There was an article in the news this morning that reminded of the days when I would go to the grocery store with the kids ( and now grandkids). It was a Defense News article on the White house pushing for higher DoD budget numbers- about $36 Billion higher than the sequester cap and just about in line with the Murray-Ryan budget deal. But they are also crafting at least $26 Billion in the “unfunded” wish list (See my previous comments about wish lists). It’s like getting to the checkout aisle at the grocery store with your kids in tow and they start picking up all the “kid-friendly” stuff strategically displayed there and explaining how they “NEED IT.” The stores know that you are more likely to give in when you are standing in line, with many other impatient shoppers behind you and have no time to deal with needy kids. As we know the President’s Budget is now in the checkout aisle, already overdue to Congress, but soon to be released in early March. And the “kids” are now trying to grab what they can before the groceries are scanned. What’s really interesting about this budget is that while they were in the shopping aisles, the Services (kids) and their parents (OSD) tried to put some of the stuff back on the shelf (an aircraft carrier battle group for example) but they weren’t allowed to do so by their grandparents (Congress). By the way, it’s always a bad idea to carry the grandparents along while shopping…We all know the kids get what they want when that happens, even if it’s not so good for them. A $26 Billion Wish List while standing in the checkout line is a pretty big pill to swallow. Logically one would assume that if it was really needed the Services would find a way to fund it, not wish for it, especially if they have received substantial relief from sequestration. So why the need for a list? Remember also that the $ 495 Billion budget request will be supplemented by another slug of $30 Billion or so to finance Afghanistan, so it can’t be for costs of war. It’s hard to imagine a wish list that nearly as large as the Supplemental request. I salute the DoD for attempting to make what they perceive to be “tough” decisions, but are they really the type of tough decisions that really need to be made? The article has a great quote from Gordon Adams, “You don’t take the pet rocks or big systems. It’s just not doable.” I agree with Gordon, but especially when the grandparents are along. By the way, when I was in charge of the Navy budget, it became obvious to me that in the end, everything turned out to be someone’s pet rock! I am not suggesting that the Congress should rubber stamp DoD budgets and blindly accept their funding requirements. One of our Nation’s fundamental founding principles is the civilian oversight of the military. What I am suggesting is that we need to take a step back and examine the entire process, so that wish lists are not necessary. Giving DoD a budget cap to deal with is tough enough, but then allowing no flexibility and discretion in where to absorb the cuts puts DoD in a position where they have to make wish lists in order to compensate for the senseless cuts demanded by sequestration. Take for instance the example of cutting a carrier battle group (CVBG). A CVBG consisting of roughly a dozen ships and submarines represents a capital investment of well over $50 Billion. At the end of the day, cutting that CVBG represents a real savings of maybe $1 Billion a year. That’s not good business, but given the constraints, it may be the only way for DoD to make up the budget deficit given the current process. I know this: Time spent developing, vetting and justifying wish lists is better spent focused on making the base budget reflect the real needs of DoD.
DoD Budget Cuts {n.} 1. Less of more
I saw an article in Defense News this morning that said that the DoD is safe for now from budget cuts. For those outside the Beltway (and unfortunately many inside as well) that translates into the notion that the Defense Department will skate by again by avoiding the “cuts” threatened by the Budget Control Act of 2011 ( commonly referred to as Sequestration). But for those in the know, that just means the DoD can look for more of an increase in money than currently scheduled. For all of the hubbub about “cuts”, one must understand that in DoD budget parlance, cuts just means “less of more.” When I did the Navy budget, if we were expecting a $6 Billion increase in real spending dollars in the next year and we only got $4 Billion increase, we would say the Navy’s budget was “cut” by $2 Billion. It’s not the way Mr. and Mrs. America think about cuts…It’s simply less of more.
Look at this chart from a 2013 CBO report showing the FY 14 DoD budget. Notice that even with sequestration cuts in place, the DoD budget is more in 2014 dollars than it was in 2006. And that’s not counting Supplemental money intended to lessen the effect of the war in Afghanistan on the base budget. I think any reasonable person would conclude that there’s plenty of money in the DoD budget….and now there’s even more. Why does DoD say they need “more of more?” There are many reasons; increased costs of procurement, disproportionate growth in operating costs, too much infrastructure, etc.
There are two ways to get more spending power; 1. Get more money (not within DoD control), and 2. Spend what you have more efficiently (within DoD control). I contend that DoD should focus more on number 2. The country simply can’t afford giving DoD “more of more!”
Here are just a few examples:
- Harvest the return on massive investments in ERPs (see DoD IG Report to Congress)
- Make some hard decisions on expensive weapons programs where costs are out of control (yes, there will be winners and losers)
- Convince the Congress that another BRAC round is needed
- Spend more executive time on managing the big budget problems and less micro-managing the little problems
- Know where every dollar is and what it’s doing (The real reason for auditability).
So beware “Crocodile Tears” of those who opine that DoD needs more money and instead ask them what are they doing to ensure the treasure they already have is being spent wisely.
DoD IG Report to Congress
The DoD Inspector General released the semi-annual required report to Congress on its activities from April through September 2013. There are plenty of reports with bad news and some not-as-bad news (I don’t think IG reports ever are better than the not-as-bad category, hence the need for an IG, I suppose). I focused on the Financial Management section of the report. The first thing I found interesting is that in the introductory narrative, while acknowledging “some” progress towards audit readiness is being made by the Department, there was no mention of the audit readiness shining star, the US Marine Corps. Granted, the report doesn’t cover the period in which the announcement of a clean opinion on the 2012 USMC Statement of Budgetary Resources was made, but they were certainly “breathing heavy” and should have been acknowledged in the report. I guess it will be in the next report to Congress next September, almost a full year after it happened!
Enough of that! The other items mentioned in the financial section related to the Defense Agency Initiative (DAI), Navy Enterprise Resources Planning (ERP) system, Army General Fund Enterprise Business System (GFEBS), excess motor pool vehicles in the DC area, the DISA audit opinion and a few other cats and dogs. It’s interesting that the most significant problems all involve ERP systems: DAI, Navy ERP and GFEBS.
The costs of these three systems alone is pretty staggering: $426 Million for DAI, at least $2.4 Billion for first increment of Navy ERP and $1.4 Billion for GFEBS. That doesn’t count all the false starts, legacy phase-out costs, legacy sustainment costs, and the unknown costs of fixing all the problems being identified by the DoD IG and others. The upcoming audits of the Services Statements of Budgetary Resources (supposedly to be complete by 2014) will identify more problems and throw more costs onto the burgeoning price tag of these expensive systems.
One wonders if DoD will ever see a real return on the investments being made in ERP systems. Why not? I think there a several key reasons:
1. It is taking way too long to implement them. Navy ERP has been in implementation since 2003 and still has a way to go. That sort of snail’s pace exacerbates implementation issues, creates software refresh issues, increases reliance on legacy systems, and tends to make them a continually target for budget reductions. And with long implementation schedules, the systems will become obsolete before they reach FOC.
2. Failure to eliminate legacy systems. We all know they exist and individual fiefdoms throughout the DoD continue to fund them to the detriment of other, needed capabilities.
3. The leadership outside the Financial Management Community doesn’t understand ERPs and they are the ones who make the real budget decisions. Without a full understanding of what ERPs are and how, properly implemented, they will make more money available for people and weapons, the leadership is likely to defer funding, further compounding problem 1.
So what to do?
- Make sure the leadership understands ERPs and what they can do for them. Unified support at the top is essential.
- Don’t use ERPs as bill payers.
- Be ruthless in the elimination of legacy systems, forcing users to rely on ERPs. Do it sooner rather than later. No excuses!
- Put a priority on implementation with deadlines and make program offices accountable.
I admit DoD ERPs are complex. But no more so than those of major US companies. We should learn from them.