Defense Management: Key Elements Needed to Successfully Transform DOD Business Operations
Published: 2005-04-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In addition to external security threats, our nation is threatened from within by growing fiscal imbalances. The combination of additional demands for national and homeland security resources, the long-term rate of growth of entitlement programs, and rising health care costs create the need to make difficult choices about the affordability and sustainability of the recent growth in defense spending. At a time when the Department of Defense (DOD) is challenged to maintain a high level of military operations while competing for resources in an increasingly fiscally constrained environment, DOD's business management weaknesses continue to result in billions in annual waste, as well as reduced efficiencies and effectiveness. Congress asked GAO to provide its views on (1) the fiscal trends that prompt real questions about the affordability and sustainability of the rate of growth of defense spending, (2) business management challenges that DOD needs to address to successfully transform its business operations, and (3) key elements for achievement of reforms. One key element would be to establish a full-time chief management official (CMO) to take the lead in DOD for the overall business transformation effort. In this regard, we support the need for legislation to create a CMO in DOD with "good government" responsibilities that are professional and nonpartisan in nature, coupled with an adequate term in office.
section_title: What GAO Found
paragraphs: Our nation's current fiscal policy is on an imprudent and unsustainable course and the projected fiscal gap is too great to be solved by economic growth alone or by making modest changes to existing spending and tax policies. In fiscal year 2004, DOD's spending represented about 51 percent of discretionary spending, raising concerns about the affordability and sustainability of the current growth in defense spending and requiring tough choices about how to balance defense and domestic needs against available resources and reasonable tax burdens. GAO has reported that DOD continues to confront pervasive, decades-old management problems related to business operations that waste billions of dollars annually. These management weaknesses cut across all of DOD's major business areas. These areas, along with six government-wide areas that also apply to the department, mean that DOD is responsible for 14 of 25 high-risk areas. To move forward, in our view, there are three key elements that DOD must incorporate into its business transformation efforts to successfully address its systemic business management challenges. First, these efforts must include an integrated strategic plan, coupled with a well-defined blueprint--referred to as a business enterprise architecture--to guide and constrain implementation of such a plan. Second, central control of system investments is crucial for successful business transformation. Finally, a CMO is essential for providing the sustained leadership needed to achieve lasting transformation. The CMO would not assume the day-to-day management responsibilities of other DOD officials nor represent an additional hierarchical layer of management, but rather would serve as a strategic integrator who would lead DOD's overall business transformation efforts. Additionally, a 7-year term would also enable the CMO to work with DOD leadership across administrations to sustain the overall business transformation effort.

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