Weapon system investment decision-making in DOD is highly complex. It involves numerous entities, levels, and policies at the military service and enterprise level. The four military services—the Army, Air Force, Navy, and Marine Corps—by law have authority to organize, train, and equip their services. They make initial decisions regarding what to buy, how to buy it, and how much it will cost. Those decisions are made by their requirements, acquisition, and budget communities and go through multi- layered review processes within the services. Each service has its own requirements, acquisition, and budget policies, which are based in part on enterprise-level policies. For major investments, the military services’ decisions regarding what to buy, how to buy it, and how much to buy may be reviewed and approved or disapproved at the enterprise level. At the enterprise level, JCIDS assesses, validates, and prioritizes warfighter needs; the Defense Acquisition System oversees product development and procurement; and PPBE allocates resources taking into account capability needs, risk, and affordability. Each of those processes is governed by its own set of policies (See appendix II for a list of relevant policies). DOD faces several weapon system investment planning challenges. First, DOD plans more weapons acquisition programs than it can afford. In the Congressional Budget Office’s (CBO) most recent analysis of DOD’s 5- year Future Years Defense Program (FYDP), CBO projected acquisition costs for weapons and other major equipment to increase by 21 percent between fiscal years 2015-2019, and to peak in the early 2020s at about 43 percent higher than in 2015. CBO explained that the steep increase in acquisition costs it projects beyond the FYDP timeframe shows that the classic bow wave has returned—meaning that DOD is pushing out funding needs assuming it will receive higher acquisition funding levels in the future to complete its programs. Similarly, CBO estimated that the total costs of carrying out the Navy’s fiscal year 2015 shipbuilding plan would require one-third more funding on an annual basis than the Navy has received in recent decades. CBO reported that, as a result, the Navy will likely have to purchase substantially fewer ships than under its current plans or make other trade-offs. In April 2015, we also raised affordability issues with the Joint Strike Fighter—DOD’s largest weapon acquisition program. We estimated the program will require an average of $12.4 billion per year, which represents around one-quarter of DOD’s annual funding for major weapons programs, over the next 5 years. We reported that it is unlikely the program will be able to sustain such a high level of annual funding and if required funding levels are not reached, the program’s procurement plan may not be affordable. In addition, the military services have a history of tailoring their planned investments to their own needs rather than trying to find common ground, which has led to inefficiencies and, in some cases, duplication. More specifically, the military services sometimes generate unique system requirements that justify multiple acquisition programs to meet similar needs. Our work has concluded that redundancy or overlapping capabilities in some areas may be desirable or necessary, but acquisition efforts to develop similar capabilities can also result in the same capability gap being filled twice or more, lead to inefficient use of resources, and contribute to other warfighting needs going unfilled. In 2012, we found potential duplication among electronic warfare systems, some of which DOD has canceled. In 2013, we found additional areas of overlap in the roles that electronic warfare systems were intended to perform and that new areas of overlap and potential duplication could emerge as investment plans evolved. More recently, we concluded that when developing a new ground radar system, the Air Force focused on what made its requirements unique from a similar Marine Corps’ system, instead of looking for ways to leverage the Marine Corps’ program. We found these programs to be potentially duplicative. Leading commercial companies use a portfolio management approach to optimize their investments. They begin with an enterprise-level identification and definition of market opportunities—in other words, potential customer wants or needs—and then prioritize those opportunities while taking into account resource constraints. Once these companies have prioritized opportunities, they draft initial business cases for alternative product ideas that could be developed to exploit each of the highest priority opportunities. Each alternative product proposal enters a gated review process. At each review, product proposals are assessed against others in the portfolio weighing corporate resources, established criteria, competing products, and the goals and objectives of the organization as a whole. As alternatives pass through each review, the number is expected to decrease, until only those alternatives with the greatest potential to succeed make it into the product portfolio. In effect, new programs are born from portfolio analysis and management. Over time, as potential new products are identified or if products under development experience problems, companies review and rebalance their portfolio of proposed and existing product investments based on those products that add the most value and are the best strategic fit. More generally, rather than defaulting to optimizing individual programs, portfolio management focuses on selecting the optimum mix of programs and modifying that mix as needed over time. Take a hypothetical example in which DOD starts with 10 programs and $50 billion to invest. Without portfolio management, program managers will seek to get the most that they can out of each of the 10 programs, without assessing their aggregate contributions to defense. Using portfolio management, DOD executives would look at different combinations of and approaches to the 10 programs to see what, collectively, would provide the best capabilities for $50 billion. This would enable executives to decide, for example, whether it is better to concentrate more investment in 7 programs rather than fund all 10 as best as possible. In another example, if a program began to have cost or performance problems, portfolio management would consider whether the other programs in the portfolio could address the requirements of the problematic program rather than just putting more money into it. Portfolio management literature has identified characteristics and effects of investment planning processes that are not based on portfolio management. These characteristics and effects, which are shown in figure 1, are consistent with some of our observations on DOD’s weapon system investment challenges. In 2007, we identified several best practices for portfolio management, which form the basis for our assessments in this report. Organizations that follow these practices assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives; continually make go/no-go decisions through a gated review process to rebalance portfolios based on investments that add the most value; use an integrated approach to prioritize needs and allocate resources in accordance with strategic goals; rank and select investments using a disciplined process to assess the costs, benefits, and risks of alternative products; empower leadership to make investment decisions and hold leadership accountable for investment outcomes; and provide sustained leadership for portfolio management. Portfolio management best practices and the Project Management Institute’s portfolio management standards also state that organizations should conduct regular reviews to adjust to strategic changes or changes in the mix of products within a portfolio, among other reasons. These reviews are tools that organizations use to plan and manage their investments. From a DOD perspective, portfolio reviews can help increase return on taxpayers’ investments in weapon systems in a number of ways, such as: helping to ensure investments align with national security and military strategies; prioritizing the most important investments; selecting the optimum mix of investments; identifying and eliminating unwarranted duplication; monitoring programs’ health to determine whether changes to the portfolio are warranted; and determining whether investments are affordable. Although there is not one model for portfolio reviews that fits all situations, we identified key portfolio elements, which—if included in a review—would integrate relevant information from the requirements, acquisition, and budget communities to achieve some of the benefits described above (see table 1). DOD is not using an integrated portfolio management approach to optimize its weapon system investments at the enterprise level, as called for in best practices. DOD lacks the governance structure, sustained leadership, and policy to do so. In particular, DOD’s governance structure includes decision-making processes and responsibilities that are divided among its stove-piped requirements, acquisition, and budget communities and focus largely on optimizing individual investments. This fragmentation does not allow for an integrated portfolio management approach to making investment decisions across the department. In addition, the military services operate in stove-pipes of their own and tend to optimize investments for their service, rather than for the military as a whole. A perceived lack of enterprise-level influence over the services hinders DOD’s ability to address this behavior and optimize investments across the department. DOD’s stove-piped governance structure is an impediment to using an integrated portfolio management approach to optimize weapon system investments. DOD has numerous enterprise-level processes, organizations, and decision makers to oversee its weapon system investments, which generally operate as stove-pipes, not as an integrated whole. In addition, the acquisition process and to some extent, the requirements process, are geared toward making decisions about individual programs rather than assessing investments collectively from an enterprise level, as best practices suggest. DOD has taken some steps to integrate its requirements, acquisition, and budget processes. However, these steps primarily include sending representatives to participate in the other communities’ decision-making forums. As a result, most investment decisions get made on a piecemeal basis within the requirements, acquisition, and budget processes. DOD officials stated that decision-making forums, such as the Deputy Secretary of Defense’s Management Action Group, serve an integrating function and make departmental management decisions on a more cross-cutting basis, but these forums primarily address issues on an ad hoc basis. Table 2 describes the key enterprise-level governance structures that are responsible for DOD weapon system investment decision-making. Other aspects of DOD’s governance structure for making weapon system investment decisions are also fragmented and inconsistent with an integrated portfolio management approach.