USPS’s capital investment process incorporates two main activities: planning and project approval (see table 2). In addition, USPS implemented tollgates in December 2006 to enable IRC awareness, involvement, and decision making for all investments greater than $5 million (see fig. 2). According to USPS, tollgates are updates intended to keep the IRC informed by raising and resolving issues throughout the phases of the capital investment review and approval process. However, given its financial position, USPS is limited in its ability to finance capital investments and has spent $17.5 billion on capital investments over the past 10 fiscal years, but has sharply decreased its spending since fiscal year 2007 (see fig. 3). Since 2009, USPS has taken the following actions, to address its financial situation, which affect its management of capital investments. For example: In 2009, USPS implemented a capital-spending freeze to conserve resources. Any capital initiative seeking funding must receive an exception-approval from USPS’s Finance and Planning unit demonstrating that the initiative (1) is needed for safety, health, or legal requirements, or (2) is required to sustain customer service, such as mail delivery, or (3) will have a high return on investment with a short payback period. In 2011, USPS created Delivering Results, Innovation, Value and Efficiency (DRIVE), a portfolio of strategic initiatives, which is intended to improve business strategy development and execution. DRIVE consists of managing a portfolio of 44 initiatives, half of which are active, that are intended to help close USPS’s income gap by 2015. For example, one DRIVE initiative—Build a World Class Package Platform—seeks to build an infrastructure to support and promote USPS’s growing package delivery business. USPS’s executive leaders developed and oversee the DRIVE initiatives. USPS’s Office of Inspector General (OIG) recently assessed DRIVE and found that the management process compares favorably to the identified 20 best-in-class program management practices of 13 companies in the private sector. In 2012, USPS developed a 5-year plan to restructure and modernize its operations and improve its financial situation. The 5-year plan estimates $2 billion annually for capital outlays for fiscal years 2015 through 2017. Notwithstanding these actions, our prior work has shown that although a successful capital investment depends on a range of factors, following leading practices will more likely result in investments that meet mission needs, are well-managed, and achieve cost, schedule, and performance goals. Figure 4 shows the capital investment phases and the leading practices that we identified for each. In summary, we determined that USPS’s conformance to leading practices is medium for planning, selecting, and managing capital investment projects, and low for evaluating them, based on our review of USPS policy and the practices employed for the five selected projects. USPS substantially conformed to three, and partially conformed to two, of five leading practices for planning capital investments (see fig. 6). Specifically, we found that USPS’s process for planning capital investments substantially: Identifies mission needs and gaps in service: Each year, USPS issues a capital commitment budget call to the executive leaders, vice presidents, and budget coordinators to identify mission needs and gaps in services. Executives are to work with their teams to submit their capital investment requests for the next fiscal year and include a brief narrative describing each proposed project, why it is needed, the amount needed for the project, and whether it supports a DRIVE initiative. Reviews and approves the framework for selecting investments: USPS has several different sources of guidance for capital investments. The most comprehensive guidance is USPS’s General Investment Policies and Procedures. Since those policies and procedures were developed, USPS has created its tollgates (see figure 2). Program managers told us that they also use USPS’s Technology Acquisition Management Process Guidelines as their primary guidance.updates made in December 2011. USPS also conducts annual internal investment overviews for selected projects. These various sources comprise USPS’s framework for selecting its investments. USPS officials told us that the current guidance is a slide presentation available on the agency’s internal website. They also said that they are planning to update the guidance, but did not provide a time frame for completing this effort. Thus, while USPS has reviewed and approved a framework for selecting its investments, it does not currently have a clear, single-source, standard set of policies and procedures that reflect the selection framework. A time frame for completing efforts to update its policies and procedures into a single- source guide could better position USPS to hold its managers accountable for completing the effort as intended. Moreover, a single- source guide could enable better transparency for selecting investments. Such transparency would establish crucial accountability for limited resources. This guidance, however, does not include the Develops a long-term capital investment plan: USPS has a 10-year capital investment plan that is used for internal-planning purposes, even though actual capital investments depend on budgetary resources. In addition, we found that USPS’s process for planning capital investments partially: Links investments to its strategic plan: USPS has linked capital investments to strategic initiatives listed in its 5-year business plan, which was developed in 2012 to bring USPS to a point of financial viability. The business plan addresses financial challenges facing USPS, actions the agency plans to take to address its financial outlook, and external factors USPS believes could inhibit it from financial viability. USPS’s 5-year business plan also contains seven “strategic initiatives” that are linked to DRIVE initiatives (see app. II for more detail). USPS refers to its 5-year business plan as its strategic plan. However, USPS’s business plan focuses on the agency’s financial condition while a traditional strategic plan is more comprehensive and is intended to address the agency’s overall mission.traditionally identified in a strategic plan, that could affect USPS’s ability to achieve some of the DRIVE initiatives. Specifically, OMB A-11 guidance states that management should assess whether the investment needs to be undertaken by the requesting agency because no alternative private sector or governmental source can better support the function. private sector entity to support part or all of a processing or delivery function. For example, USPS contracted for the development of its PARS software system, but did not consider whether a private sector entity— either in partnership with USPS or independently—could perform part or all of the function of automatically redirecting undeliverable mail. USPS officials, however, told us that a provision in its labor contracts limits its ability to consider external entities for supporting an entire function; however, USPS is not specifically prohibited from doing so. The officials added that USPS has a Strategic Initiative Action Group that reviews, approves, and monitors proposed outsourcing initiatives to ensure that they meet the requirements of these bargaining unit agreements. However, USPS did not provide evidence that it took such consideration for its mail-processing or delivery functions. It is also not clear whether USPS considered certain strategies used by foreign postal operators. For example, according to the USPS OIG, contracting with private operators to sell aging vehicles could provide immediate cash, and leasing a new fleet of vehicles could result in the operational benefits of having a modern fleet without assuming fixed costs. Until USPS modifies its policies to require such consideration, USPS may not be placing itself in a position to identify the best option for reducing costs and increasing the quality of its capital investments. USPS officials told us, however, that many foreign postal operations have been privatized and are not subject to the same government oversight as USPS. In February 2011, we also reported on how the strategies of foreign posts’ can inform USPS modernization. USPS substantially conformed to three, and partially conformed to two, of five leading practices for selecting capital investments (see fig. 7). Specifically, we found that USPS’s process for selecting capital investments substantially: Ranks and prioritizes investments based on mission needs and projected return on investment: After USPS makes its initial budget call, the executive leaders rank and prioritize capital requests based on need, the expected return on investment, the impact on customer experience, and the ability to support key initiatives. Submits business cases to an external entity: As part of the IRC review process, USPS submits business cases for all projects with total funding over $5 million to its OIG for review. For investments $25 million or greater, USPS OIG shares its assessments and conclusions with the USPS program sponsor, USPS headquarters officials, the IRC, and with Congress. Links investments with budget considerations: USPS links capital investments with the overall budget when developing its annual Integrated Financial Plan. Specifically, as described in table 2, during budget planning, the Finance Infrastructure unit recommends projects for inclusion in the capital budget through a multi-step review process, the results of which are then incorporated into the Integrated Financial Plan. In fiscal year 2013, capital budget requests totaled approximately $2.1 billion, while forecasted capital needs totaled $752 million. USPS partially conformed to developing its business cases and allocating resources toward a desired portfolio. Investment portfolios are broad categories of investments that are linked by similar missions to better fulfill that specific mission and minimize overlapping functions. A portfolio perspective enables an organization to focus on projects that best meet its overall goals, rather than on projects that only meet the objectives of specific program areas. Given USPS’s financial condition, a portfolio approach is especially important. However, with the exception of the DRIVE initiative, USPS develops its business cases for approval and allocates resources by project rather than by portfolio. More specifically, USPS officials develop business cases for each specific project that include projected return on investment for approval and funding. As our prior work at federal agencies making substantial capital investments has shown, selecting investments on a project rather than portfolio approach may lead to duplicative functions that do not integrate well together to perform the desired mission. Furthermore, modifying USPS’s policies to require a comprehensive portfolio approach would enable USPS to consider proposed projects alongside those that have been funded to select the mix of investments that best meets its mission needs. USPS substantially conformed to two, and partially conformed to two, of four leading practices for managing capital investments (see fig. 8). Specifically, we found that USPS’s process for managing capital investments substantially: Establishes accountability and oversight for prudent use of resources: USPS policy establishes accountability and oversight of resources by assigning a leader to oversee capital investment projects. For example, the executive leaders assign one member as accountable for each DRIVE initiative. USPS assigned a program manager to each of the five selected projects that we reviewed. In addition to oversight, these program managers were responsible for directing and controlling program activities and addressing challenges. For example, with respect to challenges, the APBS program manager told us that he coordinated the logistics and timing of work for three individual contracts on his project—which included managing three requests for proposal, three statements of work, and three suppliers. Tracks cost, schedule, and performance data for investments: USPS policy calls for tracking cost, schedule, and performance data for investments with approved funding greater than $5 million. For DRIVE initiatives, USPS developed a dashboard to monitor the progress of financial and nonfinancial milestones and impacts. Generally, the dashboard flags cost, schedule, and performance milestones that are in danger of being missed or have been missed. For capital investments greater than $25 million, USPS issues an Investment Highlights publication semiannually to provide a detailed, single- source overview. The Investment Highlights publication also contains an electronic reference that tracks cost, schedule, and performance data for all capital investments over $5 million, including those for each of the five projects we reviewed. Program managers for the selected projects told us that updates might be provided to senior management more frequently—on a weekly, monthly, or as needed basis. In addition, we found that USPS’s process for managing capital investments partially: Reassesses risk by identifying investments that are over budget, behind schedule, performing poorly, and lacking capability: While USPS policy reassesses risk by identifying investments that are over budget, performing poorly, and lacking capability, this practice was not consistently followed for the five projects we reviewed. Prior to December 2011, USPS policy stated that the IRC was to receive two briefings at the conversion and execution tollgates explaining how planned investment, timeline, and performance metrics were comparing to actual results. The purpose was to reassess and determine whether to continue, amend, or terminate a project. USPS officials told us that they made an internal decision in December 2011 to no longer require in-person briefings and instead have executive leaders work more closely with program managers and staff. The executive leader is then responsible for updating the IRC on the project status. In addition, USPS policy calls for a program sponsor to prepare a modified business case with updated costs, timelines, benefits, and scope if a capital investment is expected to exceed its approved funding or deviate significantly from its approved scope. The modified business case is then presented to the original authorities who vote whether to approve the modification, which would include any corrective actions, in order to continue the capital investment. However, USPS officials could only verify that a reassessment decision to continue, amend, or terminate an investment occurred for one of the five projects we reviewed. While a conversion briefing was held for four of the projects, and a business case modification was held for the fifth, USPS officials could only provide evidence of an IRC reassessment for DBCS, which USPS decided to continue. Examining the extent to which managers regularly reassess projects to continue, amend, or stop a project, would help manage risk, given limited resources. Identifies problems and implements corrective actions as needed: USPS officials told us that executive leaders typically hold regular meetings with the program managers and other team members, meetings that have led to identifying problems and implementing corrective actions for continuing a project. For the five selected projects we reviewed, USPS did not provide documentation that such discussions were held. Effective decision making relies on free exchange of information among a variety of stakeholders—particularly those who might be skeptical about an investment and can provide constructive insight and information; the more open the process, the more likely errors in fact or methodology will be uncovered. The absence of a transparent reassessment of risk to identify projects that need to be amended or terminated inhibits USPS’s ability to implement needed corrective actions for projects that are over budget, behind schedule, or not meeting performance targets. Therefore, examining the extent to which managers identify problems and implement corrective actions can better position USPS to make the best use of its resources. USPS partially conformed to the three leading evaluation practices (see fig. 9). Specifically, we found that USPS partially conformed to the leading practice of: Evaluating cost, schedule, and performance results of implemented investments: USPS policy calls for a comparison of the actual return- on-investment and performance data for completed projects, against the expected return-on-investment and performance results in the business case. This comparison is usually included in the detailed capital investment reports—based on compliance reports—that are used to create the Investment Highlights publication. To assist with evaluating an investment, the compliance reports are to be regularly updated. In addition, USPS sometimes performs a final performance study. However, the detailed capital investment reports for four of the five projects we reviewed did not have observed return-on- investment data that could be compared to expected return on investment, and two projects did not have actual performance metrics compared to their expected results. To explain the missing comparisons, USPS officials told us that if a project is on budget and on schedule, they assume that it will achieve the expected return on investment. If performance data are missing, USPS officials told us that the program sponsor can ask the program manager for this information. One project, APBS, had complete return-on-investment and performance data comparable to its business case. Return-on- investment measures provide managers with valuable insight regarding any financial benefit attributable to a project. Performance measures help to identify problems, evaluate underlying factors, and determine needed adjustments. The absence of updated return on investment and performance data means that USPS cannot completely (1) assess the investment’s impact on strategic performance, (2) identify modifications that may be needed to improve performance, and (3) revise the investment process based on lessons learned. As a result, regularly reassessing projects by reviewing actual performance results after investment completion can provide USPS with a valuable opportunity to gain feedback necessary for improving future capital investments. Leveraging external oversight and review of its capital investments: For initiatives with approved capital funding greater than $25 million, USPS semiannually provides its OIG the Investment Highlights publication for informational purposes, but does not seek oversight or feedback from its OIG or other entities, such as a consultant or peer reviewer. Subject matter experts have found that a third party should evaluate a capital investment using a predetermined set of metrics that will result in real data on which to make improvements in the process or to inform future decisions on capital investments. External oversight and review is important and useful to hold an entity accountable for its performance. Incorporating best practices and lessons learned into the investment process: USPS does not require developing or updating best practices after project completion. Nevertheless, one of the program managers for a selected project that we reviewed told us that USPS identified, documented and followed industry best practices for program implementation—based on experience with various program vendors and contractors. Regarding lessons learned, USPS policy calls for documentation of “unexpected situations” upon project completion but does not require communicating lessons learned to other program managers. One of the program managers for the five selected projects provided us with documented lessons learned, but could not provide evidence of how such lessons were used. Another program manager told us that sometimes, when a project is completed, managers are assigned to new projects without adequate time to document lessons learned on the completed project. The absence of documented best practices and lessons learned that could be incorporated into the capital investments process limits opportunities for USPS to improve its process in a way that could benefit future investments. Given that USPS’s financial situation and the limitations of its business model hamper its ability to prevent future losses, it is crucial for USPS to use its scarce resources to prioritize and make wise capital investments, particularly those that reduce costs. USPS has taken positive steps in this direction, and our analysis of a range of projects shows that USPS substantially followed the majority of leading practices for planning and selecting capital investments. USPS’s 5-year business plan, for example, is a positive step toward an agency-wide strategic plan that links capital investments to strategic initiatives. However, substantially following all leading practices—including those for managing and evaluating capital investments—could better ensure that USPS’s investments are well- managed and achieve cost, schedule, and performance goals, an accomplishment that in turn could enhance USPS’s financial viability. Conversely, not substantially following all leading practices may result in inefficient spending of limited resources, thereby putting USPS at even further financial risk. To strengthen USPS’s capital investment process, we are making three recommendations related to USPS policy and consistent application of leading practices. The Postmaster General and executive leaders should: 1. Establish a time frame for developing a clear, detailed, single-source, standard set of policies and procedures that reflect the capital investment selection phase; 2. Modify capital investment policies to more closely align with the following leading practices, including: for planning capital investments, consider whether an external entity could better support all or part of a desired function when evaluating alternative capital investment options; for selecting capital investments, use a portfolio approach for developing business cases and finalizing and allocating resources; and for evaluating capital investments, seek and leverage external oversight and review, from a consultant or peer reviewer, and require that best practices and lessons learned be incorporated into the review process; and 3. Regularly examine the extent to which executives and program managers consistently follow all leading practices, particularly for: identifying problems and reassessing risk while managing a project; and evaluating the cost, schedule, and performance results of completed projects. We provided a draft of this report to USPS for review and comment. USPS provided comments, which are reprinted in appendix III. USPS concurred or partially concurred with our recommendations and stated that there are always opportunities for improvement and that it can clearly benefit from our recommended actions to strengthen its investment process. USPS partially concurred with our first recommendation that USPS establish a time frame for developing a clear, detailed, single-source set of standard policies and procedures that reflect the capital-investment selection phase. USPS responded that it plans to revise its General Investment Policies and Procedures handbook during the second quarter of fiscal year 2014 to include the capital-investment selection process. However, USPS also stated that an established capital selection process is already in place, although it is not included in the handbook. As described in the report, USPS has several sources of guidance and it does not have a clear, single-source, standard set of policies and procedures that reflect the selection framework. We are pleased that USPS has now established a time frame for developing such guidance, which could better position USPS to hold its managers accountable and better enable transparency for selecting investments. USPS partially concurred with our second recommendation to modify its capital investment policies to more closely align with leading practices in the areas of planning, selecting, and evaluating capital investments. With regard to planning capital investments by considering whether an external entity could better support all or part of a desired function when evaluating alternative investment options, USPS concurred. However, USPS stated it currently has procedures in place to consider viable options and provided examples of cases in which it has outsourced non- core functions. USPS further noted that it considers outsourcing work that is currently performed by bargaining unit employees and outsourcing will always be considered if it is in the financial best interest of USPS and meets collective-bargaining requirements. However, as noted in the report, USPS did not provide us with documentation that it considered outsourcing part or all of a mail-processing or delivery function. USPS could better conform to this leading practice if it considered the potential role of an external entity for all capital investments. This could place USPS in a better position to identify the best option for reducing costs and to increase the quality of its investments. With regard to selecting capital investments by using a portfolio approach for developing business cases and finalizing and allocating resources, USPS partially concurred and stated that it uses an organization-wide portfolio approach for review during the capital-budget-planning process, and that it will continue to clearly communicate the portfolio approach and incorporate it into USPS’s revised investment policy. However, we found that USPS develops its business cases for approval and allocates resources by project rather than portfolio. As noted in the report, selecting investments on a project rather than portfolio approach may lead to duplicative functions that do not integrate well to perform the desired mission. Requiring a more comprehensive portfolio approach would enable USPS to consider proposed projects alongside those that have been funded to select the mix of investments that best meets its mission needs. Thus, we continue to believe that the USPS should use a portfolio approach for developing business cases to fully address the recommendation. With regard to evaluating capital investments by seeking and leveraging external oversight and review and requiring that best practices and lessons learned be incorporated into the investment process, USPS concurred. However, USPS responded that it has previously contracted with highly respected external entities to review capital investment plans, and that it will continue to evaluate the need to hire consultants when necessary. While this is a positive practice, USPS can extend their external oversight and review when evaluating capital investments in addition to reviewing investment plans. In addition, external oversight and review are leading practices for all investments that could help USPS obtain data on which to make improvements in the process or to inform future investment decisions. USPS also stated that it will ensure that lessons learned and investment performance results are shared with its management and will be available for review on USPS’s internal website. With further regard to lessons learned, USPS also stated that it will ensure that each group is aware of the status of major investments and the lessons learned for current and future projects. However, USPS did not state that it would modify its investment policies to require that best practices and lessons learned be incorporated into the review process. We continue to believe that USPS should modify its investment polices as recommended. The absence of consistent documents for all investments limits opportunities to improve the process to benefit future investments. USPS concurred with our third recommendation that it regularly examine the extent to which executives and program managers consistently follow all leading practices particularly for: identifying problems and reassessing risk while managing a project and evaluating the cost, schedule, and performance results of completed projects. USPS stated that it would require program sponsors to ensure that their presentations appropriately address project cost, schedule, and performance information. This is a positive step toward improving USPS’s ability to gain feedback necessary for improving future capital investments. As agreed with your office offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Postmaster General, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions on this report, please contact me at (202) 512-2834 or stjamesl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contact information and key contributors to the report are listed in appendix IV. To describe the extent to which the U.S. Postal Service (USPS) follows leading practices, we compared USPS’s process for planning, selecting, managing, and evaluating capital investments to leading practices. We identified leading practices for the four phases—planning, selecting, managing, and evaluating capital investments—through analysis and review of the Office of Management and Budget (OMB) Capital Programming Guide supplement to Circular A-11, which identified leading practices from government agencies and the private sector, and examples of executive agency implementation of the Capital Planning and Investment Control (CPIC) process. We identified leading practices that are applicable to USPS’s business model, which requires it to fulfill its mission of providing prompt, reliable, and efficient universal service to the public while remaining financially self-sustaining. However, unlike a private corporation, USPS is bound by legal and other restrictions that limit its ability to make certain types of business decisions—such as eliminating particular lines of businesses, cutting back on services, and/or altering its business model in ways that inhibit its universal service provision. External and internal subject matter experts with experience in both the public the private sectors reviewed the leading practices we identified and found them to be reasonable for USPS capital investments as applicable. These experts all provided comments that we incorporated into our capital investment leading practices. We compared our identified leading practices to USPS’s capital investment process. To understand USPS’s capital investment process, we reviewed USPS policy, documentation, and testimonial evidence on the capital investment process. USPS officials reviewed our initial description and provided feedback, which we incorporated into our work. We also met with USPS officials responsible for the Delivering Results, Innovation, Value and Efficiency (DRIVE) strategic initiatives to assess the extent to which USPS conformed to the leading practice of linking its capital investments to its strategic plans. We also met with and obtained documentation from USPS’s Office of Inspector General (OIG), to obtain an overall assessment of USPS’s capital investment process. To gather more detailed information about how USPS policies were applied in specific cases, and to determine whether USPS policies were consistently followed for a selection of high-cost capital investment projects, we selected 5 of 28 projects that were approved for over $25 million and were approved for funding after USPS experienced net losses in fiscal year 2007. From these 28 projects, we selected the four that had a positive projected return on investment as determined by USPS, were not specific to a particular geographical area, and were completed by fiscal year 2012. We included a fifth project (that was fully deployed, but not yet complete) due to USPS’s significant investment in the project (see table 3). We met with the program managers for each of the projects and reviewed documentation to assess the process for managing and evaluating these projects, and we conducted site visits to see four of the five projects. The selected investments do not support generalizations about the overall extent to which USPS followed leading practices for its capital investments, but rather illustrate whether and how policies were applied in specific cases. We also met with the USPS OIG to discuss USPS’s management and evaluation of the selected projects. Our analysis found that each investment phase—planning, selecting, managing, and evaluating—should consist of a series of leading practices that should be followed while the projects are within that phase. We used two different rating scales to assess the leading practices and capital investment phases. For each leading practice, we assessed USPS’s level of conformance, as follows: Substantial: USPS policy conformed to all or almost all elements. Partial: Either (1) USPS policy conformed to some elements; or (2) USPS policy conformed substantially, but we identified instances in the five projects we reviewed where the policies were not consistently applied. Minimal/none: USPS policy conformed to few or no elements. Then, for each investment phase, we assessed USPS’s level of conformance, as follows: High: USPS substantially conformed to all or almost all of the leading practices. Medium: USPS substantially conformed to multiple leading practices. Low: USPS substantially conformed to one or none of the leading practices. To describe the effects of not substantially conforming to a leading practice, we reviewed prior GAO work and the work of others including the USPS OIG and the National Research Council, and OMB and CPIC guides. To report on USPS expenditures on capital investments for the past 10 years and to identify the five projects that met our selection criteria, we requested data from USPS. We assessed the reliability of these data through review of related documents and interviews with knowledgeable agency officials. We found the data sufficiently reliable for our purposes of reporting on the amount spent on capital investments in the past 10 years and for selecting the five high-cost capital investments we reviewed. We conducted this performance audit from March 2013 to January 2014 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective. Networks Consolidation: A two-phase approach to consolidate approximately 200 mail-processing facilities and relocate equipment from the reduced volume workload for estimated savings of $3.4 billion by 2017. Phase 1 implemented in Spring 2013, and Phase 2 is to begin in Spring 2014. Retail Optimization: In high-traffic post offices, increase self- service equipment, and in rural areas, establish Village Post Offices for estimated savings of $1.6 billion by 2017. Delivery Optimization: Increase mail delivery to centralized locations instead of curbside or door-to-door for estimated savings of $1.8 billion by 2017. Legislative initiatives 5-Day Mail including 6-Day Package Delivery: Eliminate Saturday mail delivery and continue Saturday package delivery in support of online purchases and commercial packages for estimated savings of $2 billion annually. Postal Health Plan: Adopt a new USPS-administered health care plan for current employees and new hires, eliminating $5.7 billion of prefunding to the federal health insurance program and transferring retirees into the new health care plan. Estimated savings are $8 billion annually through 2016. Federal Employment Retiree System (FERS) overfunding refund: Reduce FERS obligation and normal cost contribution, based on USPS-specific assumptions and demographics for estimated savings of $0.3 billion annually. Workforce and non-personnel USPS strategic initiativeOperational initiatives Renegotiate and arbitrate with unions on wages and increase the proportion of non-career employees to 20 percent for estimated savings of $4.3 billion by 2017. In addition to the individual named above, Amelia Shachoy, Assistant Director; Samer Abbas; Amy Abramowitz; Russell Burnett; Jennifer Clayborne; Thanh Lu; Joshua Ormond; Amy Rosewarne; and Crystal Wesco made key contributions to this report.

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