Crenshaw Consulting Associates
Business Advice with Integrity
I just published an OpEd piece in American Military News after looking at the FY 2019 DoD Budget again. I can’t believe we aren’t asking for more Tomahawk Land Attack Missiles. The Reason? We are going to build a new Land Attack Missile by 2028…..that’s around 10 years folks! Any bets on a 2028 delivery? Anyone? Bueller? Anyone? Anyway, I think the piece says it all, so I invite you to read it. Here’s the link to the article…..Closing the Tomahawk Line is Risky Business.
That WW II message was sent by Admiral Nimitz to Admiral Halsey in support of Admiral Thomas C. Kinkaid, Commander of landing forces seizing the island of Leyte in the Pacific. Admiral Halsey had fallen for the Japanesse ruse, diverting most of his carriers and battleships 
supporting the invasion to chase the Japanese decoy Northern Force, leaving Admiral Kincaid’s forces in the lurch. Famously, however, when the message was delivered to Halsey, the phrase “the world wonders” was added by mistake. Halsey took it to be an insult, creating bad blood between the two. There are some pretty funny accounts about “Bull” Halsey blowing his top when he read the message. Here is the actual message:
I just returned from the annual American Society of Military Comptrollers (ASMC) Professional Development Institute (PDI) in New Orleans. It was an outstanding opportunity to learn about the state of the art in the DoD budget and accounting. Well done to Executive Director Al Runnels and his staff!!! This year I reckon there was north of 2000 folks from throughout the DoD Financial Management profession….Army, Air Force, Office of the Secretary of Defense, Defense Agencies and even the US Coast Guard. Leadership and rank-and-file throughout DoD, from the Honorable Mike McCord, the Undersecretary of Defense (Comptroller) on down, gathered to consult, confer and otherwise hobnob with their fellow budget wizards. In fact, I dare say that most of the senior Financial Management leadership from the services and defense agencies was there. There was only one thing missing: the Navy.
Yep, that’s right. The Navy chose not to participate. Given that every other service, defense agency, and the OSD staff decided it was important to send their people, I can only assume that either the Navy thought that its people (personnel in DoD speak) didn’t need the training offered at the PDI or that despite the need for training, barring their attendance was the safer or smarter move. So the Navy and USMC financial managers sat on the sidelines while the remainder of their counterparts in DoD heard for Mr. McCord; the Honorable Jamie Morin, Director of CAPE; Mark Reger, the Deputy Comptroller of the United States and numerous other senior officials. They attended required FM certification training, attended workshops, participated in a whole day of service-specific training and conducted community service projects. In the interest of accuracy, there were a handful of Navy folks there, but only if they were actually presenting a workshop or receiving a national-level award.
Why did the Navy choose not to participate? Well, it is true that in recent years “conventions” and other large-scale events have come under scrutiny because of some very bad decisions made by some not-so-good leaders. But checks and balances were put into place to ensure legitimacy and need before approving such meetings. All organizations in DoD went through the same process of evaluation. The PDI was not given “blanket approval” by DoD and thus the leadership in each organization had to make the call on whether or not to send its people to this valuable training. Obviously, Navy leadership uniquely decided this PDI was not in accordance with applicable rules and regulations and thus elected not to send its people. Now those of you who are not familiar with the world of financial management might wonder why a PDI is needed. Here’s the scoop:
Most DoD financial managers are required to receive about 40 hours of continuing professional education annually. Those who have achieved the coveted Certified Defense Financial Manager (your humble author among them) are required to take 40 hours annually to retain their certification. In addition, the DoD recently introduced a financial certification program aimed at increasing the professionalism of the FM workforce. It’s a tiered program with each level requiring specific courses delivered by qualified personnel. Once a certain level of qualification is reached, there is a continuing education requirement similar to those above. The highly specialized training required for the various certification levels is offered at the PDI, along with a variety of accredited courses that count toward annual training requirement. I’m not quite sure how many hours it would be possible to knock out at the PDI, but it’s somewhere in the neighborhood of 20. That’s half the annual requirement!
To make sure people actually attend the training, they are individually scanned in and out of training sessions and only given credit if they attend the entire session. Each day begins at 07:00AM with breakfast and training sessions go on throughout the day until 4:40 PM. Believe me, that’s a long day and I have yet to figure out a way to “beat the system” so I have to sit through the classes all day to get credit. It’s not exactly a cake walk. You can be sure people are actually getting the training.
Enough of that. And now for the gorilla in the room: Yes, it’s in New Orleans, but there’s no escaping the fact that PDI attendees are sequestered (I just had to use that word) for a good nine hours a day….No zooming up and down Bourbon Street, no clowns wandering around, no $26 cupcakes…it’s all business during extended working hours. (This shouldn’t be surprising since it’s basically run by accountants, for accountants). By the way, what’s the difference between an introverted accountant and an extroverted accountant? The extroverted accountant looks at your shoes when he talks to you….Badda-Booom!
So I mentioned earlier that maybe the reason the Navy leaders chose not to send Navy and Marine Corps people to this training is that they don’t need it. Well, you would be wrong if you made that assumption. I attended a session where the current numbers of people certified by service was presented and the Navy was just a sliver in the pie chart while all other services were big, fat pie slices just like your grandmother would serve. So the Navy needs the training above all and they are obviously not getting it elsewhere. In fact, given the workload of Financial Managers these days, it is really hard to find the time to take on-line courses. Oh sure, there are on-line courses….and they are good for filling some portion of the requirement, but no matter what you say, nothing beats real-time, classroom training to allow for substantial interchange between students and instructors. Would you rather have your dentist fulfill his annual professional training staring at the PC at home while drinking a martini or attending a gathering of dental professionals with an opportunity to talk to pioneers of the latest in the dental art and exchange views and techniques with his/her peers? When he/she says “Good thing I saw how to put in this implant on You Tube”, how would you feel?? or how about this: “Oh yeah…..since you have to put in a 10 hour day at the office, just do that training in your spare time”……Right! Here’s an idea: Why not do your training the next time we furlough you? What’s the big deal? We have posted classroom material in all the heads…..do some training while you do your business!!! It’s all about being efficient!” Seriously folks, I do remember aircraft checklists being posted above the urinals and on the backs of the stall doors in the squadron head in order to make use of “spare time”!!!
I know I don’t have the right to criticize and I apparently don’t have all the facts, so I recommend the reader of this tome (It’s longer than I wanted) consider these thoughts to be from an unqualified, uninformed source. And if you were the decision maker, please don’t get all spun up. The decision was yours to make and I respect your decision. I just hope your staff did you the courtesy of making sure you had all the facts before you decided. (You only know what they want you to know.) I am confident that the Navy leadership can give you a much better reason for why they stayed away. That not withstanding, I hope the Navy decides to participate next year so they can be a part of the team. I know I was embarrassed that so few from my beloved Navy were there. And just because the rest of the Services, OSD, Coast Guard, and Defense Agencies took just a little risk and sent their people to PDI, doesn’t mean the Navy had to send its people to PDI(sigh, I can see my Mother saying that right now). Maybe they didn’t have the money to send their people (even though everyone else did). Maybe it wasn’t that important. Maybe there was another budget drill going on. Maybe they elected to spend the money on local training for the hundreds (if not thousands) of Navy FMers around the world. I just don’t know. But this I do know: when next year’s PDI rolls around I sure hope we don’t have to again ask, “Where is TASK FORCE THIRTY FOUR the FM world wonders?”
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:
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:
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.
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? 
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:
Anyway, I’m sure you have your own sea story that would make mine look minor. But back to the LMSR caper……
A 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. 
They 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!
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. 
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:
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!
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).
A few weeks ago, Secretary of Defense Hagel published his list of six focus areas for the coming year. Here’s his list:
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:
I just reread the summary of the 2015 National Defense Authorization Act (NDAA) passed by the House on a vote of 385-98. At the end of the day, it appears that the House was not interested in agreeing with many of the cost cutting proposals that DoD had hoped for. Base Realignment and Closure (BRAC) is not an option (see Bric-a-BRAC) , and it looks like the Air Force can keep it’s A-10’s for now. When all is totaled up, the bill accounts for just a shade over $600 Billion in spending. That number is a far cry from what the sequestration number would have been, thanks to the BiPartisan Budget Agreement, but 2016 will be another story. 
The Senate also affirmed its desire to keep the A-10s in the inventory in its version of the NDAA.
I happen to agree with the Air Force that it is time for the A-10 to go. It’s expensive to maintain and operate and doesn’t really have a place in the 21st Century battlefield. It pains me to say that, because it was a good airplane for the mission, tank killing and Close Air Support. 
My airplane was also the victim of affordability cuts and the entire fleet was scrapped right after it had undergone an expensive and extensive rehabilitation effort. I’m talking about the A-6 Intruder, retired in 1997. No one came to its rescue unlike the A-10. I’m not quite sure why the A-6 retirement didn’t kick up more dust back then except to say that times were tough, money was tight, and everyone recognized the an airplane like the A-6 was vulnerable at low levels against the threat and that with weapons improvements we just didn’t need an airplane that could carry twenty-two 500 pound Mk-82 bombs. What’s the point? With Tomahawks and Joint Stand Off Weapons there was just no need for the A-6. The same is true for the A-10, in my opinion. With today’s technology, the threat environment where the A-10 would be operating would not be survivable. The assumption is that in order to use the A-10, we would have to have Air Supremacy (meaning no enemy airplane flying) and completely neutralized the hand-held SAM threat on the ground. That’s a tall order!
In today’s world with armed drones…..oooopppps….i meant to say Remotely Piloted Aircraft, there’s just no need to put aircrew at risk. Add to that the expense in maintaining the A-10 and it’s just not worth it……at least not to the Air Force. It IS apparently worth it to members on the Hill who have A-10’s flying in their districts, and the hundreds of airmen required to be in each squadron to maintain the A-10. Sometimes it’s hard to admit you are flying a dinosaur that just doesn’t have a home in the 21st Century.
I just finished plowing through the 2014 Performance of the Defense Acquisition report published by Office of the Under Secretary of Defense, Acquisition, Technology, and Logistics (AT&L). 
I was prompted to look at it when I saw this article in the Washington Post on what motivated contractors, according to the report. Pardon my suspicion at a report bragging about how well the current crowd at AT&L is doing, but I’m suspicious. First….there’s a lot of statistics included and my experience is that statisticians can twist the numbers to say anything. As evidence, I note there wasn’t much bad about the JSF (perhaps the worst performing program of all time) in the report. Oh sure, it appears, but if one were to just glance at the charts and graphs where JSF is mentioned, you get the impression that it’s just a middle-of-the pack program…..lots of programs perform worse, a few perform better. EXCUSE ME? This baby is already $160 Billion behind schedule and 10 years late in delivery (and still counting by the way, especially given the disastrous fire at Eglin Air Force Base last week). How DoD can publish a report on performance of the Acquisition system without including a chapter on why the JSF program is so gooned up is beyond me. It’s like the YouTube video when the gorilla walks through the basketball game. Am I the only one who noticed?
Another item I thought was interesting was the conclusion that although Firm Fixed Price (FFP) contracts do perform better and generally exhibit less cost growth, the report concludes it’s because most of those contracts are lower risk anyway. Oh by the way, the evil part of FFP contracts is that the vendors who do a good job of managing cost and performance of their programs are probably making more profit and therefore gouging the Government. I can hear the conversation in the Pentagon now, “That darn contractor actually delivered on-cost and on-time, so we must have given him too much money!” That substantiates my belief that the Pentagon has the uncanny ability to take from good performing programs to pay for the sins of poor performing programs, thereby dooming all programs to some level of common mediocrity.
One other point I thought was interesting….there’s no mention of contracts that were awarded on a lowest price, technically acceptable (LPTA) basis. Some in industry contend that DoD is so bent on doing things on the cheap, that quality has suffered when contracts are awarded on an LPTA basis. I don’t know if that is just sour grapes from the expensive losers or truth. No one seems to care…….about the quality any way.
Back to the title…..What were the conclusions?
So there you have it. My little list of what incentivizes contractor to perform better goes like this:
To be fair, I think that there have been improvements in the acquisition process and those in the driver’s seat deserve a pat on the back. But in the end, the fundamental problem is that the requirements process never gets it right and we spend lots of time and money recovering. Congress doesn’t help things with its inability to pass a budget either.
I received several comments after I published my last article on “Leadership in the 21st Century” and I appreciate all the comments. In that article I commented on the recent case involving a former Commanding Officer of the Navy’s elite flight demonstration team, the Blue Angels. After consulting, conferring and otherwise hobnobbing with my fellow former Wizards, I thought I might offer up just a few more comments on the subject before forever holding my peace on the subject of Capt. McWherter and the Blue Angels. There was a lot going on there besides just the failure of judgement of the CO, including limited oversight by the Navy and the absence of an Executive Officer senior enough to step in and provide some advice and counsel. More on that later.
I was struck by a recent Gallup Poll which once again found the Navy as the least prestigious of the Services. I’m not sure what that means since most of what Mr. and Mrs. America think about the Services is a product of their own (the Services’) PR machines. Wasn’t it the Navy that successfully extracted the Captain of the Maersk Alabama? Wasn’t it the NAVY SEALS that terminated Mr. B. Laden? Wasn’t it the Navy that was first on the scene providing relief during Hurricane Katrina, and Indonesia and Japan? Doesn’t the President always ask “Where are the carriers?” whenever something goes wrong in the world? Doesn’t the Navy run the White House mess? Isn’t it CAPTAIN Kirk, not Colonel Kirk? Jeez , what do you have to do to become the most prestigious Service around here? I know……..Sponsor a race car that wins the Daytona 500! Or make a cool commercial about killing dragons and rescuing damsels! Or lose track of a couple of nukes!
The notion struck me that part of the problem is that the Navy is too transparent. We not only advertise when we relieve Commanding Officers (don’t think that the other Services don’t relieve their share of Commanders) but we also come clean when we relieve senior enlisted advisors. You just don’t hear much about that from the other Services. Of course it’s a big news item these days and I liken the problem the Navy finds itself in with regards to negative publicity to the problem I have on the golf course…..Once I’m in the woods, it’s almost impossible to get out. Either I schwack another tree in my current thicket, foolishly trying to thread the needle between a couple of obstructing trunks, or I wind up in the woods on the other side of the fairway because I gooned up my attempt to pitch out. Why I don’t just pick it up and take a “Snow Man” when I wind up in the woods I’ll never know. That’s where the Navy is right now, in the trees and trying to pitch out.
This openness puts us behind the eight ball in my humble opinion….On the other hand, I think being open about our problems is not all bad. At least it shows we are aware of the problem and attempting to deal with it. But what exactly is The Problem? Is it that the Navy has a crisis in leadership? I don’t think so……in fact I know that’s not the problem. With close to 300 ships, 50 or so aviation squadrons and probably at least 100 shore commands, we actually have very few COs that break the event threshold. In fact, you could write 100 good stories for every bad one…but that doesn’t sell papers.
I’ve commented before on abusive leaders, so I won’t beat that dead horse. The Navy and DoD have reacted to lost nukes, out-of-control Commanding Officers and other misdeeds by increasing ethics training, establishing an ethics Czar ( and a very capably one I might add), and adding ethics courses to Prospective CO schools and Senior Enlisted schools. But in the end, by then what is there to train? Someone is going to stand up in front of a class of prospective Commanding Officers and say……Don’t have sex with your XO, don’t use counterfeit casino chips, don’t fake your death to escape from your bad marriage, etc etc? I don’t think this will have much of an impact. It’s focusing on what not to do…….not what to do. The striking thing about almost all the heinous infractions that appear in the news is that none of them are questions on the margin. They are about personal failures by people who should know better. No amount of training will fix that. What we can do is:
The bottom line: Let’s spend more time on how to succeed in command,instead of how not to fail. There’s a big difference.
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 agency’s financial statements to information reported in the “actual” column of the Program and Financing (P&F) Schedules in the Appendix of the Budget of the United States Government (hereafter referred to as the “President’s Budget”). Coupled with the analysis of other budgetary data, the SBR’s linkage to the President’s Budget provides a means to help assess the reliability of budgetary data reported in the President’s 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.
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!