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Defense Reform: DOD Has Made Progress, but Needs to Further Refine and Formalize Its Reform Efforts

GAO-21-74 Published: Nov 05, 2020. Publicly Released: Nov 05, 2020.
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Fast Facts

The Department of Defense's approach to transforming its business operations is on our High Risk List. We have found weaknesses that hurt efficiency and effectiveness and render DOD's operations vulnerable to waste, fraud, and abuse.

We examined 3 recent DOD reform efforts, including its work to measure savings from these efforts. DOD reported $37 billion in savings. We found these savings were largely reflected in DOD's budget materials, but we could not determine the quality of the analysis supporting them due to a lack of information about economic assumptions and other factors.

We made recommendations to improve estimating and more.

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Highlights

What GAO Found

The Department of Defense (DOD) has made progress in establishing valid and reliable cost baselines for its enterprise business operations and has additional efforts ongoing. DOD's January 2020 report responding to section 921 of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2019 addressed most of the key requirements from that section but also had some limitations, which DOD acknowledged. For example, the baselines included only labor and information technology costs because DOD's financial data do not attribute costs to other specific activities required under section 921. However, DOD officials told GAO they have developed and are continuing to refine baselines for all of the department's enterprise business operations, such as financial and human resource management, to enable DOD to better track the resources devoted to these operations and the progress of reform. While still in progress, this effort shows promise in addressing the weaknesses in DOD's section 921 report and in meeting the need for consistent baselines for DOD's reform efforts that GAO has previously identified.

GAO found that DOD's reported savings of $37 billion from its reform efforts and a Defense-Wide Review to better align resources are largely reflected in its budget materials; however, the savings were not always well documented or consistent with the department's definitions of reform. Specifically:

  • DOD had limited information on the analysis underlying its savings estimates, including (1) economic assumptions, (2) alternative options, and (3) any costs of taking the actions to realize savings, such as opportunity costs. Therefore, GAO was unable to determine the quality of the analysis that led to DOD's savings decisions.

  • Further, some of the cost savings initiatives were not clearly aligned with DOD's definitions of reform, and thus DOD may have overstated savings that came from its reform efforts rather than other sources of savings, like cost avoidance. For example, one initiative was based on the delay of military construction projects. According to DOD officials, this was done to fund higher priorities. But if a delayed project is still planned, the costs will likely be realized in a future year.

Without processes to standardize development and documentation of savings and to consistently identify reform savings based on reform definitions, decision makers may lack reliable information on DOD's estimated reform savings.

In coordinating its reform efforts, DOD has generally followed leading practices for collaboration, but there is a risk that this collaboration may not be sustained in light of any organizational changes that Congress or DOD may make. This risk is increased because the Office of the Chief Management Officer (OCMO) and other offices have not formalized and institutionalized these efforts through written policies or agreements. Without written policies or formal agreements that define how organizations should collaborate with regard to DOD's reform and efficiency efforts, current progress may be lost, and future coordination efforts may be hindered.

Why GAO Did This Study

DOD spends billions of dollars each year to maintain key business operations. Section 921 of the NDAA for FY 2019 established requirements for DOD to reform these operations and report on their efforts. DOD has also undertaken additional efforts to reform its operations in recent years.

Section 921 called for GAO to assess the accuracy of DOD's reported cost baselines and savings, and section 1753 of the NDAA for FY 2020 called for GAO to report on the OCMO's efficiency initiatives. This report assesses the extent to which DOD has (1) established valid and reliable baseline cost estimates for its business operations; (2) established well-documented cost savings estimates reflecting its reforms; and (3) coordinated its reform efforts.

GAO assessed documents supporting costs, savings estimates, and coordination efforts; interviewed DOD officials; observed demonstrations of DOD's reform tracking tools; and assessed DOD's efforts using selected criteria.


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Recommendations

GAO is making three recommendations—specifically, that DOD establish formal processes to standardize development and documentation of cost savings; ensure that reported savings are consistent with the department's definition of reform; and formalize policies or agreements on its reform efforts. DOD concurred with GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Defense The Secretary of Defense should ensure that the CMO, Under Secretary of Defense (Comptroller), and Director of CAPE establish a formal process that standardizes the development and documentation of cost savings, including any underlying analyses, associated with reform efforts. This process should incorporate department-wide guidance and best practices for economic analysis, such as considering and documenting economic assumptions, alternatives considered, and implementation and/or opportunity costs. (Recommendation 1)
Open – Partially Addressed
DOD concurred with our recommendation. In January 2021, the position of CMO was disestablished. Responsibilities for the department's reform efforts were transferred to the Performance Improvement Directorate within the Office of Director of Administration and Management (DA&M). In October 2022, the Deputy Secretary of Defense issued the department's new Performance Improvement Framework, which provides a consistent methodology to define, identify, track, and report on existing and planned opportunities for performance improvement across DOD, including those that enable cost savings. In November 2022, DA&M issued a memorandum instructing Principal Staff Assistants and Component heads to build an authoritative repository of Performance Improvement Initiatives, including establishing a baseline to document current and prior year initiatives. That memo also cited USD Comptroller supplementary guidance for the FY 24-28 Budget Review instructing DOD Components to use framework definitions when reporting on their Performance Improvement Initiatives. Further, the memo announced establishment of an authoritative performance management executive analytics platform, known as Pulse, to monitor implementation of Performance Improvement initiatives. As of January 2023, DOD has been compiling and analyzing responses to these instructions. GAO's ongoing review of DOD's reform efforts will assess documentation associated with these initiatives. To the extent cost savings are claimed as a result of these initiatives, the department can demonstrate implementation of this recommendation by providing documentation of analysis underlying those savings.
Department of Defense The Secretary of Defense should ensure that the CMO, Under Secretary of Defense (Comptroller), and Director of CAPE clarify the department's definitions of reform and consistently report reform savings based on those definitions. (Recommendation 2)
Open – Partially Addressed
DOD concurred with our recommendation. In January 2021, the position of CMO was disestablished. Responsibilities for the department's reform efforts were transferred to the Performance Improvement Directorate within the Office of Director of Administration and Management (DA&M). In October 2022, the Deputy Secretary of Defense issued its Performance Improvement Framework, which provides a consistent methodology to define, identify, track, and report on existing and planned opportunities for performance improvement across DOD. In November 2022, DA&M issued a memorandum instructing Principal Staff Assistants and Component heads to build an authoritative repository of Performance Improvement Initiatives, including establishing a baseline to document current and prior year initiatives. That memo also cited USD Comptroller supplementary guidance for the FY 24-28 Budget Review instructing DOD Components to use framework definitions when reporting on their Performance Improvement Initiatives. Further, the memo announced the establishment of an authoritative performance management executive analytics platform, known as Pulse, to monitor implementation of Performance Improvement initiatives. As of January 2023, DOD has been compiling and analyzing responses to these instructions. GAO's ongoing review of DOD's reform efforts will assess the department's efforts to consistently report on reform initiatives and their outcomes, based on these definitions.
Department of Defense
Priority Rec.
The Secretary of Defense should ensure that the CMO, Under Secretary of Defense (Comptroller), and Director of CAPE develop and institutionalize formal policies or agreements as they relate to DOD reform and efficiency collaboration efforts, in order for these efforts to be sustained beyond any leadership and organizational changes. (Recommendation 3)
Closed – Implemented
DOD concurred with our recommendation. In January 2021, much of the responsibilities for OSD's reform efforts were transferred from the CMO to Office of Director of Administration and Management (DA&M). Since that time, DOD has taken actions to institutionalize its reform efforts, including the following actions. First, it established a charter for the Defense Business Council (DBC) in January 2022, which is DOD's governance body for integrating efforts related to reform and performance improvement. The DBC includes USD (Comptroller), CAPE, and DA&M. Second, in October 2022, the Deputy Secretary of Defense issued its Performance Improvement Framework, which provides a consistent methodology to define, identify, track, and report on existing and planned opportunities for performance improvement across DOD. Third, in November 2022, DA&M issued a memorandum instructing Principal Staff Assistants and component heads to build an authoritative repository of Performance Improvement Initiatives, including establishing a baseline to document current and prior year initiatives. That memo also cited USD Comptroller supplementary guidance for the Fiscal Year 24-28 Budget Review instructing DOD Components to use framework definitions when reporting on their Performance Improvement Initiatives. The memo also cites the establishment of an authoritative performance management executive analytics platform, known as Pulse, to monitor implementation of Performance Improvement initiatives. Collectively the DBC Charter, establishment and related instructions on Pulse, and USD (Comptroller) guidance meet the intent of the recommendation. These actions will enable DOD to institutionalize and sustain reform and efficiency collaboration efforts.

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Topics

Accounting standardsBenefit-cost trackingBest practicesBudget justificationBusiness operationsCost accounting standards complianceCost analysisCost assessmentsCost estimatesCost savingsData qualityDefense reformsEconomic analysisHuman capital managementInformation technologyLabor costsOpportunity costsProgram costsProgram evaluationRisk factors