One for the Price of Three!

Only in the DoD acquisition world would this sound like a good deal!  But before we cast too many arrows at the acquisition community, I must admit the idea is mine.  I developed this idea over the course of years of working in the Bizarro World of DoD ship financing.   You remember Bizarro? Bizarro It’s the world where everything is backwards….the name of the bizarro world planet is Htrae (so clever!) and the world is square.  As I recall, it was featured occasionally in Superman comics in the 1960’s. One of the mottos in Bizarro World was ” Us do opposite of all earthly things.”  Bizarro bonds were a hot item on Htrae because they were “guaranteed to lose money.”  So I don’t think it’s a huge stretch to make the analogy here.

As I learned during my time as Chief Resources and Requirements Officer for the Navy, the normal things you learned about economics don’t necessarily hold true when it comes to buying ships.  My initial experience was during my first year on the job.  We were working on balancing the budget and were about $400 Million off.  The staff proposed that we slide the purchase of a ship we were buying for the Army called the LMSR (contrary to popular belief, the Army moves primarily by sea, not air).  The price tag was about $400 Million and the staff had determined that we could stand to slide it a year.  “Sounds good to me!” I answered, happy at the prospect of putting a bow on the $130 Billion Navy budget and delivering it to OSD just in time for Thanksgiving.  By the way, that’s how you make sure that you don’t get rejected right away…..Submit something just prior to a big holiday so no one is around to grade your work.  This rule works in a variety of scenarios:

  • DoD generally drops significant RFPs just before holidays to force contractors to work feverishly at the expense of their families to get the proposal complete by some arbitrary deadline (which generally gets extended anyway).
  • The Congress always passes bills at the eleventh hour before big holidays, in hopes that the particulars will escape the media.  What’s more interesting? The details of the CR passed the day before Thanksgiving or the press conference where the President pardons the turkey?  Or maybe the 3 minute spot on the evening news which shows the neighbor’s Christmas lights display of 100,000 watts, synchronized to “All About That Bass.” I vote for the turkey pardon and the light show!!!!!(and sadly, so do most)
  • Controversial changes to Federal Register seem to always drop the day before a holiday in hopes that no one will notice.
  • My favorite, RFP’s released with 5 days to respond…(a favorite way to make sure the desired contractor wins)

Anyway, I’m sure you have your own sea story that would make mine look minor.  But back to the LMSR caper……

USNS Bob HopeA few days after the decision was made, the staff came back and noted that since we slid the ship a year, it’s going to cost more…..I don’t remember how much, but it was around $100 Million or so.  “Really?” I commented.  ‘Oh, yes,” came the reply, ” money will cost more the next year, we have shipyard loading issues that we will have to pay for, the cost of steel is going up, blah, blah blah.”  So I began to understand that the economics of shipbuilding were different.  I formulated The Shipbuilding Entropy Rule: “Nothing ever costs less.  NO matter what you do, it will always cost more.”  You buy less, they cost more.  You cancel the buy, you still have to pay the overhead.  You remove capability, it costs more to redo drawings.  Its all very counter-intuitive.  This became very clear to me during the following year’s budget build when the staff came back and said “We made a mistake.  We have to move the LMSR back to the original purchase year.”  “Fine,” I replied, “No harm, no foul.”  Sensing it wasn’t “Fine“, based on the furtive glances between the staffers (an admiral sees a lot of those looks in the Pentagon) I asked “What’s wrong?”  Turns out, if we moved the ship back into the original purchase year, it added another $100 Million to the cost!  Whadakknow?  We essentially did nothing and paid $200 Million not to do it!  That, my friends, is Bizarro accounting!

Anyway I could go on and on about this, but I want to get to the reason I chose the title of this article, One for the Price of Three.

The DDG-1000 (AKA CG(X), Arsenal Ship, Zumwalt Destroyer, DD21, DD(X), etc) was originally intended to have a buy of around 32 ships or so.  USS ZumwaltThey became so expensive and the requirements bounced around so much, we began advertising it as a fire support ship vital to the survival of the Marines during amphibious assaults.  As such, we only needed about 10-12, just enough to support the number of amphibious ready groups (ARGS) we had at the time.  The Marines were happy about that, even though they preferred to have 2 per ARG.  I even went over to the Hill with my Marine counterpart extolling the virtues of the DDG-21 as the perfect fire support ship for the Marines.  But once the Marines realized that the cost of the ship was so high that it would probably limit the amount of other stuff they could buy, they dropped it like a hot potato…..they would much rather have the 360 V-22’s than 24 DD(X)’s.  So in the space of about a month we changed our tune from”vital” to “not so vital.”  Now that they are $3 Billion a copy, we are only building 3 of them and I’m not sure there’s a real requirement out there.  As my Grandmother said when she got her first taste of champagne in one of those dinky champagne flutes at my son’s baptism, “That’s not enough to wet my whistle.”  So it is with DDG-1000 IMHO.  The real requirement as far as I can tell is to have something for Bath Iron Works to build ( they will build all three) so they can stay in business in order to address industrial base concerns.  Hence the title of the article.

I propose instead of spending $9 Billion for 3 ships we don’t need, why not pay the shipyard to build it, take it apart and then build it again?  It keeps them busy. The Navy doesn’t have to shoulder the Operations and Maintenance costs necessary to support a ship class of 3 ships, and we don’t have rustle up the personnel and training facilities which must be specially developed on this one-of-a-kind weapons systems.  Heck, we will save money by doing that!  Of course, this idea only works on Bizarro World.

That, by the way, is how Bizarro JosBanks works too.  You pick out one suit and pay for three!

What a world, what a world!

 

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Leading and Following

I always hesitate to comment on such matters, but after reading the article by the Associated Press lead-follow buttonsregarding the relief of 16 Air Force officers involved in some fashion with nuclear weapons I decided I would offer a few thoughts.  My nose was already tweeked this morning after watching the “victory” speech by Virginia Senate candidate Mark Warner (as I write this, the race is still not decided, by the way) in which he says something about how the voters of Virginia have spoken and put him in the Senate…well, (very) slightly over half the voters in Virginia thought he was the best candidate…..I would be careful about yakking about mandates and the like with only a few votes more than the other guy.  To me the mandate is to be just as diligent about representing the other half of the Virginia voters as he is in representing the half that voted for him.  But as soon as he gets back on the Senate floor, he will do what all politicians do…..follow his leader.    So it occurred to me that in general, politicians are followers, not leaders.  They follow the will of their party, they follow the polls, they follow the money.  Very few of them actually lead.  Heck, even Speaker Boehner is as much a follower (to desires of tea party interests and the like) as is a leader.  And don’t get me wrong, I’m OK with that. They are supposed to be followers, aren’t they?……following the will of the people they represent.  They also tend to make lots of mischief when they “lead”.

In the military we expect everyone to be a leader to some extent and as one gets more senior, our expectations of them as a leader grow.  I’ve been to a few leadership seminars in my day and I know all the various combinations and permutations of this concept:

  • Leaders lead
  • A good leader knows how to be a good follower
  • Lead, follow or get out of the way
  • The scenery only changes for the lead dog of the pack
  • Servant leadership….A good leader is a servant to all
  • It’s good to be the King
  • All glory is fleeting (One of Gen. Patton’s favorite sayings)*
*( Or if you prefer,  Napoleon’s take:  Glory is fleeting, but obscurity is forever!)

And as a Three Star in the Pentagon I was always reminded that no matter how high and mighty you think you might be, there’s always someone above you to whose tune you must dance! In the end, everyone works for somebody, don’t they?

FishBack to the nuke thing.  One thing I knew as an Attack Squadron Commanding Officer: The quickest way to be relieved without question was to  score anything other than  an outstanding on nuke inspections. Consequently, I put my absolute best officers and enlisted personnel in those positions.  I assume the same is true in the Air Force, so that the absolute best must be assigned nuclear positions.  In that business, there is no room for error. Obviously some house cleaning was needed and the Air Force leadership did what they had to do.

The Navy also frequently makes the news for relieving  various leaders for all sorts of reasons.  I liked the way a former boss of mine, Admiral Vern Clark, used to answer questions about excessive reliefs of Commanding Officers.  He said the Navy sets the bar high for its Commanding Officers, holds them absolutely accountable for not only their own actions, but the actions of all under his/her command, and we make no apologies for that.  Amen.

Leadership is about accountability…accountability to your seniors,  accountability to those who work for you and those who you work with.  All too frequently politicians tend to be accountable to the wrong people or things….big money donors, party leadership, special interest groups, etc.  That’s another reason why they don’t necessarily make good leaders. (Yes there are some notable exceptions  and I am not suggesting that ALL politicians are not good leaders, but work with me here!)

So I propose that accountability is why we are blessed with so many good leaders in our Armed Forces.  So next time you read about someone in the military being held accountable, you should say to yourself, “That’s a good thing.”

But…..problems arise when the “followers” become the leaders….either because of their control of the purse strings or worse, because they fill a void left by leaders more interested in  following than leading.  Civilian control of our military is one of the fundamental principles of our democracy and I wholly endorse the concept.  Nothing distresses me more than when I hear someone from the Hill say that if our military wants it, then it must be good. After all, militaries fight great wars but they are not all that great at making policy.  They are only one of the instruments of national power (economic, diplomatic, informational, and military)  that the US can bring to bear.  All too often they tend to discount the value of other types of power because investments in them take money away from Defense coffers.  To be fair here, there is a great deal of writing on the use of other instruments of power in military doctrine, but I submit it is mostly theoretical and when money is at stake, all the rhetoric  goes out the window.  According to our Constitution, our political masters are the ones to make those judgments.  But our military also has an obligation to make sure their best advice is given to the “deciders.” Once they make a decision, the military’s job is to salute smartly and carry out the decisions.

It is a fine line, and I have the greatest respect for those in senior leadership positions who have the moxie to advise what they believe, not what they think their political masters believe.  It can cost a career.  Look what happened to Army Chief of Staff General Shinseki when he disagreed with Secretary of Defense Rumsfeld  on the number of troops required to tame Iraq (in the end the General  was right, but never played the “I told you so” card)?  He was shown the door to the River Entrance at the Pentagon!  Can we ever really succeed in Syria without putting some number of troops on the ground? Will Afghanistan implode if we pull all our troops out?  Can we still have the world’s most capable military with sequestration?  I admire those who give sincere,  apolitical answers to these questions.  But then again they are leaders! Beware those who do otherwise.

 

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Reforming Acquisition Reform

There has been a lot of static on the net lately concerning acquisition reform.  Two notable recent arrivals on the scene have been all the buzz around the Beltway:  First, the release of Better Buying Power (BBP) 3.0, Under Secretary of Defense (AT&L) Frank Kendall’s reincarnation of BBP 1.0 (originally issued by Ash Carter when AT&L, and later BBP 2.0 by Mr.Kendall). DoD CartSecond was the publishing of a report by the Senate Permanent Subcommittee on Investigations, Chaired by Senator Levin, with Senator McCain as the Ranking Member.  The report, entitled “Defense Acquisition Reform: Where Do We Go From Here?, is a collection of essays by 30 experts in the Defense acquisition world about how to improve or reform defense acquisition of things (and to a small degree, services).

Better Buying Power 3.0

One of the things I like most about the concept of the Better Buying Series is the iterative process in improving its focus.  After letting BBP 1.0 run for a while, corrections were needed as the result of some unintended consequences (like an irrational focus on lowest price, technically acceptable contracts) and need for clarification of some of the elements.  BBP 2.0 did just that, directing that more care must be given in defining what is “technically acceptable” for example.  Now, BBP 3.0 has come out to further tweak the elements of BBP.  A couple of previous elements were eliminated because they were considered complete:

  • Institute a system to measure the cost performance of programs and institutions and to assess the effectiveness of acquisition policies
  • Assign senior managers for acquisition of services

There were some carry overs as well, mostly with refined language.  I won’t list them all here, but the ones that I think represent the most significant change are:

  • A recognition that capability must be considered in evaluating cost by changing the focus from “Control Costs Throughout the Product Lifecycle” to “Achieve Dominant Capabilities while Controlling Lifecycle Costs”
  • Expanding focus on incentivizing productivity and innovation by breaking out into separate areas with following additions:
    • Increase prototyping and experimentation
    • Emphasize tech insertion and refresh in program planning
    • Use of modular, open architecture systems
    • Provide tech requirements to industry early
  • Increasing ability of acquisition leaders to understand and mitigate technical risk.
  • Increased support for Science, Technology, Engineering and Mathematics (STEM) education

Here’s a link to the BBP 3.0 overview.  All in all I think it represents a good step forward in the BBP series and will certainly help in trying to understand all the things going on in the world of acquisition reform……..BUT,

Many of the themes that emerged in the second recent arrival, the Senate study (Complete study can be found here) were not really addressed in the BBP 3.0 document.  To be fair, the report had yet to be released prior to putting BBP 3.0 on the street, but I would have hoped for more overlap.

The Senate report pulled out four overarching themes from the musings of the 30 experts contributing to the report:

  • A cultural change is needed in the acquisition workforce, including more effective incentives
  • Training and recruiting of the acquisition workforce must be improved
  • Realistic requirements definition are critical
  • Accountability and leadership throughout product life-cycle needs improvement

The report also makes two observations which I will quote here:

“First, among all those factors that have been identified as contributing to dysfunction in the defense acquisition system, cultural change is among both the most important and the least amenable to legislation and policy changes. It is, rather, a function of leadership throughout the chain-of-command and an incentive structure that threads through both the government contracting and acquisition workforce and industry that assigns a premium to cost-control and the timely delivery of needed capability.

Second, continued “sequestration” of the DOD’s budgets will undermine any savings that could be achieved through even the most successful acquisition reform.”

Well, to me that says, 1.  It’s more of a DoD problem than a legislative problem and 2. sequestration will nullify ( or at least severely impact) all acquisition reform efforts.   The last thing we need is even more regulation in the acquisition process.  I would offer that in my opinion sequestration is not necessarily the enemy here.  I still think we have too much waste in DoD, too many pork barrel projects, too many pet projects and too many cooks in the kitchen.  What is the enemy is the uncertainty in the budget process over the last several years….Continuing Resolutions, multiple budgets, Overseas Contingency Funds abuse and a foolish focus on equity in Service budgets have all undermined our ability to reform how we buy things.  In the end, it is a indeed a legislative problem….The failure to pass budgets on time, regardless of  the funding levels.  Life would be so much easier and efficient in DoD acquisition with regular and predictable budgets, passed in a timely fashion and accurately executed.

One final observation:  I would like to see the Senate produce a similar document on acquisition reform, but using 30 PRACTITIONERS of acquisition at the grass roots level: Project Managers, PEOs, and Contracting Officers.  A view from the top is always useful, but without a view from the bottom we will never really fix what is wrong with acquisition culture. They are the ones that make up the culture, not the poobahs at the top.  A little more focus on them would be helpful…I’m not sure that after a contacting officer reads BBP 3.0 they will do anything different.

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“Where you stand, depends on where you sit.” Miles Law and related Maxims

I attended an evening affair recently with a well respected leader who reminded me that the old maximum “Where you stand, depends on where you sit” was actually memorialized by Rufus Miles of Princeton University back in the 70’s.Sit Stand Anyone who has ever been in a bureaucracy knows exactly what he means.  I myself am a slave to Miles Law.  And not only when I was lurking around the bureaucracy of the Pentagon, but even afterwards in my second career.  It’s not a bad thing, by the way.  In fact, if  you are to be a loyal member of any organization, you will be dealing with the outcomes of the Miles Law.  I recall my first job on the OPNAV staff as the Deputy N81 (Assessments).  At various meetings in the Pentagon the inevitable “What are they thinking in the Fleet?”, was heard time and time again.  We were sure they just didn’t understand the problems we were dealing with and their solutions seemed untenable.  Then I got back to the Fleet, and at just about every meeting I would hear, “What are they thinking in the Pentagon?”  And so it goes.  The point is ones perspective is always shaped by the environment, business or otherwise.  Once I retired from active duty and become a “contractor”, within a matter of a few months I just couldn’t figure out what my former colleagues in the Pentagon could be doing….They should be doing it our way!!!!

So remember when you are in the next meeting where you think your organization has the market cornered on the thinking on some issue, there are others out there just as passionate (and probably just as right) as you are.  Where you stand indeed depends on where you sit. Realizing that might make things go a little smoother.

Now for the six maxims related to Miles Law.  As you read them, I think you will find that they offer some invaluable insights into how to deal with your superiors and those who work with and for you.

Maxim #2.  The responsibility of every manager exceeds his authority, and if he tries to increase his authority to equal his responsibility, he is likely to diminish both.  The lesson here is don’t worry too much about matching power with responsibility.  It’s the way the system is designed and if you attempt to twiddle with it, you are asking for trouble.

Maxim #3Managers at any level think they can make better decisions than either their superiors or their subordinates; most managers, therefore seek maximum delegations from their superiors and make minimum delegations to their subordinates.  As a leader, you will be pulled in many directions and in order to be effective, you must delegate….the trick is knowing your people and their capabilities so you can delegate the right things to the right people and keep you focus on what you should be focused upon.

Maxim #4:  Serving more than one master is neither improper nor unusually difficult if the servant can get a prompt resolution when the masters disagree.  Boy can I relate to this one…In the military, we are often “Dual Hatted” or holding down more than one job with more than one boss. In fact, even with one job you can easily find yourself with more than one boss.  Keeping #4 in mind will help you in managing the expectations of both (maybe even several) bosses.  Communicate early and often with your bosses and make sure they all have the same version of the truth!

Maxim #5Since managers are usually better talkers than listeners, subordinates need courage and tenacity to make their bosses hear what they do not want to hear.  My observations are that managers have a monopoly on talking without listening.  Force yourself to listen…you will be surprised at what you hear.  This is true no matter the circumstances; whether you are on a cold call with a prospective client, or sitting in a community association meeting.  Too much talk, talk, talk…My advice………listen for a change.

Maxim #6:  Being two-faced–one face for superiors and one face for subordinates– is not a vice but a virtue for a program manager if he or she presents his or her two faces openly and candidly.  I have no idea what this means, but it sure sound profound.

Maxim #7: Dissatisfaction with services tends to rise rapidly when the provider of the services becomes bureaucratically bigger, more remote , and less flexible, even if costs are somewhat lower. Of all the maxims, this is one which is applicable in almost anything when it comes to bureaucracies, or even companies.  You have to constantly keep yourself in tune with your clients….refer to Maxim #5….., listening to what they have to say.  Ice Cream Cone Be vigilant that your organization is not morphing into the ubiquitous “Self Licking Ice Cream Cone”, existing not for providing services to clients, but for its own pleasure.  By the way, by far, my article on Self Licking Ice Cream Cones is and continues to be the number one article people view when visiting my web site.

 

So there they are…I thought it worth putting to paper because I think they are things that leaders need to be aware of as they go about leading from day-to-day.  If nothing else, I’ll bet each and every one of you Govies reading this have experience in all of these (even #6, whatever it means)

If you would like to read the famous paper by Professor Miles, here is a link to a site that will allow you to purchase a copy ($25).

 

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Plugging the DFAS Dam

I saw a reprint of an article done by Reuters the other day entitled “Special Report: The Pentagon’s doctored ledgers conceal epic waste” and even though it’s almost a year old, I think it still applies.  DFAS Leak height= In just a few days, all the big accounting firms that do business with DoD will be submitting proposals to conduct audits of the the Army, Navy and Air Force Statements of Budgetary Activity (SBA)……that’s a high level balance sheet that has little applicability to the actual management of anything.  Experience in auditing the Marine Corps proved that trying to do anything else was futile.  One just has to read the Reuters article on “Plugs” to see just how daunting a task auditing any of the services really is.  Inventing phantom ledger entries or “plugs” to explain away imbalances in the “goes-intas” and the “goes-outtas” is apparently the norm at the Defense Finance and Accounting Service.  What’s a little disturbing about this whole audit thing, is that many of these sins will go unexamined because they do not necessarily impact the SBA. See my article “DoD Audit:  Is the cure worse than the disease?” for the details about just what the SBA is all about.

In fairness, I think the article’s title is misleading in that I doubt if the motivation behind plugging in numbers is a desire to conceal waste, but rather it’s the normal way of balancing the books in order to satisfy the Treasury Department.  The real motivation is to keep the heat off oneself ……does that sound familiar?  Think about recent VA scandal…..I doubt if the real motivation was to  make sure deserving veterans didn’t get appointments, but it was done to keep the front office happy.  Never mind that the green eye shades at Treasury are apparently more interested in balancing the numbers as opposed to the reliability of the numbers used to balance (a la VA!).  It’s been going on for years, so that’s a good indication that nobody cares.  Unlike the VA however, the DFAS guys were caught and still nobody cares!

But we do care these days about getting the DoD auditable.  And the Pentagon’s efforts to get to auditability have been extensive and expensive, with some modest results.  Take a look at the USMC……their SBA has passed audit scrutiny for two years running now.  Some months ago I wrote an article on the USMC audit, “Hall of Heroes and Auditors“, which is worth reviewing for context for what follows.

I support the efforts of DoD to get auditable, but only in so far as those efforts are done for the right reasons….not to keep the front office happy, but to make sure DoD is properly accounting for dollars….When they say “We don’t have money for pay raises”, or “Retiree health care is costing us too much,” or “We have to furlough employees,” are they using data from the system that “plugs” in nonexistent dollars to satisfy the front office?  Who knows if the numbers they are quoting are accurate, given the evidence that the numbers are inherently inaccurate!  My point is DoD audits are only interesting science projects for green eyeshades if we are only auditing things that don’t matter.  SBA audits are interesting, but not compelling. We must follow on and audit all the other aspects of DoD financial accounting and property, plant and equipment inventories. That’s the plan (I think), but after DoD has spent collectively over $200 Million just to get to SBA audit, will they have the fortitude to go further into the things that really matter? Will Congress let them? Will the operational pressures in an very unstable, terrorist filled world trump mundane administrative exercises like audits? Roulette height=Stay tuned, but I think with sequestration about to raise its head once again, the President under pressure to mount military responses to multiple spots around the globe, and political stalemate in the Congress, betting on continued funding for DoD audits is at best like wagering on red or black at the roulette wheel at Trump Towers in Atlantic City (ooppppsss, it’s out of business, so how about The Nugget in Las Vegas?).

So don’t get too worked up and break out the champagne  if it turns out the the service SBA’s pass audit ( they are likely to do so because of the limited scope and usefulness).  Instead remember:

  1. It’s only the SBA, a very limited look into DoD finances.
  2. No one uses the SBA to manage anything.
  3. It only looks at one year…Past sins are ignored.
  4. DFAS is still using plugs to balance the books.
  5. It may be done by the cheapest bidder (As a stockholder, would you want the firm you have your life savings in to use the cheapest auditor?).
  6. Because all the audits are being done at the same time, chances are all the firms will be battling for manpower and may not be hiring the most competent auditors (assuming they hire auditors).  We may even have to open up an auditor refugee camp to handle the influx of auditors to the Beltway.

So to sum it all up, I wholeheartedly support ensuring the DoD manages it funds effectively, efficiently and accurately.  I’m not sure an audit of the SBA does any of those things. Victory is not a clean opinion on the SBA, it’s a clean opinion on the whole enchilada.

PS: Please do not reverse the order of this article’s title, no matter how applicable it may seem 😉

 

 

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Sewing Machines and DoD Acquisition

I saw an interesting article this morning on the NDIA Blog site which said Secretary Frank Kendall, the Under Secretary of Defense for Acquisition, Technology and Logistics  USD(AT&L), was unhappy that DoD did not meet the goal for having more competition for defense-related contracts.  Singer328 height= I’m not surprised at that because given the irrational focus of DoD on vendor profits, they have managed to make bidding on defense contracts so unattractive that fewer and fewer companies are making the effort to bid.  In my view, it’s not just one reason:

  • There are less contractors out there to bid
  • DoD rules and regulations limit profitability on contracts (only the big guys can survive at the margins expeced by DoD)
  • FAR requirements are so onerous (and increasing) that it’s too expensive to bid on many contracts
  • FAR requirement are so onerous that it’s too risky to bid on many contracts
  • The specter of having DCAA establish a parasitic site in your corporate HQ to monitor your finances is too distasteful
  • Uncertainty of funding streams, including the ability of DoD to cancel any contract for any (or no) reason
  • Too many ID/IQ contracts in order to avoid protests.  They are just beauty contests.

I think I will stop at those seven for now, but there are more.  What’s fascinating to me is that these reasons are ignored as DoD attempts to develop a fix for limited competition.  The DoD solution is to increase regulation, increase reporting frequency (so the bad news comes more quickly I suppose), and continue to monkey around with contractor profits, even on fixed-price contracts.  The best way, is to reduce the number of requirements, like those cited above, and let natural instincts and market forces drive competition.

 In order to have more bidders, it must become more attractive to bid!

Hello?  Did i just say that?  Why isn’t the leadership focused on how to make bidding and working on government contracts more attractive?  Can it be that simple?  I think the answer is yes.

So what does the sewing machine have to do will all of this?  This past weekend, the lovely Mrs. Crenshaw volunteered to do a little sewing to get one of our granddaughter’s uniforms ready for school.  In order to do this, she needed her sewing machine liberated from the darkest recesses of the attic.  I felt like I was in the basement of the Smithsonian as I rummaged throughout the boxes of brass plaques accumulated over the 32 years of my naval career (I’m not allowed to display them).  I found a medal I received from the Russians, a box of challenge coins, some old text books from the Naval Academy (why I still have a book on differential equations is beyond me), and various other flotsam and jetsam accumulated over 40+ year of marriage. I finally found the sewing machine, Singer Syle-o-Matic Model 328 (now listed on E Bay as “vintage”).  Setting it up after many years of disuse was challenging.  It’s a mystery to me why sewing machines work anyway, much like the DoD acquisition process.  I started fiddling around with the upper thread tension, adjusting the needle alignment, resetting the timing, changing the motor belt, tweaking the bobbin tension, etc.  Before you know it, I had adjusted just about everything on that machine and I had no idea of  what the original settings (which worked fine the last time we used it) were.  I should have left it alone, done some basic maintenance (a drop of oil perhaps) and let it do its thing.  But NOOOOOOOoo!  I had to fiddle around with every possible adjustable part and got it so far out of whack that the only option was to go back to basics and take it to a professional.  Now it works just fine.  I think the same is true in the world of DoD acquisition  We have monkeyed around with so many parts that we have lost sight of the original settings—-namely good, old-fashioned competition, unhindered by excessive regulation or government meddling in corporate finances. Why not turn over the management of corporate finances to the professionals (that would be corporate leadership) and let them do what they do best, COMPETE!

DoD ACquisiton

So my suggestion on how to increase comptetion is simple: make it more attractive to bid.  One does this by eliminating the barriers to bidding, not by adding more..  Take a look at my seven reasons above.  If we focused on fixing those, I guarantee you there would be more competition.  In the end, the government would get better value for the dollars it spends, not just cheap, mediocre work for which the government is becoming increasingly famous (or infamous, I suppose).

 

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DoD Audit: Is the Cure Worse Than the Disease?

I can’t let the recent articles in the press regarding DoD audits go by without commenting.  The headline on the Federal Times web site was “DoD falls behind audit goals – again”.  Again is the operative word here.  Some of the reasons cited for the slide (paraphrasing here): two wars in the last decade, overwhelming size and complexity, furloughs, shut-downs and the general “drain” brought on by an infectious STD in DoD (That’s Sequestration Transmitted Disease).  Preparing for audits has been on the DoD leadership’s plate for over a decade as is regularly cited as the reason for many fits and starts in DoD:  Lean Six Sigma, ERPs, Business Transformation, cost initiatives, process standardization, etc..

But in truth, there has been some progress.  Let’s not forget the US Marine Corp’s efforts in that regard (not mentioned in the article).  I have commented on the USMC progress a few months back in the Hall of Heroes and Auditors article. As of today, the USMC is the only Service to complete an audit of its Statement of Budgetary Activity (SBA), even if it’s only for one year.  We are still awaiting the results of the latest audit of the USMC SBA.  There is every reason to expect that it too will be “clean” and thus the USMC will have two successive years of clean opinions on their SBA.  This was done on purpose, because the previous years were so gooned up that it was pointless to spend the amount of time and money necessary to get things up to speed for water already under the budget bridge.  The SBA can be thought of as that part of the SBR that covers most appropriations and transactions, but not prior-year appropriations and therefore not affected too much by prior-year sins.  It is also accurate to say that DoD is focused on achieving an audit on only one part for the Department’s financials, the Statement of Budgetary Resources (SBR).

In many areas audit readiness is being achieved by manual work-arounds and other non-sustainable means instead of actually simplifying and consolidating the rat’s nest of kludged together systems and processes that have evolved over the ages.  The result of this type of preparation will be continued costly audits, with each one being just as costly as the next.  The only way to save costs is to move to reliance on internal controls instead of conducting on-site, manual inspection of paperwork, digital or otherwise.  (Most private sector audits move rapidly to reliance on internal controls because it’s cheaper and faster).  Reliable internal controls are a result of standard processes, interoperable systems, standardized data and legacy reduction, so the more we focus on the audit (at the expense of fixing internal controls) the more money we will spend.  This means that the 2018 audit is likely to be just as costly as the 2015 audit.  That, my friends, is unsustainable.

We haven’t  gotten around to auditing property records and equipment inventories (existence and completeness), for example. The plan is to do that later, after tackling the SBR.  The problem I have with all the DoD audit rumpus is that no one really understands DoD financial ops and the statements behind them outside a few budgetary monks within DoD.  Contrary to just about any commercial company, no one…not management, not customers, not investors, no one but a few accountant types at GAO and OMB look at these things.  We don’t measure the success of DoD or the desirability of investment in it by its financials.  In the real world, when a company releases its financial reports, stock prices either surge or shrink, depends on the results.  Not so in DoD. DoD Financial Statements do not reflect its performance or effectiveness.   If (almost) no one uses them, then why all the hype?

First things, first.  What the heck is a Statement of Budgetary Resources anyway?  Here’s the definition from GAO’s Financial Audit Guide, Auditing the Statement of Budgetary Resources, dated December 2001:

The SBR and related disclosures provide information about budgetary resources made available to an agency as well as the status of those resources at the end of the fiscal year. The SBR and related note disclosures serve as a tool to link budget execution data in an agencys financial statements to information reported in the actualcolumn of the Program and Financing (P&F) Schedules in the Appendix of the Budget of the United States Government (hereafter referred to as the Presidents Budget). Coupled with the analysis of other budgetary data, the SBRs linkage to the Presidents Budget provides a means to help assess the reliability of budgetary data reported in the Presidents Budget. 

Whew!  How about them apples?  Let me decode for you: The SBR makes it easier for OMB to aggregate the budget numbers.  For the “Show and Tell” crowd, here’s a copy of the Navy’s 2013 SBR.  By the way, don’t go looking for it because it is buried so far down in the paper stack that it’s impossible to find by mere mortals.
Navy 2013 SBR
WoW!  For you purists out there, here is the link to the complete set of Navy’s 2013 Financial Statements along with the accompanying footnotes. I suggest putting it in the bottom of your parrot’s cage so it can memorize the numbers and amaze your accountant friends when they visit.

This is what the little red guy with a pointy tail on my left shoulder says:  So far the Services have spent hundreds of millions of dollars to get this statement correct (Audit Readiness, financial system modernization, ERPs, etc).  But take a look at it.  Is this what really matters?  Our benefactor, the US Congress has never thought we do that bad of a job in accounting for the money.  The money just keeps coming and we are in little danger of Congress withholding the bucks because the SBRs don’t balance.  When we told them we spent $800 on a toilet seat, no one said, “Your accounting practices must be flawed.”  Nope, they believed us.  Why we spent the $800 is far more important than accuracy of the number.   DoD knows to the required degree of accuracy (you engineers will remember the significant digits drill) where the money is.  When you are dealing with half a Trillion dollars, what’s a few million among friends?  Is it worth paying the King’s Treasure to get to the finite level of detail demanded by auditors?  In my previous life as the Navy’s budget guy, I would have declared this a “Science Project for the Green Eye Shades.” There is no doubt that DoD can do a better job at managing the money, but is it really worth the Billions we will ultimately spend to get it THAT right? Maybe DoD audit is too big of a bite to make it worth the cost.  Why not focus on specific processes and make them right.  Get pay and allowance correct, get inter-service transactions right, get contract payments right, etc.  If the individual parts are good, why waste a lot of time and money messing around with trying to combine them.  Let’s spend that money somewhere else.

On the other shoulder, the little guy with the nightgown and halo says: Even if the financial processes in DoD are off by one-tenth of one percent, that’s a lot of money.  Anything we can do to increase confidence in the management of our national treasure is worth the effort.  If these things weren’t valued, why have a GAO?  Obviously the American people have made a judgment that accurate accounting is important.  Why should the DoD be exempt from the requirements levied on every other part of our government year after year after year?  Oh by the way, it’s the law of the land that all federal agencies will have auditable financial statements.  The DoD is not above the law, therefore they must do it (Never mind that DoD has ignored the CFO Act for many years, or at least failed to comply with no consequences!).  Finally, audits can save money.  In the case of the Marine Corps, correcting errors in accounting systems and procedures found during the audit resulted in identifying additional funds it could use.  It’s interesting that the Department almost never spends more money that it has been appropriated because the system is set to err on the side of caution.  Anti-Deficiency Act violations are low.  Just look at the amount of unobligated balances at the end of each year.  If our accounting procedures were better, we could spend that money.

So who’s right….left shoulder or right shoulder?  Hard to say, but the answer to this question falls squarely into the “Tough Decision” category and our leadership should seriously consider what to do.  I would not  push the “Audit” button just because it sounds like a good idea.   A lot of money rides on this decision.  It’s easy to say “It’s good business to spend money on audits,” but others will say, “At what cost?.  At the macro level DoD does an adequate job managing the money, so spend those resources on combating Cyberterrorism, readiness, R&D investments to ensure our dominance on the battlefield or on taking care of Wounded Warriors.”

In the end, I say we should focus less on the obsession with a clean audit opinion, and more on fixing the processes and systems, once and for all, that we use to manage the money.  I don’t think it’s nearly as good as it could be, but it’s certainly not as bad as some assert.

Thanks to BG Roger Scearce USA (Ret.) and Deb Delmar of Vanguard Advisors LLC  for their assistance on this article.

Disclaimer:  I’m sure I may not  have gotten some of the technical terms exactly right, but for the intended audience (non- DoD Budget Monks and Scribes) it’s close enough!

 

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Neglected Nightmares and Forgotten Dreams

I know.  I know.  You are asking what can this article possibly be about? Well, it’s all about the DoD budget (the Dream) and sequestration (the Nightmare).  I’ve been talking to a few budget folks over the past week and asking how is this year compared to others in terms of pain.  The universal answer has been “Not so bad this year.”  But soon all our dreams of finally getting some sanity in the budget process will give way to the nightmarish and forgotten process known as Sequestration.  It’s been quite a journey to get to where the DoD budget is today.  Despite all the dire warning about sequestration, all seems to be well for now.  There’s some squeaking from the fringes about cuts to force structure, BRAC, pay and benefit cuts, rising health care costs,  etc.  There are still some struggles going in within the Navy about how many carriers and other combatants the Navy can afford.  The Air Force is struggling to make ends meet by removing the A-10 from the battlefield, and the Army and Marine Corps are wrestling with end-strength reductions.  Seems like a normal day in DC.  I mentioned it’s been quite a journey to get here, and an improbable one at that.  Let’s just review the history in case visiting Aliens would like a quick briefing (Do you think they would believe it?) or you want to explain it to your grandchildren.

August  2011.  The President signed the Budget Control Act of 2011.  The debt ceiling debate was in full swing but the BCA saved the day ( or so we thought).  It did a few things:

  • Raised the debt ceiling to $14.694 Trillion (bumped up another $500 Billion in Oct 2011)
  • Cut spending for 10 years by about $917 Billion, roughly half for DoD
  • Set up the Congressional “Super Committee” to find another $1.2 Trillion in cuts over 10 years.  If they were unable to do so by December 2011, than a series of mandatory cuts would kick in.
  • Required a vote on a Balanced Budget Amendment (which failed)
  • Monkeyed around with graduate and professional student loans, although it increased funding for Pell Grants

December 2011.  Oooops.  The “Super Committee flopped” so the arbitrary cuts demanded by sequestration loomed for next year’s budget.

February 2012.  DoD Budget for 2013 ignores sequestration.

December 2012.  DoD finally starts planning for possible 2013 spending reductions demanded by sequestration.

January 1, 2013.  The American Taxpayer Relief Act of 2012 delays sequestration to March 1, 2013, and cuts some of the sequestration caps.

March 2013.  Continuing Resolution funds Government till end of September 2013

October 1-16, 2013.  Government Shuts down.

October 16, 2013.  Congress passes the Continuing Appropriations Act, 2014 which funded the Government through February 2014 (actually it extended the debt ceiling limit)

December 26, 2013.  President signs the Bipartisan Budget Act of 2013 which restored $45 Billion of sequestration cuts in 2014 and $11 Billion in 2015 by adding sequestration cuts to 2022 and 2023.

It this any way to run a railroad?  No wonder nothing works right and everything the government does costs more.  There’s no stability to allow for any sort of long-range plan.  But you all know that.  The point of all this is that through a series of improbable event, we have managed to kludge together funding to keep the US in business (such as it is).  But there’s nothing in the works that I know of to fix 2016, the budget that being build right now in the Pentagon.  And just like a scene out of Ground Hog Day, DoD is putting together a budget that ignores sequestration.  Here’s a chart right out of the DoD 2015 Budget Briefing.  Notice that there is no mention of sequestration (except to exclude it). DoD FY15 Budget Proposal Summary   Now here’s a rough chart (I’m sure the numbers are off slightly) of what sequestration funding levels are relative to the DoD budget.  Notice it’s $115 Billion out of round through 2019.  That’s how much money the Pentagon is stuffing into the budget over sequestration spending levels. DoD_Sequester_Comparison The only point of this little tale is to impress upon you how important it is that we get this fixed.  We can’t keep grinding our people into the dirt with endless budget drills which make no sense.  There are three possible strategies to deal with the situation IMHO:

  1. Business as usual. The politicians will fix it just like last time.  (The Hope gambit and our current vector)
  2. Force DoD to plan for Sequestration in 2016 and beyond. (The Defeatist gambit)
  3. 1 and 2 (The “Probably what’s happening in the Pentagon, but no one will admit it” gambit)

Where do I come down?…..What the heck….let’s go for number 1.  It worked last time and the politicians always fix it in the end, no matter how much pain gets inflicted in the process. And so it goes………..

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Power Counter-Point

Breaking News
  SECDEF Power Point Guidance.  Looks like he reads my blog!

 

Who loves Power Point?  Let’s see a show of hands….What?  No hands?big pp

Like just about anyone in government, Lord knows I’ve seen my share of Power Point presentations.  I remember the Granddaddy of them all from my first year as the Navy’s money guy.  It was time for the requirements folks to brief the Chief of Naval Operations on their budget proposal.  I should have suspected something when the calendar was blocked for three days, but what the heck?  I was a new guy and thought this was normal. We sat down in the PEC ( I can’t remember what that stood for, but it was the big CNO conference room where we discussed such matters) and girded our loins for the fireworks.  Now those of you who have ever attended a meeting in the Pentagon where money is being discussed know that there is literally no conference room in the Pentagon big enough to accommodate all of the Importants, the not-so-Importants, the strap-hangars and even one or two people who actually know what’s going on.  The 20 person conference table had 40 people around it.  The walls were thick with one and two stars and their civilian counterparts sitting in hard, folding chairs taken from the WWII surplus locker.  The EA’s, aides and Navy Hospital Corpsmen (in case someone had a heart attack after seeing the numbers) were standing wherever there was room.  Of course, being the junior Three Star, I had the honor of sitting right next to the projector….hot air blowing in my face and the fan so loud I could not hear what was being said (I always suspected they put me there to break me down so that I would agree to anything just to get out of the room!).  Nonetheless, I felt pretty good.  After all, I was BIG!  I had the $130 Billion checkbook……and I was sitting at the table!!!DoD Chart=

Then the first slide went up.  There was a collective groan when all eyes focused on the very small, 8-point numbers at the bottom right of the first slide:” 1 of 1329.” I remember the N4 leaning over to me and whispering YGTBSM!  “Maybe we’ll just zip right through them,” I naively said.  ” After all, if we look at each slide for just 10 seconds it will only take three hours and forty-seven minutes.”  Around 11 AM, I realized just how wrong I was as I heard the presenter say, “Next Slide” and my eyes were drawn to the lower right side of the slide—“6 of 1329.”  I did a quick calculation (after all, I used to be King of Ops Analysis for the Navy) and realized that at this pace it would take roughly a month to get through all the slides (not counting breaks).  What were they thinking?  How did they possible hope to get through all those slides? By the way, there were over 4000 back-up slides, just in case one of the 1329 didn’t cover all the bases.

That’s why over the years I’ve relied less and less on Power Point and more and more on one, well-designed visual aid whenever I have an important presentation to make (Don’t pay any attention to those PP presentations on my web site.  They don’t really exist). I am one of the original Power Point Rangers.  I remember when the presentation software suite of choice was Harvard Graphics (Whatever happened to HG?). As a newly-minted action officer on the Joint Staff I was sent to a one week course on the new software in use on the Joint Staff….Power Point.  It was certainly a step up from HG, but like all IT improvements, the Bosses expected miracles and demanded more and more sophistication.  Back then, in order to make a PP slide you had to first make it on the “Wang Computer”, then print it out on the ONE color printer in the Joint Staff on special, clear acetate sheets.  They were forever sticking to the hot parts of the printer and in general a pain to work with.  Once you got all that done, you still needed to tape the sheet to a cardboard holder that you could slap on the overhead projector.  My office was just down the passageway from the Tank (where the Joint Chiefs met) and our boss was always changing the slides at the last minute.  So I can remember a “bucket brigade” of PP slides moving from the office to the backdoor of the Tank just as the Boss was saying “Next Slide.”  No wonder I hate Power Point.

Of course, nowadays it’s a piece of cake.. Hook up the laptop and off you go!  Except there are always the inevitable “What button do I press?”, “Which way do I point this thing?”, “Can someone find my slides?” questions that the briefers always wind up asking.  (this is where your audience checks out and begins to check e-mail, write the grocery list, and go to the bathroom) So I’m not sure we are that much better of now than back in the day!  I guess my point is why detract from your presentation with slides and all the hiccups that come with them?  Pick one good  visual aid and go with it.  Give people copies of slides (best done after your brief) but don’t rely on them.

But, sadly, “we will always have Power Point “(apologies to Bogart), so I thought I would put out a few “Points about Power Point” (Damn, I’m clever!)

  • Keep them simple.  Pictures and graphs are best.  Use few words.  Remember people will be reading the slides and not listening to you if there are words on the them.
  • Make sure the words are spelled correctly.  Most Admirals and Generals spend more time checking the spelling on slides than either reading what the words say or listening to you. One misspelling and you are labeled an Idiot For Life and all future slides are null and void!
  • Have a time budget for your slides.  It’s hard to spend less than 5 minutes on a slide.  If you have to spend less that that, then you probably don’t need it.
  • DON”T READ THE SLIDES!! Guess what?  Everyone in the room can read.
  • Speaking of reading, make sure the material on the slide is large enough that it can be seen in the back.  I hate it when someone flashes up a slide with a 50 element spreadsheet and says, ” You probably can’t see this, but……..”  Why waste my time with something I can’t see?
  • Don’t read the slides!! (Did I already say that?  It’s worth repeating…..Don’t read the slides)
  • Don’t use Power Point.  I have found that speaking from a placemat-sized piece of card stock is far more effective that using slides.  Put the things you want your target to know on the placemat.  Force them to look at you and to listen to you by having nothing else for them to do.  If you need Power Point slides to be effective, look for another line of work.

OK.  Hope this helps.  Remember the source… A professional and seasoned Power Point Ranger, and someone who had suffered though more bad PP briefs than Carter has pills.

Oh Yeah, one final point: Don’t Read The Slides!

 

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Command Performance

I attended a two day session put on by The Performance Institute and Association of Government Accountants this week on the subject of performance management in government.  It was a great session ( and I managed to knock out 14 CPEs) with some interesting insights on measuring performance in Federal, State and Local agencies.  We heard from David Walker (former Comptroller General), Mark Reger (Acting Comptroller at OMB), Lisa Danzig (Associate Director for Personnel and Performance at OMB) and a host of other performance gurus.  I came away thinking that although there has been a lot of progress made in measuring performance of agencies, we probably still have along way to go.

So what performance is being measured?  Is it the performance of the organization or the performance of its people.  I suppose one could say it’s both.  Most of the conference was focused on the performance of the organization as far as I could tell.  As you might think, some organizations are more easily measured than others.  Take US Patent and Trademark Office for example.  It’s fairly easy to put into place metrics that not only are easily measured, but reflect the actual performance of the organization…..number of patents issued, length of time to issue, etc.  But other organizations are not so easy.. Take DoD for example.  So what do we measure to evaluate the performance of the Defense Department?  Here’s a possible list:

  • Number of wars won
  • Casualty exchange rates
  • Ratio of  of wars deterred/wars fought
  • Number of Humanitarian Responses and lives saved
  • Number of successful defenses of the Homeland
  • Numbers of allies gained vs. lost
  • Number of states which have a military base

The list could go on and on.  The problem is none of these things can be easily measured. So the Department must use metrics which are all about input, not output.

  • Topline Budget number
  • Amount of allocated budget spent
  • Numbers of ships, airplanes, vehicles purchased
  • Number of people
  • Number of audited financial statements
  • Amount of money allocated to anything

In the Navy, we were pretty good at the input part.  I had all sorts of models to help me figure out how much money I needed to ask for…Flying Hour Model, Steaming Day Model, Installation Service Level Model, etc.   But none of the models actually reflected reality.  We never went back to check and see if we modeled for 26 flying hours per month per pilot, that they actually flew 26 hours per month.  In fact, we discovered that instead of relying on a hugely complex flying hour model for the budget, in the end it’s just as simple as multiplying the number of airplanes in the inventory by average flight hour per model the previous year.  In the end it didn’t matter how many pilots we had, you could only get so many hours with a fixed number of airplanes.  The Chief of Naval Operations frequently uses number of ships deployed, number of sailors deployed and percentage of the fleet deployed as a metric.  Here’s a link to the current data.

A few years back, then Secretary Rumsfeld tried to put a pay for performance-based personnel evaluation system in place….the National Security Personnel System.  In the end, it failed because we were horrible at trying to link what Pentagon workers did to measurable performance criteria.  This turned out to be an impossible task.  How do you  measure the performance of a budget analyst, for example? Do you link the funding level given by Congress to the analyst’s work?  If his or her particular program is cancelled does that mean they failed?  The truth is most in the Pentagon work their tails off, but on things over which they have little or no control.  I remember the classic example of why the system was flawed.  The dialogue went something like this:

Boss: Joe, you just won a performance bonus of $10,000.  Tell us what you did to earn it.

Joe:  I was in charge of  XYZ grants to the field.  The goal was to deliver grants to the field elements by July 1st.  In the last 6 years the best we have ever been able to do is get them out by July 15th.  I set a goal this year to get them out by June 15th.  In fact, we got them out on June 10th, not only 5 days earlier that the goal, but almost a month better than we’ve ever been able to do.  For that I got the big bonus.

Boss:  That’s great work.  What did you do that made the difference.

Joe: Nothing,  In fact, the dates we get the grants out is solely dependent on when the Congress gives us the money.  This year we got it early! Thanks for the bonus!

The moral of this story is make sure that  your people have clear goals and that they are measured on things that they can control.  NSPS was a good idea.  Who can criticize paying people for performance?  The problem is in figuring out exactly what people do and how to measure it. Performance management is a great tool, but only to the extent that you can measure performance.  Think about the people who work for you.  What do they do all day?  Who uses their outputs?  Where do they really make a difference?  Set up your metrics around those questions and you will be well on the way to having an effective performance management system.

One Final Thought

Don’t let your infatuation with metrics become so great that you lose sight of your outputs or mission.  In the case of the VA it appears that people were so focused on making the metrics look good that they forgot why they exist…..to serve Veterans. People do funny and unpredictable things when they perceive their jobs are at risk.  In this case, people were tweaking something over which they had no control.  They would have been heroes had they pointed out that wait times at VA hospitals are not meeting the metrics, instead they are zeros for putting self above service to our Veterans.  Time for a change at VA!

 

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