Defense Planning: Opportunities to Improve Strategic Reviews (20-MAR-01, GAO-01-514R)
For several years, GAO has reviewed the Department of Defense's
(DOD) efforts to strategically plan for the nation's defense
needs and prepare related budgets. In particular, GAO evaluated
DOD's methodology for conducting the 1993 Bottom-Up Review and
the 1997 Quadrennial Defense Review (QDR), and its preparation of
several Future Years Defense Programs (FYDP). As DOD began a new
effort to review its strategic priorities, GAO shared some
observations on the importance of (1) using realistic assumptions
and integrated analyses to reach force structure and
modernization decisions, (2) preparing FYDPs that clearly link
strategy and resources, and (3) ensuring DOD's review efforts
carefully scrutinize opportunities to reduce support
infrastructure and improve business processes.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-514R
ACCNO: 164630
TITLE: Defense Planning: Opportunities to Improve Strategic
Reviews
DATE: 03/20/2001
SUBJECT: Defense contingency planning
DOD Bottom-Up Review
DOD Future Years Defense Program
DOD Quadrennial Defense Review
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GAO-01-514R
Defense Planning United States General Accounting
Office Washington, DC 20548
March 20, 2001 The Honorable Donald H. Rumsfeld Secretary of Defense
Subject: Defense Planning: Opportunities to Improve Strategic Reviews Dear
Mr. Secretary: For the past several years, the General Accounting Office
(GAO) has reviewed the Department of Defense's (DOD) efforts to
strategically plan for the nation's defense needs and prepare related
budgets. In particular, we evaluated DOD's methodology for conducting the
1993 Bottom- Up Review and the 1997 Quadrennial Defense Review (QDR), and
its preparation of several Future Years Defense Programs (FYDP). As the
Department begins a new effort to review its strategic priorities, consider
alternatives to current forces, weapons programs, and support operations,
and reach investment decisions, we would like to share some observations
based on our past work for your consideration. In particular, these areas
relate to the importance of 1) using realistic assumptions and integrated
analyses to reach force structure and modernization decisions, 2) preparing
FYDPs that clearly link strategy and resources, and 3) ensuring the
Department's review efforts carefully scrutinize opportunities to reduce
support infrastructure and improve business processes. USE OF REALISTIC
ASSUMPTIONS AND INTEGRATED ANALYSES NEEDED TO FULLY ASSESS FORCE STRUCTURE
AND MODERNIZATION ALTERNATIVES Our evaluation of the 1993 Bottom- Up Review
and the 1997 QDR identified
limitations in DOD's analytical approach to assessing defense needs and
opportunities to strengthen future review efforts. 1 1 Bottom- Up Review:
Analysis of Key DOD Assumptions (GAO/ NSIAD- 95- 56, Jan. 31, 1995) and
Quadrennial Defense Review: Opportunities to Improve the Next Review (GAO/
NSIAD- 97- 144, June 25, 1998).
GAO- 01- 514R Defense Planning Page 2 1993 Bottom- Up Review In the Bottom-
Up Review, DOD judged that it was prudent to maintain the capability
to fight and win two nearly simultaneous major regional conflicts and
determined the forces, capability improvements, and funding necessary to do
so. However, DOD reached its conclusions without fully analyzing the
validity of key assumptions it made regarding the availability of forces,
supporting capabilities, and enhancements. Furthermore, some of DOD's
assumptions were questionable.
For example, DOD assumed that forces would be redeployed from other
operations, such as peacekeeping, to regional conflicts or between regional
conflicts. However, our work showed that critical combat and support forces
needed in the early stages of a conflict may not be able to quickly redeploy
from peace operations because
(1) certain Army support forces would need to remain to facilitate the
redeployment of other forces and (2) logistics and maintenance support for
specialized Air Force aircraft would have to wait for available airlift. DOD
also assumed sufficient strategic lift assets, prepositioned equipment, and
support forces would be available. However, at the time of our review in
1994 and 1995, our work showed that the Army lacked sufficient numbers of
certain support units to meet requirements for a single conflict and that
DOD had encountered problems or funding uncertainties in acquiring
additional airlift and sealift and prepositioned equipment. Based on our
work, we concluded that until DOD fully analyzed its assumptions, it
would not have a firm basis for determining the forces, supporting
capabilities, and funding needed for the strategy. We recommended that DOD
thoroughly examine key Bottom- Up Review assumptions. In a subsequent war
game called Nimble Dancer, DOD further analyzed its Bottom- Up Review
assumptions and conclusions. While the war game provided a useful forum for
identifying critical issues, we found limitations in its analysis. 2 For
example, DOD examined the impact of extracting forces from peace operations
and redeploying them to a major regional conflict, but did not test the
sensitivity of its assumption that strategic lift would be available.
2 Bottom- Up Review: Analysis of DOD War Game to Test Key Assumptions (GAO/
NSIAD- 96- 170, June 21, 1996).
GAO- 01- 514R Defense Planning Page 3 1997 QDR The 1997 QDR, while broader
in scope and more rigorous in some aspects than the
1993 Bottom- Up Review, also had some limitations that precluded a full
analysis of defense needs. One limitation was that it did not examine some
alternatives that would have provided greater assurance that the review
identified the force structure and the modernization program that were best
suited to implement the defense strategy. For example, the QDR's force
assessments only modeled alternatives to cut the services' forces
proportionately by 10, 20, and 30 percent. It did not examine alternatives
that would reduce or increase only ground forces or air power or naval
forces. Furthermore, none of the assessments fully examined the potential
effects of new technologies and war- fighting concepts on DOD's planned
force structure.
The 1997 QDR also did not include a thorough mission- oriented review of the
mix of capabilities the United States would need to counter future threats.
For example, DOD analyzed modernization options that would reduce or
increase planned funding for systems by up to 10 percent. It did not examine
trade- offs or fundamentally reassess modernization needs in light of
emerging threats and technological advances.
Furthermore, the modernization and force structure analyses were not fully
integrated. As a result, the QDR did not sufficiently examine linkages and
trade- offs between force structure and modernization decisions.
In addition to our Bottom- Up Review and QDR analyses, we previously
reported on the benefits of looking at modernization and force structure
from an integrated perspective. For example, in two 1996 reports on combat
air power, 3 we noted that DOD was not developing sufficient information
from a joint perspective to enable the Secretary of Defense to prioritize
programs, objectively weigh the merits of new investments, and decide
whether current programs should continue to receive funding. As a result, we
concluded that DOD was proceeding with some major investments without clear
evidence the programs were justified. Our assessments indicated that some
modernization programs would add only marginally to already formidable
capabilities. Moreover, the changed security environment had altered the
need for some programs and, in some cases, less costly alternatives existed.
Also, in a June 1997 report on overseas presence, 4 we concluded that DOD's
process for determining presence requirements did not analyze whether more
cost- effective alternatives- different levels and mixes of forces and
activities- might exist.
Currently, DOD faces the same challenge as it did during the Bottom- Up
Review and 1997 QDR- developing an affordable defense program that provides
the necessary
3 U. S. Combat Air Power: Reassessing Plans to Modernize Interdiction
Capabilities Could Save Billions (GAO/ NSIAD- 96- 72, May 13, 1996) and
Combat Air Power: Joint Mission Assessments Needed Before Making Program and
Budget Decisions (GAO/ NSIAD- 96- 177, Sept. 20, 1996). 4 Overseas Presence:
More Data and Analysis Needed to Determine Whether Cost- Effective
Alternatives Exist (GAO/ NSIAD- 97- 133, June 3, 1997).
GAO- 01- 514R Defense Planning Page 4 current and future military
capabilities to support the U. S. strategy. While the DOD
may approach the current effort differently, the need for strong analytic
rigor in its review methodology remains. In this regard, our observations on
the past efforts remain relevant today and can provide some useful insights
as the Department plans
and conducts its ongoing review (see enclosure II). NEED FOR MORE REALISTIC
BUDGETING Since the mid- 1980s, we have reported that DOD employs overly
optimistic planning
assumptions in its budget formulation. As a result, DOD has too many
programs for available dollars, which often leads to program instability,
costly program stretchouts, and program terminations. In particular, our
analysis of DOD's budget formulation efforts since the mid- 1980s and
specific FYDPs for fiscal years 1995 through 2001 shows that DOD's FYDPs
repeatedly include unrealistic estimates of savings from plans to reduce
infrastructure, competitive sourcing, reengineering, and other defense
reform initiatives. Also, it continues to underestimate operating costs for
various activities such as real property maintenance, the Defense Health
Program,
and operations such as U. S. involvement in Kosovo and Bosnia. Furthermore,
DOD continues to use projections for increased procurement funding that do
not recognize significant historical experience with the proportional rise
and fall of procurement funding to movements in the total budget. Because of
these deficiencies, DOD's
ability to implement its program as planned is at risk, year after year.
While DOD has made some adjustments to achieve a better balance in its
financial plans to meet current requirements and address long- term
modernization needs, a
“mismatch” between strategy and resources continues to exist.
The most recent FYDP covering fiscal years 2001 through 2005 continues this
trend. As the Department prepares future FYDPs, we suggest you consider our
observations on its past efforts (see enclosure III).
IMPORTANCE OF FULLY EXAMINING SUPPORT INFRASTRUCTURE AND BUSINESS PROCESSES
DURING CURRENT REVIEW EFFORTS The 1993 Bottom- Up Review and 1997 QDR
emphasized the need to reduce DOD's infrastructure to offset the cost of
future modern weapons systems and to improve the effectiveness and
efficiency of business processes. In November 1997, DOD announced the
Defense Reform Initiative- a major effort to modernize the Department's
business processes and reduce its infrastructure costs. In 1999 and 2000, we
reported that DOD had made progress in implementing the reform initiative. 5
For example, DOD established a management oversight structure that helped
get the initiative off to a good start and had completed or was likely to
complete certain initiatives on schedule such as reorganizing and reducing
staff in
certain headquarters offices. To provide a roadmap for reform and help
sustain 5 Defense Management: Actions Needed to Sustain Reform Initiatives
and Achieve Greater Results (GAO/ NSIAD- 00- 72, Jul. 25, 2000) and Defense
Reform Initiative: Organization, Status and Challenges (GAO/ NSIAD- 99- 87,
Apr. 21, 1999).
GAO- 01- 514R Defense Planning Page 5 momentum, we recommended that DOD
develop a comprehensive, integrated
strategy and action plan for reforming its major business processes and
support activities, and an investment plan for implementing reforms. While
the Department agreed with our recommendation, it did not specify what
actions it would take and has not yet developed a long term integrated plan
for implementing reform initiatives.
In January 2001, we reported on the major management challenges facing DOD
and risks in several interrelated areas of the defense program. 6 Focusing
on strategic planning, support infrastructure, and key business processes
such as financial management and information systems, weapons system
acquisition, and logistics support systems, we summarized the Department's
progress in initiating reforms and
areas requiring further improvements. For example, despite reform efforts,
infrastructure costs continue to consume a larger than necessary portion of
the defense budget and serious weaknesses continue to exist in logistics
activities.
In its past strategic reviews, the Department has focused substantial
attention on analyzing force structure and modernization requirements.
However, if problems on the business side of DOD's mission are not
addressed, inefficiencies will continue to make the cost of carrying out
unassigned missions unnecessarily high and increase the risk associated with
these missions. In this regard, each dollar that is spent inefficiently on
support activities is a dollar that is unavailable to meet other internal
priorities such as modernization and readiness. The current review offers an
indispensable opportunity for the Department to assign high priority to
addressing longstanding problems in its infrastructure and key business
processes as we have recommended in our reports.
I recognize the issues raised in this letter are not new and that you have
already begun a strategic review as a precursor to determining specific
defense needs and the appropriate level of resources for the defense
program. A recurring theme of our work is that results- oriented management
and decisionmaking based on sound strategic planning is essential to
achieving desired outcomes. In this regard, major statutes such as the
Government Performance and Results Act, the Clinger- Cohen Act, and the
Chief Financial Officers Act provide a powerful framework for DOD to
identify missions and strategic priorities, establish performance goals and
data to
measure the level of achievement of these goals, and make investment
decisions based on strategic priorities and performance outcomes. I
encourage you to seriously consider using this legislative framework as the
foundation for the
Department's review efforts. - - - - 6 Major Management Challenges and
Program Risks: Department of Defense (GAO- 01- 244, Jan. 2001).
GAO- 01- 514R Defense Planning Page 6 I hope that the Department will
consider our observations in its review efforts. If you
think it beneficial, I would be glad to make members of my staff available
to brief the Department in more detail on any of the subjects discussed in
this letter. If you have any questions, please contact me at (202) 512-
4300.
Sincerely yours, Henry L. Hinton, Jr. Managing Director, Defense
Capabilities and
Management
Enclosure I Enclosure I Page 6 GAO- 01- 514R Defense Planning Relevant GAO
Products Future Years Defense Program: Risks in Operation and Maintenance
Procurement Programs (GAO- 01- 33, Oct. 5, 2000).
Future Years Defense Program: Comparison of Planned Funding Levels for the
2000 and 2001 Programs (GAO/ NSIAD- 00- 179, June 14, 2000).
Future Years Defense Program: Funding Increase and Planned Savings in Fiscal
Year 2000 Program Are at Risk (GAO/ NSIAD- 00- 11, Nov. 22, 1999).
DOD Budget: Substantial Risks in Weapons Modernization Plans (GAO/ T- NSIAD-
99- 20, Oct. 8, 1998).
Future Years Defense Program: Substantial Risks Remain in DOD's 1999- 2003
Plan (GAO/ NSIAD- 98- 204, July 31, 1998). Defense Budget: Projected
Inflation Savings (GAO/ NSIAD- 98- 177R, May 11, 1998). Future Years Defense
Program: DOD's 1998 Plan Has Substantial Risk in Execution (GAO/ NSIAD- 98-
26, Oct. 23, 1997).
Future Years Defense Program: Lower Inflation Outlook Was Most Significant
Change From 1996 to 1997 Program (GAO/ NSIAD- 97- 36, Dec. 12, 1996).
Future Years Defense Program: 1996 Program Is Considerably Different From
the 1995 Program (GAO/ NSIAD- 95- 213, Sept. 15, 1995). Future Years Defense
Program: Optimistic Estimates Lead to Billions in
Overprogramming (GAO/ T- NSIAD- 95- 83, Jan. 19, 1995). Future Years Defense
Program: Optimistic Estimates Lead to Billions in Overprogramming (GAO/
NSIAD- 94- 210, July 29, 1994).
Enclosure II Enclosure II Page 7 GAO- 01- 514R Defense Planning GAO's Key
Observations and Recommendations or Suggestions on the Department of
Defense's 1993 Bottom- Up Review and 1997 Quadrennial Defense Review Area of
focus Our observations Our recommendations or suggestions Bottom- Up Review
analysis The Department of Defense (DOD) did not
fully test or analyze key assumptions regarding the availability of forces
and assets to redeploy from one theater to another, deployability of reserve
forces,
sufficiency of support capabilities such as mobility and support forces, and
planned capability enhancements such as precision munitions were not fully
tested and some were questionable.
DOD should thoroughly examine assumptions related to the redeployment of
forces and assets from lesser operations to major conflicts or between major
conflicts, availability of mobility, support and reserve forces,
and planned enhancements to strategic lift and firepower. QDR preparation
DOD had not developed a formal process to prepare for and coordinate
activities
related to future Quadrennial Defense Reviews (QDR). DOD did not finalize
the defense strategy until the force structure
and modernization panels had completed much of their work.
DOD should assign overall responsibility and coordination of preparation
efforts for future QDRs.
Such efforts should include to identify analytic tools and data needed for
assessments, monitor efforts to upgrade models, summarize lessons learned,
and consider changing the QDR structure and timing to allow sufficient time
to conduct a strategy review and good analytic base.
QDR structure and methodology DOD's force structure assessments
modeled only major theater warfare and did not examine alternatives other
than proportional reductions to the services' combat capabilities. In a QDR-
war game, Dynamic Commitment, DOD analyzed the effect of small scale
contingencies but did not identify or
analyze changes to force structure. DOD's modernization assessment reviewed
proportional changes to existing plans but did not examine alternative mixes
of air, ground, and maritime modernization.
Modernization and force structure panels completed their analyses separately
and did not model trade- offs between force
structure and modernization alternatives. DOD did not examine the potential
effects of new or advanced technologies or enemy use of asymmetric concepts
of warfare
used by U. S. and enemy forces on operational concepts or force structure
because of limitations in available models. DOD could model existing force
structure prior to next QDR to establish a baseline to use as a basis for
comparison and allow more emphasis
on modeling alternative structures. DOD could examine ways to improve the
war game. These improvements can be used to examine force structure
alternatives.
DOD could vary the mix to provide more insight into modernization tradeoffs.
To ensure better integration, DOD could form one panel to analyze force
structure and modernization issues or
maintain separate panels but provide guidance to ensure that panels
collaborate and examine trade- offs. DOD needs to determine how it can
improve its analysis of the impact of technological advances and asymmetric
concepts of warfare. Source: Our analysis.
Enclosure III Enclosure III Page 8 GAO- 01- 514R Defense Planning GAO's
Observations on DOD's Budget Formulation Efforts and
Future Years Defense Programs for Fiscal Years 1995 through 2001 Area of
focus Our observations Results of DOD's actions Planning assumptions Since
the mid- 1980s, we have reported and testified that DOD employs overly
optimistic planning assumptions in its
budget formulation, which leads to far too many programs for the available
dollars.
Optimistic planning assumptions used in DOD's Future Year Defense Programs
(FYDP) often fall into one or more of the following categories:
overestimation of future savings to be generated from management
initiatives, competitive sourcing, and reengineering; underestimation of
costs; and use of overly optimistic inflation forecasts and fuel costs and
favorable foreign currency exchange rates.
DOD has too many programs for the available dollars, which often leads to
program instability, costly program stretch- outs, and
program terminations. Optimistic planning makes defense priorities unclear
because tough decisions and trade- offs between needs and wants are avoided.
It also
increases the risk that DOD will not be able to execute its programs as
planned. For
example, our reviews of DOD's FYDPs over the past few years have shown that
DOD has not been able to reduce its
infrastructure and increase procurement funding to the extent desired. This
problem can be attributed somewhat to optimistic projections of future
savings that did not materialize. Shifting of funds Based on our analysis of
DOD's FYDPs,
we have consistently reported that DOD has had difficulty meeting its
planned growth in procurement funds and as a result, increases in
procurement funds
were shifted to the future. This pattern was caused by the need to use
procurement funds for operation and maintenance activities, which have
continued to represent a large proportion of DOD's budget.
Further shifting of planned procurement funding creates a large demand for
procurement funding in later years. This
movement raises the risk that budgeted funds will be insufficient to cover
needs. As a
result, existing equipment could deteriorate and become obsolete, which
could compromise the technological superiority of future forces.
Budgets do not reflect realistic estimates for procurement funding due to
the long- standing problem of cost growth. Costs of several weapons systems
could
exceed current project costs. Source: Our analysis. (350056)
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