Summary
The Department of Defense (DOD) expects the cost to develop and procure the major weapon systems in its current portfolio to total $1.6 trillion. With increased competition for funding within DOD and across the federal government, effectively managing these acquisitions is critical. Yet DOD programs too often experience poor outcomes--like increased costs and delayed fielding of needed capabilities to the warfighter. In 2006, this Committee mandated that GAO report on DOD's processes for identifying needs and allocating resources for its weapon system programs. In 2007, GAO reported that DOD consistently commits to more programs than it can support. This follow-on report assesses DOD's funding approach, identifies key factors that influence the effectiveness of this approach, and identifies practices that could help improve DOD's approach. To conduct its work, GAO assessed 20 major weapon programs in DOD's current portfolio--5 in detail--and reviewed relevant DOD policy and guidance, prior GAO work, and other relevant literature. GAO also reviewed the practices of selected successful companies.
DOD often does not commit full funding to develop its major weapon systems when they are initiated, despite the department's policy to do so. For a majority of the weapon system programs GAO reviewed, costs have exceeded the funding levels initially planned for and reflected in the Future Years Defense Program (FYDP)--DOD's investment strategy. To compensate for these shortfalls, DOD makes unplanned and inefficient funding adjustments, like moving money from one program to another, deferring costs into the future, or reducing procurement quantities. DOD's flawed funding process is largely driven by decision makers' willingness to accept unrealistic cost estimates and DOD's commitment to more programs than it can support. DOD often underestimates development costs--due in part to a lack of knowledge and optimistic assumptions about requirements and critical technologies. At the same time, DOD's continued failure to balance its needs with available resources promotes unhealthy competition among programs for funding. This creates incentives for service and program officials to establish requirements that make their particular weapon systems stand out, with less consideration of the resources needed to develop them. Ultimately, DOD tends to push the need for funding to the future rather than limit program length or adjust requirements. The successful commercial companies that GAO has previously reviewed achieve adequate and stable funding for product development programs by following a disciplined, knowledge-based approach to estimating program costs; using manageable development cycles to increase the predictability of funding needs and the likelihood of program success; and using portfolio management practices to make decisions about which programs to pursue. Once programs are approved, these companies firmly commit to fully fund them.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
Michael J. Sullivan
Government Accountability Office: Acquisition and Sourcing Management
(937) 258-7915
Recommendations for Executive Action
Recommendation: To better ensure adequate funding for DOD's major weapon system acquisition programs and to increase the likelihood of achieving successful outcomes, the Secretary of Defense should develop and implement a strategy to bring the department's current portfolio into balance by aligning the number of programs and the cost and schedule of those programs with available resources. In developing and implementing a strategy, the department should determine ways to prioritize needs and identify whether the budget and the FYDP should be increased to more accurately reflect the actual costs of current programs or whether the portfolio of current programs should be reduced and lower-priority programs terminated to match available resources.
Agency Affected: Department of Defense
Status: Open
Comments: On September 25, 2008 DOD issued a capability portfolio management directive, DOD Directive 7045.20, which established a framework within which Capability Portfolio Managers (CPMs) advise senior DOD leadership on capability investments across the defense enterprise. However, the directive emphasizes that CPMs do not have independent decision-making authority, shall not infringe on any existing statutory or regulatory authorities, and shall work within established coordination processes. More recently, in Congressional testimony on April 6, 2009, the Secretary of Defense outlined sweeping changes to DOD's weapon system portfolio by recommending the reduction or cancellation of several weapon system programs that have incurred excessive cost overruns and schedule delays. These changes included halting production of the Air Force's F-22 fighter jet at 187 planes, eliminating funding for the new presidential helicopter program, and restructuring the Army's Future Combat Systems program into smaller, more manageable elements with proven mature technologies. While these changes are a step in the right direction, they do not represent a strategy for bringing the department's current portfolio into balance. However, DOD is currently in the process of conducting the 2010 Quadrennial Defense Review (QDR), which could set a long-term course for DOD to follow and will provide a strategic framework for managing its weapon systems portfolio. As such, the QDR has the potential to address this recommendation. Therefore, this recommendation will remain open, and we will follow up again after the QDR is completed.
Recommendation: To better ensure adequate funding for DOD's major weapon system acquisition programs and to increase the likelihood of achieving successful outcomes, the Secretary of Defense should require that all new programs have manageable development cycles, realistic cost estimates, and have planned and programmed full funding for the entire development cycle.
Agency Affected: Department of Defense
Status: Open
Comments: On December 2, 2008, the Department of Defense issued its revised acquisition policy, which places increased emphasis on the importance of assessing program costs early, establishing high-confidence cost estimates before initiating system development, and fully funding development. The revised policy requires cost estimates to be completed as early as Milestone A, and full funding to be programmed prior to Milestone B. The revised policy also requires program managers to assess the affordability of their programs by addressing costs during the requirements process. While the policy revisions have the potential to improve weapon system program funding, they do not address one key component of our recommendation; that is, to require all new programs to have manageable development cycles. While the revised policy suggests that programs should have short development timeframe (normally less than 5 years for weapon systems), cycle time is not a key metric in determining whether to begin a development program. In addition to these policy revisions, Congress enacted the Weapon System Acquisition Reform Act of 2009, which places increased emphasis on the importance of having high-confidence cost estimates for major acquisition programs. The Act specifically states that the Director of Cost Assessment and Program Evaluation, and the Secretary of the military department concerned or the head of the Defense Agency concerned shall each disclose the confidence level used in establishing a cost estimate for a major defense acquisition program or major automated information system program, the rationale for selecting such a confidence level, and, if such confidence level is less than 80 percent, the justification for selecting a confidence level of less than 80 percent. Revisions to the DOD 5000 policy and other recent legislative changes are assisting DOD to progress in the right direction. However, it will take time to implement the changes and to determine if they truly are meeting the intent of our recommendation. Therefore, we will continue to monitor DOD's efforts in this regard.
Recommendation: To better ensure adequate funding for DOD's major weapon system acquisition programs and to increase the likelihood of achieving successful outcomes, the Secretary of Defense should require all cost estimates submitted for funding a program at milestone decisions to be reported as a range of likely costs and reflect the associated levels of risk and uncertainty. At Milestone A, require estimates that allow for a wide range of likely costs. At Milestone B, require estimates that, based on knowledge gained, are more precise--in line with best practice standards.
Agency Affected: Department of Defense
Status: Open
Comments: While the Weapon System Acquisition Reform Act of 2009 and the recently revised DOD acquisition policy require increase emphasis on developing high-confidence cost estimates prior to initiating system development, they do not require estimates to be presented as a range of likely costs that reflect the associated levels of risk and uncertainty. The 2009 Act specifically states that the Director of Cost Assessment and Program Evaluation, and the Secretary of the military department concerned or the head of the Defense Agency concerned shall each disclose the confidence level used in establishing a cost estimate for a major defense acquisition program or major automated information system program, the rationale for selecting such a confidence level, and, if such confidence level is less than 80 percent, the justification for selecting a confidence level of less than 80 percent. The DOD revised acquisition policy requires initial cost estimates to be done prior to Milestone A and refined during technology development. If, during technology development, the cost estimate established at Milestone A increases by 25 percent or more the program manager is required to notify the Milestone Decision Authority (MDA), who will, in consultation with the requirements community, determine whether the magnitude of the need justifies the required level of resources. However, DOD has stated that the Cost Analysis Improvement Group (CAIG) routinely calculates cost risks for major milestone reviews by examining the key structural elements of cost estimates, including schedule durations, technical risks, contract vehicles, incentives, and management structures. In addition, DOD has noted that providing decision-makers a range of likely costs would not realistically correlate work breakdown structure elements in developing distributions of potential cost outcomes. Although DOD has taken initiative through both its policy and other recent changes to improve its cost estimating capabilities, in particular emphasizing the need for high confidence cost estimates,it is not clear if DOD will require programs to communicate the risk and uncertainty associated with their estimates. If, in implementing the new policy, DOD does begin to require programs to communicate risk and uncertainty it would progress the department's efforts in meeting our recommendation. Therefore, we will continue to monitor DOD's efforts in this area.
