Defense Business Transformation: A Comprehensive Plan, Integrated Efforts, and Sustained Leadership Are Needed to Assure Success
Published: 2006-11-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Of the 26 areas on GAO's high-risk list of federal programs or activities that are at risk for waste, fraud, abuse, or mismanagement, 8 are Department of Defense (DOD) programs or operations and another 6 are governmentwide high-risk areas that also apply to DOD. These high-risk areas relate to most of DOD's major business operations. DOD's failure to effectively resolve these high-risk areas has resulted in billions of dollars of waste each year, ineffective performance, and inadequate accountability. At a time when DOD is competing for resources in an increasingly fiscally constrained environment, it is critically important that DOD get the most from every defense dollar. DOD has taken several positive steps and devoted substantial resources toward establishing key management structures and processes to successfully transform its business operations and address its high-risk areas, but overall progress by area varies widely and huge challenges remain. This testimony addresses DOD's efforts to (1) develop a comprehensive, integrated, enterprisewide business transformation plan and its related leadership approach and (2) comply with legislation that addresses business systems modernization and improving financial management accountability. The testimony also addresses two sections included in recent legislation and other DOD high-risk areas.
section_title: What GAO Found
paragraphs: In the past year, DOD has made progress in transforming its business operations, but continues to lack a comprehensive, enterprisewide approach to its overall business transformation effort. Within DOD, business transformation is broad, encompassing people, planning, management, structures, technology, and processes in many key business areas. While DOD's planning and management continues to evolve, it has yet to develop a comprehensive, integrated, and enterprisewide plan that covers all key business functions, and contains results-oriented goals, measures and expectations that link organizational, unit, and individual performance goals, while also being clearly linked to DOD's overall investment plans. Because of the complexity and long-term nature of business transformation, DOD also continues to need a chief management official (CMO) with significant authority, experience, and tenure to provide sustained leadership and integrate DOD's overall business transformation effort. Without formally designating responsibility and accountability for results, reconciling competing priorities in investments will be difficult and could impede DOD's progress in its transformation efforts. DOD is taking steps to comply with legislative requirements aimed at improving its business systems modernization and financial management; however, much remains to be accomplished. In particular, DOD recently issued updates to both the business enterprise architecture and the transition plan, which are still not sufficiently complete to effectively and efficiently guide and constrain business system investments across the department. Most notably, the architecture is not adequately linked to DOD component architectures, and the plan does not include business system information for all major DOD components. To address these shortfalls, DOD issued a strategy for "federating" or extending its architecture to the defense components. But much remains to be accomplished before a well-defined federated architecture is in place, given that GAO recently reported that select components' architecture programs are not mature. However, DOD components continue to invest billions of dollars in thousands of new and existing business system programs. The risks associated with investing in systems ahead of having a well-defined architecture and transition plan are profound and must be managed carefully, as must the wide assortment of other risks that GAO's work has shown to exist on specific DOD business system investments. While not a guarantee, GAO's work and research has shown that establishing effective system modernization management controls, such as an architecture-centric approach to investment decision making, can increase the chances of delivering cost-effective business capabilities on time and within budget. Further, with regard to legislation pertaining to financial management improvement, DOD issued and updated its Financial Improvement and Audit Readiness Plan in fiscal year 2006 to provide components with a construct for resolving problems affecting the accuracy and timeliness of financial information and an improved audit strategy for obtaining financial statement audit opinions.

section_title: Letter
paragraphs: It is a pleasure to be back before this Subcommittee to discuss the  progress and challenges associated with the Department of Defense’s  (DOD) efforts to transform its business operations. Since the first financial  statement audit of a major DOD component was attempted almost  20 years ago, we have reported that weaknesses in business operations not  only adversely affect the reliability of reported financial data, but also the  economy, efficiency, and effectiveness of DOD’s operations. In fact, DOD  currently bears responsibility, in whole or in part, for 14 of our 26 high-risk  areas. Eight of these are specific to DOD and include DOD’s overall  approach to business transformation, business systems modernization,  financial management, the personnel security clearance process, supply  chain management, support infrastructure management, weapon systems  acquisition, and contract management. In addition, DOD shares  responsibility for six governmentwide high-risk areas. Collectively, these  high-risk areas relate to most of DOD’s major business operations which  directly support the warfighter, including how they get paid, the benefits  provided to their families, and the availability and condition of the  equipment they use both on and off the battlefield.
DOD’s business area weaknesses result in reduced efficiencies, ineffective  performance, and inadequate accountability to Congress and the American  people, wasting billions of dollars each year at a time when DOD is  competing for resources in an increasingly fiscally constrained  environment. As a result, it is important that DOD get the most from every  dollar it invests. Our nation is not only threatened by external security  threats, but also from within by growing fiscal imbalances due primarily to  our aging population and rising health care costs. These trends are  compounded by the 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 affect our ability to address key national and homeland security  needs. These factors create the need to make choices that will only  become more difficult and potentially disruptive the longer they are  postponed. Among these difficult choices will be decisions about the  affordability and sustainability of the continued growth in defense  spending. Furthermore, irrespective of the size of the defense budget, the  taxpayers and warfighters deserve more effective management of DOD’s  overall resources.
I continue to believe that DOD’s senior leadership is committed to  transforming the department and DOD has taken a number of positive  steps to begin this effort. In fact, because of the impact of the  department’s business operations on its warfighters, DOD recognizes now,  more than ever, the need to transform its business operations and provide  transparency in this process. Indeed, Secretary Rumsfeld was very clear in  his speech on September 10, 2001, when he identified business  transformation as a top priority. However, DOD’s ability to focus on this  priority was overshadowed by the events of September 11, 2001, and the  ensuing Global War on Terrorism, including military operations in Iraq and  Afghanistan. Clearly, these events have required considerable emphasis  and have become the department’s primary focus. As a result, progress on  the full range of DOD’s business transformation challenges has been  inconsistent, focusing thus far on enterprisewide transformation, with  many challenges remaining concerning the transformation of the various  military services and defense agencies.
Congress, in part through the leadership of this Subcommittee, passed  legislation that codified many of our prior recommendations related to  DOD business systems modernization. Since then, DOD has devoted  substantial resources and made important progress toward establishing  key management structures and processes to guide business systems  investment activities, particularly at the enterprise, or departmentwide,  level. DOD’s current approach is clearly superior to its prior approach;  however, a number of formidable challenges remain.
Last year when we testified before this Subcommittee, we highlighted  several of these formidable challenges. Today, I would like to provide my  perspectives on actions DOD has taken to address these challenges and  achieve business transformation through all levels of the department over  the past year. Specifically, I will discuss DOD’s efforts to (1) develop a  comprehensive, integrated, enterprisewide business transformation plan  and its related leadership approach and (2) comply with legislation that  addresses business systems modernization and improving financial  management accountability. I will also discuss two sections of the recently  enacted John Warner National Defense Authorization Act for Fiscal Year  2007 that address financial improvement and acquisition of all major  automated information systems, and selected additional DOD high-risk  areas that highlight the need for continued attention.
My statement is based in large part on our previous reports and some of  our current, ongoing efforts. Our work was performed in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: DOD is one of the largest and most complex organizations in the world.  Overhauling its business operations will take many years to accomplish  and represents a huge management challenge. Execution of DOD’s  operations spans a wide range of defense organizations, including the  military services and their respective major commands and functional  activities, numerous large defense agencies and field activities, and  various combatant and joint operational commands that are responsible  for military operations for specific geographic regions or theaters of  operation. To support DOD’s operations, the department performs an  assortment of interrelated and interdependent business functions—using  more than 3,700 business systems—related to major business areas such  as weapon systems management, supply chain management, procurement,  health care management, and financial management. The ability of these  systems to operate as intended affects the lives of our warfighters both on  and off the battlefield. For fiscal year 2006, Congress appropriated  approximately $15.5 billion to DOD, and for fiscal year 2007, DOD has  requested another $16 billion in appropriated funds to operate, maintain,  and modernize these business systems and associated infrastructure.
Until DOD can successfully transform its operations, it will continue to  confront the pervasive, decades-old management problems that cut across  all of DOD’s major business areas. Since our report on the financial  statement audit of a major DOD component over 16 years ago, we have  repeatedly reported that weaknesses in business management systems,  processes, and internal controls not only adversely affect the reliability of  reported financial data, but also the management of DOD operations. In  March 2006, I testified that DOD’s financial management deficiencies,  taken together, continue to represent the single largest obstacle to  achieving an unqualified opinion on the U.S. government’s consolidated  financial statements. These issues were also discussed in the latest  consolidated financial audit report. To date, none of the military services  or major DOD components has passed the test of an independent financial  audit because of pervasive weaknesses in internal control and processes  and fundamentally flawed business systems.
DOD’s financial management problems are pervasive, complex, long- standing, deeply rooted in virtually all of its business operations, and  challenging to resolve. The nature and severity of DOD’s financial  management business operations and system deficiencies not only affect  financial reporting, but also impede the ability of DOD managers to receive  the full range of information needed to effectively manage day-to-day  operations. Such weaknesses have adversely affected the ability of DOD 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, including  supporting warfighters and their families.
Transformation of DOD’s business systems and operations is key to  improving the department’s ability to provide DOD management and  Congress with accurate, timely, reliable, and useful information for  analysis, oversight, and decision making. This effort is an essential part of  the Secretary of Defense’s broad initiative to “transform the way the  department works and what it works on.” The savings resulting from an  effective business transformation effort could be significant.
section_title: DOD Lacks a Fully Developed, Comprehensive, Integrated, and Enterprisewide Approach to Decision Making and Sustained Leadership
paragraphs: I would like to take a few minutes to briefly discuss two critical elements  that are still needed at DOD to ensure successful and sustainable business  transformation before turning to DOD’s business modernization and  financial management accountability improvement efforts. First, DOD  needs a comprehensive, integrated, and enterprisewide plan to guide its  overall business transformation efforts. Second, a chief management  official with the right skills and at the right level of the department is  essential for providing the leadership continuity needed to sustain the  momentum for business transformation efforts across administrations and  ensure successful implementation.
subsections: section_title: Comprehensive, Integrated, and Enterprisewide Business Transformation Plan Not Fully Developed
paragraphs: DOD has not fully developed a comprehensive, integrated, and  enterprisewide strategy or action plan for managing its overall business  transformation effort. The lack of a comprehensive, integrated, and  enterprisewide action plan linked with performance goals, objectives, and  rewards has been a continuing weakness in DOD’s overall business  transformation efforts that I have been testifying on for years. I recognize  that DOD’s efforts to plan and organize itself to achieve business  transformation are continuing to evolve. However, I cannot emphasize  enough how critical to the success of these efforts are top management  attention and structures that focus on transformation from a broad  perspective and a clear, comprehensive, integrated, and enterprisewide  plan that, at a summary level, addresses all of the department’s major  business operations. This plan should cover all of DOD’s key business  functions; contain results-oriented goals, measures, and expectations that  link institutional, unit, and individual performance goals and expectations  to promote accountability; identify people with needed skills, knowledge,  experience, responsibility, and authority to implement the plan; and  establish an effective process and related tools for implementation and  oversight. Such an integrated business transformation plan would be  instrumental in establishing investment priorities and guiding the  department’s key resource decisions.
While DOD has developed plans that address aspects of business  transformation at different organizational levels, these plans have not been  clearly aligned into a comprehensive, integrated, and enterprisewide  approach to business transformation. As I will shortly discuss in more  detail, DOD recently issued an enterprise transition plan (ETP) that is to  serve as a road map and management tool for sequencing business system  investments in the areas of personnel, logistics, real property, acquisition,  purchasing, and financial management. As Business Transformation  Agency (BTA) officials acknowledge, the ETP does not contain all of the  components of a comprehensive and integrated enterprisewide  transformation plan as we envision. BTA officials stated that, while the  ETP is integrated with the Financial Improvement and Audit Readiness  Plan, the ETP is not as integrated with other enterprisewide, high-risk  area improvement plans, such as the Supply Chain Plan. However, BTA  officials consider the ETP to be an evolving plan and are currently  analyzing other enterprisewide plans aimed at improving and transforming  DOD’s business operations in order to improve the degree of alignment  between those plans and the ETP. Finally, BTA officials indicate that the  department is moving toward a family of linked plans that could be used to  guide and monitor business transformation, rather than one  comprehensive plan that addresses all aspects of DOD’s business  operations.
To develop a family of linked plans, the enterprise transition plan would  also need to be aligned with the high-level Quadrennial Defense Review  (QDR) strategic plan and its initiatives, which so far is not the case. For  example, the QDR highlights the need for transforming the way the  department works and what it works on, but it does not contain  supporting details such as key metrics, milestones, and mechanisms to  guide and direct the business transformation effort. Moreover, the QDR’s  business transformation initiative, the Institutional Reform and  Governance project, is not clearly aligned with the ETP. This initiative is  intended to (1) establish a common and authoritative analytical  framework to link strategic decisions to execution, (2) integrate core  decision processes, (3) and align and focus the department’s governance  and management functions under an integrated enterprise model. Finally,  the QDR and other DOD planning documents do not address the ongoing  gap between wants, needs, affordability, and sustainability in what is likely  to be a resource-constrained environment.
section_title: Sustained Leadership Is Needed
paragraphs: While DOD has established leadership and oversight mechanisms to  address transformation, DOD lacks the sustained leadership at the right  level needed to achieve successful and lasting transformation. Due to the  complexity and long-term nature of DOD’s business transformation  efforts, we continue to believe DOD needs a chief management officer  (CMO) to provide sustained leadership and maintain momentum. Without  formally designating responsibility and accountability for results, choosing  among competing demands for scarce resources and resolving differences  in priorities among various DOD organizations will be difficult and could  impede DOD’s ability to transform in an efficient, effective, and reasonably  timely manner. In addition, it may be particularly difficult for DOD to  sustain transformation progress when key personnel changes occur. This  position would elevate, integrate, and institutionalize the attention  essential for addressing key stewardship responsibilities, such as strategic  planning, enterprise architecture development and implementation,  information technology management, and financial management, while  facilitating the overall business management transformation effort within  DOD.
I would also like to articulate what this position would not do. The CMO  would not be another layer in DOD’s day-to-day management structure.  Specifically, 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 the department, nor would the CMO  supervise those officials in connection with their ongoing responsibilities.  Instead, the CMO would be responsible and accountable for planning,  integrating, and executing the overall business transformation effort. The  CMO also would develop and implement a strategic plan for the overall  business transformation effort. As required by Congress, DOD is studying  the feasibility and advisability of establishing a CMO to oversee the  department’s business transformation process. As part of this effort, the  Defense Business Board, an advisory panel, examined various options and,  in May 2006, endorsed this concept. The Institute for Defense Analysis is  scheduled to issue a report on this issue before the end of this year. In  addition, McKinsey and Company recently endorsed the CMO concept.
The Secretary of Defense, Deputy Secretary of Defense, and other senior  leaders have clearly shown a commitment to business transformation and  addressing deficiencies in the department’s business operations. During  the past year, DOD has taken additional steps to address certain  provisions and requirements of the Ronald W. Reagan National Defense  Authorization Act for Fiscal Year 2005, including establishing the Defense  Business Systems Management Committee (DBSMC), which is intended to  be DOD’s primary transformation leadership and oversight mechanism,  and creating the BTA to support the DBSMC, a decision-making body.  However, these organizations do not provide the sustained leadership  needed to successfully achieve the needed overall business  transformation. The DBSMC’s representatives consist of political  appointees whose terms expire when administrations change.
Furthermore, it is important to remember that committees do not lead,  people do. Thus, DOD still needs to designate a person to provide  sustained leadership and have overall responsibility and accountability for  this effort.
In addition, we testified in November 2005 that DOD’s BTA offers  potential benefits relative to the department’s business systems  modernization efforts if the agency can be properly organized, given  resources, and empowered to effectively execute its roles and  responsibilities and is held accountable for doing so. However, the  department has faced challenges in making the BTA operational. For  example, we previously testified that there are numerous key acquisition  functions that would need to be established and made operational for the  BTA to effectively assume responsibility for 21 DOD-wide projects,  programs, systems, and initiatives, and our experience across the  government shows that these functions can take considerable time to  establish.
To assist the department, the Fiscal Year 2004 National Defense  Authorization Act gives DOD the authority to hire up to 2,500 highly  qualified experts from outside the civil service and uniformed services  without going through the normal civil service hiring system. Earlier this  year, the BTA had yet to take advantage of this authority because of  certain departmental obstacles concerning, for example, the roles that  these experts could perform. However, it is our understanding that this is  no longer the case, and to date the BTA has hired 9 of these individuals.  Moreover, we were told that the BTA has also obtained direct hiring  authority from the Office of Personnel Management. The BTA’s total  projected end strength is 235 personnel. As of November 2006, the BTA  had hired 128 personnel; agency officials anticipate hiring the remaining  107 personnel, including 16 additional highly qualified subject experts by  September 30, 2007.
While achieving the BTA’s initial staffing goals would represent a major  accomplishment and is extremely important to its ability to perform its  business transformation and business systems modernization roles and  responsibilities, BTA human capital management is not a one-time event  but rather an essential BTA function that needs to be managed  strategically. Our research shows that to be successful, organizations need  to treat human capital as strategic assets—continuously working to  understand gaps between future needs and on-board capabilities and  establish plans for filling gaps through a combination of, for example,  training, retention incentives, hiring, and performance-related rewards. By  employing such an approach, the BTA can be better positioned to make  sure that it has the right people, with the right skills, when it needs them  not only today but in the future. The Deputy Undersecretary of Defense for  Financial Management stated that the BTA is currently developing a  human capital strategy that is expected to be completed by January 2007.  It will to (1) provide for rotating staff between BTA and the DOD  components to infuse talent into the BTA and to develop a change- oriented culture, (2) align individual and team performance to already  established organizational mission outcomes, and (3) employ OPM’s  Human Capital Assessment and Accountability Framework and the DOD  Human Capital Strategy.
section_title: DOD Has Made Progress in Complying with Business Systems Modernization and Financial Management Accountability Legislation, but Much Work Remains
paragraphs: The department has made important progress in complying with  legislation pertaining to its financial management improvement and  business systems modernization efforts. However, formidable challenges  remain relative to extending the architecture and implementing its tiered  accountability investment approach across the military services and  defense agencies, and ensuring that the department’s thousands of  business system investments are implemented on time and within budget  and provide promised capabilities and benefits. The Fiscal Year 2005  National Defense Authorization Act contained provisions aimed at  establishing some of the tools needed to accomplish this. As our  evaluations of federal information technology (IT) management and our  research of successful organizations show, other tools necessary for  successfully modernizing systems will also be needed.
As we reported earlier this year, DOD also made important progress in  complying with the Fiscal Year 2005 National Defense Authorization Act  pertaining to its business systems modernization. For example, on March  15, 2006, DOD released updates to its business enterprise architecture  (Version 3.1) and its ETP. These updates added previously missing content  to the architecture and transition plan, such as identifying an  enterprisewide data standard to support financial management and  reporting requirements. Other business system modernization  management improvements were also apparent, such as increased  budgetary reporting of business system investments and additional  investment review controls.
More recently, DOD issued Version 4.0 of its business enterprise  architecture and ETP. These latest versions provide additional content and  clarity. For example, the transition plan now includes the results of  ongoing analyses of gaps between existing business capabilities and  needed capabilities. However, enormous challenges, such as extending the  architecture across the military services and defense agencies, remain. To  this end, the department defined a conceptual strategy in September 2006,  for federating the architecture and adopting a shared services  orientation. While we believe that the concepts have merit and are  applicable to DOD, much remains to be decided and accomplished before  they can be implemented in a way to produce architectures and transition  plans for each DOD component that are aligned with the department’s  corporate view and that can guide and constrain component-specific  investments.
At the same time, DOD components continue to invest billions of dollars in  new and existing business systems each year. This means that the risks of  investing in these programs ahead of the federated architecture need to be  part of investment approval decisions. As we have previously reported,  investment decision making based on architecture alignment is but one of  many keys to success of any business system modernization. Other keys to  the success in delivering promised system capabilities and benefits on  time and within budget include having the right human capital team in  place and following a range of essential program management and system  and software acquisition disciplines. As I will discuss later, our experience  in reviewing several DOD business system programs shows that these keys  to success are not consistently practiced. While not a guarantee, our  research of leading program management and system acquisition practices  and evaluations of federal agencies shows that institutionalization of a  family of well-defined management controls can go a long way in  minimizing business system modernization risks.
subsections: section_title: DOD Continues to Evolve Its Business Enterprise Architecture, but Much Remains to Be Accomplished
paragraphs: In May 2006, we reported on DOD’s efforts to address a number of  provisions in the Fiscal Year 2005 National Defense Authorization Act.  Among other things, we stated that the department had adopted an  incremental strategy for developing and implementing its architecture,  which was consistent with our prior recommendation and a best practice.  We further stated that DOD had addressed a number of the limitations in  prior versions of its architecture. For example, we reported that Version  3.1 of the architecture had much of the information needed, if properly  implemented, to achieve compliance with the Department of the  Treasury’s United States Standard General Ledger, such as the data  elements or attributes that are needed to facilitate information sharing and  reconciliation with the Treasury. In addition, we stated that the  architecture continued to specify DOD’s Standard Financial Information  Structure (SFIS) as an enterprisewide data standard for categorizing  financial information to support financial management and reporting  functions.
Despite this progress, we also reported that this version of the  architecture did not comply with all of the legislative requirements and  related best practices. For example, while program officials stated that  analyses of the current architectural environment for several of the  enterprise-level systems had occurred, the architecture did not contain a  description of, or a reference to, the results of these analyses. The  architecture also did not include a systems standards profile to support  implementation of data sharing among departmentwide business systems  and interoperability with departmentwide IT infrastructure. Program  officials acknowledged that the architecture did not include this profile  and stated that they were working with the Assistant Secretary of Defense  (Networks and Information Integration) and Chief Information Officer to  address this in future versions. We also reported that the architecture was  not, for example, adequately linked to the military service and defense  agency component architectures and transition plans, which we said was  particularly important given the department’s stated intention to adopt a  federated approach to developing and implementing the architecture.
In September 2006, DOD released Version 4.0 of its architecture, which  according to the department, resolves several of the architecture gaps that  were identified with the prior version. One example of a gap that DOD  reports Version 4.0 is beginning to fill is the definition of a key business  process area missing from prior versions—the planning, programming,  and budgeting process area. In this regard, according to DOD, the  architecture now includes departmental and other federal planning,  programming, and budgeting guidance (e.g., OMB Circular A-11) and some  high-level activities associated with this process area. In addition, DOD  reports that Version 4.0 has restructured the business process models to  reduce data redundancy and ensure adherence to process modeling  standards (e.g., eliminated numerous process modeling standards  violations and stand-alone process steps with no linkages). Despite these  improvements, this version is still missing, for example, a depiction of the  current environment (i.e., baseline of its current assets and current  capabilities) that was analyzed against its target environment to identify  capability gaps that the ETP is to address. Further, it does not include  DOD component architectures (e.g., services and various DOD agencies)  as distinct yet coherent members of a federated DOD business enterprise  architecture.
section_title: DOD Plans to Federate Its Business Enterprise Architecture to the Components
paragraphs: Recognizing the need to address component architectures, DOD released  its business mission area federation strategy and road map in September  2006, which is intended to define how DOD will extend its business  enterprise architecture across the military services and defense agencies.  According to DOD, the strategy will provide for standardization across the  federation of architectures by, for example, introducing a consistent set of  standards for determining the status and quality of the member  (component and program) architectures, a standard methodology for  linking member architectures to the overarching corporate architecture,  the capability to search member architectures, and a common method to  reuse capabilities described by these architectures.
In the end, the strategy is intended to link related business mission area  services or capabilities in the various architectures by establishing a set of  configuration standards for architecture repositories. Further, the strategy  is also intended to support the development of the interoperable execution  of enterprise and component systems by defining and disclosing common  services that can be shared and reused by these systems. (See fig. 1 for a  simplified and illustrative conceptual depiction of DOD’s federated  business enterprise architecture.)
The importance of extending the DOD business enterprise architecture to  the military services is underscored by our recent findings about the  military services’ management of their respective enterprise architecture  programs. Specifically, in August 2006, we released an assessment of  federal agency enterprise architecture programs’ satisfaction of the  elements in our Enterprise Architecture Management Maturity Framework  (EAMMF). Our EAMMF is a five-stage architecture framework for  managing the development, maintenance, and implementation of an  architecture and understanding the extent to which effective architecture  management practices are being performed and where an organization is  in its progression toward having a well-managed architecture program. In  short, the framework consists of 31 core elements that relate to  architecture governance, content, use, and measurement. These elements  reflect research by us and others showing that architecture programs  should be founded upon institutional architecture commitment and  capabilities, and measured and verified products and results.
With respect to the maturity of the military services’ respective enterprise  architecture programs, we found that the departments of the Air Force,  the Army, and the Navy had not satisfied about 29, 55, and 29 percent of  the core elements in our framework, respectively. In addition, the Army  had only fully satisfied 1 of the 31 core elements (3 percent). (See table 1  for the number and percentage of elements fully, partially, and not  satisfied by each of the military services).
By comparison, the other major federal departments and agencies that we  reviewed had as a whole fully satisfied about 67 percent of the  framework’s core elements. Among the key elements that all three  services had not fully satisfied were developing architecture products that  describe their respective target architectural environments and developing  transition plans for migrating to a target environment, in addition to the  following.
The Air Force, for example, had not yet placed its architecture products  under configuration management to ensure the integrity and consistency  of these products and was not measuring and reporting on the quality of  these products.
The Army, for example, had yet to develop effective architecture  development plans and had not developed architecture products that fully  described its current architectural environment.
The Navy, for example, had yet to describe its current architectural  environment in terms of performance and had not explicitly addressed  security in its architecture descriptions.
Further, while the services had partially satisfied between 8 and 13 core  elements in our framework, it is important to note that even though  certain core elements are partially satisfied, fully satisfying some of them  will not be accomplished quickly and easily. It is also important to note the  importance of fully, rather than partially, satisfying certain elements, such  as those that address architecture content, which can have important  implications for the quality of an architecture and thus its usability and  results.
To assist the military services in addressing enterprise architecture  challenges and managing their architecture programs, we recommended  that the services develop and implement plans for fully satisfying each of  the conditions in our framework. The department generally agreed with  our findings and recommendations and stated that it plans to use our  framework as one of the benchmark best practices as DOD components  continuously work to improve enterprise architecture management  maturity.
Clearly, much remains to be accomplished to implement the federated  strategy and create DOD’s federated business enterprise architecture. One  key to making this happen, which we have previously recommended, is  having a business enterprise architecture development management plan  that defines what will be done, when, by whom, and how it will done to  fully develop the architecture. Having and using such a plan is provided for  in our EAMMF. Without one, the department is less likely to effectively  accomplish its intended architecture evolution, extension, and  improvement efforts. According to BTA officials, they are in the process of  addressing this recommendation. We currently have ongoing work for this  committee and others looking at, among other things, how the department  plans to implement the federated strategy and the challenges that it faces  in doing so.
section_title: DOD Continues to Improve Its Enterprise Transition Plan, but Needed Improvements Remain
paragraphs: DOD has taken a number of steps to improve its ETP and address some of  the missing elements that we previously identified relative to the Fiscal  Year 2005 National Defense Authorization Act’s requirements and related  transition planning guidance. For example, in May 2006, we reported that  the transition plan included an initiative aimed at identifying capability  gaps between the current and target architectural environments, and  provided information on progress on major investments—including key  accomplishments and milestones attained, and more information about  the termination of legacy systems. However, we reported that it still did  not identify, among other things, all legacy systems that will not be part of  the target architecture, and it did not include system investment  information for all the military services, defense agencies, and combatant  commands.
In September 2006, DOD released an updated revision to its ETP, which  continues to include major investments—such as key accomplishments  and milestones attained, as well as new information on near-term activities  (i.e., within the next 6 months) at both the enterprise and component  levels. For example, in an effort to improve visibility into personnel  activities, DOD reported that, for the Defense Civilian Personnel Data  System, it met the September 2006 milestone to implement enterprisewide  tools for use in advanced reporting and data warehousing, and that it has  set a September 2008 milestone for developing an implementation strategy  for integrating modules supporting functionality that is currently provided  by stand-alone applications. In addition, the updated plan provides  information on business priorities supported by systems and initiatives  and aligns these priorities with a set of business value measures (e.g., on- time customer request, payroll accuracy). Specifically, for each business  enterprise priority, the plan now identifies the business capability  improvements (e.g., manage personnel and pay) necessary to achieve the  business enterprise priority (e.g., personnel visibility) objectives and the  metrics for measuring progress towards achieving these objectives. In  addition, the plan now identifies the relationship between target systems,  business capabilities, operational activities, and the system functions they  provide and specific organizations that will or plan to use the system.  Further, the transition plan now includes the initial results of ongoing  analyses of gaps between its current and target environments for most of  the business enterprise priorities, in which capability and performance  shortfalls and their root causes are described and the architecture solution  component (such as business rules and transformation initiatives and  systems) that are to address these shortfalls are identified.
However, the current transition plan is still missing important elements.  Specifically, the plan does not yet include system investment information  for all the defense agencies and combatant commands. In addition, the  planned investments in the transition plan are not sequenced based on a  range of activities that are critical to developing an effective transition  plan. As we have previously reported, a transition or sequencing plan  should provide a temporal investment road map for moving between the  current and target environments, based on such considerations as  technology opportunities, marketplace trends, institutional system  development and acquisition capabilities, legacy and new system  dependencies and life expectancies, and the projected value of competing  investments. According to a BTA official responsible for the ETP, the  transition plan investments have not been sequenced based on these  considerations. Rather, the ETP is based on fiscal year budgetary  constraints.
Program officials stated that the next version of the plan will enhance  performance metric tracking, improve the quality of system functional  scope and organizational span information, better integrate component  plans with enterprise plans, enhance federating plans for each business  capability, and possibly add other components to the enterprise transition  plan. As the transition plan evolves and all system investments are  validated against the architecture via capability gap analyses, the  department should be better positioned to sequentially define and manage  the migration and disposition of existing business processes and  systems—and the introduction of new ones.
section_title: DOD Has Established Business Systems Investment Decision- Making Controls, but Full Implementation Remains Unclear
paragraphs: To help improve the department’s control and accountability over its  business systems investments, provisions in the Fiscal Year 2005 National  Defense Authorization Act directed DOD to put in place a specifically  defined structure that is responsible and accountable for controlling  business systems investments to ensure compliance and consistency with  the business enterprise architecture. More specifically, the act directs the  Secretary of Defense to delegate responsibility for review, approval, and  oversight of the planning, design, acquisition, deployment, operation,  maintenance, and modernization of defense business systems to  designated approval authorities or “owners” of certain business missions.  DOD has satisfied this requirement under the act. On March 19, 2005, the  Deputy Secretary of Defense issued a memorandum that delegated the  authority in accordance with the criteria specified in the act, as described  above. Our research and evaluation of agencies’ investment management  practices have shown that clear assignment of senior executive investment  management responsibility and accountability is crucial to having an  effective institutional approach to IT investment management.
The Fiscal Year 2005 National Defense National Authorization Act also  required DOD to establish investment review structures and processes,  including a hierarchy of investment review boards (IRB), each with  representation from across the department, and a standard set of  investment review and decision-making criteria for these boards to use to  ensure compliance and consistency with DOD’s business enterprise  architecture. In this regard, the act required the establishment of the  DBSMC—which serves as the highest ranking governance body for  business system modernization activities within the department. As of  April 2006, DOD identified 3,717 business systems and assigned  responsibility for these systems to IRBs. Table 2 shows the systems and  the responsible IRB and component.
A key element of the department’s approach to reviewing and approving  business systems investments is the use of what it refers to as tiered  accountability. DOD’s tiered accountability approach involves an  investment control process that begins at the component level and works  its way through a hierarchy of review and approval authorities, depending  on the size and significance of the investment. Military service officials  emphasized that the success of the process depends on them performing a  thorough analysis of each business system before it is submitted for  higher-level review and approval. Through this process, the department  reported in March 2006 that 226 business systems, representing about  $3.6 billion in modernization investment funding, had been approved by  the DBSMC—the department’s highest-ranking approval body for business  systems. According to the department’s March 2006 report, this process  also identified more than 290 systems for phase out or elimination and  approximately 40 business systems for which the requested funding was  reduced and the funding availability periods were shortened to fewer than  the number of years requested. For example, one business system  investment that has been eliminated is the Forward Compatible Payroll  (FCP) system. In reviewing the program status, the IRB determined that  FCP would duplicate the functionality contained in the Defense Integrated  Military Human Resources System, and it was unnecessary to continue  investing in both systems. A major reason the department has thousands  of business systems is that it has historically failed to consistently employ  the range of effective institutional investment management controls, such  as an architecture-centric approach to investment decision making, that  our work and research show are keys to successful system modernization  programs. Such controls help to identify and eliminate duplicative systems  and this helps to optimize mission performance, accountability, and  transformation. They also help to ensure that promised system capabilities  and benefits are delivered on time and within budget.
Furthermore, the BTA reports that the tiered accountability approach has  reduced the level of funding and the number of years that funding will be  available for 14 Army business systems, 8 Air Force business systems, and  8 Navy business systems. For example, the Army’s Future Combat Systems  Advanced Collaborative Environment program requested funding of  $100 million for fiscal years 2006 through 2011, but the amount approved  was reduced to approximately $51 million for fiscal years 2006 through  2008. Similarly, Navy’s Military Sealift Command Human Resources  Management System requested funding of about $19 million for fiscal  years 2006 through 2011, but the amount approved was approximately  $2 million for the first 6 months of fiscal year 2006. According to Navy  officials, this system initiative will be reviewed to ascertain whether it has  some of the same functionality as the Defense Civilian Personnel Data  System. Funding system initiatives for shorter time periods can help  reduce the financial risk by providing additional opportunities for  monitoring a project’s progress against established milestones and help  ensure that the investment is properly aligned with the architecture and  the department’s overall goals and objectives.
Besides limiting funding, the investment review and approval process has  resulted in conditions being placed on system investments. These  conditions identify specific actions to be taken and when the actions must  be completed. For example, in the case of the Army’s Logistics  Modernization Program (LMP) initiative, one of the noted conditions was  that the Army had to address the issues discussed in our previous  reports. In our May 2004 report, we recommended that the department  establish a mechanism that provides for tracking all business systems  modernization conditional approvals to provide reasonable assurance that  all specific actions are completed on time. In response, the department  has begun to track conditional approvals.
Despite the department’s efforts to control its investments to acquire new  business systems or to enhance existing business systems, formidable  challenges remain. In particular, the reviews of those business systems  that have modernization funding of less than $1 million, which represent  the majority of the department’s reported 3,717 business systems, are only  now being started on an annual basis, and thus the extent to which the  review structures and processes will be applied to the department’s  3,717 business systems is not clear. Given the large number of systems  involved, it is important that an efficient system review and approval  process be effectively implemented for all systems. As indicated in table 2,  there are numerous systems across the department in the same functional  area. Such large numbers of systems indicate a real possibility for  eliminating unnecessary duplication and avoiding unnecessary spending  on the department’s multiple business systems. In support of this  Subcommittee, we have work planned to address the extent to which  these management controls are actually being implemented for both the  enterprise-level investments and the thousands of other system  investments that are being managed at the component level.
section_title: Key DOD Systems Still Face Challenges
paragraphs: As we have previously testified and reported, DOD has not effectively  managed a number of business system programs. Among other things, our  reviews of individual system investments have identified weaknesses in  such things as architectural alignment and informed investment decision  making, which are focus areas of the Fiscal Year 2005 National Defense  Authorization Act provisions. Our reviews have also identified weaknesses  in other system acquisition and investment management areas—such as  requirements management, testing, and performance management—where  good management is crucial for the successful implementation of any  given DOD business system. I will describe examples of the weaknesses  that we have recently reported on for five system investments. The system  investments are the Defense Integrated Military Human Resources System  (DIMHRS), Defense Travel System (DTS), the Army Logistics  Modernization Program (LMP), the Navy Tactical Command Support  System (NTCSS), and the Transportation Coordinators’ Automated  Information for Movements System II (TC-AIMS II). The weaknesses that  we have found raise questions as to the extent to which the structures,  processes, and controls that DOD has established in response to the Fiscal  Year 2005 National Defense Authorization Act are actually being  implemented, and illustrate the range of system acquisition and investment  management controls (beyond those provided for in the act) that need to  be effectively implemented in order for a given investment to be  successfully acquired and deployed.
In 2005 we reported that DIMHRS—a planned DOD-wide military pay and  personnel system—-was not being managed as a DOD-wide investment, to  include alignment with a DOD-wide architecture and governance by a  DOD-wide body. In addition, we reported that DIMHRS requirements had  not been adequately defined, and not all acquisition best practices  associated with commercial component-based systems were being  followed. Accordingly, we made a number of recommendations. In  response, DOD has elevated the system to an enterprise investment under  the BTA, and established a DIMHRS steering committee that is chartered  to include representation from the services. The BTA has also hired a  DIMHRS program manager, and the Army and the Air Force, while  continuing to evaluate their respective requirements, have determined that  the commercial software product selected for DIMHRS can be used under  certain conditions. The Army expects to deploy DIMHRS in April 2008 and  the Air Force plans to begin deployment in May 2008. The Navy, on the  other hand, assessed both DIMHRS and the Marine Corps Total Force  System (MCTFS) and determined that MCTFS would better meet its  requirements. According to a Navy official, the DBSMC has directed the  Navy to research MCTFS and to fully evaluate the cost implications of the  MCTFS option, but has not granted the Navy permission to deploy MCTFS.  We plan to evaluate DOD’s implementation of our prior recommendations  and the Navy’s analysis of the merits of pursuing the MCTFS option.
In September 2006, we reported on limitations in the economic  justification underlying DOD’s decision to invest in DTS, which is intended  to be the standard departmentwide travel system. Specifically, we found  that two key assumptions used to estimate cost savings in the September  2003 DTS economic analysis were not based on reliable information.  Additionally, we reported that DOD did not have quantitative metrics to  measure the extent to which DTS is actually being used. Moreover, we  found that DOD had not adequately defined and tested the system’s  requirements, an area of concern that was also discussed in our January  2006 report. These system acquisition management weaknesses introduce  considerable risk to DOD’s ability to deliver promised DTS capabilities  and benefits on time and within budget. Although the September 2003  economic analysis was not based on supportable data, the department’s  criteria do not require that a new economic analysis be prepared. DTS has  already completed all of the major milestones related to a major  automated system which require that an economic analysis be prepared or  at least updated to reflect the current assumptions and the related costs  and benefits. However, the Fiscal Year 2005 National Defense  Authorization Act requires the periodic review, but not less than  annually, of every defense business system investment. Further, the  department’s April 2006 guidance notes that the annual review process  “provides follow-up assurance that information technology investments,  which have been previously approved and certified, are managed properly,  and that promised capabilities are delivered on time and within budget.” If  effectively implemented, this annual review process provides an excellent  opportunity for DOD management to assess whether DTS is meeting its  planned cost, schedule, and functionality goals. Going forward, such a  review could serve as a useful management tool in making funding and  other management decisions related to DTS. We made recommendations  to DOD aimed at improving the management oversight of DTS, including  periodic reports on DTS utilization and resolution of inconsistencies in  DTS’s requirements. DOD generally agreed with the recommendations and  described its efforts to address them.
In 2004 and 2005, we reported that the Army faced considerable  challenges in developing and implementing LMP which is intended to  transform the Army Materiel Command’s logistics operations. In  particular, we reported that LMP will not provide intended capabilities and  benefits because of inadequate requirements management and system  testing. These problems prevented the Tobyhanna Army Depot from  accurately reporting on its financial operations, which, in turn, adversely  impacts the depot’s ability to accurately set prices. We found that the  Army has not put into place an effective management process to help  ensure that the problems with the system are resolved. While the Army  developed a process that identified the specific steps that should be  followed in addressing the problems identified, the process was not  followed. We recommended improvements in the implementation of LMP  as well as delaying implementation at the remaining four depots until  problems encountered have been resolved. DOD concurred with all the  recommendations. The Subcommittee has requested that we undertake a  series of audits directed at DOD’s efforts to resolve long-standing financial  management problems over the visibility of its assets. Our first such audit  is evaluating the Army’s efforts in the area and will include follow-up work  on LMP.
In December 2005,  we reported that DOD needed to reassess its planned  investment in the NTCSS—a system intended to help Navy personnel  effectively manage ships, submarines, and aircraft support activities.  Among other things, we reported that the Navy had not economically  justified its ongoing and planned investment in the NTCSS and had not  invested in the NTCSS within the context of a well-defined DOD or Navy  enterprise architecture. In addition, we reported that the Navy had not  effectively performed key measurement, reporting, budgeting, and  oversight activities, and had not adequately conducted requirements  management and testing activities. We conclude that without this  information, the Navy could not determine whether the NTCSS as defined,  and as being developed, is the right solution to meet its strategic business  and technological needs. Accordingly, we recommended that DOD  develop the analytical basis to determine if continued investment in the  NTCSS represents prudent use of limited resources and we also made  recommendations to strengthen management of the program, conditional  upon a decision to proceed with further investment in the program. In  response, DOD generally concurred with the recommendations.
In December 2005, we reported that TC-AIMS II—a joint services system  with the goal of helping to manage the movement of forces and equipment  within the United States and abroad—had not been defined and developed  in the context of a DOD enterprise architecture. Similar to DIMHRS and  DTS, TC-AIMS II was intended to be an enterprise-level system. However,  the Army—DOD’s acquisition agent for TC-AIMS II—had pursued the  system on the basis of an Army logistics-focused architecture. This means  that TC-AIMS II, which was intended to produce a departmentwide  military deployment management system, was based on a service-specific  architecture, thus increasing the risk that this program, as defined, will not  properly fit within the context of future DOD enterprisewide business  operations and IT environments. In addition, the Army had not  economically justified the program on the basis of reliable estimates of  life-cycle costs and benefits, and as a result, the Army does not know if  investment in TC-AIMS II, as planned, is warranted or represents a prudent  use of limited DOD resources. Accordingly, we recommended that DOD,  among other things, develop the analytical basis needed to determine if  continued investment in TC-AIMS II, as planned, represents prudent use of  limited defense resources. In response, DOD generally concurred with our  recommendations and described efforts initiated or planned to bring the  program into compliance with applicable guidance.
section_title: DOD Issues Its Financial Improvement and Audit Readiness Plan
paragraphs: A major component of DOD’s business transformation effort is the defense  Financial Improvement and Audit Readiness Plan (FIAR), initially issued  in December 2005 and updated in June 2006 and September 2006, pursuant  to section 376 of the National Defense Authorization Act for Fiscal Year  2006. Section 376 limited DOD’s ability to obligate or expend funds for  fiscal year 2006 on financial improvement activities until the department  submitted a comprehensive and integrated financial management  improvement plan to the congressional defense committees. Section 376  required the plan to (1) describe specific actions to be taken to correct  deficiencies that impair the department’s ability to prepare timely, reliable,  and complete financial management information and (2) systematically tie  these actions to process and control improvements and business systems  modernization efforts described in the business enterprise architecture  and transition plan. Further, section 376 required a written determination  that each financial management improvement activity undertaken is  consistent with the financial management improvement plan and likely to  improve internal controls or otherwise result in sustained improvement in  DOD’s ability to produce timely, reliable, and complete financial  management information. DOD had to submit each written determination  to the congressional defense committees. Section 321 of the National  Defense Authorization Act for Fiscal Year 2007 extended the written  determination provision beyond fiscal year 2006.
DOD intends the FIAR Plan to provide DOD components with a  framework for resolving problems affecting the accuracy, reliability, and  timeliness of financial information, and obtaining clean financial statement  audit opinions. The FIAR Plan states that it prioritizes DOD’s improvement  efforts based on the following criteria: (1) impact on DOD financial  statements, (2) ability to resolve long-standing problems, (3) need for  focused DOD leadership attention to resolve the problem, (4) dependency  on business transformation initiatives and system solutions, and  (5) availability of resources. The FIAR Plan outlines the business rules and  oversight structure DOD has established to guide financial improvement  activities and audit preparation efforts. According to DOD, its June and  September 2006 FIAR Plan updates were intended to (1) begin identifying  milestones that must be met for assertions about the reliability of reported  financial statement information to occur on time, (2) develop greater  consistency among components regarding their corrective actions and  milestones, and (3) further describe how the FIAR Plan will be integrated  with the enterprise transition plan. In addition, the September 2006 update  outlines three key elements for achieving financial management  transformation: accountability, integration, and prioritization. Although  the FIAR Plan states that it is integrated with DOD component-level  financial improvement plans and the ETP, DOD officials have  acknowledged that the level of integration between the two efforts is not  complete and is still evolving.
The FIAR Plan is a high-level summary of DOD’s plans and reported  actions to comply with financial management legislation and achieve clean  financial statement audit opinions. We have reviewed the FIAR Plan and  its updates and discussed the FIAR Plan with DOD and OMB. We cannot  comment on specific focus areas or milestones because we have not seen  any of the underlying component or other subordinate plans on which the  FIAR Plan is based. However, we believe the incremental line item  approach, integration plans, and oversight structure outlined in the FIAR  Plan for examining DOD’s operations, diagnosing problems, planning  corrective actions, and preparing for audit represents a vast improvement  over prior financial improvement initiatives.
We continue to stress that the effectiveness of DOD’s FIAR Plan will  ultimately be measured by the department’s ability to provide timely,  reliable, and useful information for day-to-day management and decision  making. Nonetheless, I would like to see DOD place greater emphasis on  achieving auditability by 2012. If DOD is able to achieve this date, and  other impediments to an opinion on the consolidated financial statements  of the U.S. government are also addressed, an opinion for the federal  government may also be possible by 2012. We look forward to working  with DOD and the new DOD inspector general, when appointed, in further  developing DOD’s audit strategy.
section_title: Legislation Enacted to Address DOD’s Financial Management Weaknesses and Strengthen Business Systems Accountability
paragraphs: Lastly, you asked for my comments on two sections of the recently  enacted John Warner National Defense Authorization Act for Fiscal Year  2007. The first provision, section 321, seeks to ensure that the department  pursues financial management improvement activities only in accordance  with a comprehensive financial management improvement plan that  coordinates these activities with improvements in its systems and  controls. The second provision, section 816, establishes certain reporting  and oversight requirements for the acquisition of all major automated  information systems (MAIS).
subsections: section_title: Legislation Reiterates Need for Consistency between DOD’s Financial and Business Transformation Plans
paragraphs: Section 321 of the John Warner National Defense Authorization Act for  Fiscal Year 2007 extends beyond fiscal year 2006 certain limitations and  requirements placed on DOD’s financial management improvement and  audit initiatives in section 376 of the National Defense Authorization Act  for Fiscal Year 2006. Specifically, section 321 of the act limits DOD’s ability  to obligate or expend any funds for the purpose of any financial  management improvement activity relating to the preparation, processing,  or auditing of financial statements until it has submitted to the  congressional defense committees a written determination that each  activity proposed to be funded is (1) consistent with the DOD financial  management improvement plan required by section 376 of the National  Defense Authorization Act for Fiscal Year 2006 and (2) is likely to improve  internal controls or otherwise result in sustained improvements in the  ability of the department to produce timely, reliable, and complete  financial management information.
I fully support the intent of legislation, such as section 321, which is aimed  at directing DOD’s corrective actions towards the implementation of  sustained improvements in its ability to provide timely, reliable, complete,  and useful information. This is imperative not only for financial reporting  purposes, but more importantly for daily decision making and oversight.
Section 321 is consistent with and builds on existing legislation, in  addition to section 376 of the National Defense Authorization Act for  Fiscal Year 2006. For example, section 1008 of the National Defense  Authorization Act for Fiscal Year 2002 currently requires DOD to limit  resources used to prepare and audit unreliable financial information,  thereby saving the taxpayers millions of dollars annually. In addition, the  fiscal year 2002 act requires DOD to report to congressional committees  and others annually on the reliability of DOD’s financial information and to  provide a summary of improvement activities, including priorities,  milestones, measures of success, and estimates of when each financial  statement will convey reliable information. In my opinion, Congress has  clearly articulated its expectation that DOD exercise prudence in its use of  taxpayer money and focus only on those activities that will result in  sustained improvements in its ability to produce timely and reliable  financial management information.
It is evident that DOD intends to use its FIAR Plan, which it plans to  update semiannually, as a tool for complying with legislative requirements  regarding its financial improvement efforts. However, as is true with most  large initiatives, a comprehensive and integrated plan, sustained  leadership, results-oriented performance measures, and effective  implementation will be key to successful reform.
section_title: Legislative Language Establishing Reporting Requirements for Major Automated Information Systems Increases Oversight and Accountability
paragraphs: The provisions in section 816 of the John Warner National Defense  Authorization Act for Fiscal Year 2007 provide for greater disclosure and  accountability of business system investment performance, and thus  facilitate greater oversight. More specifically, the legislation establishes  certain reporting and oversight requirements for the acquisition of MAIS  that fail to meet cost, schedule, or performance criteria. In general, a MAIS  is a major DOD IT program that is not embedded in a weapon system (e.g.,  a business system investment). As such, we believe that the provisions can  increase oversight and accountability. Therefore, I also support this  legislation.
section_title: Specific High-risk Program Areas Highlight the Need for Continued Attention to Ensure Effective Transformation
paragraphs: I would like to discuss the five remaining high-risk areas within DOD.  These include weapon systems acquisitions and contract management;  supply chain management; personnel security clearance program; and  support infrastructure management.
subsections: section_title: DOD Weapon Systems Acquisitions and Contract Management
paragraphs: Two interrelated areas are the management of DOD’s major weapon  systems acquisitions and its contracts. While DOD eventually fields the  best weapon systems in the world, we have consistently reported that  typically the programs take significantly longer, cost significantly more  money, and deliver fewer capabilities than originally promised. DOD’s new  weapon system programs are expected to be the most expensive and  complex ever and will consume an increasingly large share of DOD’s  budget. These costly current and planned acquisitions are running head-on  into the nation’s unsustainable fiscal path. In the past 5 years, DOD has  doubled its commitment to weapon systems from $700 billion to  $1.4 trillion, but this huge increase has not been accompanied by more  stability, better outcomes, or increased buying power for the acquisition  dollar. Rather than showing appreciable improvement, programs are  experiencing recurring problems with cost overruns, missed deadlines,  and performance shortfalls. A large number of the programs included in  our annual assessment of weapon systems are costing more and taking  longer to develop than estimated. It is not unusual to see development  cost increases between 30 percent and 40 percent and attendant schedule  delays. These cost increases mean DOD cannot produce as many weapons  as intended nor can it be relied on to deliver to the warfighter when  promised. This causes DOD to either cut back on planned quantities or  capabilities, or to even scrap multibillion dollar programs, after years of  effort. If these systems are managed with the traditional margins of error,  the financial consequences can be dire, especially in light of a constrained  discretionary budget.
It is within this context that we must engage in a comprehensive and  fundamental reexamination of new and ongoing investments in our  nation’s weapon systems. Success for acquisitions means making sound  decisions to ensure that program investments are based on needs versus  wants and getting promised results. In the commercial world, successful  companies have no choice but to adopt processes and cultures that  emphasize basing decisions on knowledge, reducing risks prior to  undertaking new efforts, producing realistic cost and schedule estimates,  and building in quality to deliver products to customers at the right price,  time, and cost. However, this is not happening within DOD. The  department has tried to embrace best practices in its policies and instill  more discipline in setting requirements, among numerous other actions,  but it still has trouble distinguishing wants from true needs. While DOD’s  acquisition policy supports a knowledge-based, evolutionary approach to  acquiring new weapons, its practice of making decisions on individual  programs often sacrifices knowledge and executability in favor of  revolutionary solutions. In an important sense, success has come to mean  starting and continuing programs even when cost, schedule, and quantities  must be sacrificed.
Our reviews have identified a number of causes behind the acquisition  problems just described, but I would like to focus on three. The first I refer  to as “big A,” or acquisition with a capital “A.” What I mean by this is that  DOD’s funding, requirements, and acquisition processes are not working  synergistically. DOD does not clearly define and stabilize requirements  before programs are started. Our work has shown that DOD’s  requirements process generates more demand for new programs than  fiscal resources can support. DOD compounds the problem by approving  many highly complex and interdependent programs. Moreover, once a  program is approved, requirements can be added along the way— significantly stretching technology, creating design challenges,  exacerbating budget overruns, and enhancing accountability challenges.  For example, in the F-22A program, after the program was started, the Air  Force added a requirement for air-to-ground attack capability. In its Global  Hawk program, after the start of the program, the Air Force added both  signals intelligence and imagery intelligence requirements. Both programs  have experienced serious schedule delays and significant unit cost  increases. Customers often demand additional requirements fearing there  may not be another chance to get new capabilities because programs can  take a decade or longer to complete. Yet, perversely, these strategies delay  delivery to the warfighter, often by years.
The second cause I would refer to as “little a” or the acquisition process  itself. DOD commits to individual programs before it obtains assurance  that the capabilities it is pursuing can be achieved within available  resources and time constraints. In particular, DOD routinely accepts high  levels of technology risk at the start of major acquisition programs.  Funding processes encourage this approach, since acquisition programs  attract more dollars than efforts concentrating solely on proving out  technologies. However, without mature technologies at the outset, a  program will almost certainly incur cost and schedule problems. Only  10 percent of the programs in our latest annual assessment of weapon  systems had demonstrated critical technologies to best practice standards  at the start of development; and only 23 percent demonstrated them to  DOD’s standards. The cost effect of proceeding without completing  technology development before starting an acquisition can be dramatic.  For example, research, development, test and evaluation costs for the  programs included in our review that met best practice standards at  program start increased by a modest average of 4.8 percent more than the  first full estimate, whereas the costs for the programs that did not meet  these standards increased by a much higher average of 34.9 percent more  than the first full estimate. The bottom line is that these consequences are  predictable and, thus, preventable.
The third cause has to do with the lack of accountability. DOD officials are  not always held accountable when programs go astray. Likewise,  contractors are not always held accountable when they fail to achieve  desired acquisition outcomes. In December 2005, we reported that DOD  gives its contractors the opportunity to collectively earn billions of dollars  through monetary incentives. Unfortunately, we found DOD programs  routinely engaged in practices that failed to hold contractors accountable  for achieving desired outcomes and undermined efforts to motivate  contractor performance, such as    evaluating contractor performance on award-fee criteria that are not  directly related to key acquisition outcomes (e.g., meeting cost and  schedule goals and delivering desired capabilities to the warfighter);   paying contractors a significant portion of the available fee for what  award-fee plans describe as “acceptable, average, expected, good, or  satisfactory” performance, which sometimes did not require meeting the  basic requirements of the contract; and   giving contractors at least a second opportunity to earn initially unearned  or deferred fees.
As a result, DOD has paid out an estimated $8 billion in award fees on  contracts in our study population, regardless of whether acquisition  outcomes fell short of, met, or exceeded DOD’s expectations. For  example, we found that DOD paid its contractor for a satellite program— the Space-Based Infrared System High—74 percent of the award fee  available, $160 million, even though research and development costs  increased by more than 99 percent, and the program was delayed for many  years and was rebaselined three times. In another instance, DOD paid its  contractor for the F-22A aircraft more than $848 million, 91 percent of the  available award fee, even though research and development costs  increased by more than 47 percent, and the program had been delayed by  more than 2 years and rebaselined 14 times. Despite paying billions of  dollars in award and incentive fees, DOD has not compiled data or  developed performance measures to validate its belief that award and  incentive fees improve contractor performance and acquisition outcomes.
Similarly, DOD officials are rarely held accountable when programs go  astray. There are several reasons for this, but the primary ones include the  fact that DOD has never clearly specified who is accountable for what,  invested responsibility for execution in any single individual, or even  required program leaders to stay until the job is done. Moreover, program  managers are not empowered to make go or no-go decisions, they have  little control over funding, they cannot veto new requirements, and they  have little authority over staffing. Because there is frequent turnover in  their positions, program managers also sometimes find themselves in the  position of having to take on efforts that are already significantly flawed.
There are many other factors that play a role in causing weapons programs  to go astray. They include workforce challenges, poor contractor  oversight, frequent turnover in key leadership, and a lack of systems  engineering, among others. Moreover, many of the business processes that  support weapons development—strategic planning and budgeting, human  capital management, infrastructure, financial management, information  technology, and contracting—are beset with pervasive, decades-old  management problems, including outdated organizational structures,  systems, and processes. In fact, all of these areas—along with weapon  systems acquisition—are on our high-risk list of major government  programs and operations.
Our work shows that acquisition problems will likely persist until DOD  provides a better foundation for buying the right things, the right way. This  involves making tough trade-off decisions as to which programs should be  pursued and, more importantly, not pursued, making sure programs are  executable, locking in requirements before programs are started, and  making it clear who is responsible for what and holding people  accountable when these responsibilities are not fulfilled. These changes  will not be easy to make. They require DOD to reexamine the entirety of  its acquisition process and to make deep-seated changes to the setting,  funding, and execution of program requirements. In other words, DOD  would need to revisit who sets requirements and strategy, and who  monitors performance, and what factors to consider in selecting and  rewarding contractors. It also involves changing how DOD views success,  and what is necessary to achieve success. I am encouraged by DOD’s  recent efforts to improve the collaboration and consultation between the  requirements and acquisition communities. The test of these efforts will be  whether they produce better decisions. If they do, it is important that they  are sustained by more than the force of personality.
Buying major systems is not the only area where DOD needs to improve its  acquisition practices. For example, DOD’s management of its contracts  has been on our high-risk list since 1992. Our work has found that DOD is  unable to ensure that it is using sound business practices to acquire the  goods and services needed to meet the warfighter’s needs, creating  unnecessary risks and paying higher prices than justified. In this regard, in  a March 2005 report, we concluded that deficiencies in DOD’s oversight of  service contractors could place DOD at risk of paying the contractors  more than the value of the services they performed. In June 2006, we  reported that personnel at the Defense Logistics Agency were not  consistently reviewing prices for commodities acquired under its Prime  Vendor Program. We noted that until DOD provides sufficient  management oversight, the program will remain vulnerable to the systemic  pricing problems that have plagued it in the past. Earlier this year, we  reported that the Army acquired security guard services under an  authorized sole-source basis, despite recognizing that it was paying about  25 percent more than it had under contracts that had been previously  awarded competitively. We recommended that the Army reassess its  acquisition strategy to help make the best use of taxpayer dollars and  achieve its desired outcomes. In other reports, we identified numerous  issues in DOD’s use of interagency contracting vehicles that contributed to  poor acquisition outcomes.
Until the department devotes sufficient management attention to address  these long-standing issues, DOD remains at risk of wasting billions of  dollars and failing to get the goods and services it needs to accomplish its  missions.
section_title: DOD Supply Chain Management
paragraphs: Since the January 2005 update of the high-risk series, DOD has made some  progress toward addressing supply chain management problems. With the  encouragement of OMB, DOD has developed a plan to show progress  toward the long-term goal of resolving problems and removing supply  chain management from our list of high-risk areas within the department.  DOD issued the first iteration of the plan in July 2005 and, since then, has  regularly updated it. Based on our initial review of the plan, we believe it is  a solid first step toward improving supply chain management in support of  the warfighter. For example, DOD’s plan identifies three key areas— requirements forecasting, asset visibility, and materiel distribution—that  we believe are critical to DOD’s efforts to improve supply chain  management. The plan highlights selected DOD supply chain initiatives,  including key milestones in their development. Within the last year, for  example, DOD has made some progress in streamlining the storage and  distribution of defense inventory items on a regional basis as part of its  Joint Regional Inventory Materiel Management initiative. DOD has  completed a pilot for this initiative in the San Diego region and, in January  2006, began a similar transition for inventory items in Oahu, Hawaii.
Notwithstanding this positive first step, the department faces challenges  and risks in successfully implementing its proposed changes across the  department and measuring progress in resolving supply chain  management problems. It will be important for DOD to sustain top  leadership commitment and long-term institutional support for the plan;  obtain necessary resource commitments from the military services, the  Defense Logistics Agency, and other organizations; implement its  proposed initiatives across the department; identify performance metrics  and valid data to use in monitoring the initiatives; and demonstrate  progress toward meeting performance targets. We have been holding  monthly meetings with DOD and OMB officials to receive updates on the  plan and gain a greater understanding of the ongoing initiatives. In  addition, we are continuing to review the performance measures DOD is  using to track the plan’s progress in resolving supply chain problems and  DOD’s efforts to develop a comprehensive, integrated, and enterprisewide  strategy to guide logistics programs and initiatives. DOD is working on a  logistics road map, referred to as the “To Be” road map, which provides a  vision for future logistics programs and initiatives, including supply chain  management; identifies capability gaps; and links programs with  investments. However, the schedule for completing the initial road map  has recently slipped. Until the road map is completed, we will not be able  to assess how it addresses the challenges and risks DOD faces in its supply  chain management efforts.
section_title: DOD Personnel Security Clearance Program
paragraphs: DOD’s personnel security clearance program is another area that we  continue to assess because of the risks it poses. For over two decades, we  have reported on problems with DOD’s personnel security clearance  program as well as the financial costs and risks to national security  resulting from these problems. For example, at the turn of the century, we  documented problems such as incomplete investigations, inconsistency in  determining eligibility for clearances, and a backlog of overdue clearance  reinvestigations that exceeded 500,000 cases. More recently in 2004, we  identified continuing and new impediments hampering DOD’s clearance  program and made recommendations for increasing the effectiveness and  efficiency of the program. These long-standing delays in completing  hundreds of thousands of clearance requests for servicemembers, federal  employees, and industry personnel as well as numerous impediments that  hinder DOD’s ability to accurately estimate and eliminate its clearance  backlog led us to declare DOD’s personnel security clearance program a  high-risk area in January 2005. Since then, we have issued a report and  participated in four hearings that addressed issues related to DOD’s  program. Among other things, our September 2006 report showed that  the 2,259 industry personnel granted eligibility for a top secret clearance in  January and February 2006 had waited an average of 471 days. Also, our  reviews of 50 of the cases for completeness revealed that required  information was not included in almost all of the cases. While positive  steps—such as (1) the development of an initial version of a plan to  improve security clearance processes governmentwide and (2) high-level  involvement from OMB—have been taken toward addressing the  problems, other recent events such as DOD halting the processing of all  new clearance requests for industry personnel on April 28, 2006, reveal  continuing problems with DOD’s personnel security clearance program.
section_title: DOD Support Infrastructure Management
paragraphs: Since 1997, GAO has identified DOD’s management of its support  infrastructure as a high-risk area because infrastructure costs continue to  consume a larger than necessary portion of its budget. DOD officials have  been concerned for several years that much of the department’s  infrastructure is outdated, inadequately maintained, and that DOD has  more infrastructure than needed, which impacts its ability to devote more  funding to weapon systems modernization and other critical needs.  Inefficient management practices and outdated business processes have  also contributed to the problem.
While DOD has made progress and expects to continue making  improvements in its support infrastructure management, DOD officials  recognize they must achieve greater efficiencies. To its credit, the  department has given high-level emphasis to reforming its support  operations and infrastructure since we last reported on this high-risk area,  including efforts to reduce excess infrastructure, promote transformation,  and foster jointness through the 2005 base realignment and closure  (BRAC) process. Also, DOD is updating its Defense Installations Strategic  Plan to better address infrastructure issues, and has revised its  installations readiness reporting to better measure facility conditions,  established core real property inventory data requirements to better  support the needs of real property asset management, and continued to  modify its suite of analytical tools to better forecast funding requirements  for installation management services. It has also achieved efficiencies  through privatizing military family housing and demolishing unneeded  buildings at military installations.
Our engagements examining DOD’s management of its facilities  infrastructure indicates that much work remains for DOD to fully  rationalize and transform its support infrastructure to improve operations,  achieve efficiencies, and allow it to concentrate its resources on the most  critical needs, as the following illustrates.
In July 2005, we reported on clear limitations associated with achieving  DOD’s projected $50 billion in savings from this BRAC round. While DOD  offered many proposed actions in the 2005 round, these actions were more  related to business process reengineering and realignment of various  functions and activities than base closures and actual facility reductions.  Moreover, sizable savings were projected from efficiency measures and  other actions, but many underlying assumptions had not been validated  and could be difficult to track over time. We have ongoing work  monitoring actions emanating from the 2005 BRAC process and assessing  costs and savings from those actions, and will be able to comment further  on the status of these initiatives over the next several years as  implementation actions progress.
In June 2005, we reported that hundreds of millions of operation and  maintenance dollars designated for facilities’ sustainment, restoration, and  modernization and other purposes were moved by the services to pay for  base operations support (BOS) due in part to a lack of a common  terminology across the services in defining BOS functions, as well as the  lack of a mature analytic process for developing credible and consistent  requirements. While these funding movements are permissible, we found  that they were disruptive to the orderly provision of BOS services and  contributed to the overall degradation of facilities, which adversely affects  the quality of life and morale of military personnel. In another report  issued in June 2005, we reported that many of DOD’s training ranges were  in deteriorated condition and lacked modernization, which adversely  affected training activities and jeopardized the safety of military  personnel.
In an April 2006 report, we identified several opportunities for DOD and  the services to improve their oversight and monitoring of the execution  and performance of awarded privatized housing projects. We further  reported that 36 percent of awarded privatization projects had occupancy  rates below expectations even though the services had begun renting  housing units to parties other than military families, including units rented  to single or unaccompanied servicemembers, retired military personnel,  civilians and contractors who work for DOD, and civilians from the  general public. Factors contributing to occupancy challenges include  increased housing allowances, which have made it possible for more  military families to live off base thus reducing the need for privatized  housing, and the questionable reliability of DOD’s housing requirements  determination process, which could result in overstating the need for  privatized housing.
During recent visits to installations in the United States and overseas,  service officials continue to report inadequate funding to provide both  base operations support and maintain their facilities. They express  concern that unless this is addressed, future upkeep and repair of many  new facilities to be constructed as a result of BRAC, overseas rebasing,  and the Army’s move to the modular brigade structure will suffer and the  condition of their facilities will continue to deteriorate.
We have also found that DOD’s outline of its strategic plan for addressing  this high-risk area had a number of weaknesses and warranted further  clarification and specification. We have met with OMB and DOD officials  periodically to discuss the department’s efforts to address this high-risk  area.
Through our monitoring of DOD activities between now and the next  several years for base closures and overseas basing, we will be able to  determine what other work needs to be done on issues associated with  DOD’s management of its support infrastructure, as well as provide a more  complete assessment of costs, savings, and overall benefits realized from  the department’s efforts to address these issues. Organizations throughout  DOD will need to continue reengineering their business processes and  striving for greater operational effectiveness and efficiency. DOD will also  need to develop a comprehensive, long-range plan for its infrastructure  that addresses facility requirements, recapitalization, and maintenance and  repair, as well as to provide adequate resources to meet these  requirements and halt the degradation of facilities and services.
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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