Business Systems Modernization: Air Force Needs to Fully Define Policies and Procedures for Institutionally Managing Investments
Released: 2007-10-31T00:00:00

Letter

Background

DOD is a massive and complex organization. To illustrate, the department reported that its fiscal year 2006 operations involved approximately $1.4 trillion in assets and $2.0 trillion in liabilities, more than 2.9 million military and civilian personnel, and $581 billion in net cost of operations. Organizationally, the department includes the Office of the Secretary of Defense, the Chairman of the Joint Chiefs of Staff, the military departments, numerous defense agencies and field activities, and various unified combatant commands that are responsible for either specific geographic regions or specific functions. Figure 1 provides a simplified depiction of DOD’s organizational structure.

In support of its military operations, DOD performs an assortment of interrelated and interdependent business functions, including logistics management, procurement, health care management, and financial management. As we have previously reported, the systems environment that supports these business functions is overly complex and error prone, and is characterized by (1) little standardization across the department, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, and (4) the need for data to be entered manually into multiple systems.

Air Force’s Mission, Organizational Structure, and Use of IT

Air Force is a major component of DOD. Its mission is to deliver options for the defense of the United States and its global interests in air, space, and cyberspace. Air Force relies extensively on IT to fulfill these competencies effectively and to meet its organizational mission. It has 909 business systems; of these systems, 832 (91 percent) are in operations and maintenance. In fiscal year 2006, Air Force was allocated approximately $651 million for its business systems, of which about $406 million (62 percent) was allocated to systems in operations and maintenance and $245 million (38 percent) was allocated to systems in development and/or modernization.

Air Force has created the Office of Warfighting Integration and Chief Information Office to provide the IT and supporting infrastructure to fulfill its mission. Among the goals of this organization are to deliver the ability to direct forces while anticipating situations, capabilities, and limitations; develop adaptive, trained airmen; provide policy, standards, oversight, and training to enable airmen to share and exploit accurate information any place and, anytime; and transform the communications and information career field to lead Air Force in leveraging information for its competitive advantage.

The Office of Warfighting Integration and Chief Information Office consists of several organizations, as depicted in figure 2.

IT Investment Management Is Critical to Achieving Successful Systems Modernization

Successful public and private organizations use a corporate approach to IT investment management. Recognizing this, Congress enacted the Clinger- Cohen Act of 1996, which requires the Office of Management and Budget (OMB) to establish processes to analyze, track, and evaluate the risks and results of major capital investments in IT systems made by executive agencies. In response to the Clinger-Cohen Act and other statutes, OMB has developed policy and issued guidance for the planning, budgeting, acquisition, and management of federal capital assets. We have also issued guidance in this area that defines institutional structures, such as investment review boards; processes for developing information on investments (such as costs and benefits); and practices to inform management decisions (such as whether a given investment is aligned with an enterprise architecture).

IT Investment Management: A Brief Description

IT investment management is a process for linking IT investment decisions to an organization’s strategic objectives and business plans. Consistent with this, the federal approach to IT investment management focuses on selecting, controlling, and evaluating investments in a manner that minimize risks while maximizing the return on investment.

During the selection phase, the organization (1) identifies and analyzes each project’s risks and returns before committing significant funds to any project and (2) selects those IT projects that will best support its mission needs.

During the control phase, the organization ensures that projects, as they develop and investment expenditures continue, meet mission needs at the expected levels of cost and risk. If the project is not meeting expectations or if problems arise, steps are quickly taken to address the deficiencies.

During the evaluation phase, expected results are compared with actual results after a project has been fully implemented. This comparison is done to (1) assess the project’s impact on mission performance, (2) identify any changes or modifications to the project that may be needed, and (3) revise the investment management process based on lessons learned.

Overview of GAO’s ITIM Maturity Framework

Our ITIM framework consists of five progressive stages of maturity for any given agency relative to selecting, controlling, and evaluating its investment management capabilities. (See fig. 3 for the five ITIM stages of maturity.) This framework is grounded in our research of IT investment management practices of leading private and public sector organizations. The framework can be used to assess the maturity of an agency’s investment management processes and as a tool for organizational improvement. The overriding purpose of the framework is to encourage investment selection and control and to evaluate processes that promote business value and mission performance, reduce risk, and increase accountability and transparency. We have used the framework in several of our evaluations, and a number of agencies have adopted it.

ITIM’s five maturity stages represent the steps toward achieving stable and mature processes for managing IT investments. Each stage builds on the lower stages; the successful attainment of each stage leads to improvement in the organization’s ability to manage its investments. With the exception of the first stage, each maturity stage is composed of “critical processes” that must be implemented and institutionalized in order for the organization to achieve that stage. These critical processes are further broken down into key practices that describe the types of activities that an organization should be performing to successfully implement each critical process. It is not unusual for an organization to be performing key practices from more than one maturity stage at the same time. However, our research has shown that agency efforts to improve investment management capabilities should focus on implementing all lower stage practices before addressing the higher stage practices.

In the ITIM framework, Stage 2 critical processes lay the foundation for sound IT investment management by helping the agency to attain successful, predictable, and repeatable investment management processes at the project level. Specifically, Stage 2 encompasses building a sound investment management foundation by establishing basic capabilities for selecting new IT projects. This stage also involves developing the capability to control projects so that they finish predictably within established cost and schedule expectations and developing the capability to identify potential exposures to risk and put in place strategies to mitigate that risk. Further, it involves evaluating completed projects to ensure they meet business needs and collecting lessons learned to improve the IT investment management process. The basic management processes established in Stage 2 lay the foundation for more mature management capabilities in Stage 3, which represents a major step forward in maturity, in which the agency moves from project-centric processes to a portfolio approach, evaluating potential investments by how well they support the agency’s missions, strategies, and goals.

Stage 3 requires that an organization continually assess both proposed and ongoing projects as parts of a complete investment portfolio—an integrated and competing set of investment options. It focuses on establishing a consistent, well-defined perspective on the IT investment portfolio and maintaining mature, integrated selection (and reselection), control, and post-implementation evaluation processes. This portfolio perspective allows decision makers to consider the interaction among investments and the contributions to organizational mission goals and strategies that could be made by alternative portfolio selections, rather than focusing exclusively on the balance between the costs and benefits of individual investments. Organizations that have implemented Stages 2 and 3 practices have capabilities in place that assist in establishing selection; control; and evaluation structures, policies, procedures, and practices that are required by the investment management provisions of the Clinger- Cohen Act.

Stages 4 and 5 require the use of evaluation techniques to continuously improve both the investment portfolio and the investment processes in order to better achieve strategic outcomes. At Stage 4, an organization has the capacity to conduct IT succession activities and, therefore, can plan and implement the deselection of obsolete, high-risk, or low-value IT investments. An organization with Stage 5 maturity conducts proactive monitoring for breakthrough information technologies that will enable it to change and improve its business performance.

DOD and Air Force Approach for Identifying, Funding, and Acquiring System Investments

DOD’s major system investments (i.e., weapons and business systems) are governed by three management systems that focus on defining needs, budgeting for, and acquiring investments to support the mission—the Joint Capabilities Integration and Development System (JCIDS); the Planning, Programming, Budgeting, and Execution (PPBE) system; and the Defense Acquisition System (DAS). In addition, DOD’s business systems are subject to a fourth management system, which, for purposes of this report, we refer to as the Business Investment Management System. For each of these systems, DOD relies on its component agencies to execute the underlying policies and procedures. According to DOD, the four management systems, collectively, are the means by which the department—and its components—selects, controls, and evaluates its business systems investments.

Joint Capabilities Integration and Development System

JCIDS is a needs-driven, capabilities-based approach to identify mission needs and meet future joint forces challenges. It is intended to identify future capabilities for DOD; address capability gaps and mission needs recognized by the Joint Chiefs of Staff or derived from strategic guidance, such as the National Security Strategy Report or Quadrennial Defense Review; and identify alternative solutions by considering a range of doctrine, organization, training, materiel, leadership and education, personnel, and facilities solutions. According to DOD, the Joint Chiefs of Staff—through the Joint Requirements Oversight Council—has primary responsibility for defining and implementing JCIDS. All JCIDS documents are submitted to the Joint Chiefs of Staff, which determines whether the proposed system has joint implications or is component-unique. If it is designated as joint interest, then the Joint Requirements Oversight Council is responsible for approving and validating the documents. If it is not designated as having joint interests, the sponsoring component is responsible for validation and approval.

Planning, Programming, Budgeting, and Execution

PPBE is a calendar-driven approach that is composed of four phases that occur over a moving 2-year cycle. The four phases—planning, programming, budgeting, and executing—define how budgets for each DOD component and the department as a whole are created, vetted, and executed. As recently reported, the components start programming and budgeting for addressing a JCIDS-identified capability gap or mission need several years before actual product development begins and before the Office of the Secretary of Defense formally reviews the components’ programming and budgeting proposals (i.e., Program Objective Memorandums). Once reviewed and approved, the financial details in the Program Objective Memorandums become part of the President’s budget request to Congress. During budget execution, components may submit program change proposals or budget change proposals, or both (e.g., program cost increases or schedule delays). According to DOD, the Under Secretary of Defense (Policy), the Director for Program Analysis and Evaluation, and the Under Secretary of Defense (Comptroller) have primary responsibility for defining and implementing the PPBE system.

Defense Acquisition System

DAS is a framework-based approach that is intended to translate mission needs and requirements into stable, affordable, and well-managed acquisition programs. It consists of five key program life-cycle phases. These five phases are as follows: Concept Refinement: Intended to refine the initial JCIDS-validated system solution (concept) and create a strategy for acquiring the investment solution. A decision is made at the end of this phase (Milestone A decision) regarding whether to move to the next phase (Technology Development).

Technology Development: Intended to determine the appropriate set of technologies to be integrated into the investment solution by iteratively assessing the viability of various technologies while simultaneously refining user requirements. Once the technology has been demonstrated in a relevant environment, a decision is made (Milestone B decision) regarding whether to move to the next phase (System Development and Demonstration).

System Development and Demonstration: Intended to develop a system or a system increment and demonstrate through developer testing that the system or system increment can function in its target environment. A decision is made at the end of this phase (Milestone C decision) regarding whether to move to the next phase (Production and Deployment).

Production and Deployment: Intended to achieve an operational capability that satisfies the mission needs, as verified through independent operational test and evaluation, and ensures that the system is implemented at all applicable locations.

Operations and Support: Intended to operationally sustain the system in the most effective manner over its life cycle.

A key principle of DAS is that investments are assigned a category, where programs of increasing dollar value and management interest are subject to more stringent oversight. For example, Major Defense Acquisition Programs and Major Automated Information Systems are large, expensive programs subject to the most extensive statutory and regulatory reporting requirements and unless delegated, are reviewed by acquisition boards at the DOD corporate level. Smaller and less risky acquisitions are generally reviewed at the component executive or lower levels. Another key principle is that DAS requires acquisition management under the direction of a milestone decision authority. The milestone decision authority—with support from the program manager and advisory boards, such as the Defense Acquisition Board and the IT Acquisition Board— determines the project’s baseline cost, schedule, and performance commitments. The Under Secretary of Defense for Acquisition, Technology, and Logistics has primary responsibility for defining and implementing DAS.

DOD relies on its components to execute these investment management policies and procedures. To implement DOD’s JCIDS process, the Air Force has designated the Joint Staff Functional Capabilities Board to review and approve operational capabilities. The Joint Staff Functional Capabilities Board seeks to establish a common understanding of how a capability will be used, who will use it, when it is needed, and why it is needed to achieve a desired effect. Each capability is assessed based on the effects it seeks to generate and the associated operational risk of not having it. In addition, the Capabilities Review and Risk Assessment process is being used to analyze concepts of operation and assess their associated capabilities. This process uses a phased approach to produce a prioritized list of capabilities, capability gaps or shortfalls, and possible capability solutions. To implement the PPBE process, Air Force officials stated that they use their Annual Planning and Programming Guidance manual. Finally, to implement DAS, Air Force has developed guidance that outlines a systematic acquisition framework that mirrors the framework defined by DOD and includes the same three event-based milestones and associated five program life-cycle phases.

Business Investment Management System

The Business Investment Management System is a calendar-driven approach that is described in terms of governance entities, tiered accountability, and certification reviews and approvals. This system was initiated in 2005, when DOD reassigned responsibility for providing executive leadership for the direction, oversight, and execution of its business systems modernization efforts to several entities. These entities and their responsibilities include the following: The Defense Business Systems Management Committee serves as the highest-ranking governance body for business systems modernization activities.

The Principal Staff Assistants serve as the certification authorities for business system modernizations in their respective core business missions.

The Investment Review Boards are chartered by the principal staff assistants and are the review and decision-making bodies for business system investments in their respective areas of responsibility. The boards are also responsible for recommending certification for all business system investments costing more than $1 million.

The component precertification authority is accountable for the component’s business system investments and acts as the component’s principal point of contact for communication with the Investment Review Boards. The Air Force has designated its CIO to be the precertification authority.

The Business Transformation Agency is responsible for leading and coordinating business transformation efforts across the department. The agency is organized into seven directorates, one of which is the Defense Business Systems Acquisition Executive—the component acquisition executive for DOD enterprise-level (DOD-wide) business systems and initiatives. This directorate is responsible for developing, coordinating, and integrating enterprise-level projects, programs, systems, and initiatives—including managing resources such as fiscal, personnel, and contracts for assigned systems and programs.

Figure 4 provides a simplified illustration of the relationships among these entities.

According to DOD, in 2005 it also adopted a tiered accountability approach to business transformation. Under this approach, responsibility and accountability for business system investment management is allocated among DOD (i.e., Office of the Secretary of Defense) and the component agencies, based on the amount of development/modernization funding involved and the investment’s “tier.” DOD is responsible for ensuring that all business systems with a development/modernization investment in excess of $1 million are reviewed by the Investment Review Boards for compliance with the business enterprise architecture, certified by the principal staff assistants, and approved by the Defense Business Systems Management Committee. Components are responsible for certifying development/modernization investments with total costs of $1 million or less. All DOD development and modernization efforts are assigned a tier on the basis of the acquisition category or the size of the financial investment, or both. According to DOD, a system is given a tier designation when it passes through the certification process. Table 1 describes the five investment tiers and identifies the associated reviewing and approving entities for DOD and the Air Force.

DOD’s business investment management system includes two types of reviews for business systems: certification and annual reviews. Certification reviews apply to new modernization projects with total costs over $1 million. These reviews focus on program alignment with the business enterprise architecture and must be completed before components obligate funds for programs. The annual reviews apply to all business programs and are undertaken to determine whether the system development effort is meeting its milestones and addressing its Investment Review Board certification conditions.

Certification reviews and approvals: Tier 1 through 3 business system investments in development and modernization are certified at two levels—component-level precertification and DOD-level certification and approval. At the component level, program managers prepare, enter, maintain, and update information about their investments in the Air Force data repository. The component precertification authority validates that the system information is complete and accessible on the Air Force data repository, reviews system compliance with the business enterprise architecture and enterprise transition plan, and verifies the economic viability analysis. This information is then transferred to DOD’s IT Portfolio Repository. The precertification authority asserts the status and validity of the investment information by submitting a component precertification letter to the appropriate Investment Review Board for its review.

Annual reviews: Tier 1 through 4 business system investments are reviewed annually at the component and DOD-levels. At the component level, program managers annually review and update information on all tiers of system investments that are identified in their data repository. For Tier 1 through 3 systems that are in development or being modernized, information is updated on cost, milestone, and risk variances and actions or issues related to certification conditions. The precertification authority then verifies and submits the information for these business system investments for DOD’s Investment Review Board review in an annual review assertion letter. The letter addresses system compliance with the DOD business enterprise architecture and the enterprise transition plan and includes investment cost, schedule, and performance information.

At the DOD level, the Investment Review Boards annually review investments for certified Tier 1 through 3 business systems that are in development or are being modernized. These reviews focus on program compliance with the business enterprise architecture, program cost and performance milestones, and progress in meeting certification conditions. The Investment Review Boards can revoke an investment’s certification when the system has significantly failed to achieve performance commitments (i.e., capabilities and costs). When this occurs, the component must address the Investment Review Board’s concerns and resubmit the investment for certification.

Air Force’s Precertification Process

As stated earlier, DOD relies on its components to execute investment management policies and procedures. Air Force has developed a precertification process, which is intended to ensure that new or existing systems undergo proper scrutiny prior to being precertified by the Air Force CIO. First, the certification package is to be prepared by the Program Manager and reviewed by the Major Command (MAJCOM) and functional portfolio managers.

The package is then to be provided to the Air Force Certification Process Manager, who is to review the package for completeness based on certification requirements and transmit the package to the Certification Review Team—which is composed of subject matter experts—to assess compliance with their relevant areas of expertise, such as the business enterprise architecture and information assurance. Once the certification review is complete, the package is to be sent to the Senior Working Group. This group is responsible for reviewing the package and approving or disapproving the package. Finally, the Precertification Authority is to precertify the system for submission to the relevant Investment Review Board.

Table 2 lists decision-making personnel involved in Air Force’s investment management process and provides a description of their key responsibilities.

Figure 5 shows the relationship among the key players in Air Force’s precertification review and approval process.

Reviews and validates certification packages. Pre-certifies Tier 1-3 and approves Tier 4 systems.

Technically reviews and endorses program information and certification packages for Tier 1-4.

Reviews and validates certification packages for Tier 1-4 and coordinates review with other subject matter experts.

Functionally reviews and validates program information and certification packages for Tier 1-4.

Enters and maintains business system investment information in Air Force data repository for Tier 1-4, completes certification package requirements for Tier 1-3.

Air Force Has Established the Structures Needed to Effectively Manage Business System Investments but Has Not Fully Defined Many of the Related Policies and Procedures

DOD relies on its components to execute investment management policies and procedures. However, while Air Force has established the basic management structures needed to effectively manage its IT projects as investments, it has not fully implemented many of the related policies and procedures outlined in our ITIM framework. Relative to its business system investments, Air Force has implemented three of nine practices that call for project-level structures, policies, and procedures, and has not defined any of the five practices that call for portfolio-level policies and procedures. Air Force officials stated that they are aware of the absence of documented policies and procedures, and they are currently working on guidance to address these areas. For example, these officials stated that they have drafted policies and procedures to establish portfolio-level practices and are currently obtaining the necessary approvals. Air Force plans to complete and approve these policies and procedures by December 2007. According to our framework, adequately documenting both the policies and the associated procedures that govern how an organization manages its IT investment portfolio is important because doing so provides the basis for having rigor, discipline, and repeatability in how investments are selected and controlled across the entire organization.

Until Air Force has fully defined policies and procedures for both individual projects and the portfolio of projects, it risks selecting and controlling these business system investments in an inconsistent, incomplete, and ad hoc manner, which in turn could reduce the chances that these investments will meet mission needs in the most effective manner.

Air Force Has Begun to Build a Foundation for Project-Level Investment Management but Has Not Yet Fully Defined Key Policies and Procedures

At ITIM Stage 2, an organization has attained repeatable and successful IT project-level investment control processes and basic selection processes. Through these processes, the organization can identify project expectation gaps early and take the appropriate steps to address them. ITIM Stage 2 critical processes include (1) defining investment board operations, (2) identifying the business needs for each investment, (3) developing a basic process for selecting new proposals and reselecting ongoing investments, (4) developing project-level investment control processes, and (5) collecting information about existing investments to inform investment management decisions. Table 3 describes the purpose of each of these Stage 2 critical processes.

Within these five critical processes are nine key practices required for effective project-level management. Air Force has fully defined the policies and procedures for three of these nine practices. Specifically, Air Force has established a management structure by instituting a business system Investment Review Board, called the Senior Working Group. This group is composed of senior executives from the functional business units, including the Office of the Air Force Chief Information Officer, and the members are responsible for establishing and implementing investment policies. In addition, Air Force has established policies and procedures for capturing information about its IT projects and systems and submitting, updating, and maintaining this information in its data repository. Finally, it has assigned the Certification Process Manager the responsibility of ensuring that specific investment information contained in the Air Force data repository is accurate and complete.

However, the Air Force’s policies and procedures associated with the remaining six project-level management practices are missing critical elements needed to effectively carry out essential investment management activities. For example: Policies and procedures for directing the Investment Review Board’s operations do not define how investments that are in operations and maintenance are to be governed by the Investment Review Board. In addition, procedures do not specify how the business investment management process is coordinated with other DOD management systems. Without clearly defined guidance and visibility into all investments with an understanding of decisions reached through other management systems, Air Force cannot be assured that consistent investment management decisions are being made.

Policies and procedures do not define how systems in operations and maintenance will support ongoing and future business needs. This increases the risk that Air Force will continue to maintain legacy investments that no longer support current organizational objectives.

Policies and procedures for selecting new systems do not specify how the full range of cost, schedule, and performance data are being considered in making selection (i.e., precertification) decisions. Without documenting how factors such as cost, schedule, and performance are considered when making precertification decisions, Air Force cannot ensure that it consistently and objectively selects system investments that best meet the department’s needs and priorities.

Policies and procedures do not include a structured method that defines how the criteria will be evaluated when the precertification authority makes reselection decisions. In addition, policies and procedures do not define an approach to annually reviewing systems in operations and maintenance. Given that Air Force spends millions of dollars annually in operating and maintaining business systems, this is significant. Without an understanding of how the precertification authority is to consider these investments when making reselection decisions, Air Force’s ability to make informed and consistent reselection and termination decisions is limited.

Policies and procedures do not specify how funding decisions are integrated with the process of selecting an investment. Without considering budget constraints and opportunities, Air Force risks making investment decisions that do not effectively consider the relative merits of various projects and systems when funding limitations exist.

Policies and procedures do not provide for sufficient oversight and visibility into investment management activities. Air Force has predefined criteria for adherence to cost, schedule, and performance milestones, but does not have policies and procedures that guide the implementation of corrective actions when program expectations are not met. Without such policies and procedures, the agency risks investing in systems that are duplicative, stovepiped, nonintegrated, and unnecessarily costly to manage, maintain, and operate.

Table 4 summarizes our findings relative to Air Force’s execution of the nine key practices that call for the policies and procedures needed to manage IT investments at the project level.

Air Force officials stated that they are aware of the absence of documented procedures in certain areas of project-level management, and plan to issue new policies and procedures addressing these areas by December 2007. However, until Air Force fully documents IT investment management policies and procedures for Stage 2 activities and specifies the linkages between the various related processes, and describes how system investments in operations and maintenance are to be governed, it risks not being able to carry out investment management activities in a consistent and disciplined manner. Moreover, the Air Force risks selecting investments that will not effectively meet its mission needs.

Air Force Has Assigned Responsibility but Has Not Defined the Policies and Procedures Associated with Effective Portfolio- Level Management

At Stage 3, an organization has defined critical processes for managing its investments as a portfolio or a set of portfolios. Portfolio management is a conscious, continuous, and proactive approach to allocating limited resources among competing initiatives in light of the investments’ relative benefits. Taking a departmentwide perspective enables an organization to consider its investments comprehensively, so that collectively the investments optimally address the organization’s missions, strategic goals, and objectives. Managing IT investments as portfolios also allows an organization to determine its priorities and make decisions about which projects to fund on the basis of analyses of the relative organizational value and risks of all projects, including projects that are proposed, under development, and in operation. Although investments may initially be organized into subordinate portfolios—on the basis of, for example, business lines or life-cycle stages—and managed by subordinate investment boards, they should ultimately be aggregated into enterprise- level portfolios.

According to ITIM, Stage 3 involves four critical processes (1) defining the portfolio criteria; (2) creating the portfolio; (3) evaluating (i.e., overseeing) the portfolio; and (4) conducting post-implementation reviews. Within these critical processes are five key practices that call for policies and procedures to ensure effective portfolio management. Table 5 summarizes the purpose of each of the critical processes.

Air Force has begun to establish a governance structure for portfolio-level management, but it has not executed any of the five practices within the Stage 3 critical processes that call for policies and procedures associated with effective portfolio-level management. Specifically, Air Force has assigned the Senior Working Group the responsibility of establishing a governance forum to oversee business system portfolio activities. However, the Senior Working Group has not developed and approved charters outlining the roles and responsibilities to be assigned to subordinate Investment Review Boards that are intended to establish and manage the portfolios.

In addition, Air Force has not fully defined policies and procedures needed to effectively execute portfolio management practices. Specifically, Air Force does not have policies and procedures for defining the portfolio criteria or creating and evaluating the portfolio. In addition, while DOD has policies and procedures for conducting post-implementation reviews for Tier 1 systems as part of the Defense Acquisition System, Air Force has not established policies or procedures for conducting post-implementation reviews for systems in the remaining tiers. Finally, Air Force has not established procedures detailing how lessons learned from these reviews are to be used during investment reviews as the basis for management and process improvements. Table 6 summarizes the rating for each critical process required to manage investments as a portfolio and summarizes the evidence that supports these ratings.

Air Force officials are aware that they need to develop the appropriate portfolio management processes, and in this regard, have drafted some portfolio management guidance, such as the Air Force Operational Support Portfolio Investment Review Process. According to Air Force officials, this guidance is expected to be completed and approved by December 2007. Until policies and procedures for managing business systems investment portfolios are defined and implemented, Air Force is at risk of not consistently selecting the mix of investments that best supports the department mission needs and ensuring that investment- related lessons learned are shared and applied departmentwide.

Conclusions

Given the importance of business systems modernization to Air Force’s mission, performance, and outcomes, it is vital for the department to adopt and employ an effective institutional approach to managing business system investments. However, while the department acknowledges these shortcomings and the importance of addressing them and has established aspects of such an approach, it is lacking important elements, such as policies and procedures needed for project-level and portfolio-level investment management. This means that Air Force lacks an institutional capability to ensure that it is investing in business systems that best support its strategic needs and that ongoing projects meet cost, schedule, and performance expectations. Until Air Force develops this capability, the department will be impaired in its ability to optimize business mission area performance and accountability.

Recommendations for Executive Action

To strengthen Air Force’s business system investment management capability and address the weaknesses discussed in this report, we recommend that the Secretary of Defense direct the Secretary of the Air Force to ensure that well-defined and disciplined business system investment management policies and procedures are developed and issued. At a minimum, this should include project-level management policies and procedures that address the six key practices areas: Specifying how systems that are in operations and maintenance will be reviewed and specifying how Air Force’s business investment management system is coordinated with JCIDS, PPBE, and DAS.

Ensuring that systems in operations and maintenance are aligned with ongoing and future business needs.

Selecting investments, including specifying how factors, such as cost, schedule, and performance data are to be used in making certification decisions.

Reselecting ongoing investments, including specifying how factors, such as cost, schedule, and performance data are to be used in making reselection decisions during the annual review process and providing for the reselection of investments that are in operations and maintenance.

Integrating funding with the process of selecting an investment, including specifying how the precertification authority is using funding information in carrying out decisions on system certification and approvals.

Overseeing IT projects and systems, including specifying policies and procedures that guide the implementation of corrective actions when program expectations are not met.

These well-defined and disciplined business system investment management policies and procedures should also include portfolio-level management policies and procedures that address the following five areas: Creating and modifying IT portfolio selection criteria for business system investments.

Defining the roles and responsibilities for the development and modification of the IT portfolio selection criteria.

Analyzing, selecting, and maintaining business system investment portfolios.

Reviewing, evaluating, and improving the performance of the portfolio(s) by using project indicators, such as cost, schedule, and risk.

Conducting post-implementation reviews for all investment tiers and directing the investment boards to consider the information gathered to develop lessons learned from these reviews.

Agency Comments and Our Evaluation

In written comments on a draft of this report, signed by the Deputy Under Secretary of Defense (Business Transformation) and reprinted in appendix II, DOD partially concurred with the report’s recommendations. The department further stated that our recommendations and feedback were helpful in guiding its business transformation and related improvement efforts.

Regarding our recommendation that DOD direct Air Force to ensure that well-defined and disciplined business system investment management policies and procedures are developed and issued, DOD stated that Air Force has a well-defined business system investment management process that, while not codified into formal policy, has been documented in investment review guides. Further, it stated that Air Force is committed to formalizing its policies as the processes expand and mature. Our report recognizes that Air Force has drafted a business system investment management process. However, as our report states, the draft review guide lacks critical elements needed to effectively carry out essential investment management activities. Until Air Force completes and issues IT investment management policies and procedures that fully address these elements, it risks not being able to carry out investment management activities in a consistent and disciplined manner.

Regarding our recommendation that DOD direct Air Force to ensure that the well-defined and disciplined business system investment management policies and procedures also include portfolio-level management policies and procedures, the department stated that DOD Instruction 8115.02 defines the DOD IT portfolio management process, which Air Force is applying in its decisionmaking. However, as our report notes, Air Force has not implemented a process for managing its business system portfolios. Until Air Force defines and implements such a process, it is at risk of not consistently selecting the mix of investments that best supports the Air Force’s mission needs and ensuring that investment-related lessons learned are shared and applied departmentwide.

We are sending copies of this report to interested congressional committees; the Director, Office of Management and Budget; the Secretary of Defense; the Deputy Secretary of Defense; the Secretary of Air Force; the Air Force Chief Information Officer, and the Under Secretary of Defense for Acquisition, Technology, and Logistics. Copies of this report will be made available to other interested parties on request. This report will also be available at no charge on our Web site at http://www.gao.gov.

Should you or your staffs have any questions on matters discussed in this report, please contact me at (202) 512-6304 or melvinv@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III.

Appendix I: Objective, Scope, and Methodology

Our objective was to determine whether the investment management approach of the Department of the Air Force (a major Department of Defense (DOD) component) is consistent with leading investment management best practices. Our analysis was based on the best practices contained in GAO’s Information Technology Investment Management (ITIM) framework and the framework’s associated evaluation methodology, and focused on Air Force’s establishment of policies and procedures for business system investments needed to assist organizations in complying with the investment management provisions of the Clinger- Cohen Act of 1996 (Stages 2 and 3).

To address our objective, we asked Air Force to complete a self- assessment of its investment management process and provide the supporting documentation. We then reviewed the results of the department’s self-assessment of Stages 2 and 3 organizational commitment practices—meaning those practices related to structures, policies, and procedures—and compared them with our ITIM framework. We focused on Stages 2 and 3 because these stages represent the processes needed to meet the standards of the Clinger-Cohen Act, and they establish the foundation for effective acquisition management. We also validated and updated the results of the self-assessment through document reviews and interviews with officials, such as the Air Force Chief Information Officer and Certification Process Manager. In doing so, we reviewed written policies, procedures, and guidance and other documentation providing evidence of executed practices, including the Air Force Information Technology Investment Review Guide, Air Force Operations of Capabilities Based Acquisition System Instruction, Air Force IT Investment Architecture Compliance Guide, Senior Working Group charter and meeting minutes, the Investment Review Board Concept of Operations and Guidance, and the Business Transformation Guidance.

We compared the evidence collected from our document reviews and interviews with the key practices in ITIM. We rated the key practices as “executed” on the basis of whether the department demonstrated (by providing evidence of performance) that it had met all of the criteria of the key practice. A key practice was rated as “not executed” when we found insufficient evidence of all elements of a practice being fully performed or when we determined that there were significant weaknesses in Air Force’s execution of the key practice. In addition, we provided Air Force with the opportunity to produce evidence for the key practices rated as “not executed.”

We conducted our work at the Air Force offices in Arlington, Virginia, from February 2007 through September 2007 in accordance with generally accepted government auditing standards.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact person named above, key contributors to this report were Tonia Johnson, Assistant Director; Idris Adjerid; Sharhonda Deloach; Nancy Glover; and Freda Paintsil.