I’m Big on Better Buying

Jeff Child, Editor-in-Chief

On “normal” years the DoD has consistently released its Budget Proposal for the next fiscal year in February, but this year the next fiscal year proposal isn’t expected until May. To be fair, when there’s been a change in Administrations such delays are not uncommon. As we look ahead, it’s interesting to take a look at the DoD’s spending and efficiency performance over the past year.

Along just those lines, the GAO recently released its annual “Quick Look” report across the DoD’s weapons programs. The DoD is investing more than $1.4 trillion to acquire 78 major weapon systems—including aircraft, ships, and ground vehicles. The GAO found that the Department had made strides to address past inefficiencies. Certain programs, for example, increased their buying power by $10.7 billion. “Buying power” means more can be purchased for the same level of funding. All that said, the DoD, according to the report is missing key opportunities to reduce cost by increasing competition. The report also cited how most weapon programs it assessed are not yet fully following knowledge-based best practices—increasing risk for cost increases and delays.

Since the GAO’s 2016 assessment, the number of programs in the DoD portfolio of major defense acquisitions decreased from 79 to 78, while DoD’s planned investment over the life of these programs increased by $9.4 billion to $1.46 trillion. That included mixed performance in the portfolio this year. While the current portfolio has incurred $484 billion in total cost growth, $476 billion of this occurred 5 or more years ago suggesting that recent performance has improved.

Interestingly, 60 percent of the total cost growth occurred after programs entered production, when costs should be more stable. But the portfolio increased its buying power by $10.7 billion, meaning DoD can buy more goods or services for the same level of funding. This gain resulted from some programs finding procurement efficiencies that more than offset inefficiencies in other programs. The report says the 19 newest programs decreased their costs by a combined $3.4 billion over the past year.

The execution of key reform initiatives GAO analyzed for the 45 current and 9 future programs it assessed this year was similar or slightly less as compared to its 2016 assessment. These initiatives address program and portfolio affordability, cost growth controls, and competition use. For example, 42 programs this year reported conducting “should-cost” analyses, which are designed to reduce programs’ costs by identifying and eliminating inefficiencies. Programs can take a variety of actions, such as reducing overhead, to do so.

The weapons programs that did “should-cost” analyses reported realizing $23.6 billion in savings. A similar number of programs reported establishing affordability constraints, which programs use to set priorities and inform what they can and cannot afford. GAO found that current programs with established affordability constraints had a lower average amount of cost growth from initial estimates compared to programs without a constraint.

Another key reform initiative looked at was the fostering of competitive environments in acquisition. According to the GAO report progress there is stagnant: more programs this year reported having no plans for competition before or after development start. The report also said that 31 current programs reported that they are scheduled to complete the evaluation of their potential cyber vulnerabilities by 2019, required by the 2016 fiscal year National Defense Authorization Act.

Most of the programs GAO assessed this year are not yet fully following a knowledge-based acquisition approach. Of the four programs that recently entered system development, only one completed all of the applicable GAO criteria for a best practices approach. Three of the four implemented some knowledge-based practices such as completing a system-level preliminary design review before development start. Meanwhile, other practices—such as fully maturing technologies prior to system development start and completing systems engineering reviews—were not fully implemented. That all adds up to programs carrying unwanted risk into later phases of acquisition that could result in cost growth or schedule delays.

The report cited how several programs are concurrently conducting software and hardware development during production and claims that exposing programs to undue cost and schedule risk. From my point of view, that point is a mixed bag. We live in an era when developing software and hardware simultaneously is smart and efficient if organizations leverage the right tools and techniques while also embracing open standard hardware architectures. When done right it’s how projects stay on schedule. On the whole, it’s good to see progress being made in the defense acquisition process. In the DoD’s comments on the report there is agreement with GAO’s findings with DoD affirming that these results validate its focus on continuous program improvements. Let’s hope that as spending goes bigger, buying habits will keep getting better.