Defense Acquisitions:

A Knowledge-Based Funding Approach Could Improve Major Weapon System Program Outcomes

GAO-08-619: Published: Jul 2, 2008. Publicly Released: Jul 2, 2008.

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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 for Executive Action

  1. Status: Closed - Implemented

    Comments: According to DOD, it has taken several steps to implement this recommendation, including establishing capability portfolio managers to better balance capability needs and implementing configuration steering boards to limit cost growth. The Secretary of Defense in 2009 and 2010 started to rebalance and reprioritize DOD's weapon system investments by recommending the reduction or cancellation of several weapon system programs that have incurred excessive cost overruns and schedule delays. For example, the Undersecretary of Defense in September 2010 issued a memorandum to require weapon system program managers to treat affordability as a requirement before granting milestone authority to proceed with a program. DOD's effort to 'do more without more' as part of its Better Buying Power efficiency initiative has the department implementing a range of efficiency initiatives that focus on affordability, tradeoffs, and portfolio reviews, and are consistent with past GAO recommendations. In addition, GAO's work has shown that the number of programs in DOD's 2012 portfolio is projected to be the smallest since 2004 as more programs continue to leave the portfolio than enter it which is positive sign that DOD is adjusting its number of programs to meet resources. As a result of these actions, DOD has met the intent of our recommendation.

    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

  2. Status: Closed - Not Implemented

    Comments: DOD has taken several actions that partially address this recommendation. In December 2008, DOD issued its revised acquisition policy, which places increased emphasis on the importance of assessing program costs early, establishing high-confidence cost estimates as early as Milestone A, and fully funding programs 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. 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 estimates for major acquisition programs. As a result of other statutory changes, DOD is also required to fully fund new programs in the Future Year's Defense Plan. However, GAO has reported in the past about DOD's failure to consistently implement its acquisition policies and our recent work has identified several cases in which development cycles have exceeded 6 years and requirements to fully fund programs were waived.

    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

  3. Status: Closed - Not Implemented

    Comments: DOD has not taken action to report weapon system cost estimates as a range of likely costs. However, as part of its implementation directive for better buying power in weapon system programs, the Undersecretary of Defense in November 2010 issued a memorandum requiring DOD weapon system program managers to develop 'should cost' estimates and an independent organization to develop a 'will cost' estimate. Programs are expected to budget to the will cost estimate and contract to the should cost estimate. While this measure represents a positive development in providing decisionmakers greater insight on weapon system program costs, we do not believe these actions meet the intent of our recommendation in providing a range of likely costs nor do they address risk and uncertainty in a cost estimate.

    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


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