CAN DOD EVER BE EFFICIENT

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CAN DOD EVER BE EFFICIENT?
SCEA National Education and Training
Conference June 12, 2002
Hon. Robert F. Hale Senior Fellow, LMI Former
USAF Asst Sec
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CAN DOD EVER BE EFFICIENT?

• Budget environment and efficiency
• Roadblocks to efficiency
• Promoting efficiency
• Implications for cost analysts

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DOD BUDGET RISING(FY03 Billions)
FY02-07 21 FY02-03 12
462
409
379
337
Based on Administration Feb 02 budget request
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PROCUREMENT ALSO RISINGEVENTUALLY(FY03
Billions)
JCS 100-110B CBO 90B
127
92
69
62
Based on Administration Feb 02 budget request
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Factors That Influence Defense Funding

• Threats to U.S. security
• Public support for defense spending
• Available federal funds

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DEFICITS ARE BACK!(Total Deficit in B)
Source Administrations Feb 02 budget request
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LONG TERM DEFICIT OUTLOOK SOMBER(Deficit as of
GDP)
Source GAO-02-467T (Feb 02)
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OMs RELENTLESS RISE(OM per troop in FY03)
r
FY60-02 2.7/yr FY92-02 3.4/yr
1960 1970 1980
1990 2002
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WHAT CAUSES OM GROWTH?

• Accounting changes
• Diseconomies of scale
• Aging weapons
• CBO finds little effect
• Infrastructure-related activities
• Training, recruiting, logistics operations,
  communications, base support
• Per CBO up 17 1981-1996
• Mission-related OM declined 5

OM Growth Induces Turbulence
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BUDGET ENVIRONMENTSUMMARY

• Near-term budgets rising
• Still tight because of the war
• Pressure for efficiency remains
• Long-term downward budget pressure
• Efficiencies will remain important
• OM growing relentlessly
• Induces turbulence and inefficiency
• Important target for cost analysts

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CAN DOD EVER BE EFFICIENT?

• Budget environment and efficiency
• Roadblocks to efficiency
• Promoting efficiency
• Implications for cost analysts

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ROADBLOCKS TO EFFICIENCY
Not part of mission
Pressure to spend budgets
Few incentives to save
The Congress factor
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Efficiency and DoD Mission

• DoD Mission
• Deter wars and if necessary fight and win them

• Business Mission
• Satisfy customer needs in order to make a profit

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ROADBLOCKS TO EFFICIENCY
Not part of mission
Pressure to spend budgets
Few incentives to save
The Congress factor
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Limited Incentives to Save

• Those who save dont keep the savings
  
• Savings used for higher priorities
• Why make savings a priority?
• Australian approach illustrates importance of
  incentives

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ROADBLOCKS TO EFFICIENCY
Not part of mission
Pressure to spend budgets
Few incentives to save
The Congress factor
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CAN DOD EVER BE EFFICIENT?

• Budget environment and efficiency
• Roadblocks to efficiency
• Promoting efficiency
• Broad approaches
• Administration program
• Implications for cost analysts

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BROAD APPROACHES

• Focus on incentives
• Pursue top-down approach
• Listen to the field
• Establish metrics

Source Study published by Center for Strategic
and Budgetary Alternatives
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ADMINISTRATION EMPHASIZES MANAGEMENT

• Presidents Management Agenda
• Five key themes
• Strategic management of human capital
• Competitive sourcing
• Improved financial management
• Expanded electronic government
• Budget and performance integration
• Nine specific programs
• Privatization of military family
  housing

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ADMINISTRATION EMPHASIZES MANAGEMENT

• FY03 budget focuses on management
• Red/yellow/green on five initiatives
• OMB gives out the grades
• 110 of 130 ratings red
• Ratings for specific programs (9 in DoD)
• e.g. Readiness, military compensation rated
  effective
• e.g. Infrastructure, weapons cost
  control rated ineffective

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ADMINISTRATION EMPHASIZES MANAGEMENT

• Administration seeks Congressional assistance
• Congressional earmarks
• Freedom to Manage Act
• Managerial Flexibility Act

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RUMSFELD ON MANAGEMENT
I have never seen an organization, in the public
or private sector, that could not, by better
management, operate at least 5 more efficiently
if given the freedom to do so.
Rumsfeld (6/2001)
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DEFENSE EMPHASIZES MANAGEMENT

• Programs terminated
• DD-21, Crusader proposed
• Accelerate retirements
• F-14, S-3, UH-1, DD-963s
• Restructure or delay programs
• More realistic weapon system costing

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DEFENSE EMPHASIZES MANAGEMENT

• Improve financial performance
• Develop architecture
• Adopt more effective headquarters operations
• Combine POM and budget reviews
• Restructure and reduce size
• Business Initiatives Council (BIC) initiatives
• Support Presidents Management Agenda

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PROMOTING DOD EFFICIENCY
Keep Trying
But
Be Realistic
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CAN DOD EVER BE EFFICIENT?

• Budget environment and efficiency
• Roadblocks to efficiency
• Promoting efficiency
• Implications for cost analysts

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ISSUES CONFRONTING COST ANALYSTS

• How improve realism of cost estimates?
• With higher estimates/budgets, how control
  incentives to spend more?
• Should services continue to estimate costs of
  ACAT IDs?

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WHERE TO FOCUS

• Some attention to technical aspects
• More to day-to-day dilemmas
• Focus on causes of OM cost growth
• Focus on human resource challenges

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SUMMARY

• There are roadblocks to DoD efficiency
• Be realistic
• Administration emphasizes efficiency
• Keep trying
• Same guidance applies to cost
  analysts