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TESTIMONY OF
JOANN R. BOUTELLE
DEPUTY CHIEF FINANCIAL OFFICER
DEPARTMENT OF DEFENSE

BEFORE THE
HOUSE ARMED SERVICES COMMITTEE
SUBCOMMITTEE ON TERRORISM, UNCONVENTIONAL THREATS AND CAPABILITIES
UNITED STATES HOUSE OF REPRESENTATIVES

REGARDING DEPARTMENT OF DEFENSE BUSINESS TRANSFORMATION EFFORTS

 March 31, 2004 

Mr. Chairman, members of the Committee, I am happy to be here to discuss the transformation of Department of Defense (DoD) business management.

At the outset, I want to underscore the resolve of the Department of Defense to sustain and expand the substantial business management progress of the last three years.  Today I want to summarize the management challenges DoD has faced, what we have done to overcome these challenges, and the work ahead to finish the task.

Business Management Challenges DoD Has Faced

Over the past three years, under Secretary Rumsfeld's strong leadership and determination, the Department of Defense has made enormous progress in overcoming business management challenges that developed and persisted over the past several decades.  For many years, DoD business management systems have been unable satisfactorily to:

• Interact with one another and facilitate the synthesis of management processes;

• Provide DoD decision makers with timely, accurate, and reliable information;

• Fulfill all financial management laws, standards, and requirements; or

• Produce auditable financial statements.

The primary cause of this situation was that for decades the military services and most DoD agencies and functional communities were permitted to develop and use their own business processes and systems.  There was no requirement to adhere to a DoD-wide architecture or set of common standards.  Inevitably these independent systems rarely could interact with other systems.  Their information could not be easily  exchanged nor aggregated for use by senior DoD leaders for decision making.  Additionally, DoD's inability to generate clean auditable financial statements reflects the fact that DoD's business systems were designed to achieve a specific functional purpose (logistics, acquisition, human resources, etc.) - not to produce data necessary for such statements.

One of the most important actions of the Bush Administration regarding DoD business management was to decide that marginal changes would not be sufficient to overcome challenges that had been developing for decades.  In previous administrations, marginal changes had produced only marginal results.  So in 2001, Secretary Rumsfeld and his leadership team embarked on an ambitious path to achieve the comprehensive solution needed to give the Department superlative, integrated management processes and systems  that meet federal government requirements - notably, auditable financial statements resulting in clean (unqualified) audit opinions.

Business Management Modernization Program

To transform DoD business management, DoD leaders realized that we needed to transform management processes and systems in all major functional areas.  To do this, we created the Business Management Modernization Program (BMMP).

BMMP is a massive undertaking and will take several more years to complete.  This program is centered around changing our business processes to achieve efficiencies and, in the process, eliminating redundant and non-compatible systems.  We are working to streamline, reengineer, and standardize our business practices -- not simply improve the handling of information.  BMMP will enable us to transition from the current collection of predominantly incompatible and inadequate management systems to an integrated network of systems, based on the uniform implementation of requirements across the Department.  Our last completed inventory identified about 2300 DoD business systems.  Our ongoing efforts to identify all DoD business systems indicate that the real total is a much higher number.

Early on, DoD leaders  determined that  a top-down, incremental approach was necessary for successful  business transformation.  We are pleased that the General Accounting Office (GAO) - which continues to thoroughly review our plans- agrees with this approach.  The Department's task is to transform an extraordinarily complex conglomeration of business systems and processes that we use to run our military and civilian operations day-to-day and around the world.  Our only practical option is to approach transformation incrementally.  We cannot shut down the Department of Defense for a decade, throw out all old business processes and systems, and start from scratch guided by a fully developed, comprehensive enterprise architecture.  Instead, our task is like trying to change the tires on an automobile going 60 miles per hour.  We must transform DoD business processes and systems without interrupting current business operations.

Evolution of the Business Enterprise Architecture and Transition Plan

The centerpiece of BMMP is the transformational tool known as the Business Enterprise Architecture (BEA).  The BEA is a blueprint to guide DoD's diverse business communities in transforming their processes and systems.  It will describe the requirements that DoD business processes and systems must meet to achieve the goals of transformation.  The initial version of the BEA got us off to a strong start.  But it will take several more versions, to refine and extend the architecture until it fully describes the end state of successful business transformation - what we term, the "To-Be" environment.  Our aim is that each successive BEA version includes more of the detail needed to guide and complete the full transformation of DoD business processes and systems.  The BEA will be an ongoing initiative requiring continuous update and maintenance.

Besides refining and extending the BEA, we also are aggressively building a comprehensive Transition Plan.  The Transition Plan provides a high level view of roles and responsibilities for implementing business and financial reform.  It also depicts the migration strategy from our legacy systems environment to the new mix of systems needed to achieve DoD business transformation.  The Transition Plan will guide us from our "As Is" inefficient and ineffective environment to a "To Be" fully transformed state.

The FY 2005 budget requests $122 million to continue the transformation efforts of BMMP, including the evolution and extension of the BEA.  I urge congressional support for that request, which is critical to the business transformation that all agree is vitally needed.

BMMP Governance

The Department's business transformation is being guided through an extensive and strong governance process that includes all senior DoD managers.  Specific responsibilities for business transformation have recently been published.

The key to successful DoD business transformation is strong, integrated governance by the designated leaders or "Owners" of six business areas called Domains:  Logistics, Acquisition, Installations and Environment, Human Resources Management, Accounting and Finance, and Strategic Planning and Budgeting - as well as the Mission Area Lead of the Mission Area.   The Domain Owners are:

• Under Secretary of Defense (Acquisition, Technology and Logistics) for Logistics, Acquisition, and Installations and Environment.

• Under Secretary of Defense (Personnel and Readiness) for Human Resources Management.

• Under Secretary of Defense (Comptroller) for Accounting and Finance, and Strategic Planning and Budgeting.

As part of the Department's Global Information Grid (GIG), the Assistant Secretary of Defense (Networks and Information Integration)/Chief Information Officer -- ASD(NII)/CIO) -is the Mission Leader of the Enterprise Information Environment (EIE) Mission Area.  This is Mission Area represents the common, integrated computing-communications environment composed of equipment, software, and common information capabilities or services for GIG Enterprise use.

At the Department level the Business Modernization and Systems Integration (BMSI) Office -- which works for the Under Secretary of Defense (Comptroller) -- is responsible to lead, coordinate, and integrate BMMP implementation.  The Office reports on BMMP progress and issues to the BMMP Steering Committee, whose members include the Principal Deputies of the Domain Owners, as well as the Chief Information Officers, Chief Financial Officers, and Acquisition/Logistics Leads from each Military Service.  The BMSI Office also reports to the BMMP Executive Committee, whose members include three Under Secretaries of Defense, the DoD CIO, and the Under Secretaries of the Services.  Each Domain has a Steering Committee to carry out its oversight.

Portfolio Management and Controlling Investments

Domain Owners are responsible for overseeing business transformation for their functional area for the Military Services and other DoD components.  They will fulfill their responsibilities through what we term portfolio management.  Under our portfolio management concept, each Domain Owner will govern investments in information technology and process reengineering for their business area.

At this stage in the Department's business transformation, Domain Owners are focusing on certain high priority requirements.  Most notably, we are focused on ensuring that our business systems support two critical requirements:  obtaining an unqualified audit opinion on DoD financial statements, attaining total asset visibility, and achieving total force visibility.  Using portfolio management, Domain Owners play the key role in ensuring that requirements, rules, and regulations are completely and consistently addressed in each system where they are relevant to these requirements.  Domain Owners are actively engaged in portfolio management now, with some further along than others.

Section 1004 of the FY 2003 National Defense Authorization Act requires the DoD Comptroller to certify that system initiatives with obligations of more than $1 million are consistent with the Department's enterprise architecture and transition plan.  Domain Owners are the key players is this certification.  They ensure that initiatives within their domain are consistent with the current BEA version., so that the high priority DoD requirements are addressed consistently across the Department by each system, as a prerequisite of obtaining funding support.

Domain Owners also are being challenged to feed their evolving requirements into the process for expanding the BEA so that those requirements are incorporated into future BEA versions.  This will ensure that the BEA continues to accurately incorporate the most recent changes in law, rules, regulations, and best practices, both commercial and government.

The BEA version scheduled for release this summer will be sufficient to enable the Department to ensure strong oversight of ongoing and planned investments in business systems with respect to our established current priorities.  The Department already has certified some new system initiatives with planned obligations of more than $1 million, and is setting up the processes to thoroughly review all remaining systems planning to spend over $1 million, as required by law.

Domain Owners will also have the lead in determining what business systems need to be phased out - and when to do so to best complement the investment in new initiatives necessary to achieve our stated transformational goals, e.g., unqualified audit opinion.  Since the Department began its business transformation in early 2001, we have eliminated  approximately 238 systems.  We still have a long way to go.

A Functional Hybrid Final Solution

The critical role of domain owners underscores that transformation of DoD business management will be functionally oriented.  This means that if we determine that we can optimize our business practices by adopting a single system across the Department for a particular function, then we should do so.  For example, all military personnel are governed by the same statutes, so DoD ought to have only one system to manage them, and that indeed is our plan.  Travel is another example where standardization will result in efficiencies in time and dollars across the Department.  Transformation is not as straightforward when attempting to standardize our current acquisition and logistics practices and systems.   However, our goal is still a minimal number of systems necessary to achieve our mission goals and capabilities.

Each military service has unique warfighting and support systems necessary for them to carry out their respective missions..  Eventually, these distinctive systems could become fully integrated into a cohesive network of systems -- either through modification to become consistent with the BEA, or through adaptation of the requirement within the BEA, or a combination of the two.  Such an integration would be our goal.  But complete and absolute consistency across the services is not practicable, given the varying mission requirements - for example, a system related to Navy's nuclear programs or its shipyard operations.  For these unique systems, we still would need to integrate them into our DoD network of systems.  But we might do that by splicing into the network, rather spending money to change a truly unique system.

In this sense, the Department's final transformed business management will be a hybrid.  Many systems will be a streamlined integrated solution that developed through an end-to-end reengineering of a business process.  But other systems might not be as "elegant" - having been developed through a combination of top-down and bottom-up work.  And that is fine.  We do not want to spend millions replacing older systems when they and the BEA can be adapted to integrate those systems into a cohesive DoD network.

Under either of these types of solutions, we expect to have thousands of fewer systems.  Our BMMP aim is to rapidly identify redundant systems and consolidate others.  Legacy systems will be retained and accommodated only for compelling reasons - e.g., because they are truly unique or because accommodating them is the most economical course.

Staying the Course

DoD business management systems and their related information technology (IT) systems are expensive.  When the Department's business management transformation is complete, we expect these systems to consume a smaller portion of our budget and work vastly better.  In the meantime, we must sustain investment in DoD business systems - both to enable the Department to meet its mission objectives  and to continue to advance transformation.

It is tempting to believe that cutting the Department's IT funding will not hurt too much because it will force DoD leaders to accelerate the retirement of older, inefficient business systems.  I wish it were that easy.  If we could cut funding for older systems without excessive damage, we would have already done so and shifted that funding to other priorities within the Department.

Some also might believe that cutting the Department's IT funding would hasten business transformation by accelerating the shift from older to newer systems.  In fact, it would likely have the opposite effect.  We need to maintain our full IT funding to continue our business transformation without shutting down DoD operations.  A major IT funding reduction would most likely force us to curtail funding in transformational activities, to include new systems, because we cannot terminate old systems until replacements are fully functional.

Closing

In closing, I want to thank this committee for its interest in the Department of Defense effort to transform its business operations.  We are at a critical stage in our transformation.  We are off to a strong start, but much remains to be done.  We face difficult challenges as we maneuver our way during these next several years.  Through aggressive implementation of the BEA, we are driving the Department to transform business processes as rapidly as possible, while improving the effectiveness with which we execute our national security mission.

This transformation is as complex and difficult as any challenge the Department has faced.  What is at stake is nothing less than the future quality and cost of DoD management of its hundreds of billions of dollars in assets, liabilities, and appropriations.  Transformation is absolutely crucial to DoD's ability to enhance America's national security in this era of terrorism and uncertainty.  The speed, accuracy, interoperability, reliability, and dependability of our information resources are critical.

The Department has a comprehensive program and plan to transform its business processes and systems in a sustainable way.  We want and welcome Congress's support and assistance to complete this historic undertaking.  Thank you.

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