Opinion / Acquisition, Budget

Bad Idea: Managing Defense Requirements, Budgets, and Acquisitions via Programs

Bad Ideas in National Security Series

Don’t bring a knife to a gun fight

The quickest way to lose a war with a near-peer adversary in the 21st Century is to fight with 20th Century systems. The average Department of Defense (DoD) aircraft is 30 years old. Further, DoD launched most of its ships, submarines, and satellites in the last century. The best way to sabotage DoD’s ability to modernize is to impose industrial age structures, processes, and culture on this massive bureaucracy. DoD executives, Combatant Commanders, and Congress have stressed the need for DoD to rapidly exploit leading technologies to retain its military advantage. Yet DoD still operates with enterprise processes and management practices designed around programs from 60 years ago. These program-centric constraints drive longer timelines, fewer quantities, and higher costs that erode DoD’s military advantage and increase operational risks.

DoD’s Program-Centric Process

Currently,the DoD processes are centered on programs designed to replace or upgrade existing capabilities.  These processes were designed in an era where systems could be delivered in a few years; now it takes over a decade to navigate the bureaucracy. DoD first realizes it needs new fighters, aircraft, bombers, ships, submarines, vehicles, satellites, and/or missiles to replace aging, obsolete, or unreliable legacy systems. DoD then spends a few years defining and validating the requirements for the new system to remain operational for decades. Unsurprisingly, the new system often operates much like its legacy system but with improved performance. DoD typically charters a team to spend a year analyzing alternatives to said requirements with little trade space or appetite for unique solutions. The department also spends a year developing detailed cost estimates based on the shaky assumption that the program requirements are clear and stable. Even then, DoD must work concurrently with Congress to secure program funding, which requires a two-year lead time.

Once Congress appropriates the funds, DoD establishes a program office that spends a few years developing a comprehensive acquisition strategy and dozens of related documents. The program office coordinates with dozens of different oversight organizations as part of a gauntlet of reviews. The program manager (PM) presents the strategies at a major decision review with senior leaders, seeking approval to proceed with development. DoD locks down the program’s cost, schedule, and performance in an acquisition program baseline (APB) and holds the PM accountable to those benchmarks. A fierce source selection determines the winner-take-all contract that shapes the defense sector for the next decade. As a result, the loser immediately protests regardless of the integrity of the process. The contractor must report development progress using certified earned value management metrics based on a predefined work breakdown designed for an industrial age assembly line.

During the many years of development and production, congressional and DoD leaders drive significant fluctuations to the program’s budget, including delays to budget approvals for months after the start of nearly each fiscal year. Operations, threats, and technologies will regularly change, but programs of this size often face too many constraints to react. The PM often will not entertain any major course corrections given the corresponding workload and inevitable delays from updating and coordinating requirements and acquisition documents. It also takes an act of Congress to shift any meaningful funding between programs, wherein congressional representatives typically develop a suboptimal or outdated solution focused on hitting each program’s APB targets.

After 10 to 15 years, the program delivers technology to meet yesterday’s mission. But at least—in theory—it is leaps and bounds better than the legacy systems that can be retired. DoD continues to invest in what General Hyten calls “big juicy targets” on 10 to 15-year timelines while our adversaries regularly deliver high quantities of small and mid-sized capabilities and employ asymmetric warfare.

A Digital Age Portfolio-Centric Model

In the digital age, DoD should operate using dynamic capability portfolios. Doing so requires the development of a common portfolio structure across the requirements, budget, and acquisition enterprises. The roughly 50 program executive officers (PEOs) offer a strong introductory view of the capability portfolio structure. At the enterprise level, the PEO portfolios can be mapped across 10 notional major capability areas: aircraft systems; shipbuilding and maritime systems; ground-based systems; space-based systems; C4ISR—command, control, communications, intelligence, surveillance, and reconnaissance—and cybersecurity; missiles and munitions; missile defense programs; nuclear, chemical, and biological defense programs; business systems; and defense health systems.

These major capability areas each range from $10 billion to $50 billion in annual investments. DoD has struggled with portfolio management for years, to include a major initiative by then-Secretary of Defense Donald Rumsfeld, in part due to conflicting portfolio structures, processes, and program constraints. There is a renewed focus on portfolios in the Pentagon to include new enterprise portfolio reviews focused on risk and interoperability assessments. While there is certainly a need to look across DoD’s uniformed services, the heart of capability portfolio management should be at the PEO level.  To that end, DoD should consider the following pivots from program-centric to portfolio-centric structure and processes.

Instead of spending years defining detailed program requirements that are nearly guaranteed to be wrong, DoD leaders should capture enduring portfolio level requirements and measures. These portfolio requirements can align with the Joint Capability Areas or the new Joint Warfighting Concepts. Subordinate capability requirements should be managed using dynamic, prioritized backlogs that are met with a modular suite of systems and services. Leading commercial technologies drive novel operational practices and capability requirements. Portfolio requirements and measures should also focus future government and industry research. A portfolio requirements executive for each portfolio would continually align requirements with evolving strategic direction, threats, technologies, and operations.

Instead of allocating budgets to 1,000 separate program elements, budgets should be aligned to the new portfolio structure. There would need to be clear accounting and transparency across the major platforms, programs, projects, research, and infrastructure within each budget line item. Portfolios would be designed to have the flexibility necessary to shift funding among programs and activities as priorities, performance, risks, threats, and opportunities change. Best practices from recent budget activity, such as BA 8 software pilot program funding, can be scaled. This would shift the incentives away from use-or-lose spending and strict monthly execution rates and instead focus on maximizing the portfolio’s return on investment, or its mission impact. Portfolio roadmaps would be used to align requirements, budgets, and acquisitions over the short and long term. Portfolio budget executives would collaborate with senior leadership to manage budget planning and execution across their respective areas of expertise.

Instead of setting countless promising government and commercial technology projects up for failure as they cross the Valley of Death into acquisition programs, DoD could leverage an innovation pipeline tuned to each portfolio’s specific needs. DoD lab research and commercial solutions across the National Security Innovation Base would fuel suites of new portfolio capabilities. Portfolio research directors would then be able to engage the innovation hubs and operational commands to shape strategies, investments, partnerships, and experimentation environments.

Instead of overseeing the execution of 50 separate programs, PEOs would be responsible for delivering integrated suites of capabilities to maximize portfolio measures. Portfolios optimize interoperability and cybersecurity by harnessing digital and mission engineering, architectures, APIs, and infrastructure. Meanwhile, PEOs would develop portfolio strategies, processes, and contracts to maximize competition and enable the delivery of better capabilities sooner. Programs would no longer be locked into APBs. The key measures would include how each capability maximizes portfolio measures and mission impact. To that end, PEOs would be renamed Portfolio Acquisition Executives to align with their new requirements and budget peers.

DoD’s program-centric industrial age bureaucracy represents its biggest risk to deterring or winning future conflicts with formidable adversaries. DoD operates in a dynamic environment where systems are networked together and employed by joint warfighting mission threads. Yet the three enterprise processes–requirements, budgets, and acquisition–are structured for standalone programs. Employing a modern portfolio centric approach enables the speed, agility, and innovation needed to deliver integrated suites of war-winning capabilities.

(Photo Credit: U.S. Air Force photo by Airman 1st Class Valerie Seelye)

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