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.

Theoretical PPBE
Theoretical PPBE

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.

The Reality
The Reality

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.Screen Shot 2015-02-03 at 3.38.19 PM

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.

 

 

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Acquisition: Practitioners vs. Pontificators

DoD Acquisition Process

The DoD Process Simplified

I ran across an article from the National Defense Industrial Association (NDIA) the other day by Sandra Erwin on Congressional frustration on how the Pentagon buys things.  Not being satisfied with the progress being made by the DoD Acquisition guru’s, Congress has decided that more legislation is needed to fix things (Really? Congress is going to fix something?).  The Congress has asked nine of the industry associations around the Beltway to provide comments on how to make it better, with inputs due in July.  I belong to several of those and I’m glad the Congress is asking for industry input, although I hope they remember that asking the people who make money as a result of inefficiencies is just one side of the argument. I think significant progress has been made since then Under Secretary of Defense for Acquisition, Technology and Acquisition (USD(AT&L)) Ash Carter launched his “Better Buying Power Initiative” in September of 2010. In his memo to acquisition professionals he provided a roadmap to improving acquisition within DoD.  He focused on five areas of interest:

  1. Target Affordability and Control Cost Growth
  2. Incentivize Productivity and Innovation in Industry
  3. Promote Real Competition
  4. Improve Tradecraft in Services Acquisition
  5. Reduce Non-Productive Processes and Bureaucracy

Details of this can be found at this link if you are interested.  All these are worthy goals, and they have made a difference.  A recent GAO report found that some progress was being made, but that cost and schedule growth remain significant; 39 percent of fiscal 2012 programs have had unit cost growth of 25 percent or more. The amount of money in the DoD acquisition pipeline is staggering;  86 major defense acquisition programs  estimated to cost a total of $1.6 trillion according to GAO. If you have any questions about a specific program click here.

Besides the modest, if not marginal, improvements in acquisitions, some not so nice things happened as well.  As is often the case in large bureaucracies, what the big guys at the top are saying and what the little guys in the field are hearing frequently don’t jive.  That was the case with the Better Buying Power Initiative.

Dr. Carter said “Increase the use of Fixed Price Incentive Fee contract type where appropriate…”, but the dudes in the field heard “More Fixed Price contracts, less Cost Plus Fixed Fee and Time and Materials contracts.”  Contracting officers were suddenly burdened with having to provide extensive justification for any non-Fixed Price contract.  Since they were busy enough, the Contracting Officers would rather just go with the flow and issue fixed price contracts, even though the work was not appropriate for them.  The words “where appropriate” were overlooked.  In the end, it wound up costing more money.  Here’s why.  When a contractor agrees to a fixed price contract, the contractor is assuming all of the risk.  Suppose the job was improperly scoped by the Government, or suppose a software glitch pops up that takes time (and money) to fix.  All those unexpected expenses are absorbed by the contractor.  Consequently, Fixed Price contracts tend to be more expensive in order to cover the risk.  This was certainly the case in my former life when a long-time client came to me and said, “The Boss says we have to do a Fixed Price contract” this year and it can only be for one year at a time.  This was not what the customer wanted, but the customer was at the mercy of the acquisition folks.  The work we were doing at the time was rather unpredictable and my team was never quite sure from day-to-day what they may be tasked with next.  In order to be responsive, it was a Time and Materials (T&M) contract, which allowed us to flex to the client’s requirements.  But with a fixed price contract, I was not able to flex without a contract modification (and that takes time and money).  I told the client that if we were going to do a fixed price contract, I would have to increase the price and that I would not be as flexible in doing new work.  That fell on deaf ears because it was going to be such a hassle to justify anything other than a fixed price contract.

Here’s another example.  Dr. Carter says “Promote Real Competition”, but the  folks in the field heard, “Use Lowest Price, Technically Acceptable (LPTA)” evaluation criteria for source selection.”  This caused all kinds of price wars in the community and the Government was feeling smug about how much money they were saving, but…………Turns out many Requests for Proposals were poorly written with vague and overly broad technical requirements, so that just about any old company with the resources to put together a proposal could win the contract.  And they bid ridiculously low rates, so in the end they were unable to deliver and customers began to fall back to other contact vehicles to get the work done, or just didn’t do the work.  I think it’s a little too early to actually get to the real statistics about how many customers are really satisfied with the results of LPTA winning vendors but the Congress should find out before attempting to come up with more legislation.

The current USD(AT&L), Frank Kendall,  issued an update to the original Better Buying Power, known around town as Better Buying Power 2.0.  In it Mr. Kendall says:

  1. Achieve Affordable Programs
  2. Control Costs Throughout the Product Lifecycle
  3. Incentivize Productivity & Innovation in Industry and Government
  4. Eliminate Unproductive Processes and Bureaucracy
  5. Promote Effective Competition
  6. Improve Tradecraft in Acquisition of Services
  7. Improve the Professionalism of the Total Acquisition Workforce

The result has been a much greater focus on costs of acquiring the systems and a recognition that perhaps the LPTA pendulum was swinging just a little too far over.  As in the original BBP, those in the field had some different interpretations about expectations from the top.  One of the initiatives within the Incentivize Productivity goals was to “Align profitability more tightly with Department goals.”  This translated into government auditors deciding they need to closely scrutinize contractors books to ensure vendor were not making “excessive profits,” even on fixed price work.  I just don’t think that’s in the government’s lane. If they are so concerned about profit margins, then why not issue Cost Plus Fixed Fee contracts where the Government essentially controls corporate profits?   Thus,  despite all their good, it seems to me a few fundamental flaws in the acquisition system have not been addressed in BBP or BBP 2.0:

  • There is still a lack of coordination and cooperation between those who generate requirements, those who pay to satisfy the requirements and those who buy the stuff with the money they are given.
  • There is still a disconnect between contracting officers and the customers for whom they buy products and services.
  • There is still a disconnect between what the leadership in the Pentagon says and what the people in the field do.
  • The uncertainties of funding from year to year drive programs to their most expensive procurement options.
  • Certain key programs get a “pass” from all the rhetoric about performance, affordability and life-cycle costs, overshadowing all of the progress made to reform acquisition. The top 10 acquisition programs still account for 65% of all the acquisitions according to the GAO.  The Joint Strike Fighter is 25% of all DoD acquisition alone!

So in the end, I doubt very much if legislation will fix the problem.  Four feet of  stacked up Federal Acquisition Regulations and Defense Federal Acquisition Regulations are not going to be much affected by another thousand pages or so of legislation.  Check out the recent testimony of Dr. Paul Francis, the Managing Director of Acquisitions and Sourcing Management at GAO.  He has some very practical steps on how to improve the process. In addition to those steps, I would like to see DoD actually evaluate each program on its own merit, not on investment levels or political support or not simply press on with a poor program because they managed (mismanaged is probably the better word here) to get into a position where there is no alternative.  It would also be nice if the people who are actually charged with executing the acquisition system at lower levels could have a say in how to make things better.  There’s too much Top Down and not enough Bottom Up built into the process in my humble opinion.  What if we asked the practitioners to come up with a series of reforms instead of the pontificators?

 

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Kids and the Grocery Store Checkout Aisle

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.

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