Global war on resource management.

"... we must forge a new compact with warfighters and those who support them, one that honors their service and understands their needs." (1)

--Secretary of Defense Donald Rumsfeld

Afghanistan. Iraq. Albania. Kosovo. Somalia. Liberia. Central African Republic. Macedonia. Haiti. Sierra Leone. East Timor. These are a few of the increasing number of places to which the Armed Forces of the United States have been sent in the last decade, (2) shown graphically in Figure 1.

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And the Department of Defense (DoD) didn't often budget for those activities; rather, officials scrambled and found unobligated funds in readiness accounts, shifted money around procurement accounts, and sought contributions from allies. Data calls (often subject to interpretation) were used to estimate the bills when no one was quite sure what each would entail.

Sometimes DoD requested a supplemental appropriation, which was often received late and in a different form than the request. Meanwhile, hundreds of Excel spreadsheets on desktops around the globe tracked expenditures in categories that weren't reflected in the accounting systems. (3)

Sometimes it is called peacekeeping, sometimes noncombatant evacuation operations, and sometimes operations other than war. Regardless, exercising foreign policy with force is what the DoD does. So why doesn't the DoD budget accurately for it, and why are there difficulties accounting for it? This is a fundamental problem that deserves--and is getting--serious attention.

Many within the Department don't realize that the day before the September 11 attacks, war was declared on this fundamental problem. But because of the events of September 11, that call to action was given back-page status in newspapers; so allow me to revisit it.

Background

On September 10, 2001, Secretary of Defense Donald Rumsfeld spoke at the opening of the Acquisition and Logistics Excellence Week program. He began (in hindsight, rather eerily) by discussing "an adversary that poses a threat ... to the security of the United States." He described the adversary's centrally planned economy and the manner in which it "stifles free thought and crushes new ideas."

He was referring to the Pentagon bureaucracy and issued a call to action: "Just as we must transform America's military capability to meet changing threats, we must transform the way the Department works and what it works on.... So today we declare war on bureaucracy, not people, but processes, a campaign to shift Pentagon resources from the tail to the tooth." (4)

Secretary Rumsfeld covered a lot of ground in that speech. This essay will focus on the specifics most related to resource allocation and financial management (the sphere of influence for ASMC members).

Understanding what changed and what remains to be done is fundamental for the financial management workforce to best support those under arms in Afghanistan, Iraq, and wherever they are sent next. Four broad areas changed since September 2001; all are useful first steps toward transforming DoD business processes in support of its operational transformation: the requirements generation process, the Defense acquisition process, the resource allocation system, and the accounting systems.

Requirements Generation

In June 2003, the Joint Capabilities Integration and Development System (JCIDS) replaced the Requirements Generation System to help DoD officials "determine what programs and projects to acquire to enhance joint readiness." (5) Previously, requirements originated--and were staffed--in stovepipes (by military service, platform, system, or warfare community) and became joint and integrated only as they were staffed through the DoD.

The JCIDS process (Figure 2) stimulates these considerations from the beginning by first considering national strategies, joint operations and functional concepts, and joint capabilities. The gaps between strategy and capability drive the requirement rather than fitting the requirement to the strategy. The requirement is subject to scrutiny by several functional analyses, performed by not only the technical experts but also participants of the acquisition and Planning, Programming, Budgeting and Execution (PPBE) processes. Critical decisions are made sooner and are validated because stakeholders are engaged earlier in the process. (6)

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The purpose of JCIDS is to ensure that the joint force is properly equipped and supported. The frequency and diversity of military operations now require a robust system that reduces the "time to market" and is fully integrated with the other two legs of the Department's decision support structure: the acquisition and PPBE systems.

Defense Acquisition

Given the pace of change within the DoD and the faster rate of change of technology, the DoD clearly needs a responsive acquisition system. The DoD Directives System 5000 series policy was revised in May 2003 to meet these demands (Figure 3, page 17).

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The new policy encourages program flexibility through tailored strategies and oversight. It expects responsiveness to changing technology through evolutionary acquisition strategies. It demands program management discipline in the manner in which cost, schedule, and performance goals are achieved and stresses streamlined management through clear lines of authority and accountability. (7)

Throughout the cycle, the JCIDS process is used to oversee and validate the item being acquired through the refinement of earlier analyses and through the coordination of capabilities documentation. The new policy also demands program stability: "DoD Components shall develop realistic program schedules, long-range investment plans, and affordability assessments, and shall strive to ensure stable program funding." (8)

(It is interesting to note that Components "shall" develop schedules and plans, but merely "strive" for stable funding. It's been conventional wisdom in Defense circles that the PPBS system was broken, and that led, in part, to unstable programs.)

Resource Allocation

In May 2003, the Deputy Secretary of Defense signed Management Initiative Decision 913, which changed the PPBS system to make it more responsive to the new requirements generation and acquisition systems. It incorporated a two-year cycle that takes advantage of the natural four-year rhythm of changing administrations (Figure 4, page 18). Since a new president is inaugurated just before the next budget is due to the Congress, that budget necessarily reflects the priorities of the prior administration.

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Consequently, the first year concentrates on the Quadrennial Defense Review, a thorough execution review, and some minor adjustments to the existing budget. A complete Program Objectives Memorandum (POM) and budget are built during the second year of the administration. The third year concentrates on execution and the fourth year initiates another full cycle.

In lieu of a POM in the odd-numbered years, program and budget change proposals are offered by the Services and critical stakeholders (for example, the combatant commanders and Under Secretaries of Defense) to ensure the link back to requirements generation and acquisition and to reduce communication feedback times.

Resource allocation decisions are now based on mission capability analyses for major investments (similar to those done in requirements generation, except that the focus is on allocating funds across the alternatives versus identifying those alternatives). Models of predictable costs are used for operating and support expenses. Once resource allocation decisions are made, a proper accounting of those funds is necessary.

Accounting Reform

The Comptroller General of the United States has been critical of the DoD and its inability to account accurately for its funds and assets. He has stated that there are "pervasive weaknesses in DoD's financial management systems, operations, and internal control, including an inability to compile financial statements that comply with generally accepted accounting principles." (9) In fact, the Department has been listed as a high-risk area by the Comptroller General since 1995. What's being done about it?

Early in the Bush administration, a team of business executives, accountants, and academics studied "the pervasive weaknesses" and issued a series of recommendations. (10) Those recommendations served as the foundation for the Business Management Modernization Program, (11) an ambitious effort led by the Office of the Under Secretary of Defense (Comptroller) to create financial management systems capable of providing timely, relevant, and reliable information for stakeholders and decision makers.

By creating a Business Enterprise Architecture of technology, processes, systems, and data, the DoD should be able not only to account for transactions accurately and report them in accordance with accepted principles but also to have decision support data on which resource allocation decisions can be reasonably based.

Conclusion

How will expeditionary wars such as Iraq and Afghanistan change the people and process of defense financial management? The wars themselves won't drive the change; it's the way those wars (and the ones to follow) are fought that is important.

The U.S. Armed Forces are fighting in new ways that demand new ways of being supported. The key processes that support those warfighters are changing: determining the requirement and deciding how to satisfy it, acquiring the resources, making the purchases, and accounting for the transactions. We in the DoD financial management profession need to embrace this change and support it, then conceive of even better--change with encouragement from DoD leadership.

Endnotes

(1) Rumsfeld, Donald H., remarks at the kickoff for the Department of Defense Acquisition and Logistics Excellence Week program at the Pentagon, Washington, D.C., on 10 September 2001. Available for download: http://www.defenselink.mil/speeches/2001/ s20010910-secdef.html (accessed 11 January 2004).

(2) U. S. Congress. Congressional Research Service. Instances of Use of United States Armed Forces Abroad, 1798-2001, Washington, D.C., 2002.

(3) The General Accounting Office has cited many of these problems in a series of recent reports including: "Defense Budget: Need for Continued Visibility Over Use of Contingency Funds," July 2001; "Defense Budget: Need to Strengthen Guidance and Oversight of Contingency Operations Costs," May 2002; "Defense Budget: Contingency Operations in the Balkans May Need Less Funding in Fiscal Year," September 2002; and "Defense Budget: Tracking of Emergency Response Funds for the War on Terrorism," April 2003.

(4) Rumsfeld, 2001.

(5) Department of Defense. "DoD Receives New Capabilities Development System," News Release No. 502-03, 11 July 2003, available at www.defenselink. mil/releases/2003/nr20030711-0190.html (accessed 14 January 2004).

(6) Department of Defense. "Operation of the Joint Capabilities Integration and Development System," Chairman of the Joint Chiefs of Staff Manual 3170.01 of 24 June 2003; and "Joint Capabilities Integration and Development System," Chairman of the Joint Chiefs of Staff Instruction 3170.01C of 24 June 2003.

(7) Department of Defense. "The Defense Acquisition System," Department of Defense Directive 5000.1 of 12 May 2003; and "Operation of The Defense Acquisition System," Department of Defense Instruction 5000.2 of 12 May 2003.

(8) Ibid, p. 7.

(9) Walker, David M., Testimony Before the Subcommittee on Government Efficiency and Financial Management, Committee on Government Reform, House of Representatives, 8 April 2003. Available as GAO Report 03-572T.

(10) Freidman, Stephen, Transforming Department of Defense Financial Management: A Strategy for Change, Final Report, Institute for Defense Analysis report to the Secretary of Defense, 13 April 2001.

(11) Readers are referred to the Business Management Modernization Program Web site at http://www.dod.mil/comptroller/bmmp/pages/mission.html.

Commander Philip J. Candreva is a lecturer in financial management at the Naval Postgraduate School in Monterey, California, where he teaches in the defense-focused MBA program, conducts the Navy Practical Comptrollership Course, and researches and writes on defense financial management topics. Previous tours of duty have included BFM positions in acquisition commands, comptroller in the working capital fund, and project management on a Navy ERP pilot. He is a member of the Acquisition Professional Community, a distinguished graduate of the Naval Postgraduate School, and a member of the Monterey Chapter of ASMC.