As part of its ongoing business systems modernization program, and consistent with our past recommendation, DOD has created an inventory of its existing and new business system investments. As of October 2002, DOD reported that this inventory consisted of 1,731 systems and system acquisition projects across DOD’s functional areas. In particular, DOD reported that it had 374 separate systems to support its civilian and military personnel function, 335 systems to perform finance and accounting functions, and 221 systems that support inventory management. Table 1 presents the composition of DOD business systems by functional area. As we have previously reported, this systems environment is not the result of a systematic and coordinated departmentwide strategy, but rather is the product of unrelated, stovepiped initiatives to support a set of business operations that are nonstandard and duplicative across DOD components. Consequently, DOD’s amalgamation of systems is characterized by (1) multiple systems performing the same tasks; (2) the same data stored in multiple systems; (3) manual data entry and reentry into multiple systems; and (4) extensive data translations and interfaces, each of which increases costs and limits data integrity. Further, as we have reported, these systems do not produce reliable financial data to support managerial decisionmaking and ensure accountability. To the department’s credit, it recognizes the need to eliminate as many systems as possible and integrate and standardize those that remain. In fact, three of the four Defense Finance and Accounting Service (DFAS) projects that are the subject of the report being released today were collectively intended to reduce or eliminate all or part of 17 different systems that perform similar functions. For example, the Defense Procurement Payment System (DPPS) was intended to consolidate eight contract and vendor pay systems; the Defense Departmental Reporting System (DDRS) is intended to reduce the number of departmental financial reporting systems from seven to one; and the Defense Standard Disbursing System (DSDS) is intended to eliminate four different disbursing systems. The fourth system, the DFAS Corporate Database/Corporate Warehouse (DCD/DCW), is intended to serve as the single DFAS data store, meaning it would contain all DOD financial information required by DFAS and be the central point for all shared data within DFAS. For fiscal year 2003, DOD has requested approximately $26 billion in IT funding to support a wide range of military operations and business functions. This $26 billion is spread across the military services and defense agencies—each receiving its own allocation of IT funding. The $26 billion supports three categories of IT—business systems, business systems infrastructure, and national security systems—the first two of which comprise the earlier cited 1,731 new and existing business systems projects. At last year’s hearing, DOD was asked about the makeup of its $26 billion in IT funding, including what amounts relate to business systems and related infrastructure, at which time answers were unavailable. As we are providing in the report being released today and as shown in figure 1, approximately $18 billion—about $5.2 billion for business systems and $12.8 billion for business systems infrastructure—relates to the operation, maintenance, and modernization of the 1,731 business systems that DOD reported having in October 2002. Figure 2 provides the allocation of DOD’s business systems modernization budget for fiscal year 2003 budget by component. However, recognizing the need to modernize and making funds available are not sufficient for improving DOD’s current systems environment. Our research of successful modernization programs in public and private- sector organizations, as well as our reviews of these programs in various federal agencies, has identified a number of IT disciplines that are necessary for successful modernization. These disciplines include having and implementing (1) an enterprise architecture to guide and constrain systems investments; (2) an investment management process to ensure that systems are invested in incrementally, are aligned with the enterprise architecture, and are justified on the basis of cost, benefits, and risks; and (3) a project oversight process to ensure that project commitments are being met and that needed corrective action is taken. These institutionalized disciplines have been long missing at DOD, and their absence is a primary reason for the system environment described above. The future of DOD’s business systems modernization is fraught with risk, in part because of longstanding and pervasive modernization management weaknesses. As we have reported, these weaknesses include (1) lack of an enterprise architecture; (2) inadequate institutional and project-level investment management processes; and (3) limited oversight of projects’ delivery of promised system capabilities and benefits on time and within budget. To DOD’s credit, it recognizes the need to address each of these weaknesses and has committed to doing so. Effectively managing a large and complex endeavor requires, among other things, a well-defined and enforced blueprint for operational and technological change, commonly referred to as an enterprise architecture. Developing, maintaining, and using architectures is a leading practice in engineering both individual systems and entire enterprises. Government- wide requirements for having and using architectures to guide and constrain IT investment decisionmaking are also addressed in federal law and guidance. Our experience has shown that attempting a major systems modernization program without a complete and enforceable enterprise architecture results in systems that are duplicative, are not well integrated, are unnecessarily costly to maintain and interface, do not ensure basic financial accountability, and do not effectively optimize mission performance. In May 2001, we reported that DOD had neither an enterprise architecture for its financial and financial-related business operations nor the management structure, processes, and controls in place to effectively develop and implement one. Further, we stated that DOD’s plans to continue spending billions of dollars on new and modified systems independently from one another, and outside the context of a departmental modernization blueprint, would result in more systems that are duplicative, noninteroperable, and unnecessarily costly to maintain and interface; moreover, they would not address longstanding financial management problems. To assist the department, we provided a set of recommendations on how DOD should approach developing its enterprise architecture. In September 2002, the Secretary of Defense designated improving financial management operations (including such business areas as logistics, acquisition, and personnel management) as one of the department’s top 10 priorities. In addition, the Secretary established a program to develop an enterprise architecture, and DOD plans to have the architecture developed by May 2003. Subsequently, the National Defense Authorization Act for Fiscal Year 2003 directed DOD to develop, by May 1, 2003, an enterprise architecture, including a transition plan for its implementation. The act also defined the scope and content of the enterprise architecture and directed us to submit to congressional defense committees an assessment of DOD’s actions to develop the architecture and transition plan no later than 60 days after their approval. Finally, the act prohibited DOD from obligating more than $1 million on any financial systems improvement until the DOD comptroller makes a determination regarding the necessity or suitability of such an investment. In our February 2003 report on DOD enterprise architecture efforts, we stated our support for the Secretary’s decision to develop the architecture and recognized that DOD’s architecture plans were challenging and ambitious. However, we also stated that despite taking a number of positive steps toward its architecture goals, such as establishing a program office responsible for managing the enterprise architecture, the department had yet to implement several key recommendations and certain leading practices for developing and implementing architectures. For example, DOD had yet to (1) establish the requisite architecture development governance structure needed to ensure that ownership of and accountability for the architecture is vested with senior leaders across the department; (2) develop and implement a strategy to effectively communicate the purpose and scope, approach to, and roles and responsibilities of stakeholders in developing the enterprise architecture; and (3) fully define and implement an independent quality assurance process. We concluded that not implementing these recommendations and practices increased DOD’s risk of developing an architecture that would be limited in scope, would be resisted by those responsible for implementing it, and would not support effective systems modernization. To assist the department, we made additional recommendations with which DOD agreed. We plan to continue reviewing DOD’s efforts to develop and implement this architecture pursuant to our mandate under the fiscal year 2003 defense authorization act. The Clinger-Cohen Act, federal guidance, and recognized best practices provide a framework for organizations to follow to effectively manage their IT investments. Collectively, this framework addresses IT investment management at the institutional or corporate level, as well as the individual project or system level. The former involves having a single, corporate approach governing how the organization’s portfolio of IT investments is selected, controlled, and evaluated across its various components, including assuring that each investment is aligned with the organization’s enterprise architecture. The latter involves having a system/project-specific investment approach that provides for making investment decisions incrementally and ensuring that these decisions are economically justified on the basis of current and credible analyses. Corporate investment management approach: DOD has yet to establish and implement an effective departmentwide approach to managing its business systems investment portfolio. In May 2001, we reported that DOD did not have a departmentwide IT investment management process through which to assure that its enterprise architecture, once developed, could be effectively implemented. We therefore recommended that DOD establish a system investment selection and control process that treats compliance with the architecture as an explicit condition to meet at key decision points in the system’s life cycle and that can be waived only if justified by compelling written analysis. Subsequently, in February 2003, we reported that DOD had not yet established the necessary departmental investment management structure and process controls needed to adequately align ongoing investments with its architectural goals and direction. Instead, the department continued to allow its component organizations to make their own parochial investment decisions, following different approaches and criteria.