VBA’s business environment encompasses many difficult challenges. These include a backlog of disability claims, improving a number of relationships with other organizations that affect how VBA does its work, and responding to its customers who are frustrated about the long-standing need to improve the accuracy and timeliness of processing claims. To deal with these issues, as well as cope with today’s constrained budgetary climate, the agency is undertaking a number of major initiatives, including beginning a business process reengineering effort for its compensation and pension programs, restructuring its regional office responsibilities, and consolidating its data centers. VBA has, however, been proceeding without an overall business strategy clearly setting forth how it will improve its performance and tackle entrenched service-delivery problems. For example, the reported backlog of original and reopened disability claims increased from 378,000 in fiscal year 1990 to a high of 571,000 at the end of December 1993. This rise was due to several factors, including increasing complexity in claims processing and the use of inexperienced regional claims raters. VBA instituted several conventional stopgap measures to deal with this backlog. It authorized extensive overtime, shifted workloads among regional offices, purchased information technology equipment, increased the number of claims raters by about one third (from 667 to 897), and relaxed some paperwork requirements, such as accepting photocopies of certain documents. As a result the backlog has been reduced, but it is now still about 380,000—similar to the 1990 level. Similar trends have been experienced in the processing times for original disability compensation claims, which rose from an average of 151 days in fiscal year 1990 to 213 days in fiscal year 1994. The stopgap measures used to decrease the backlog have also reduced the average processing time in fiscal year 1995 to 161—10 days more than the level in fiscal year 1990. VBA officials acknowledge that these measures cannot be sustained over a prolonged period of time. VBA must, therefore, find other solutions to achieve greater service-delivery breakthroughs. Other entities also affect the speed with which VBA processes claims and the agency’s overall direction. For example, VBA relies on the Veterans Health Administration for most medical information needed to substantiate a disability claim, and the Department of Defense for information relating to a veteran’s service time and conditions of discharge, as well as medical information from the veteran’s tour of active duty. Delays by either of these organizations can have a significant impact on the timeliness of VBA’s claims processing. Judicial review organizations also affect VBA’s workload and backlog. For example, the Board of Veterans’ Appeals returns almost half of its cases to VBA regional offices for additional development and reconsideration each year. The Board itself also has a significant and increasing backlog of cases; its appeals grew from about 19,500 in fiscal year 1990 to more than 50,000 in fiscal year 1995—an increase of more than 150 percent. It takes the Board about 2 years to render a decision from the date it receives an appeal. In addition, VBA—like most federal agencies—must deal with constrained resource levels and, at the same time, maintain existing levels of service and operations. VBA is in the process of restructuring its regional offices in an effort to cope with declining resources. At the same time, funding for VBA’s information technology initiatives is discretionary and, as such, comes under close budgetary scrutiny by the Congress and the Office of Management and Budget (OMB). A comprehensive business strategy is needed—one that includes developing strategic and information resources management plans, setting performance goals and measures, and incorporating the results of major agency initiatives, such as business process reengineering. VBA is moving in this direction; currently, however, it has no clearly articulated business strategy. Recent legislative changes provide the framework for VBA to develop such a strategy and identify the tools needed to implement it. For example, the Government Performance and Results Act of 1993 requires agency heads to submit to OMB and the Congress a strategic plan for program activities, including a mission statement, goals and objectives, and a description of how these will be achieved and what key factors could affect their achievement. The act also requires that agencies prepare annual performance plans for each program—performance indicators that will allow measurement of outputs and service levels. In addition, the Information Technology Management Reform Act of 1996 requires agency heads to establish goals for improving the efficiency and effectiveness of agency operations and, as appropriate, the delivery of services to the public, through more effective use of information technology and business process reengineering. VBA’s weaknesses in planning have been well documented since 1987. VBA’s planning process has been cited by us and others for (1) not having specific, measurable goals and objectives against which progress can be assessed and (2) not analyzing the costs and benefits of alternative approaches to modernization. According to VBA officials, they are in the process of developing strategic and information resources management plans and will have them ready to use in preparing the agency’s budget submission for fiscal year 1998. Assistance in this area could come from the National Academy of Public Administration, which has recently been commissioned by the Senate Appropriations Committee. In the Committee’s September 1995 report on the 1996 appropriations bill, the Committee provided $1 million to the Academy for a comprehensive assessment of VBA, with particular emphasis on the specific steps required to make claims processing more efficient and less time-consuming. The Academy will evaluate the modernization initiative and its link to strategic goals and priorities, efforts to reengineer VBA’s claims-processing methodology, performance measures for restructuring, and the roles of the Board of Veterans’ Appeals and the Court of Veterans Appeals. As of a few weeks ago, VBA was still working out the details of this study with the Academy. VBA also needs to develop a full set of performance goals or measures. At present, processing timeliness is the primary performance measure that VBA uses. Customer-focused goals, aimed at improving the quality of service, are needed. For example, a VBA survey of “stakeholders”indicated that , in their view, an emphasis on quality over productivity alone would be the key to service excellence at VBA. These stakeholders defined quality as making the correct award decision the first time, which would improve the timeliness of claims processing and reduce the number of appeals filed. VBA’s current goal for claims processing was set without the benefit of any clear plan. For example, its goal is to reduce average original compensation claims processing time to 106 days by 1998; this goal was set as part of a 1993 agreement with OMB to establish outcome-oriented performance goals. The performance goal is not linked to a business strategy or plan that explains how the agency intends to achieve this goal. Reengineering is key to achieving major performance improvements that VBA establishes as business goals. As our 1994 study pointed out,organizations that successfully develop information systems do so only after thoroughly analyzing and redesigning their current business processes. Information system projects that do not first consider business process redesign typically fail, or reach only a fraction of their full potential. In response to concerns raised by us and others over the past 3 years, VBA is preparing to reengineer its compensation and pension claims-processing operations, and has taken several positive steps. In November 1995 the agency established a Business Process Reengineering Office, and subsequently adopted a business process reengineering methodology. It also hired a consultant to assist with reengineering. By the end of this month, a business process reengineering team comprised of VBA staff and the consultant is expected to have completed a key step in the process by developing a proposal for changing the compensation and pension business processes. This proposal will be submitted to VBA management for review and approval before implementation. VBA also plans to begin a different business analysis project each year for its other four business areas. The next area planned for such an analysis is educational assistance. It is still too early to judge whether the current business process reengineering effort will help VBA achieve its goals, but we continue to have some concerns about VBA’s current business process reengineering focus and approach. For example, VBA has not yet set quantifiable performance measures using the experiences and performance of other leading claims-processing organizations. Also, the scope of VBA’s analysis and reengineering of its business processes in the compensation and pension area does not address the claims appeal process, which has a significant impact on the timeliness and quality of some claims-processing decisions. Finally, as I will discuss later, we are concerned that reengineering is not the driver behind all of VBA’s information technology initiatives. To solve entrenched problems and sustain long-term improvements in service delivery and operations, VBA must first know exactly what it needs to pay attention to and where it wants to go. A business strategy containing specific goals and performance measures is absolutely essential. By effectively using the framework established in recent legislation to develop the business strategy and complete its strategic and information resources management plans, VBA will go a long way toward setting out a clear path to be followed. VBA’s investment in modernization activities has yielded some improvement in hardware and software applications. However, it is difficult to measure return on any of these investments. As shown in attachment 1, between fiscal years 1986 and 1995, VBA reported that it obligated about $688 million for information technology, of which about $284 million, or about 40 percent, was for systems modernization. In December 1992 VBA awarded the first contract in its planned three-stage procurement. During stage I, VBA acquired a number of personal computers, local area networks, minicomputers, and commercial off-the-shelf software for its 58 regional offices; during stage II, VBA procured imaging equipment and associated software.