007. From the 28 projects, we selected the four projects that had a  projected positive return on investment according to USPS, were not  specific to a particular geographic area, and were completed by fiscal  year 2012. We included a fifth project that is fully deployed, but not yet  complete due to the need for numerous and significant software updates.  For each of these projects, we reviewed documentation and interviewed  program managers to gather more detailed information about how USPS  policies were applied in specific cases and to determine whether USPS  policies were consistently followed for the selected projects (see table 1).  Findings from our review of the selected capital investments do not  support generalizations about the overall extent to which USPS followed  leading practices for its capital investments, but rather illustrate whether  and how policies were applied in specific cases. See also table 3 for more  details on these five projects.
Our analysis identified for each investment phase—planning, selecting,  managing, and evaluating—a series of leading practices that should be  followed while the projects are within that phase. We used two separate  rating scales to assess the leading practices and capital investment  phases. For each leading practice, we assessed USPS’s level of  conformance, as follows:
Substantial: USPS policy conformed to all or almost all elements.
Partial: either (1) USPS policy conformed to some elements; or (2)
USPS policy conformed substantially, but we identified instances in  the five projects we reviewed where the policies were not consistently  applied.
Minimal/none: USPS policy conformed to few or no elements.
Then, for each investment phase, we assessed USPS’s overall level of  conformance, as follows:
High: USPS substantially conformed to all or almost all of the leading  practices.
Medium: USPS substantially conformed to multiple leading practices.
Low: USPS substantially conformed to one or none of the leading  practices.
To report on USPS’s expenditures on capital investments for the past 10  years and to identify projects that met our selection criteria, we requested  data from USPS. We assessed the reliability of these data through review  of related documents and interviews with knowledgeable agency officials.  We found the data sufficiently reliable for our purposes of reporting on the  amounts spent by USPS on capital investments during the past 10 years,  and for selecting the five high-cost capital investments we reviewed. For  more information on our scope and methodology, see appendix I.
We conducted this performance audit from March 2013 to January 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objective.
subsections: section_title: Background
paragraphs: USPS’s capital investment process incorporates two main activities:  planning and project approval (see table 2).
In addition, USPS implemented tollgates in December 2006 to enable  IRC awareness, involvement, and decision making for all investments  greater than $5 million (see fig. 2). According to USPS, tollgates are  updates intended to keep the IRC informed by raising and resolving  issues throughout the phases of the capital investment review and  approval process.
However, given its financial position, USPS is limited in its ability to  finance capital investments and has spent $17.5 billion on capital  investments over the past 10 fiscal years, but has sharply decreased its  spending since fiscal year 2007 (see fig. 3).
Since 2009, USPS has taken the following actions, to address its financial  situation, which affect its management of capital investments. For  example:  In 2009, USPS implemented a capital-spending freeze to conserve  resources. Any capital initiative seeking funding must receive an  exception-approval from USPS’s Finance and Planning unit  demonstrating that the initiative (1) is needed for safety, health, or  legal requirements, or (2) is required to sustain customer service,  such as mail delivery, or (3) will have a high return on investment with  a short payback period.
In 2011, USPS created Delivering Results, Innovation, Value and  Efficiency (DRIVE), a portfolio of strategic initiatives, which is intended  to improve business strategy development and execution. DRIVE  consists of managing a portfolio of 44 initiatives, half of which are  active, that are intended to help close USPS’s income gap by 2015.  For example, one DRIVE initiative—Build a World Class Package  Platform—seeks to build an infrastructure to support and promote  USPS’s growing package delivery business. USPS’s executive  leaders developed and oversee the DRIVE initiatives. USPS’s Office  of Inspector General (OIG) recently assessed DRIVE and found that  the management process compares favorably to the identified 20  best-in-class program management practices of 13 companies in the  private sector.
In 2012, USPS developed a 5-year plan to restructure and modernize  its operations and improve its financial situation. The 5-year plan  estimates $2 billion annually for capital outlays for fiscal years 2015  through 2017.
Notwithstanding these actions, our prior work has shown that although a  successful capital investment depends on a range of factors, following  leading practices will more likely result in investments that meet mission  needs, are well-managed, and achieve cost, schedule, and performance  goals. Figure 4 shows the capital investment phases and the leading  practices that we identified for each.
section_title: USPS’s Conformance to Leading Practices Varies by Capital Investment Phase
paragraphs: In summary, we determined that USPS’s conformance to leading  practices is medium for planning, selecting, and managing capital  investment projects, and low for evaluating them, based on our review of  USPS policy and the practices employed for the five selected projects.
subsections: section_title: For Planning Capital Investments, USPS’s Conformance to Leading Practices Is Medium
paragraphs: USPS substantially conformed to three, and partially conformed to two, of  five leading practices for planning capital investments (see fig. 6).
Specifically, we found that USPS’s process for planning capital  investments substantially:  Identifies mission needs and gaps in service: Each year, USPS issues  a capital commitment budget call to the executive leaders, vice  presidents, and budget coordinators to identify mission needs and  gaps in services. Executives are to work with their teams to submit  their capital investment requests for the next fiscal year and include a  brief narrative describing each proposed project, why it is needed, the  amount needed for the project, and whether it supports a DRIVE  initiative.
Reviews and approves the framework for selecting investments:  USPS has several different sources of guidance for capital  investments. The most comprehensive guidance is USPS’s General  Investment Policies and Procedures. Since those policies and  procedures were developed, USPS has created its tollgates (see  figure 2). Program managers told us that they also use USPS’s  Technology Acquisition Management Process Guidelines as their  primary guidance.updates made in December 2011. USPS also conducts annual  internal investment overviews for selected projects. These various  sources comprise USPS’s framework for selecting its investments.  USPS officials told us that the current guidance is a slide presentation  available on the agency’s internal website. They also said that they  are planning to update the guidance, but did not provide a time frame  for completing this effort. Thus, while USPS has reviewed and  approved a framework for selecting its investments, it does not  currently have a clear, single-source, standard set of policies and  procedures that reflect the selection framework. A time frame for  completing efforts to update its policies and procedures into a single- source guide could better position USPS to hold its managers  accountable for completing the effort as intended. Moreover, a single- source guide could enable better transparency for selecting  investments. Such transparency would establish crucial accountability  for limited resources.
This guidance, however, does not include the
Develops a long-term capital investment plan: USPS has a 10-year  capital investment plan that is used for internal-planning purposes,  even though actual capital investments depend on budgetary  resources.
In addition, we found that USPS’s process for planning capital  investments partially:
Links investments to its strategic plan: USPS has linked capital  investments to strategic initiatives listed in its 5-year business plan,  which was developed in 2012 to bring USPS to a point of financial  viability. The business plan addresses financial challenges facing  USPS, actions the agency plans to take to address its financial  outlook, and external factors USPS believes could inhibit it from  financial viability. USPS’s 5-year business plan also contains seven  “strategic initiatives” that are linked to DRIVE initiatives (see app. II for  more detail). USPS refers to its 5-year business plan as its strategic  plan. However, USPS’s business plan focuses on the agency’s  financial condition while a traditional strategic plan is more  comprehensive and is intended to address the agency’s overall  mission.traditionally identified in a strategic plan, that could affect USPS’s  ability to achieve some of the DRIVE initiatives.
Specifically, OMB A-11 guidance states that management should assess whether the  investment needs to be undertaken by the requesting agency because no alternative  private sector or governmental source can better support the function. private sector entity to support part or all of a processing or delivery  function. For example, USPS contracted for the development of its PARS  software system, but did not consider whether a private sector entity— either in partnership with USPS or independently—could perform part or  all of the function of automatically redirecting undeliverable mail. USPS  officials, however, told us that a provision in its labor contracts limits its  ability to consider external entities for supporting an entire function;  however, USPS is not specifically prohibited from doing so. The  officials added that USPS has a Strategic Initiative Action Group that  reviews, approves, and monitors proposed outsourcing initiatives to  ensure that they meet the requirements of these bargaining unit  agreements. However, USPS did not provide evidence that it took such  consideration for its mail-processing or delivery functions. It is also not  clear whether USPS considered certain strategies used by foreign postal  operators. For example, according to the USPS OIG, contracting with  private operators to sell aging vehicles could provide immediate cash,  and leasing a new fleet of vehicles could result in the operational benefits  of having a modern fleet without assuming fixed costs. Until USPS  modifies its policies to require such consideration, USPS may not be  placing itself in a position to identify the best option for reducing costs  and increasing the quality of its capital investments. USPS officials told  us, however, that many foreign postal operations have been privatized  and are not subject to the same government oversight as USPS. In  February 2011, we also reported on how the strategies of foreign  posts’ can inform USPS modernization.
section_title: For Selecting Capital Investments, USPS’s Conformance to Leading Practices Is Medium
paragraphs: USPS substantially conformed to three, and partially conformed to two, of  five leading practices for selecting capital investments (see fig. 7).
Specifically, we found that USPS’s process for selecting capital  investments substantially:
Ranks and prioritizes investments based on mission needs and  projected return on investment: After USPS makes its initial budget  call, the executive leaders rank and prioritize capital requests based  on need, the expected return on investment, the impact on customer  experience, and the ability to support key initiatives.
Submits business cases to an external entity: As part of the IRC  review process, USPS submits business cases for all projects with  total funding over $5 million to its OIG for review. For investments $25  million or greater, USPS OIG shares its assessments and conclusions  with the USPS program sponsor, USPS headquarters officials, the  IRC, and with Congress.
Links investments with budget considerations: USPS links capital  investments with the overall budget when developing its annual  Integrated Financial Plan. Specifically, as described in table 2, during  budget planning, the Finance Infrastructure unit recommends projects  for inclusion in the capital budget through a multi-step review process,  the results of which are then incorporated into the Integrated Financial  Plan. In fiscal year 2013, capital budget requests totaled  approximately $2.1 billion, while forecasted capital needs totaled $752  million.
USPS partially conformed to developing its business cases and allocating  resources toward a desired portfolio. Investment portfolios are broad  categories of investments that are linked by similar missions to better  fulfill that specific mission and minimize overlapping functions. A portfolio  perspective enables an organization to focus on projects that best meet  its overall goals, rather than on projects that only meet the objectives of  specific program areas. Given USPS’s financial condition, a portfolio  approach is especially important. However, with the exception of the  DRIVE initiative, USPS develops its business cases for approval and  allocates resources by project rather than by portfolio. More specifically,  USPS officials develop business cases for each specific project that  include projected return on investment for approval and funding. As our  prior work at federal agencies making substantial capital investments has  shown, selecting investments on a project rather than portfolio approach  may lead to duplicative functions that do not integrate well together to  perform the desired mission. Furthermore, modifying USPS’s policies to  require a comprehensive portfolio approach would enable USPS to  consider proposed projects alongside those that have been funded to  select the mix of investments that best meets its mission needs.
section_title: For Managing Capital Investments, USPS’s Conformance to Leading Practices is Medium
paragraphs: USPS substantially conformed to two, and partially conformed to two, of  four leading practices for managing capital investments (see fig. 8).
Specifically, we found that USPS’s process for managing capital  investments substantially:
Establishes accountability and oversight for prudent use of resources:  USPS policy establishes accountability and oversight of resources by  assigning a leader to oversee capital investment projects. For  example, the executive leaders assign one member as accountable  for each DRIVE initiative. USPS assigned a program manager to each  of the five selected projects that we reviewed. In addition to oversight,  these program managers were responsible for directing and  controlling program activities and addressing challenges. For  example, with respect to challenges, the APBS program manager told  us that he coordinated the logistics and timing of work for three  individual contracts on his project—which included managing three  requests for proposal, three statements of work, and three suppliers.
Tracks cost, schedule, and performance data for investments: USPS  policy calls for tracking cost, schedule, and performance data for  investments with approved funding greater than $5 million. For DRIVE  initiatives, USPS developed a dashboard to monitor the progress of  financial and nonfinancial milestones and impacts. Generally, the  dashboard flags cost, schedule, and performance milestones that are  in danger of being missed or have been missed. For capital  investments greater than $25 million, USPS issues an Investment  Highlights publication semiannually to provide a detailed, single- source overview. The Investment Highlights publication also contains  an electronic reference that tracks cost, schedule, and performance  data for all capital investments over $5 million, including those for  each of the five projects we reviewed. Program managers for the  selected projects told us that updates might be provided to senior  management more frequently—on a weekly, monthly, or as needed  basis.
In addition, we found that USPS’s process for managing capital  investments partially:
Reassesses risk by identifying investments that are over budget,  behind schedule, performing poorly, and lacking capability: While  USPS policy reassesses risk by identifying investments that are over  budget, performing poorly, and lacking capability, this practice was not  consistently followed for the five projects we reviewed. Prior to  December 2011, USPS policy stated that the IRC was to receive two  briefings at the conversion and execution tollgates explaining how  planned investment, timeline, and performance metrics were  comparing to actual results. The purpose was to reassess and  determine whether to continue, amend, or terminate a project.  USPS officials told us that they made an internal decision in  December 2011 to no longer require in-person briefings and instead  have executive leaders work more closely with program managers  and staff. The executive leader is then responsible for updating the  IRC on the project status. In addition, USPS policy calls for a program  sponsor to prepare a modified business case with updated costs,  timelines, benefits, and scope if a capital investment is expected to  exceed its approved funding or deviate significantly from its approved  scope. The modified business case is then presented to the original  authorities who vote whether to approve the modification, which would  include any corrective actions, in order to continue the capital  investment. However, USPS officials could only verify that a  reassessment decision to continue, amend, or terminate an  investment occurred for one of the five projects we reviewed. While a  conversion briefing was held for four of the projects, and a business  case modification was held for the fifth, USPS officials could only  provide evidence of an IRC reassessment for DBCS, which USPS  decided to continue. Examining the extent to which managers  regularly reassess projects to continue, amend, or stop a project,  would help manage risk, given limited resources.
Identifies problems and implements corrective actions as needed:  USPS officials told us that executive leaders typically hold regular  meetings with the program managers and other team members,  meetings that have led to identifying problems and implementing  corrective actions for continuing a project. For the five selected  projects we reviewed, USPS did not provide documentation that such  discussions were held. Effective decision making relies on free  exchange of information among a variety of stakeholders—particularly  those who might be skeptical about an investment and can provide  constructive insight and information; the more open the process, the  more likely errors in fact or methodology will be uncovered. The  absence of a transparent reassessment of risk to identify projects that  need to be amended or terminated inhibits USPS’s ability to  implement needed corrective actions for projects that are over budget,  behind schedule, or not meeting performance targets. Therefore,  examining the extent to which managers identify problems and  implement corrective actions can better position USPS to make the  best use of its resources.
section_title: For Evaluating Capital Investments, USPS’s Conformance to Leading Practices Is Low
paragraphs: USPS partially conformed to the three leading evaluation practices (see  fig. 9).
Specifically, we found that USPS partially conformed to the leading  practice of:
Evaluating cost, schedule, and performance results of implemented  investments: USPS policy calls for a comparison of the actual return- on-investment and performance data for completed projects, against  the expected return-on-investment and performance results in the  business case. This comparison is usually included in the detailed  capital investment reports—based on compliance reports—that are  used to create the Investment Highlights publication. To assist with  evaluating an investment, the compliance reports are to be regularly  updated. In addition, USPS sometimes performs a final performance  study. However, the detailed capital investment reports for four of  the five projects we reviewed did not have observed return-on- investment data that could be compared to expected return on  investment, and two projects did not have actual performance metrics  compared to their expected results. To explain the missing  comparisons, USPS officials told us that if a project is on budget and  on schedule, they assume that it will achieve the expected return on  investment. If performance data are missing, USPS officials told us  that the program sponsor can ask the program manager for this  information. One project, APBS, had complete return-on-investment  and performance data comparable to its business case. Return-on- investment measures provide managers with valuable insight  regarding any financial benefit attributable to a project. Performance  measures help to identify problems, evaluate underlying factors, and  determine needed adjustments. The absence of updated return on  investment and performance data means that USPS cannot  completely (1) assess the investment’s impact on strategic  performance, (2) identify modifications that may be needed to improve  performance, and (3) revise the investment process based on lessons  learned. As a result, regularly reassessing projects by reviewing  actual performance results after investment completion can provide  USPS with a valuable opportunity to gain feedback necessary for  improving future capital investments.
Leveraging external oversight and review of its capital investments:  For initiatives with approved capital funding greater than $25 million,  USPS semiannually provides its OIG the Investment Highlights  publication for informational purposes, but does not seek oversight or  feedback from its OIG or other entities, such as a consultant or peer  reviewer. Subject matter experts have found that a third party should  evaluate a capital investment using a predetermined set of metrics  that will result in real data on which to make improvements in the  process or to inform future decisions on capital investments.  External oversight and review is important and useful to hold an entity  accountable for its performance.
Incorporating best practices and lessons learned into the investment  process: USPS does not require developing or updating best  practices after project completion. Nevertheless, one of the program  managers for a selected project that we reviewed told us that USPS  identified, documented and followed industry best practices for  program implementation—based on experience with various program  vendors and contractors. Regarding lessons learned, USPS policy  calls for documentation of “unexpected situations” upon project  completion but does not require communicating lessons learned to  other program managers. One of the program managers for the five  selected projects provided us with documented lessons learned, but  could not provide evidence of how such lessons were used. Another  program manager told us that sometimes, when a project is  completed, managers are assigned to new projects without adequate  time to document lessons learned on the completed project. The  absence of documented best practices and lessons learned that could  be incorporated into the capital investments process limits  opportunities for USPS to improve its process in a way that could  benefit future investments.
section_title: Conclusion
paragraphs: Given that USPS’s financial situation and the limitations of its business  model hamper its ability to prevent future losses, it is crucial for USPS to  use its scarce resources to prioritize and make wise capital investments,  particularly those that reduce costs. USPS has taken positive steps in this  direction, and our analysis of a range of projects shows that USPS  substantially followed the majority of leading practices for planning and  selecting capital investments. USPS’s 5-year business plan, for example,  is a positive step toward an agency-wide strategic plan that links capital  investments to strategic initiatives. However, substantially following all  leading practices—including those for managing and evaluating capital  investments—could better ensure that USPS’s investments are well- managed and achieve cost, schedule, and performance goals, an  accomplishment that in turn could enhance USPS’s financial viability.  Conversely, not substantially following all leading practices may result in  inefficient spending of limited resources, thereby putting USPS at even  further financial risk.
section_title: Recommendations for Executive Action
paragraphs: To strengthen USPS’s capital investment process, we are making three  recommendations related to USPS policy and consistent application of  leading practices. The Postmaster General and executive leaders should:  1.  Establish a time frame for developing a clear, detailed, single-source,  standard set of policies and procedures that reflect the capital  investment selection phase;  2.  Modify capital investment policies to more closely align with the  following leading practices, including:  for planning capital investments, consider whether an external  entity could better support all or part of a desired function when  evaluating alternative capital investment options;  for selecting capital investments, use a portfolio approach for  developing business cases and finalizing and allocating  resources; and  for evaluating capital investments, seek and leverage external  oversight and review, from a consultant or peer reviewer, and  require that best practices and lessons learned be incorporated  into the review process; and  3.  Regularly examine the extent to which executives and program  managers consistently follow all leading practices, particularly for: identifying problems and reassessing risk while managing a  project; and evaluating the cost, schedule, and performance results of  completed projects.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to USPS for review and comment.  USPS provided comments, which are reprinted in appendix III. USPS  concurred or partially concurred with our recommendations and stated  that there are always opportunities for improvement and that it can clearly  benefit from our recommended actions to strengthen its investment  process.
USPS partially concurred with our first recommendation that USPS  establish a time frame for developing a clear, detailed, single-source set  of standard policies and procedures that reflect the capital-investment  selection phase. USPS responded that it plans to revise its General  Investment Policies and Procedures handbook during the second quarter  of fiscal year 2014 to include the capital-investment selection process.  However, USPS also stated that an established capital selection process  is already in place, although it is not included in the handbook. As  described in the report, USPS has several sources of guidance and it  does not have a clear, single-source, standard set of policies and  procedures that reflect the selection framework. We are pleased that  USPS has now established a time frame for developing such guidance,  which could better position USPS to hold its managers accountable and  better enable transparency for selecting investments.
USPS partially concurred with our second recommendation to modify its  capital investment policies to more closely align with leading practices in  the areas of planning, selecting, and evaluating capital investments.  With regard to planning capital investments by considering whether an  external entity could better support all or part of a desired function when  evaluating alternative investment options, USPS concurred. However,  USPS stated it currently has procedures in place to consider viable  options and provided examples of cases in which it has outsourced non- core functions. USPS further noted that it considers outsourcing work that  is currently performed by bargaining unit employees and outsourcing will  always be considered if it is in the financial best interest of USPS and  meets collective-bargaining requirements. However, as noted in the  report, USPS did not provide us with documentation that it considered  outsourcing part or all of a mail-processing or delivery function. USPS  could better conform to this leading practice if it considered the potential  role of an external entity for all capital investments. This could place  USPS in a better position to identify the best option for reducing costs and  to increase the quality of its investments.
With regard to selecting capital investments by using a portfolio approach  for developing business cases and finalizing and allocating resources,  USPS partially concurred and stated that it uses an organization-wide  portfolio approach for review during the capital-budget-planning process,  and that it will continue to clearly communicate the portfolio approach and  incorporate it into USPS’s revised investment policy. However, we found  that USPS develops its business cases for approval and allocates  resources by project rather than portfolio. As noted in the report, selecting  investments on a project rather than portfolio approach may lead to  duplicative functions that do not integrate well to perform the desired  mission. Requiring a more comprehensive portfolio approach would  enable USPS to consider proposed projects alongside those that have  been funded to select the mix of investments that best meets its mission  needs. Thus, we continue to believe that the USPS should use a portfolio  approach for developing business cases to fully address the  recommendation.
With regard to evaluating capital investments by seeking and leveraging  external oversight and review and requiring that best practices and  lessons learned be incorporated into the investment process, USPS  concurred. However, USPS responded that it has previously contracted  with highly respected external entities to review capital investment plans,  and that it will continue to evaluate the need to hire consultants when  necessary. While this is a positive practice, USPS can extend their  external oversight and review when evaluating capital investments in  addition to reviewing investment plans. In addition, external oversight and  review are leading practices for all investments that could help USPS  obtain data on which to make improvements in the process or to inform  future investment decisions. USPS also stated that it will ensure that  lessons learned and investment performance results are shared with its  management and will be available for review on USPS’s internal website.  With further regard to lessons learned, USPS also stated that it will  ensure that each group is aware of the status of major investments and  the lessons learned for current and future projects. However, USPS did  not state that it would modify its investment policies to require that best  practices and lessons learned be incorporated into the review process.  We continue to believe that USPS should modify its investment polices as  recommended. The absence of consistent documents for all investments  limits opportunities to improve the process to benefit future investments.
USPS concurred with our third recommendation that it regularly examine  the extent to which executives and program managers consistently follow  all leading practices particularly for: identifying problems and reassessing  risk while managing a project and evaluating the cost, schedule, and  performance results of completed projects. USPS stated that it would  require program sponsors to ensure that their presentations appropriately  address project cost, schedule, and performance information. This is a  positive step toward improving USPS’s ability to gain feedback necessary  for improving future capital investments.
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If you or your staff have any questions on this report, please contact me  at (202) 512-2834 or stjamesl@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Contact information and key contributors to the report are  listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To describe the extent to which the U.S. Postal Service (USPS) follows  leading practices, we compared USPS’s process for planning, selecting,  managing, and evaluating capital investments to leading practices. We  identified leading practices for the four phases—planning, selecting,  managing, and evaluating capital investments—through analysis and  review of the Office of Management and Budget (OMB) Capital  Programming Guide supplement to Circular A-11, which identified leading  practices from government agencies and the private sector, and  examples of executive agency implementation of the Capital Planning  and Investment Control (CPIC) process. We identified leading practices  that are applicable to USPS’s business model, which requires it to fulfill its  mission of providing prompt, reliable, and efficient universal service to the  public while remaining financially self-sustaining.  However, unlike a  private corporation, USPS is bound by legal and other restrictions that  limit its ability to make certain types of business decisions—such as  eliminating particular lines of businesses, cutting back on services, and/or  altering its business model in ways that inhibit its universal service  provision. External and internal subject matter experts with experience in  both the public the private sectors reviewed the leading practices we  identified and found them to be reasonable for USPS capital investments  as applicable. These experts all provided comments that we incorporated  into our capital investment leading practices. We compared our identified  leading practices to USPS’s capital investment process. To understand  USPS’s capital investment process, we reviewed USPS policy,  documentation, and testimonial evidence on the capital investment  process. USPS officials reviewed our initial description and provided  feedback, which we incorporated into our work. We also met with USPS  officials responsible for the Delivering Results, Innovation, Value and  Efficiency (DRIVE) strategic initiatives to assess the extent to which  USPS conformed to the leading practice of linking its capital investments  to its strategic plans. We also met with and obtained documentation from  USPS’s Office of Inspector General (OIG), to obtain an overall  assessment of USPS’s capital investment process.
To gather more detailed information about how USPS policies were  applied in specific cases, and to determine whether USPS policies were  consistently followed for a selection of high-cost capital investment  projects, we selected 5 of 28 projects that were approved for over $25  million and were approved for funding after USPS experienced net losses  in fiscal year 2007. From these 28 projects, we selected the four that had  a positive projected return on investment as determined by USPS, were  not specific to a particular geographical area, and were completed by  fiscal year 2012. We included a fifth project (that was fully deployed, but  not yet complete) due to USPS’s significant investment in the project (see  table 3). We met with the program managers for each of the projects and  reviewed documentation to assess the process for managing and  evaluating these projects, and we conducted site visits to see four of the  five projects. The selected investments do not support generalizations  about the overall extent to which USPS followed leading practices for its  capital investments, but rather illustrate whether and how policies were  applied in specific cases. We also met with the USPS OIG to discuss  USPS’s management and evaluation of the selected projects.
Our analysis found that each investment phase—planning, selecting,  managing, and evaluating—should consist of a series of leading practices  that should be followed while the projects are within that phase. We used  two different rating scales to assess the leading practices and capital  investment phases. For each leading practice, we assessed USPS’s level  of conformance, as follows:
Substantial: USPS policy conformed to all or almost all elements.
Partial: Either (1) USPS policy conformed to some elements; or (2)  USPS policy conformed substantially, but we identified instances in  the five projects we reviewed where the policies were not consistently  applied.
Minimal/none: USPS policy conformed to few or no elements.
Then, for each investment phase, we assessed USPS’s level of  conformance, as follows:
High: USPS substantially conformed to all or almost all of the leading  practices.
Medium: USPS substantially conformed to multiple leading practices.
Low: USPS substantially conformed to one or none of the leading  practices.
To describe the effects of not substantially conforming to a leading  practice, we reviewed prior GAO work and the work of others including  the USPS OIG and the National Research Council, and OMB and CPIC  guides.
To report on USPS expenditures on capital investments for the past 10  years and to identify the five projects that met our selection criteria, we  requested data from USPS. We assessed the reliability of these data  through review of related documents and interviews with knowledgeable  agency officials. We found the data sufficiently reliable for our purposes of  reporting on the amount spent on capital investments in the past 10 years  and for selecting the five high-cost capital investments we reviewed.
We conducted this performance audit from March 2013 to January 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objective.
section_title: Appendix II: U.S. Postal Service’s Strategic Initiatives and Corresponding Delivering Results, Innovation, Value, and Efficiency (DRIVE) Initiatives
paragraphs: Networks Consolidation: A two-phase approach to consolidate  approximately 200 mail-processing facilities and relocate  equipment from the reduced volume workload for estimated  savings of $3.4 billion by 2017. Phase 1 implemented in Spring  2013, and Phase 2 is to begin in Spring 2014.
Retail Optimization: In high-traffic post offices, increase self- service equipment, and in rural areas, establish Village Post  Offices for estimated savings of $1.6 billion by 2017.
Delivery Optimization: Increase mail delivery to centralized  locations instead of curbside or door-to-door for estimated   savings of $1.8 billion by 2017.  Legislative initiatives   5-Day Mail including 6-Day Package Delivery: Eliminate  Saturday mail delivery and continue Saturday package delivery   in support of online purchases and commercial packages for  estimated savings of $2 billion annually.
Postal Health Plan: Adopt a new USPS-administered health   care plan for current employees and new hires, eliminating $5.7  billion of prefunding to the federal health insurance program and  transferring retirees into the new health care plan. Estimated  savings are $8 billion annually through 2016.
Federal Employment Retiree System (FERS) overfunding  refund: Reduce FERS obligation and normal cost contribution,  based on USPS-specific assumptions and demographics for  estimated savings of $0.3 billion annually.
Workforce and non-personnel USPS strategic initiativeOperational initiatives  Renegotiate and arbitrate with unions on wages and increase   the proportion of non-career employees to 20 percent for   estimated savings of $4.3 billion by 2017.
section_title: Appendix III: Comments from the U.S. Postal Service
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Amelia Shachoy, Assistant  Director; Samer Abbas; Amy Abramowitz; Russell Burnett; Jennifer  Clayborne; Thanh Lu; Joshua Ormond; Amy Rosewarne; and Crystal  Wesco made key contributions to this report.