In September 2003, DOD finalized its economic analysis for DTS in preparation for a milestone decision review. The highlights of the economic analysis are shown in table 1. In December 2003, the DOD Chief Information Officer granted approval for DTS to proceed with full implementation throughout the department. Our analysis of the September 2003 DTS economic analysis found that two key assumptions used to estimate cost savings were not based on reliable information. Consequently, the economic analysis did not serve to help ensure that the funds invested in DTS were used in an efficient and effective manner. Two primary areas—personnel savings and reduced CTO fees—represented the majority of the over $56 million of estimated annual net savings DTS was expected to realize. However, the estimates used to generate these savings were unreliable. Further, DOD did not effectively implement the policies relating to developing economic analyses for programs such as DTS. Effective implementation of these policies should have highlighted the problems that we found and allowed for appropriate adjustments so that the economic analysis could have served as a useful management tool in making funding decisions related to DTS—which is the primary purpose of this analysis. While the department’s system acquisition criteria do not require that a new economic analysis be prepared, the department’s business system investment management structure provides an opportunity for DOD management to assess whether DTS is meeting its planned cost, schedule, and functionality goals. The economic analysis estimated that the annual personnel savings was over $54 million, as shown in table 2. As shown in table 2, approximately 45 percent of the estimated savings, or $24.2 million, was attributable to the Air Force and Navy. The assumption behind the personnel savings computation was that there would be less manual intervention in the processing of travel vouchers for payment, and therefore fewer staff would be needed. However, based on our discussions with Air Force and Navy DTS program officials, it is questionable as to how the estimated savings will be achieved. Air Force and Navy DTS program officials stated that they did not anticipate a reduction in the number of personnel with the full implementation of DTS, but rather the shifting of staff to other functions. According to DOD officials responsible for reviewing economic analyses, while shifting personnel to other functions is considered a benefit, it should be considered an intangible benefit rather than tangible dollar savings since the shifting of personnel does not result in a reduction of DOD expenditures. Also, as part of the Navy’s overall evaluation of the economic analysis, program officials stated that “the Navy has not identified, and conceivably will not recommend, any personnel billets for reduction.” Finally, the Naval Cost Analysis Division (NCAD) October 2003 report on the economic analysis noted that it could not validate approximately 40 percent of the Navy’s total costs, including personnel costs, in the DTS life-cycle cost estimates because credible supporting documentation was lacking. The report also noted that the PMO-DTS used unsound methodologies in preparing the DTS economic analysis. The extent of personnel savings for the Army and defense agencies, which are reported as $16 million and $6.3 million respectively, is also unclear. The Army and many defense agencies use the Defense Finance and Accounting Service (DFAS) to process their travel vouchers, so the personnel savings for the Army and the defense agencies were primarily related to reductions in DFAS’s costs. In discussions with DFAS officials, they were unable to estimate the actual personnel savings that would result since they did not know (1) the number of personnel, like those at the Air Force and Navy, that would simply be transferred to other DFAS functions or (2) the number of personnel that could be used to avoid additional hiring. For example, DFAS expects that some of the individuals assigned to support the travel function could be moved to support its ePayroll program. Since these positions would need to be filled regardless of whether the travel function is reduced, transferring personnel from travel to ePayroll would reduce DOD’s overall costs since DFAS would not have to hire additional individuals. DOD strongly objected to our finding that the personnel savings are unrealistic. In its written comments, the department stated that it is facing an enormous challenge and continues to identify efficiencies and eliminate redundancies to help leverage available funds. We fully recognize that the department is attempting to improve the efficiency and effectiveness of its business operations. The Comptroller General of the United States testified in August 2006 that increased commitment by the department to address DOD’s numerous challenges represents an improvement over past efforts. The fact remains, however, that the results of an economic analysis are intended to help management decide if future investments in a given endeavor are worthwhile. In order to provide management with this information, it is imperative that the underlying assumptions in an economic analysis be supported by valid assumptions. The September 2003 economic analysis noted that personnel savings of $54.1 million would be realized by the department annually for fiscal years 2009 through 2016. However, based on our review and analysis of documentation and discussion with department personnel, we found that the underlying assumptions in support of the $54.1 million were not valid, particularly in regard to the amounts estimated for the Navy and Air Force. For example, we agree with the statements of DOD officials who indicated that the shifting of personnel to other functions cannot be counted towards tangible dollar savings, since such actions do not result in a reduction of DOD expenditures. Moreover, the department did not provide any new data or related documentation in its comments that were counter to our finding. As a result of these factors, we continue to believe that the estimated annual personnel savings of $54.1 million are unrealistic. According to the September 2003 economic analysis, DOD expected to realize annual net savings of $31 million through reduced fees paid to the CTOs because the successful implementation of DTS would enable the majority of airline tickets to be acquired with either no or minimal intervention by the CTOs. These are commonly referred to as “no touch” transactions. However, DOD did not have a sufficient basis to estimate the number of transactions that would be considered “no touch” since the (1) estimated percentage of transactions that can be processed using the “no touch” was not supported and (2) analysis did not properly consider the effects of components that use management fees, rather than transaction fees, to compensate the CTOs for services provided. The weaknesses we identified with the estimating process raise serious questions as to whether DOD will realize substantial portions of the estimated annual net savings of $31 million. DOD arrived at the $31 million of annual savings in CTO fees by estimating that 70 percent of all DTS airline tickets would be considered “no touch” and then multiplying these tickets by the savings per ticket in CTO fees. However, a fundamental flaw in this analysis was that the 70 percent assumption had no solid basis. We requested, but the PMO-DTS could not provide, any analysis of travel data to support the assertion. Rather, the sole support provided by the PMO-DTS was an article in a travel industry trade publication. The article was not based on information related to DTS, but rather on the experience of one private sector company. The economic analysis assumed that DOD could save about $13.50 per “no touch” ticket. Since that analysis, DOD has awarded one contract that specifically prices transactions using the same model as that envisioned by the economic analysis. This contract applies to the Defense Travel Region 6 travel area. During calendar year 2005, the difference in fees for “no touch” transactions and the transactions supported by the current process averaged between $10 and $12, depending on when the fees were incurred because the contract rates changed during 2005. In analyzing travel voucher data for Region 6 for calendar year 2005, we found that the reported “no touch” rate was, at best 47 percent—far less than the 70 percent envisioned in the economic analysis. PMO-DTS program officials stated they are uncertain as to why the anticipated 70 percent “no touch” was not being achieved. According to PMO-DTS program officials, this could be attributed, in part, to the DOD travelers being uncomfortable with the system and with making reservations without using a CTO. Although this may be one reason, other factors may also affect the expected “no touch” fee. For example, we were informed that determining the airline availability and making the associated reservation can be accomplished, in most cases, rather easily. However, obtaining information related to hotels and rental cars and making the associated reservation can be more problematic because of the limitations in the data that DTS is able to obtain from its commercial sources. Accordingly, while a traveler may be able to make a “no touch” reservation for the airline portion of the trip, the individual may need to contact the CTO in order to make hotel or rental car reservations. When this occurs, rather than paying a “no touch” fee to the CTO, DOD ends up paying a higher fee, which eliminates the savings estimated in the economic analysis. The economic analysis assumed that (1) DOD would be able to modify the existing CTO contracts to achieve a substantial reduction in fees paid to a CTO when DTS was fully implemented across the department and (2) all services would use the fee structure called for in the new CTO contracts. The first part of the assumption is supported by results of the CTO contract for DOD Region 6 travel. The fees for the DTS “no touch” transactions were at least $10 less than if a CTO was involved in the transactions. However, to date, the department has experienced difficulty in awarding new contracts with the lower fee structure. On May 10, 2006, the department announced the cancellation of the solicitation for a new contract. According to the department, it decided that the solicitation needed to be rewritten based on feedback from travel industry representatives at a March 28, 2006, conference.