PP-BEGone

I guess it’s that time of year when one must talk about all things budget. And since I am only a small gnu within the herd, I too will opine on the obvious. Several thoughts came to mind as I was reading some of the commentary on the budget. It’s always fun to read the DoD press releases and to see the latest spin. How well-educated and experienced people can say some of this stuff with a straight face is a mystery to me. Take the DoD article on its press site today, “Budget Request Balances Today’s Needs Against Tomorrow’s Threats.” The article is a summary of a press conference held by DoD Comptroller, Mike McCord. I love his characterization of the budget: “although planners were aware of financial constraints, the budget is a strategy-driven construct.” Translation–we ignored the budget caps. As an aside, you all know how I hate the way the Pentagon takes common words and complicates them…like “construct“. Don’t they mean plan? I confess that I used to be as bad as the next Pentagonian in inflating words to add an air of sophistication and deep-thoughtedness to them. The “construct” word stands out in my mind because I used it one day while briefing the Chairman of the House Armed Services Committee, Ike Skelton. He stopped me and asked, “What the heck does that mean…construct’? I replied, ” Well, you know…the product of the assimilation of a multitude of facts and non-facts into a non-coherent stream of pseudo-strategy designed to defend an un-defendable position.” Mr. Skelton replied,” Just say plan. Don’t make it so complicated with strange words.” AMEN…..And after that, I tried to avoid Pentagonisms like the plague.

Once again this budget side-steps many of the large issues, like the runaway Joint Strike Fighter budget and focuses in on the marginal stuff…TRICARE rate hikes, cutting Commissary hours, as well as proposing the impossible…base closure, A-10 retirement and the like.

But that’s not the subject of today’s blog, so I will move on from that unpleasantness…….Today’s topic is about HOW the Pentagon arrives at its budget. Of course, it’s fairly common knowledge to this audience that it uses the Planning, Programming Budgeting and Execution (PPBE) system.

A very regimented (or so it used to be) process with a clearly and elegantly articulated set of roles, rules, responsibilities, and schedules. Here is a link to a very well written Army War College paper by LTC Thomas T. Frazier on the history of PPBE system (originally PPBS). Here’s the Cliff Notes version. PPBS was instituted by Secretary of Defense Robert McNamara in the early 60’s because his opinion what that there was no clear process of deciding what to fund and how much to fund. Here is a link to my presentation on how the PPBE system works. Over the last few years the process has morphed from the nice neat process because of Continuing Resolutions, shutdowns, furloughs, war and all manner other issue. Anyway, Secretary McNamara felt that the Pentagon budget process was really one of Incrementalism…just adding more money each year with little thought of where it was going. Interestingly, the things which drove the change came down to six flaws in 1961:

Budget decisions were largely independent of plans
Duplication of effort among the Services
Service budgets prepared largely independent of one another with little balancing across Services
Services felt they were entitled to a fixed share of the budget, regardless of contribution to overall defense needs
The budget process focused on next year, with little regard for future impacts
Little analysis behind the numbers

Sound familiar? I submit that all of these factors exist today to some degree or another, perhaps for different reasons than in 1961, but they exist nonetheless. That’s why I think it’s time for a serious discussion about changing the process. Over the past half-century we have fallen back into some very bad habits. They were good reasons for change then, and equally good for change now.

Many would say today’s budgets are very independent of plans. Despite the efforts of the 24,000 or so Pentagon workers, in the end the budgets are determined in large measure by political decisions. I note that the elegant planning process in the Pentagon has recommended decommissioning the A-10, laying up Aegis Cruisers, another round of BRAC, and on and on. These proposals were developed by thousands of planners chewing up millions of man hours, yet the analysis is ignored by the Congress. As the Navy’s N8 I came to the conclusion that at any given moment probably 90% of the people in the Pentagon are working on some part of the budget. But to what ends? At the end of the day, the budget never changes more than about 1% -1.5%, despite the hundreds of thousands of man hours devoted to changing it? Why bother? Given there is so little change, why not stop all the madness of millions of minor budget data base changes which in the end have less than a 1% impact? We could get by with half the people in the Pentagon and let them do something more constructive.

There’s no doubt that we have still to tackle the duplication of effort issue. We still have an unexplainable excess of tactical aircraft in the Air Force, Navy and Marine Corps because no one is willing to give the mission up. Look how much money that one is costing us in the guise of the JSF.

With regard to independent budget development by the Services, that’s still a problem too. How often do you think Air Force budgeteers sit down with the Navy guys to go over their current budget plans…Answer: never…It’s not until OSD gets the budgets that the Services find out what each is really up to. Heck, the Marines don’t share much of their budget with the Navy until end-game, and they are in the same Department!

The one-third rule ( every Service is entitled to roughly a third of the DoD budget) is still alive and well in the Pentagon. But because of the growth of the Fourth Estate (DoD agencies and combatant commands according to SECDEF nominee Ash Carter) the pie has been further divided. It’s almost the one-fourth rule now. What’s up with that? The process will never work if one assumes equal shares for all.

As far as budgets being focused on one year, despite the best efforts of DoD to lay in a 5 year plan, it is essentially redone every year. I used to submit the Navy’s 30 Year Shipbuilding plan almost every year with major changes. What kind of long-range plan is that? The truth is that with the way we fight the budget wars from year to year, coupled with the inability of the Congress to regularly and reliably pass funding and authorization legislation, DoD has no choice but to focus on one year. It has become so challenging to execute the budget and build several (the base budget, the sequester budget, the President’s budget, Overseas Contingency Ops budget) that it is impossible to focus on later years.

Perhaps the bright spot is the improvement in the department’s analytical capabilities. We certainly have a world class capability, which produces fantastic analysis. The problem is that it is sometimes ignored by those that matter..either in the Pentagon or on the Hill. To be fair, I should say the analysis is selectively ignored. If the analysis supports your program, it’s cited again and again. If it doesn’t, then one has to play the “experience” or “uncertainty” card. You have all heard that argument: “It’s an uncertain and dangerous world and the analysis does not adequately take that into account. We must rely on our experience and intuition.”

Of course, the PPBE is only one way in which the DoD manages its money. A few years back I gave a presentation on “How DoD Manages Money” in which I cited the following techniques:

Management by topline
Management using the “More Money” rule
Management by appropriation
Management by Service
Management by rice bowls
Management using the 1/3 Rule
Management by congressional district
Management by PPBE

It’s too complicated to explain here, but check out the presentation. Even though it was done in 2009, I think it’s relevant today.

So that’s my rail of the day. We need to change the PPBE. I don’t know how. I am not that smart. Maybe some smart combination of the above management systems… I do know that the same reasons we decided to re-twicker the DoD budget process in 1961 exist today. We should convene a group of smart folks (and not just old fogies like me who got us into this mess in the first place) to consider how to develop a process which eliminates the 1961 reasons. It’s time for some new and innovative thinking, done by all interested parties (Congress, DoD, Administration) on how to fix the problem.

August 19, 2014August 19, 2014

The Devil is in the DoD-tails

A few weeks ago, Secretary of Defense Hagel published his list of six focus areas for the coming year. Here’s his list: focus

Focus on institutional reform.
Re-evaluate our military’s force planning construct.
Prepare for a prolonged military readiness challenge.
Protecting investments in emerging military capabilities
Achieve balance
Personnel and compensation policy

Really? That’s what he’s focusing on? You probably haven’t heard much about this list because it is sooooo uninspiring. If this isn’t bureaucratic gobbledygook, I don’t know what is. Do you think these are his real priorities, or just the same type of feel-good rhetoric that his staff regularly generates. Ask yourself what the really big issues facing the DoD today are and see if this list scratches the itch. Let’s look at the priorities:

Focus on institutional reform. The subheadings under this priority are reform and reshape our entire defense enterprise, direct more resources to military readiness and capabilities, and make organizations flatter and more responsive. So what are the metrics to use to determine is progress is bring made? As far as I can tell, this focus area should be part of the regular drumbeat of DoD, not some special focus area, implying that we will look at it, fix it and move on. Does he serious think that he is going to reshape the entire defense enterprise? Into what? And does he really mean to direct more resources into readiness, or just cut spending in other areas, only so they can become focus area next year? This one just leaves me uninspired and wondering exactly what we are reforming?

Re-evaluate our military’s force planning construct. This one includes the classic example of Pentagon-speak, namely force planning construct. In the interest of clarity, I believe he means develop a different way to decide how big the Army, Navy, Air Force and Marine Corps needs to be. “Challenge assumptions” is a key part of this focus area. When have you not been to some type of business course where they didn’t say “Challenge the Assumptions?” Exactly what assumptions will we be challenging, who will challenge them and by what process will we evaluate the accuracy and efficacy of the assumptions? In my experience, DoD did a pretty good job translating the National Security Strategy into what wars and other missions we were supposed to be prepared for, turning that into war plans and then figuring out how many forces we needed to execute the plans. The problem was always with the front end in defining what the military would be expected to do. It always turned out to be too expensive. When I first started paying attention to the war fighting expectations I was a policy wonk on the Joint Staff. Back then we were supposed to fight and win two wars simultaneously. That proved so expensive that we had to change it to win one war, while holding our own in another, swinging forces to the the second war once we triumphed in the first. That, too, became too expensive, so we changed to win two wars, but one of them would be the war on terror. Frankly, I’m just not sure what the overarching strategy is these days, but I think it can be found in the 2014 QDR (see QDArghhhhhh). This is what it says: “U.S. forces could defeat a regional adversary in a large-scale multi-phased campaign, and deny the objectives of – or impose unacceptable costs on – another aggressor in another region,” whatever that means.

Prepare for a prolonged military readiness challenge. This is Pentagon-speak for figure out how to do more with less.

Protecting investments in emerging military capabilities. Not sure why this requires the continued focus of SECDEF. Can’t he just say make sure we have enough money in R&D accounts? By the way, here is where the grand plan is not to spend more DoD dollars in R&D, but push off the expense of R&D to industry. That’s not going to work as long as DoD keeps putting pressure on industry to lower profit margins…..Let’s see. I’m a Captain of industry; What’s my priority for where to put the profits I make? 1) Shareholders, 2) capital improvements, 3)cash reserves, 4) corporate jet 5)R&D. Hmmmmm what am I going to cut first when my profits drop????

Achieve balance I guess this is the old “tooth-to-tail” argument that Secretary Rumsfeld was fond of. How much redundancy do we need? How much forcible entry capability do we need? HOw many forces do we station overseas? How many fighters do we need and who gets them? and on and on. We’ve tried this before and the Services resisted any balancing initiatives that left them with less.

Personnel and compensation policy The crux of this priority is to figure out how to have a world-class military force while implementing the lowest price, technically acceptable personnel and compensation schemes. That hasn’t worked so well in the acquisition world and I doubt it will work any better as a personnel policy. This is one I agree that’s needed, but not in its current fashion.

None of these priorities are necessarily bad or wrong, but they are lacking the detail necessary to figure out if they will really make a difference. Is there someone tracking these priorities and providing monthly updates on progress. None of these items are terribly original either. We have all heard these things time and time again. I can remember tackling the issue of balance way back in 1990 with the AC/RC study done by the Joint Staff. I would rather see a list of 5 really vexing issues facing the department and put a concentrated effort into fixing them. The current list has no sense of urgency and just seems like business as usual to me. They are so big, just about everything winds up in a focus area. Why not focus on specific issues?

“OK, Smart guy. What would your priorities be?” you are asking. Here is my list:

Make JSF affordable (It’s costing us big time and we will never cut it!)
Rightsize the force, paying attention to Army and Marine Corps (Admit that they are both too big and fix it and stop worrying about hurting feelings)
Develop a sustainable personnel compensation and benefits system by 2017(put together a comprehensive package and stop focusing on the margins)
Accelerate and complete Service transition to ERPs, institute direct treasury disbursement and eliminate DFAS (It’s the 21st Century! Why doesn’t DoD join it with the rest of us?)
Eliminate Department dependence on OCO by 2017. (said another way, produce one budget……..incorporate sequestration and stop pounding people into the dirt developing budgets which are dead on arrival)

March 11, 2014March 11, 2014

Risky Business

After getting wrapped around the axle yesterday on the tried and true budget method of “Salami Slicing” I never got around to opining on risk, so here goes! During much of my early career, risk didn’t enter into my decision making process, at least not consciously. Of course, flying from aircraft carriers is all about risk and how to manage it, but risk management is already baked in. The “powers that be” know that if you have a certain number of practice landings, maintain technical currency in your aircraft and fly regularly, the risk of an accident is minimized. Over the years I’ve seen the Navy’s thinking about risk mature. The time was, when one went on deployment, you could expect to lose a couple of airplanes and several aviators in a typical 6-7 month cruise. Because of a focus on managing risk, the loss of a single aircraft or crew member is a rarity. (keep that thought in mind). On a personal level, as one moves up the leadership ladder, the onus for managing risk shifts from the institution to the individual leader. My opinion is that one of the reasons people become effective leaders is that they concentrate on minimizing risk to the people and equipment under their command, not on minimizing personal risk to their themselves (careers). Of course, there’s always a healthy tension between accomplishing the mission and minimizing the risks associated with it. Safety is paramount!!! But if safety were really paramount, we would never fly, because it’s a dangerous business! That’s where leaders earn their pay—making the trade off between risk and reward. In the Navy, it’s interesting to see how the various warfare communities manage risks. In the Surface Navy, the decisions on risk rest principally with the Commanding Officer. The CO does this by being intimately involved in planning and executing the training, day-to-day operations and mission execution of the ship. The CO has the Officer of the Deck and his Tactical Action Officer to do the minute-by-minute execution, but the CO is always available for problems as they arrive. An aviation CO has to worry about many of the same things at the surface CO, but must depend on his crews to exercise judgment when hundreds of miles away for the ship. Hopefully the aviation CO has instilled a good sense of risk management in the aircrews when they have to make risk decisions without his/her advice.

The point of my little blurb is to highlight that operationally, commanders do a great job of managing mission accomplishment and risk so that mission is maximized and risk is mitigated, minimized or eliminated. Fast forward to the Pentagon. Now those commanders who were so good at minimizing operational risk must deal with a new risk, budget execution risk, or said another way, “What are the chances that this program will be successful, given the level of funding?” I was one of those commanders. As an operational commander, I insisted on making sure all risks associated with a mission had been considered and mitigated…….no less than about 98% chance of safe success was tolerated. But when it came to taking risks associated with the Navy budget, I was far more tolerant. For instance, “What’s the chance that an LCS will only cost $220 Million?”, I would ask the Program Manager. When the answer came back,”About 20%”, I would say, “OK. Guess we will have to go with that.” Why was my risk tolerance so much greater as a budgeteer? Most likely it was because most of the decisions affected events far in the future and I would not be around when programs matured. That attitude was reinforced by the excessive optimism that always goes with budget building. This notion of budgetary risk is not new nor mine.

Former CNO Vern Clark once asked me as the N81 (Navy’s Ops Research group) if we could characterize the risk built into the budget and it was a very hard thing to do. I don’t remember all the details but as I recall we came up with several categories of risk:

Institutional Risk. The degree of support by leadership of a particular program.
Execution Risk. The degree to which a program was underfunded
Political Risk. The degree to which this program was supported by the Administration or Congress
Financial Risk. The degree to which the assumed efficiencies built into the budget were achieved
Economic Risk. the degree to which the economy would support the Five Year Defense Plan

Some of these risks were subjective and others data-based. The aggregation of them would give the CNO an idea of how much risk was being carried by a particular program. Financial risk was the most interesting of the four. It turned out we discovered that we had assumed away tens of Billions of dollars in efficiencies, but never went back to see if we achieved the saving associated with the efficiencies. In a sense, it didn’t matter because once we take the money, it is never put back. I’ll end up by saying the FY15 budget on the Hill now has a fair chunk of “Efficiencies” in it. Will they be achieved? What exactly is being done to put these efficiencies in place? How will you know if the efficiencies were achieved and what will you do if they are not? Are these efficiencies or wedges (unexplained cuts)? These are the questions the Hill should be asking the risk-takers in the Pentagon.

March 10, 2014March 10, 2014

The DoD Budget Deli: One Slice of Salami, Please.

There were several good articles in the papers regarding the DoD budget over the weekend. The Washington Post had a good one that provided a pretty good summary. As an old Intruder guy I have to point out that the article notes the cancellation of the A6 Intruder, with a nifty link to some information on the Venerable Intruder. It’s not often one gets to scoop the vast reporting resources of the WaPo so here goes:
Dear WaPo Editorial Board,

The Intruder was retired on 28 February 1997 and most of them are either in an underwater reef of the coast of St. Augustine (known as Intruder Reef), collecting dust at Davis-Monthan AFB or residing on a stick at some NAS front gate. It is hard to believe you confused the handsome, sleek Intruder with the Warthog, but to ensure future OpEds are factually accurate, I offer my services (at the standard rate!).

OK, that’s off my chest! Back to the 21st Century. The Post article was entitled “A Defense Budget Based on Hope” and outlines some disconnects between rhetoric and reality. As those of you non-military folks who read my musing know: Hope is not a strategy, and that is just as true in the budget world as it is in the tactical world. To be sure the building of the DoD budget is a complex spider web of interconnecting elements, each of which is generally independent of most others. Each element is likely to have an evangelist associated with it (Congress, Combatant Commander, Contractor, Administration, Special Interest Group, Service Chief or Secretary, etc.) and each evangelist has some varying degree of veto power. Most decisions, especially the big ones, require consensus, so you can imagine how difficult it is to make cuts to any one program. That’s why the preferred method of budget cutting is the tried and true salami slice. By the way, sequestration was just a salami slice, albeit a big one. One of DoD’s points when countering sequestration was they weren’t allowed to make the decisions. I contend that even if Congress had just handed DoD an undefined cut, given the decision making rules, in the end, DoD would have sliced the salami, just in a different way. It’s the only thing that works because the “salami slice” method requires no accountability, affects all programs equally, doesn’t usually kill anything and makes all equally unhappy. The art to surviving “Salami Slice” budgeting is to demonstrate that your program is so critical to national defense that it should be exempted (usually personnel, health care, etc). In the Navy, these were described as “Flagship Programs.” Not only were Flagship Programs exempt from cuts, you generally had to plus them up. Of course, all exemptions do is off-load a larger part of the bill to those programs who were not smart enough to come up with a reason for exemption.

As one of the old Dinosaurs, I was accused of always reverting back to the Salami Slice, despite the well-meaning intentions of all to make the budget process all about informed choices, analysis and supporting the strategy. I tried but failed. In the end the people who cried loudest about being allowed to make choices were unable to do so. As the Head Miller of the Budget Grist Mill, I was required to grind whatever grist the mill required to submit the budget on-time (which is no longer apparently the case). That required a trip to the deli, slicing the salami and living with unhappy people ever after. All in a day’s work. Bob’s your uncle. That’s that!!!!!!!

By the way, this isn’t what I wanted to write about today, but I got lost in the salami thing, so bear with me. Tomorrow’s topic: Budget Risk and How I Learned to Love It.

March 6, 2014March 11, 2014

Was the QDR Written by a Presbyterian?

I commented last week on my expectations concerning the QDR and I wasn’t disappointed when I got around to reading it yesterday. After reading it through a couple of times (available here), I was still pretty much confused about what it was trying to say. And it didn’t look much like a strategy document to me…mostly filled with budget numbers and reasons why we couldn’t do this or that because of it. In the end, it’s definitely a document very much “informed” by the realities of the budget. I came away with the impression that it was less about strategy and more about money, especially given the frequent references to budget woes. I stand by my comments in the recent Q•D•Arrggghh article about the difference between “constrained” and “informed. I can’t tell the difference, nor apparently, can the authors of this tome. It was pretty much more of the same from the last QDR…….nothing jumped out at me.

For fun, I wrote down a few of “Pentagonisms” from the Executive Summary which I thought I would share along with a short definition in normal-speak:

New Presence Paradigm: Overseas Bases
Hybrid Contingencies: Kludges
Proxy Groups: Terrorists
Dynamic Environment: The Real World
Asymmetric Approaches: More with less
Rebalance Tooth-to-Tail: Cut contractors
Win Decisively: Win
Rebalance: Cut
“Opportunity, Growth, and Security” Initiative: Slush Fund
Innovation: Not in DoD dictionary
Multi-lateral Security Architecture: Treaty
Force Planning Construct: Size
Efficiencies: Negative Budget Wedges

Well, I grow weary of writing them down. I’ll say one thing for the document….It’s a Presbyterian minister’s dream. Presbyterians are well know for their penchant for ORDER, ORDER, ORDER!!!! Sermons are typically organized into three points with two or more sub-points and a healthy dose of references to Bonhoeffer and Kierkegaard. My favorite Kierkegaard quote is “People demand freedom of speech as a compensation for freedom of thought, which they seldom use.” As I read through it, I was trying to capture the taxonomy of thought. Let’s see, we have 3 Strategic Pillars, 4 Core National Interests, 4 Strategic Imperatives, 3 Areas of Risk, etc. And they are all interrelated and interdependent! I can’t keep it all straight.

Anyway, the QDR is out and we can all tune back into Duck Dynasty, The Voice, or whatever other twisted view of reality you may retreat into every night. And why is all this Energy stuff in there? Since when is the DoD the EPA? (Sorry for the random comment but I just had to get it of my chest!) Perhaps the best part of the whole schmegegge is the Chairman’s Assessment at the end. At least he puts out a list to which I can relate. In the end what does it all mean and what are our real priorities? According to the plain language of General Dempsey:

The survival of the Nation
The prevention of catastrophic attack against U.S. territory
The security of the global economic system
The security, confidence, and reliability of our allies
The protection of American citizens abroad
The preservation and extension of universal values.

AMEN

(Why didn’t we say that in the beginning and omit the other 63 pages?)

February 14, 2014February 14, 2014

Q•D•arrrrrrgh!

I saw a nice article in Politico’s Morning Defense this morning about the upcoming DoD Quadrennial Defense Review, commonly referred to as the QDR. I fondly remember my days in the Pentagon wrestling with the QDR gurus, the best and brightest thinkers of all the Services, getting together to figure out how their Service was going to get more money. The knives were out as the behind-the-scenes point papers on the vulnerability of aircraft carriers, the shear madness of fleets of supersonic, stealth airplanes, and the end of the need for “Boots on the Ground” proliferated like rabbits in a viagra factory. I suppose it was a useful exercise because it is good to sit back and evaluate future threats and the capabilities needed to counter them. The QDR overseen by Secretary Gates was a bit different in that the QDR was essentially written before the whole process began. The result was a QDR which didn’t make too much of a wake, maintained the status quo for the most part, and kept most everybody happy. For those interested in the upcoming QDR issues I recommend an outstanding report by CSIS on the results of a recent conference on the subject.

I predict this next QDR is likely to be more of the same. The biggest reason is that while the QDR is not supposed to be constrained by budgets and the taxpayers ability to continue to fund DoD at ever increasing levels, it is impossible to de-link strategy and money. The cute buzz word which gets around this issue is “informed.” We say that while the QDR is not budget constrained, it is “informed” by it. Informed is one of those words or phrases I call Pentagonisms. They emerge from time to time in an attempt to “be truthful without telling the truth.” Those of you who have spent anytime in the Pentagon can probably come up with several Pentagonisms. Some that come to mind are robust, littoral,operationalize, detainees, etc. There is a nice article by Kate Bateman in USNI Proceedings on this subject that I commend to your reading.

Back to QDR. The big debate is rather or not to be constrained by budgets. I’m not quite sure what difference there is between a QDR that “fiscally informed” and one that’s constrained by budgets. It’s all the same in my book. DoD should admit that and get on with it. But in developing a strategy that is either “constrained” or “informed” by budgetary realities, DoD must be careful to not develop a strategy against an unconstrained future. By that I mean that there has to be a dose of reality in the vision of the future security environment. There is a tendency to make the enemy ten feet tall, to give more credit than is due and generally overestimate the threat. Given the uncertainty of the future, that’s understandable and perhaps even necessary in some cases. But the Congress and American public should realize that in many cases our strategy is based on the worst case scenario. That’s good business in some areas, cyber security of instance, but not in all areas. In order to make the budgetary compromises necessary to adequately defend America there must be some wiggle room. If everything is important and absolutely critical to national defense how can one make compromises? So I hope the QDR avoids the end-fighting and back biting of past QDRs and focuses on a realistic threat environment with capabilities best suited to meet the threats. Given the past history however, I can’t help but thinking…… Q•D• arrrgh. I’ll be glad when it’s over!