Creating a better DFAS: and DFAS is going in the right direction....

"There is nothing wrong with change, if it is in the right direction." --Winston Churchill

The Department of Defense (DoD) adopted transformation as the key 'word in its efforts to reinvent itself in the aftermath of the Cold the evolution of new threats to national security. Transformation is about change--change in an intelligent and evolutionary fashion. It is also a process and a state of mind that aren't about setting a final end result. DoD transformation must be constant--an ongoing effort to meet old and new threats, to incorporate new technologies, and ultimately to ensure DoD's role as the guardian of the

Defense Finance and Accounting Service (DFAS) is a critical component in the Department's efforts. As the DoD financial center, DFAS must mirror the agility and flexibility being built into the military services and DoD's other business operations in order to fulfill its obligations to the nation's warfighters.

"As the military services become more capable to face new challenges, we also have to develop the facilities, technology, and workforce to support according to DFAS Director Zack Gaddy. "Having a world-class pay and accounting organization is the only way to support the best military men and women in the world."

DFAS transformation began with initial review and strategy development in 2002. At that the agency's workforce of approximately 17,000 employees was spread through 30 major and minor sites and worked with systems that, although innovative and cutting edge at their inception, were showing their age. Adopting transformation as an agency-wide focus, DFAS began a journey to retool itself for the future in terms of physical infrastructure, employee numbers and required competencies, and processes and technology.

An Extreme Makeover

Perhaps the most visible aspect of agency transformation is the ongoing implementation of base realignment and closure (BRAC) mandates. Prior to the latest round in 2005, DFAS maintained a physical presence in 30 sites throughout the United States and in some foreign countries. When the dust settles in 2011, only 10 sites will remain.

The 2005 BRAC process has been instrumental in DFAS' transformation planning and implementation. The pending closure of major locations at Kansas City and Denver, along with many smaller sites, has presented the opportunity to consolidate and streamline pay and accounting operations into a more efficient and customer-oriented organization.

"Our existing footprint was inherited from the military services in 1991," explained Rosie Tinsley, director for DFAS Transformation. "For instance, the Air Force's accounting and payroll functions operated from Denver, the Navy in Cleveland, Army in Indianapolis, and the Marines in Kansas City. The consolidation of all DoD financial activities that took place with the creation of DFAS kept much of this division in place."

Most of the agency's operations will be relocated to five major sites (Indianapolis, Cleveland, Columbus (Ohio), Limestone (Maine), and Rome (New York)). Five smaller sites will allow DFAS to work closely with DoD leadership in Washington, D.C., and with customers in Europe and Asia.

Rather than reacting to BRAC, DFAS has embraced the process as a tool in its transformation efforts. "Each site that closes affords us the opportunity to reduce our fixed costs," said Ms. Tinsley. "For us to be a 'best value' for our customers, we need an organization that is lean yet capable. Consolidating our operations into fewer sites lowers overhead while increasing the collective capabilities within each of our product lines."

A New Workforce, New Technology, New Mission

With or without site closures and realignments, current and future customer demands require some fundamental changes within the agency. Today, the DFAS workforce is operating with archaic computer systems that require workarounds to complete transactions and generate the financial information to meet customer needs. The DFAS of the future will focus on business intelligence instead of transactions, anticipating customer needs rather than reacting to them, and an organizational structure that ensures corporate-wide communication. Making the necessary changes amid ongoing operations and wartime conditions can present quite a challenge, but some changes already have been made while others are closing in on reality.

DFAS has already transitioned from a business-line structure to one based on functionality. Instead of numerous directorships, such as military/civilian pay or Navy accounting, the agency is divided into three deputates, with Corporate Organizations under the Principal Deputy Director and Deputies for Operations and Strategic Business Management (SBM). The realignment of the organization's management structure enables better execution of the agency's Strategic Plan initiatives. The change puts those resources needed to address customer demands within the control of the responsible deputy director.

The deputy director for operations is responsible for accomplishing DFAS's core mission, implementing new systems and processes, and standardizing operations across the agency. Support activities, such as resource management, are aligned under the principal deputy director. SBM was created to focus on the agency strategic goals of operational excellence, on-demand financial information, becoming a Center of Excellence, and attaining a highly professional workforce with indispensable skills and competencies. SBM is responsible for transformation/transition initiatives within DFAS; standardization and integration of functional requirements; integration and operationalization of new systems, policies, and procedures into DFAS business processes; and business integration initiatives.

The creation of centers of excellence is providing a framework for employee and work migration as sites close. For instance, Indianapolis will host out-of-service debt, and Columbus will host the Center of Excellence for Acquisition. The new DFAS structure will encourage standardization, while enabling the workforce to address the needs of all agency customers for specific mission areas.

Another concept that is gaining momentum is that of the high-performing organization (HPO). Within DFAS, HPOs are fully integrated, end-to-end workflows staffed with employees who possess the skills and, more importantly, the competencies necessary to fulfill their responsibilities. HPOs are being implemented for a variety of DFAS functional areas such as accounting, disbursing, and support as the workload is moved into the five enduring sites. Because of the expansion of workforce expertise, DFAS leadership anticipates that the supervisor-employee ratio will drop from 1:8 to 1:15+. HPOs, by their nature, place a premium on employee professionalism and capability. (See Figure 1, page 30.)

Concurrent with DFAS' restructuring of its workforce is the implementation of the National Security Personnel System (NSPS) for DFAS supervisors. NSPS will provide a much-needed tool to aid in recruiting and training employees--and in retaining those who possess the skills and competencies needed to staff the new DFAS structure. DFAS transformation planners anticipate that the agency will be composed of an 85 percent professional workforce by 2012, versus the 30 percent today, as Figure 1 shows.

The projected reduction in DFAS' technical staffing will be accomplished with improved business processes and the rollout of new technology, such as the Defense Integrated Military Human Resources System (DIMHRS). The current military pay system, the Defense Joint Military Pay System, while still capable of computing and paying the nation's active duty, reserve, and national guard personnel, is showing its age. For example, new requirements brought about by legislation or changes in service policies currently must be either programmed into the system or performed on an offline manual basis. Furthermore, since changes to an individual's personnel record can often have an impact on pay, it's up to each service's personnel and finance offices to coordinate these actions. DIMHRS will simplify this process by integrating both the personnel and pay functions into the same system.

DIMHRS, along with a counterpart system for civilian employees, will greatly lessen the need for payroll technicians to monitor and adjust pay accounts. Once DIMHRS and other systems have been implemented, DFAS will shift much of its focus to providing DoD leadership and component heads with better and more extensive business intelligence, a vital component to sound decision making.

As DFAS moves through its transformation, many of its customers, including the military services and several Defense agencies, are implementing their Enterprise Resource Planning (ERP) systems to improve the front end of the accounting processes. Also, through the implementation of the Business Enterprise Information System and Standard General Ledger language, each component (including DFAS) is increasing its efficiency and capability to produce auditable financial statements.

DFAS is evolving from a payroll activity through the implementation of the merged pay and personnel systems for military and civilians to an accounting, analytical, business intelligence, reporting, and disbursing activity. Payroll will be a function of the components, while accounting, financial reporting, and disbursing will continue to be the critical focus of DFAS. The ERPs will continually improve the validity of the end-to-end accounting and support underpinning the reliability of commercial payments made by DFAS. Electronic commerce initiatives will continue to increase the efficiency of commercial payments with the implementation of wide-area workflow within the agency and among DFAS customers.

The BRAC actions are enabling the consolidation of mission areas within DFAS into fewer sites and, through that consolidation, are facilitating gains in efficiency that could not have been foreseen without this consolidation. The partnership with the DoD Business Transformation Agency and other DoD components is shaping the future of DFAS and the DFAS workforce. That workforce will continue to streamline as it keeps pace with the transformation efforts. New skills will be required as missions change, especially with the major reduction of payroll functions. In addition, new knowledge and competencies will be required to work within the ERP environment. Transformation is not only change in technology, strategy, vision, and goals but also change in people.

"The end result," said Director Gaddy, "will be a significant change in the mission of DFAS. Instead of fixing problems, we'll be in the business of proactively preventing them. The customer will get the information he or she needs to budget and fund programs and projects to support our warfighters. And that is what we're all about: making sure the men and women in uniform have the things they need to do their jobs."

Challenges Abound

The way DFAS does business is in many cases determined by external sources. In addition to the current requirements by customers, the agency must deal with the demands imposed by the Global War on Terrorism, ongoing transformation efforts by the Office of the Secretary of Defense, the DoD components, legislative changes, and emerging technology.

"The transformation of DFAS involves every aspect of the organization," said Ms. Tinsley. "It involves what we do, how we do it, and what we use to do it with. Some things have to happen simultaneously, others sequentially--but they're all interrelated and interdependent."

The challenges are many for DFAS and everyone involved in its transformation. The agency must continue to provide all the services it offers at ever-improving levels while physically and operationally re-creating itself. Add to that the legislative actions, congressional oversight, and transformation initiatives going on within its customer agencies and organizations, and one gets a sense of the complex yet necessary work that remains to be done.

"When the dust settles," Director Gaddy concluded, "DFAS will be leaner and more efficient. And our work won't stop there. Transformation is being infused into all aspects of the agency. It's my goal to make DFAS a dynamic and ever-evolving organization, one that is always focused on our customers and a great investment for America's taxpayers."

Figure 1. People and Transformation

WORKFORCE COMPOSITION

2006                      2009

DFAS BRAC                 DFAS BRAC
Implementation Begins     Implementation Begins

70% Technical             50% Technical
30% Professional          50% Professional

1:8 Supervisory Ratio     1:15 Supervisory Ratio

2011                      2012

30% Technical             50% Technical
70% Professional          50% Professional

1:15 Supervisory Ratio    1:15+ Supervisory Ratio

BUSINESS ENVIRONMENT

* Manual Processes               * Automation of business processes
* Large-scale rework             * Less rework
* Workforce with minimal         * Workforce with mature financial
  analysis skills                  analysis skills
* Legacy systems                 * Migratory systems on-line
* Overhead staffing and costs    * Overhead staffing and costs match
  exceed industry benchmark        or exceed industry benchmark