DOD Approach to Business Transformation

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Since our 2019 High-Risk Report, ratings for all criteria remain unchanged. Specifically, the Department of Defense (DOD) has met the action plan criterion and partially met the leadership commitment, capacity, monitoring, and demonstrated progress criteria.

Leadership commitment: partially met. While DOD has continued to demonstrate leadership and show momentum in transforming its business operations, uncertainty about responsibility for the department’s business operations has increased.

For example, in 2019, the Secretary and Deputy Secretary of Defense led an assessment of organizations within the Office of the Secretary of Defense and selected Defense Agencies and DOD Field Activities (DAFA)—including those that support the department’s enterprise business operations. This effort aimed to better align resources with National Defense Strategy priorities.

While DOD’s actions over the past 2 years demonstrate a continued leadership commitment to business transformation, uncertainty about the responsibility for spearheading DOD reform and efficiency efforts calls into question whether this leadership commitment can be sustained. Most notably, the position of Chief Management Officer (CMO), which has functioned as the primary lead over DOD reform and efficiency efforts, has been eliminated by the National Defense Authorization Act for Fiscal Year 2021.

In recent years, this office had coordinated with other relevant components to further the department’s reform efforts. For example, as chair of DOD’s Reform Management Group, the governance forum for the department’s business reform efforts, the CMO played a key role in improvements in establishing cost baselines for business reform efforts. In January 2021, however, the Deputy Secretary of Defense issued a memorandum stating, among other things, that the Reform Management Group would be disbanded and its related ongoing actions transferred to the Defense Business Council.

Given the complexity and magnitude of the challenges facing DOD in improving its business operations, we previously identified the need for a CMO with significant authority and experience to sustain progress on these issues. While the National Defense Authorization Act for Fiscal Year 2021 provides for the transfer of the CMO’s responsibilities and resources to one or more offices within DOD, uncertainty about how the offices that assume these responsibilities will function—including whether they have appropriate authorities and resources to lead the department’s reform and efficiency efforts—may impede those efforts. The Deputy Secretary of Defense’s January 2021 memorandum provides an initial roadmap for dividing these responsibilities, but it will require specific implementing guidance. Also, there are questions about how these offices will coordinate with one another.

We have previously reported that in cases in which leadership changed—or was briefly absent—interagency collaborative mechanisms and related progress either disappeared or were considerably hindered. Our prior work has also found that organizational changes may take multiple years to be achieved. Institutionalizing these changes in policy or procedures can help sustain efforts beyond leadership turnover.

Even prior to the elimination of the CMO position, its roles, responsibilities, and authorities, such as the CMO’s ability to direct the military departments in matters related to business operations, remained informal and unresolved. Without a determination and communication by the Secretary or Deputy Secretary of Defense about how the CMO was to direct the business-related activities of the military departments, the CMO’s ability to lead DOD’s reform of its enterprise business operations and to direct the military departments was limited.

This situation could lead to fragmented business reform efforts. As the CMO’s roles and responsibilities are transferred to other officials, ensuring those officials have the necessary authorities, and that their roles and responsibilities are clearly communicated, will be important to sustaining progress in this area.

Capacity: partially met. In our March 2019 High-Risk Report, we highlighted that, while the CMO’s responsibilities were expanding, the budget requested for the Office of the CMO (OCMO) had declined. Additionally, we reported that DOD had established reform teams led by senior officials throughout the department charged with identifying and implementing initiatives to consolidate the department’s business operations.

However, the OCMO did not request funding for reform team initiatives, in part because officials had initially planned to use available funding from the savings generated by the initiatives to fund the development and implementation of other initiatives. OCMO officials later recognized the need for the initiatives to obtain funding separate from any savings realized, but had not developed an approach to do so. As a result, reform teams reported lacking funding needed to implement some of their initiatives.

DOD has made some progress in managing its existing capacity. For example, in August 2019, DOD issued guidance for reviews of the DAFAs. The guidance reflects key elements of quality evaluations including: (1) requiring frequent data-driven reviews that would support high-quality, sufficient, and appropriate data for their evaluations; (2) establishing clear criteria for selecting DAFAs to review; and (3) ensuring results of the review are relevant to leadership stakeholders. This step demonstrates a growing ability of the department to approach business transformation efforts in a methodical and systematic fashion.

However, DOD has still not established a process for identifying and prioritizing available funding to develop and implement initiatives from the cross-functional reform teams, as we recommended in January 2019. Also, OCMO officials told us that resource limitations continue to pose a significant challenge to them.

We also reported in November 2020 that while key offices responsible for overseeing reform efforts, including the OCMO, have generally followed leading practices for coordination, an absence of written guidance delineating roles and responsibilities could hinder future efforts. In light of the recent elimination of the CMO position, ensuring that the offices that assume the CMO’s responsibilities have sufficient capacity to perform those duties will be critical to sustaining progress on DOD’s efforts.

Action plan: met. In March 2019, DOD improved from partially met to met because DOD had issued its National Defense Business Operations Plan in May 2018. Further, DOD’s Fiscal Year 2019 Annual Performance Plan identified performance goals and measures to achieve the strategic goals and objectives described in the National Defense Business Operations Plan, including the goal of reforming the department’s business practices.

In its Fiscal Year 2020 and Fiscal Year 2021 Annual Performance Plans, DOD continued to reflect the strategic goals and objectives of the National Defense Business Operations Plan. As the CMO position’s responsibilities are dispersed, it will remain important for the department to continue its efforts in maintaining and refining its action plans.

Monitoring: partially met. The department has continued to make progress in monitoring its business transformation efforts, and officials have recognized the need for further improvements.

We reported in our March 2019 High-Risk update that DOD had established a senior-level Reform Management Group to identify opportunities for reform and provide support for its reform teams, although the structure and processes of the group were changing. We further described a portal the group used to track project milestones and metrics.

In recent years, DOD had refined and updated its Reform Management Group processes by, for example, establishing a charter and clarifying decision milestones for the group. DOD had continued to use its portal to provide a single source to report transparently and consistently on business reform initiatives in support of the Reform Management Group. However, as noted above, the Reform Management Group has now been disbanded.

DOD also made some progress since 2019 in establishing valid and reliable cost baselines for its enterprise business operations and in documenting related cost savings. For example, we reported in November 2020 that in a January 2020 report on defense business operations mandated by Congress, the department addressed most of the key requirements, such as reporting the number of military and civilian personnel as well as the costs of required enterprise business activities. Further, the department was transparent in acknowledging data limitations, such as a lack of specific financial data, which precluded it from meeting all requirements.

DOD has ongoing efforts to develop baselines for all of the department’s enterprise business operations that should enable it to better track the resources devoted to these operations and reform progress. In November 2020, we also reported that we observed a demonstration of the analytical tools designed to help DOD track reforms, including a tool that visualized and detailed the costs associated with individual business operations.

We also reported that, while still in progress, this effort shows promise in meeting the need for consistent baselines for DOD’s reform efforts. Ensuring that these tools are further refined and adopted across DOD’s enterprise business operations are key steps in ensuring the department has a consistent basis on which to make decisions and measure progress of its reform efforts. As the CMO’s responsibilities are dispersed, ensuring that these efforts to monitor the department’s progress are sustained will be an important part of DOD’s efforts in this area.

Demonstrated progress: partially met. DOD has claimed progress in business reform from a number of efforts, including its Defense-wide Reviews, and reform efforts led by the Reform Management Group, among others. DOD claimed a total of $37 billion in savings from fiscal year 2017 through fiscal year 2021 from its reform efforts in its annual budget materials and other reports.

However, we were unable to determine the quality of the analysis that led to DOD’s savings claims. In our November 2020 report, we reviewed selected initiatives that support the department’s reform efforts and we were generally able to validate cost savings by comparing them with budget materials. However, DOD’s analysis supporting the savings was not always well documented. For example, DOD had limited information on the analysis underlying its savings estimates, including (1) economic assumptions, (2) alternative options it considered, and (3) any costs of taking the actions to realize savings, such as implementation or opportunity costs.

Further, we reported that some of the cost savings initiatives were not clearly aligned with DOD’s definitions of reform; as a result, DOD may have overstated savings from its reform efforts. For example, one initiative was based on the delay and elimination of certain military construction projects in fiscal year 2021 to, according to DOD officials, fund higher priorities. If a construction project is delayed but still planned, those costs will likely be realized in a future year.

As we reported in November 2020, without processes to standardize development and documentation of savings and to consistently identify reform savings based on reform definitions, decision makers lack reliable information on DOD’s estimated reform savings. Nor do they have information on the extent to which these savings are due to the transformation of its business operations.