Full Potential To Achieve Savings by Investing in Fast Payback Productivity Enhancing Capital Equipment Not Realized

FGMSD-78-44: Published: Jul 25, 1978. Publicly Released: Jul 25, 1978.

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The Department of Defense's (DOD) fast payback productivity-enhancing capital-investment program was an attempt at: (1) improving the fairness with which relatively low-value productivity-enhancing equipment competes for public funds; and (2) eliminating the long approval leadtime associated with the annual budget review process. The program was begun in 1973 to take advantage of the relatively low-value investment opportunities that were being lost because no provisions were made to fund them as they occurred. Under the program, productivity-enhancing investments are separated from others for special consideration, and qualified investments are to be financed quickly. DOD officials have included $l3.5 million for the program in the 1979 budget request.

The basic concept of the program is sound and should be supported. The program enables DOD to finance productivity-enhancing investment opportunities that may not be funded because they were not provided for in the budget and, if not obtained quickly, could result in a significant loss of savings. The program has not, however, realized its full potential to achieve savings. For the fast payback program to achieve its full potential, management needs to: insure maximum identification of investment opportunities, improve the justification and approval process, and insure adequate postanalysis/followup evaluations. Problems in the program include: insufficient assignment of priority to the identification of capital investments; reluctance of managers to utilize the program because of lack of incentives; invalid and unsupportable justifications due to erroneous, incomplete, and undocumented economic analyses; independent review of investment justifications not conducted prior to approval; and inadequate monitoring and inaccurate reporting of savings.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should reauthorize a fast payback capital investment program, provide the funds requested by DOD, and direct the Secretary of Defense to correct the identified problems. The Secretary of Defense should emphasize the importance of identifying worthwhile fast payback investments and the need for program credibility. He should: assign a higher priority to identifying investment opportunities by instructing military departments to develop a systematic approach to identifying investments, establish an awareness program to provide knowledge of the benefits of productivity improvement, assure sound economic justification of investments by requiring independent reviews prior to approval of investments, assure systematic and independently verified feedback on investment benefits, establish a procedure for rewarding management decisions and employee proposals for capital investments, and include an audited accounting of savings produced by the program in the budget justification.

 

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