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.

December 12, 2014December 12, 2014

Premade Decisions: Why Bother?

I have written about the Navy’s Littoral Combat Ship kerfuffle before. The recent “non-decision” by outgoing SECDEF Hagel concerning the fate of the LCS fleet has prompted me to write again on the subject. For those you you who haven’t followed this “crisis of our own making,” my previous musing, Rethinking LCS, provides some background which I will not repeat here. But I know it’s a hassle to click on the link, so here’s the Cliff Notes version:

LCS concept was for affordable, brown water vessel with modular capabilities to fulfill the presence mission in key locations around the globe.
LCS modular concept meant that not all missions could be done at once, keeping costs lower and enhancing adaptability for new missions.
LCS was not designed as a front-line warship, bristling with armament, but was configured to protect itself in most likely operating areas.
Navy bought two designs, hoping to down-select, but alas, since the only decisions that are generally (or admirably, if you prefer in this case) made in the Pentagon are pre-decided, the decision was made to not decide and buy both forever.
Elements in DoD leadership decided LCS didn’t have enough firepower and was vulnerable and directed the Navy to explore alternatives.
Navy commissioned a big study to scratch the OSD itch.
All breathlessly awaited the Uber-SECRET study results, knowing the Unter-SECRET answer: Navy can’t afford anything else…….(shhhhhhhh don’t tell anyone!!!!!!)

Screen-Shot-2014-12-11-at-4.08.53-PM

I found these slides in an article by the US Naval Institute and they are attributed to the US Navy, however I couldn’t find them on the Navy website.

So that brings us to the big pre-made decision by SECDEF, after consulting, conferring and otherwise hobnobbing with the Pentagon cognoscenti. (Who are the cognoscenti you ask? Read SECDEF’s statement and find out.) And the decision was:

Drum Roll Please

……stay with two LCS designs, bump them up a bit (maybe $53 or $61 Mil or so) and move on. I think the only one surprised by the answer may have been SECDEF himself! Otherwise, why bother? I shudder to think about the amount of money and time spent on this study which had only one answer. I haven’t seen the actual study, but from what I’ve read about it, no stone was left unturned (apparently 192 stones to be exact). Option after option considered, analyzed, pondered, etc……..by those who already knew there was only one answer……we can’t afford anything else, nor can we afford the time required to start the acquisition process all over again. The answer was pre-decided. My guess is most of the changes announced would have been made anyway.

These pre-decided decisions are common in the Pentagon, but all too often staffs are forced to do the kabuki dance to give an air of legitimacy to them. Those in disagreement get to say their peace and then dismissed as “having an input”, even though no one was really listening. I recall this vividly while working on budget end-game around the 2006 timeframe. The Service programmers (three star resource folks) would be herded down to OSD about an hour before SECDEF was to receive a decision briefing on an issue, shown the slides prepared for him and then dismissed. I barely had enough time to run back to the Vice Chief to brief him on what I had seen, let alone provide him with any analysis of what OSD had pre-decided. Of course, if the Vice Chief were to raise an objection during the SECDEF briefing, the OSD Poobahs would announce,” Your folks have seen this and nothing was said.”

The point of this little tirade is that we waste money on these types of exercises all the time. I think about all the good we could have done for our wounded warriors with the money we wasted on this study. I think about all the time consumed by some very smart people who could have been working on something really important…how to deal with sequestration, how to keep the technological edge, how to fix our broken nuclear infrastructure…and any number of other problems.

Why does the Pentagon continue to do this? I suggest it’s because they have an endless supply of people and money. No one pays for people, they just have them. No one has to justify the cost of doing such a study because cost is not an issue. If I had done that in my civilian P&L life, I would have been shown the door. I had to spend my money and time on things that mattered and contributed to the bottom line. Since there’s no bottom line at DoD, everything tends to become equally important. Once on the Joint Staff I remember a staff briefing one day when the two topics discussed were the reduction of the nuclear arsenal by 50% and the Joint Staff savings bond campaign. We spent the same amount of time on each…in the end it was decided we should brief the Deputy Director daily on the savings bond campaign and as needed for the nuclear issue.

I think we need a study on studies.

September 4, 2014September 4, 2014

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:

It’s only the SBA, a very limited look into DoD finances.
No one uses the SBA to manage anything.
It only looks at one year…Past sins are ignored.
DFAS is still using plugs to balance the books.
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?).
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 😉

August 26, 2014August 26, 2014

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).

May 13, 2014May 13, 2014

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:

Business as usual. The politicians will fix it just like last time. (The Hope gambit and our current vector)
Force DoD to plan for Sequestration in 2016 and beyond. (The Defeatist gambit)
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………..

April 1, 2014July 21, 2014

Porsche or Maserati? What to Drive?

Let’s see…..What do I drive to work this morning? My Porsche or my Maserati? Gosh, it’s such a tough choice. When I read all the rhetoric coming out of the Pentagon theses days about the tough choices they are making over there, I tend to think that’s their definition of a “tough choice.” Maserati or Porche Granted they do make a few hard choices, but none of them are the budget choices they are making for the FY15 budget that’s on the Hill right now. They have so much money to deal with that the normal ways in which you or I would deal with problems is not possible. There are several reasons why I believe the tough choices are not possible. In fact, in the Pentagon the toughest choices are actually the easiest. Take for example the luxury of scale. Because of the vast quantity of money the Pentagon has, scale makes things easy. Let’s just say for the sake of argument that the total Pentagon budget for 2015 will be around $550 Billion. I’m working on the budget and I need to come up with $5oo million to pay for my “widget ” program because it’s two years behind schedule and Congressional support is waning. I dare not go to the Hill and ask for more money. What tough choices can I make? How about I assume the inflation rate for next year will be 0.1% less than it currently is….Guess what? Instant $550 Million in my pocket. Problem solved!

Another factor which prevents the tough decisions is the herd mentality. It’s much safer to stay with the herd than to break away. Suppose one senior leader in DoD, uniformed or civilian had said, “I value people over weapons. The margin of superiority that we enjoy over our adversaries is so great that I don’t mind shaving a few dollars off my massive budget to ensure I fulfill the promises we made to our Number One weapons system, our people.” What do you think would happen? That person would be dragged to the River Entrance and publicly flogged and made to walk the plank into the Pentagon Lagoon. So it’s much easier and safer to stay with the herd. The tough decision is to break away from the herd and stand on principle.

Yet another problem in the way of making tough decisions is the limited line of sight of senior people. They only know what their staffs want them to know. And if you have ever been a staffer, you know that staffs tend to seek out the solution of least resistance in order to move on to the next problem. Solving the problem is more important than how the problem was solved. If everyone tells SECDEF that the only way to balance the Pentagon budget is to make the tough choice to continue to fund (and actually add more money to) the worst performing acquisition program in history, the F-35, and to pull money from Commissaries, up TRICARE fees and fiddle around with the retirement system, he believes them. Somehow that seems like a no-brainer to me. A few billion dollars is not going to make a difference in the JSF. It’s already over $160 Billion over budget and 7 years behind schedule. Does anyone think the money saved by cutting Commissary subsidies by $1 Billion is really going to make a difference? Well, not to the JSF, but it will certainly make a difference to a young E-2 Marine who is already on food stamps and struggling to make ends meet!

There’s also the Irreversibility Principle. I saw this time and time again when I was in the building. In fact, I admit guilt in actually using the Irreversibility Principle to my advantage. It goes something like this: The DoD budget is so complex and large that once it’s put together, it’s impossible to start over. If you don’t get your oar in the water at the very beginning, then you will be unable to make a change. If you want to have any hope of making a tough decision with major impacts, it must be made very early. What do you think the DoD budget would look like if in the very beginning SECDEF had said, “Whatever we do to balance the budget, it must not be on the backs of our people.” I guarantee you there’s plenty of wiggle room to develop the budget without monkeying with people programs. Just take a look at my previous article, Food Stamps and Decisions, and you will see what other things might be done besides chopping people programs. The tough decision is to declare the Irreversibility Principle null and void and demand a change. Heck, there’s so much churn in the development of the budget these days a little more chaos isn’t going to make much of a difference.

Finally, there’s the Fixation problem. Ralph Waldo Emerson said ” A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.” For example, over the past few years there has been attempt after attempt to raise TRICARE fees again and again and again…(sorry , I got carried away!). Each time it’s shot down by the Congress and public opinion. But it’s their baby now, and to back down would admit defeat. There’s a “pay any price, bear any burden” mentality now associated with the TRICARE issue to the detriment of looking for alternate solutions. This is what happened with Asiana Airlines Flight 214. The pilots got so focused on the landing threshold and altitude they forgot to monitor airspeed and engine power. The same thing happens in the budget process. People get so focused on a single solution that they forget to look for others.

So it’s hard to make tough choices in the Pentagon. If there’s any hope of actually getting to the tough choices that NEED to be made, the following “Tough” decision barriers must be addressed:

Luxury of Scale
Herd Mentality
Limited Line of Sight
Irreversibility Principle
Fixation

How will we know when “tough” decisions are being made? I think there are a few signs:

Service budget allocations will no longer be roughly equal
Under and Poorly performing programs will be cancelled
Majority-based decisions are made instead of consensus decisions (In other words, someone is going to be unhappy, or at least more unhappy that the rest)
Decisions being made early in the process
The number of Decision Making bodies in DoD will decrease (let’s see, they have the Joint Chiefs, the JROC, the DAWG, the Small Group, the Large Group, the SCAMR, the DBC, ……….sigh!)

If the Five Barriers to tough decision making are removed, we just might see some of those signs in our lifetime.

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 28, 2014February 28, 2014

Stealth works in the Budget Too!

First thing: Yesterday’s blog on Shared Services fell flat on the website with only a handful of hits. I take it the world of Shared Services is not so hot on the list of “interesting” topics. But there’s still a lot of money to be saved there. In fact, I would contend that there’s a lot of money floating around in areas that most people don’t find so interesting. It’s the uninteresting that ironically is the most interesting in terms of budget cutting. They escape scrutiny during the year-to-year budget battles, floundering in cash. The big programs which matter, act like a Black Hole, sucking up more and more money with less and less light escaping. On the other side of the coin, the programs with marginal dollars become the darling of the Pentagon budget cutters. It’s ooh so easy to cut a Billion or so from the commissary subsidy program, but try and take $10 Million from the JSF and the fan starts getting hit with “not-so-nice stuff.” With leaders unwilling to take on the issues that really matter and foolishly focusing instead on the margins, I would suggest that they take a look at the “stealth” portions of the budget, those areas with relatively large dollars, but never targeted for cuts. Forcing agencies into a shared service environment is one of those areas. (There, I said it and I promise never to write another word on Shared Services!). When looking at these stealthy programs, there’s virtually no risk of offending a large defense corporation, a Congressman or Senator, or even another Service because they have no constituency. When I did the budget for the Navy I used to think that out of the $130 Billion or so under my control, every Million had a evangelist waiting in the wings to mount the pulpit and extoll the value of their million over the remaining 129,999 million.

How about the family of Defense Working Capital Funds (WCF) and Revolving Funds? These funds exist in the shadows, out of public scrutiny, but with lots of dollars associated with them. For those of you not familiar with working capital funds I suppose you could relate them to petty cash, or “Walking Around” money. It’s the corpus of operating cash the Department uses to pay bills day-to-day. Here’s a link to short list of many of the DoD funds and what’s in them. In simple terms, when Organization A provides a service or item to Organization B, it uses the WCF funds to pay their costs and they bill Organization B, using rates set at the beginning of the year. A takes money from the WCF and B pays it back (at least in theory). How much money is in these accounts you ask? North of $100 Billion…..Yep, that’s correct…$100 Billion!! That’s roughly 20 per cent of the budget. One of the reasons there’s so much money in these funds is the requirement to carry 7-10 days of cash on-hand. In this age of electronic accounting, ERPs and near-perfect connectivity I can’t for the life of me figure out why it has to be so much. Most of these WCFs have their own accounting systems (Darn! I said I wasn’t going to mention Shared Services again). To be fair, these funds are as close to being run like a commercial business as anything in DoD, and individually they are generally well managed. But there’s not a lot of cross-talk, the rates don’t generally reflect the real costs of good and services and they are sometimes used as a cash cow to buy just about anything.

So the next time you hear the DoD poobahs whining about the cost of benefits, people, etc., why not ask them about the Working Capital Funds and what they are doing to trim them back. I’ll bet you they will have to take that question for the record! Not in their scan because it’s stealthy money, they don’t understand how it works and would rather slash the margins because of their inability to slash the big ticket items.