Case Study for the U.S. Department of Defense
The origins of the United States Department of Defense can be traced back to the start of the revolutionary war in 1775, when the Army, and Navy, and Marine Corps were formed. After the ratification of the Constitution, the original “War Department” oversaw the security of our nation, until it was officially renamed when the Army, Navy, and Air Force creating a unified force. These are the three main military departments of the DoD, with the Marine Corps falling under control of the Navy, and the Coast Guard as part of the Department of Homeland Security during peace times. Ash Carter is the current Secretary of Defense under President Obama, and his organizational chart can be seen below:
Figure 1: Organizational Chart for the DoD
The overall mission of the DoD is “is to provide the military forces needed to deter war and to protect the security of the United States.” With active members deployed to more than 140 countries, they strive for success in defeating and deterring aggression across the globe. To keep order and a common vision within the different military departments, the DoD has nine Unified Combatant Commands that are composed of at least two of the departments: U.S. Northern, Southern, Central, European, Pacific, Africa, Strategic, Special Operations, and Transportation commands. (Peforomance.gov) Also, within the DoD are many different defense agencies, most notably the Nation Security Agency (NSA) and Missile Defense Agency (MDA). As you can see, it is quite evident that the DoD is largest employer in the United States, with approximately 850,000 civilians and over 2.2 million service members. In an organization of this magnitude there must be specific strategic goals in place that enable managers to successfully plan for the future.
Before I go into the Planning, Programming, Budgeting, and Execution (PPBE) process, I first want to discuss recourse allocation protocol that DoD must follow because “PPBE is unique to DoD. The other executive agencies use internal annual processes to determine required resources. The purpose of PPBE is to identify mission needs, match needs with resource requirements, and translate requirements into budget proposals. The PPBE process produces the DoD portion of the President’s budget.” (DAU) The enactment of funds begins with “the submission of the President’s budget to Congress” where it is then debated on and revised by both houses of Congress. After the new budget is authorized by Congress, it is then sent back to the President for the official signature or veto causing this process to be repeated. Once the budget has been approved, the House and Senate Appropriation Committees meet to “produce three Acts that provide budget authority for national defense: the DoD Appropriations Act, the Military Construction, Military Quality of Life and Veterans Affairs Appropriations Act, and the Energy and Water Development Appropriations Act.” The Office of Management and Budget (OMB) is then put in charge of the Congressional appropriations and released the funds to the intended agency. Shown below is diagram of the PPBE process for the DoD.
Figure 2: PPBE Process Diagram
The planning phase begins once the White House has issued its “provisional budget levels (fiscal guidance)” usually around February, and occurs on a yearly basis. The planning committee is comprised of the three military departments, Office of the Secretary of Defense (OSD), Joint Staff, OMB, and the National Security Council, and their job is to plan accordingly for the potentials threats to the United States over the next 6-20 years, and “assess capabilities to counter them, and recommend forces to defeat them.” (DoD.gov) Then around March 1st, the Chairman’s Program Recommendation (CPR) is submitted to the Secretary of Defense for review and eventually the Defense Planning and Programming Guidance (DPPG) is finalized by the Unified Commands, military departments, and defense agencies. This type of planning is from a strategic level, as the top management looks to translate the aforementioned vision into a mission statement. The following list is comprised of the strategic goal and objectives of the DoD for the years 2015-2018:
Recommendations and Conclusions:
The Department of Defense has a very structured planning process as seen through their mission statement and list of strategic goals. From a strategic level, the DoD uses these goals to layout everything they need to comply with their mission statement, without constraints. These goals give DoD representatives a reason to fight for the necessary budget. Then once the budget has been approved through the political process, the DoD is guaranteed a certain amount of funding to act on the priorities from a top level down process. The tactical and operational levels of planning rely heavily on the strategic goals of the military because the focus can change during the transition from wartime to peacetime. I would recommend limiting the amount of bureaucracy involved with the planning phase, because I believe it hinders agencies when they have to change their plans because of politics.
After the DPPG has been approved, the programming and budgeting phases can formally begin. “However, in reality the departments and agencies start their [Program Objectives Memorandum and Budget Estimate Submission] POM/BES development much earlier. Programming is the process that matches available dollars against a prioritized list of requirements to develop a five-year resource proposal. It is the bridge between planning (with broad fiscal guidance) and budgeting (which meticulously prices each program element). The POM is a blueprint of each department/agency proposal for updating the FYDP to reflect resources needed for mission accomplishment.” (DAU) Front End Assessments (FEAs) identify the major issues in the upcoming fiscal year that will affect recourse allocation. Each department individually conducts a FEA during the late summer months, and remains in sync with program decision budget process. Once the FEA has been established and reviewed, each branch then prepares a Program Objectives Memorandum (POM) based on guidance. For reviewing purposes, “the CPA, prepared in consultation with other members of the JCS, the Commanders of the Unified Commands, and the Defense Intelligence Agency, is the Chairman’s personal assessment of the POMs conformance to the priorities established in strategic plans and unified command requirements. It also provides the Chairman an opportunity to submit alternative program recommendations and budget proposals.” (DAU) Once the Chairman submits their alternatives, a 3-Star review group comprised of members of the Office of the Secretary of Defense(OSD) makes the finals changes to the recommendations, when it is then presented to the Secretary of Defense as a series of Recourse Management Decisions (RMD).
Recommendations and Conclusions
The overall goal of the programming phase is to prioritize resources for the budget and conduct analyses of alternatives that help to balance the budget. Organizations like Department of Defense often budget for a certain amount of money, when in reality they have to settle for less, and start to set constraints. The release of documents throughout the process, which can be clearly seen in the DoD (FEAs, RMDs, POMs, etc.), layout the resource constraints and begin to distinguish the essential programs. The constant internal review that is put in place allows the DoD to analyze alternatives and evaluate tradeoffs for their different programs in order to determine their priorities.
The Department of Defense uses a composite type of budgeting, known as the Program Planning Budgeting Systems, which links line item and program budget approaches. When it comes to approving or rejecting a budget, the President can only respond with yes or no, and can’t fragment the bill for line item vetoing. The Under Secretary of Defense (Comptroller) has the responsibility to review the budgeting estimates put forth by each department/agency. There are two crucial areas that the USD is looking to “scrub”, program pricing and program executability. The importance of the budgeting phase is to “convert the programmatic view into the format of the congressional appropriation structure, along with associated budget justification documents.”(DAU) Now that budget request has been properly formatted and sent to the President, “the FYDP is again updated to reflect the President’s budget and becomes the baseline for the next cycle.” At the organizational level, the DoD uses the previous year’s “budget resolution” as a baseline for the upcoming fiscal year.
Recommendations and Conclusions:
The DoD uses the composite type of budgeting to their advantage, however, I agree with what Jimmy Carter proposed in mandating zero-based budgeting for the government. I believe the DoD along with all other agencies should have to justify each dollar that they spend because it is coming directly from my tax dollars. Differing political views or interests between Congress, the President, and the public demand creates a difficult environment for passing a budget. It is important to look at how much the budget would most likely cost from an unbiased point of view and then if the program phasing, funding profile, obligation, and outlay rates are within reason.
With a defense budget of $585 Billion for FY16, it is essential for the DoD to implement management controls to monitor their spending. In the budgeting execution phase, the appropriated funds for the DoD have been dispersed to the respective programs that are outlined in the President’s Budget. The funds are released to organizations within the DoD in the form of appropriations, that are to be used solely for the intended purposes. The execution phase is also known as the “real world application” of the entire PPBE process, and only occurs after these five events have occurred:
Ongoing reviews for the program and budgeting provide senior leadership with “the effectiveness of current and prior resource allocations” (DAU) as well as a quantifiable measure for the output performance of execution. Each branch of the military provides a “report of programs” (ROPs) to the Comptroller on a quarterly basis, which provides an update on the state of spending. The Comptroller then decides what actions need to be take for reprogramming or transferring funds within Department of Defense to areas that are in need.
Recommendations and Conclusions:
One of the major concerns I have with the budgeting execution of the Department of Defense is the fact that there is a spending increase every 4th quarter of the fiscal year. Organizatoins within the DoD are conservative with the spending throughout the first three quarters to ensure that they do not run out of money, and then rush to spend the leftover cash in the final quarter. Money that is not spent gets returned to the federal treasury instead of being kept at a program level, which is another prevalent issue within the government. I would recommend that the budget be broken down into a quarterly basis for approval, especially since there are already quarterly ROPs set in place.
The DoD relies on “working capital fund” for financing purposes, and has been directed by the Defense Finance and Accounting Service (DFAS) since 1991. DFAS provides all of the funding services to the Department of Defense, and is also used to control the payments to DoD civilians, service members, and all of their benefits. Using working capital for funding is done by “charging its customers for the services it provides rather than being funded through direct appropriations.” (dfas.mil) The Program Budget Accounting System (PBAS) is used at the department level to transfer and distribute fund to DFAS down to the individual level. There PBAS implements specific control to set thresholds on the amount of money to be reprogrammed or prevent overdrawing on the amount appropriated by Congress. “Transactions are generally recorded on a budgetary basis, but are required to be reported (in the financial statements) on an accrual accounting basis. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability has been incurred, without regard to the actual receipt or payment of cash. Due to identified financial systems deficiencies, these statements do not meet the requirements for full accrual based accounting.” As you can see, the DoD records their transactions on a budgetary basis rather than the full accrual method that is required by GAAP. The DoD also turns to the Federal Accounting Standards and Advisory Board (FASAB) for guidance and advisory services when areas of concern have been identified (i.e. timing of R&D funds or reasonable baseline estimates).
Recommendations and Conclusions:
The establishment of the DFAS was a great way to monitor and streamline operations through a standardization process. As the world’s largest finance and accounting operation, the DFAS can be used as a can effective example for other non-profits across the globe. Since the Department of Defense is a government organization, they rely on government appropriations to spend funds, therefore cannot spend money that they don’t physically have. This makes the accounting process easier than with a for-profit company because no borrowing of funds is involved. Since the DoD receives their money from the taxation of citizens, they are held accountable to the public and critiqued on their decision making processes. Like other government entities, the DoD also has to maintain books to ensure that funds were used for their intended purposes and conduct individual reports among agencies.
Financial Management Reporting & Auditing:
Mike McCord, the Under Secretary of Defense, is also known as the Comptroller or Chief Financial Officer (CFO) of the Department of Defense. He is in charge of advising the “Secretary of Defense on all budgetary and financial matters, including the development and execution of the Department’s annual budget” (Defense.gov) Using the DoD Financial Management Regulation 7000.14-R as reference, the Comptroller establishes and enforces the obligatory standards in order to comply with the requirements of the DoD. Along with the updated federal regulations, the DoD releases several different reports, the most important being the FY DoD Agency Financial Report (AFR)/DoD Performance and Accountability Report (PAR). This document is published with the annual budget submission in February, and goes into great detail on the overall health of finances within the department for the previous fiscal year. The FY 2015 financial report includes a message from SECDEF Carter, followed by management’s discussion and analysis of affairs and the balance sheet, Statement of Net Cost (Income Statement), Statement of Changes in Net Position (Cash Flows), and Statement of Budgetary Recourses. In order to comply with Financial Improvement and Audit Readiness (FIAR) , the Comptroller hires public accounting firms, such as Deloitte, to conduct an internal audit before the documents are released.
Recommendations and Conclusions:
The DoD follows the typical format for financial reporting among government organizations. They release an annual report that can be compared to a 10-k in the private sector, which includes the four equivalent statements of finances. This report is a great way to maintain the books and ensure that funds were spent on their intended purposes. Instead of a net profit or loss, the DoD uses the terms surplus or deficit to assess their overall spending for the year. Just as it is done the private sector, internal audits are preformed to ensure they don’t face legal implications for falsifying their documents. Out of the key aspects of reporting, the DoD is more focused on asset management rather than profitability or liquidity, simply because of their not profit nature. Overall, I believe the DoD provides sufficient financial reporting to the constituents of the United States.
The Department of Defense follows the U.S. Office of Performance Management (OPM) guidelines when assessing the performance of its employees. This performance based rating is also known as rating based and an award is granted only if the employee has been “fully successful” in meeting their objectives. Directly from the OPM website, “agencies [DoD] must design their performance-based cash award programs to reflect meaningful distinctions based on levels of performance to ensure employees with higher ratings of record receive larger cash awards.” The money that is set aside for performance awards is placed into a pool of cash and can be dispersed to the employee in the form of a lump-sum bonus, percentage increase of base pay, or both. In regards to new employees, because in the first two years of employment we can only receive our “bonus” in the form of a salary increase instead of both a lump sum and salary increase that is seen by the rest of the work force. In the end however, this amount seems to even out because we are given slightly more of percentage increase to accommodate for the lack of bonus. The performance based cash awards are a great way for people to continue to move up in the company each year without actually being promoted to a higher level position.
The Deputy Secretary of Defense is held responsible for the performance level of the DoD as the Chief Operating Officer (COO). Also included in the FY Financial Report is a performance review in which the COO reviews successes from the previous year, and tracks performance measures to ensure that they meet the strategic plan. Through the third quarter of FY15, it appears that “67 percent of the Department’s quarterly performance measures were on track to meet the annual goals, while 33 percent did not meet third quarter targets and are considered “at risk” of not achieving their annual targets.” (Defense.gov)
Recommendations and Conclusions:
As a current employee of the Department of Defense I can tell you first hand that the performance appraisal system in place is very structured and fair to all of its employees. The pool that is generated and distributed ensures that people do not receive outlandish bonuses as seen in the private sector that could lead to jealousy amongst coworkers. However, this can limit the people that are exceptional performers because there is a cap on how much money can be dispersed each year. The “slackers” are truly the ones who could benefit from this because even though they had a year of poor performance, they only get slightly less of a raise than the top performers. The incentive to work hard begins to diminish when you take this inequality into consideration. The only recommendation that I have is to make it easier for managers to reward their employees for high levels of performance without having to jump through all of the hoops and administrative process of asking for the extra money. If all of their employees perform at a high level then they should all be properly compensated for it.
Throughout the Department of Defense, it is crucial for all of the agencies to share information and that is done with proper knowledge management. As defined by the DoD Directive 5015.2, knowledge management ensures that “information and intellectual capital contained in DoD records will be managed as national assets. Effective and efficient management of records provides the information foundation for decision making at all levels, mission planning and operations, personnel and veteran services, legal inquiries, business continuity, and preservation of U.S. history.” (dtic.mil) The purpose of knowledge management is to ensure that information is documented and shared within the Department of Defense, and it is broken down into data, knowledge, and information. Data management refers to past performance from testing that has been gleaned from after action reports, which can be applied to future cross project learning. Knowledge refers to any actionable information that is based on facts or meaning, and information is the data that is relevant and has a purpose. All three together create a sense of wisdom that is necessary for effective decision making in the DoD.
Recommendations and Conclusions:
The DoD does a great job of managing their information for capturing and using organizational knowledge with the implementation of wisdom. As the third largest piece of the U.S. budget, it is clear that the DoD is a vast organization with a great deal of information. The amount of information from research and development, testing, production, etc should be properly utilized by anyone it could help. Most recently, I have seen in the DoD workforce a large age gap that has caused a surge of hiring recent college grads, as the older employees begin to retire. This raises the importance of passing knowledge from the experienced mentor to the mentee. However, I have also seen people who are subject matter experts and are hesitant to share their knowledge with the fear of being replaced. I believe the DoD should find a way to better institute a culture of sharing knowledge.
The future is unpredictable and it is up to the DoD to prepare for a future condition that takes into consideration the probability and consequence of an undesired event. Much of the work done for the Department of Defense is actually done by government contractors, therefore most of the risk involved is put on the contractor. This effort is used to address and mitigate the three most important risk factors to the Defense Acquisition process: cost, schedule, and performance. In the chart below you can the Risk Management Process that is a complete circle and is a never ending process.
Figure 3: Risk Management Process
Starting from the Risk Planning phase, Program Managers (PM) are required to summarize their approach and planning activities usually within the Risk, Issue, and Opportunity (RIO) Management plan. It is important to have a procedure that documents the risk management process, and applies a criteria for handling of the individual risks. A sense of traceability is established bringing together the technical requirements and overall objectives. Also found in RIO plan are the clearly defined roles for contractors and governments workers and their available resources.
Next is the Risk Identification phase where the simple question “What can go wrong?” is answered by looking at any proposed plan. The PM “examines each element of the program to identify risks and their associated future root causes, begin their documentation, and set the stage for successful risk management.” (DAU) The early they get a jumpstart on this, the better for the ultimate success of a program.
In order to properly assess risk, members of the DoD generate a matrix in the Analysis phase. The likelihood and severity of an occurrence are given values and placed into a color coded chart, green for low risk, yellow for moderate risk, and red for high risk. This process gives a great visual demonstration of a potential threat and quantify how big the risk truly is. The “Risk Reporting Matrix” also identifies consequences on common playing field, through the cost, schedule, and performance, in order to compare the alternatives.
The most important part of the Risk Handling phase is to mitigate the threat to an acceptable level of risk. DoD representatives must be able to explain “what should be done, when it should be done, who is responsible, and the funding and/or resources to implement the risk handling plan.”(DAU) The goal in this phase is the choose whether to accept, avoid, or transfer most of the risk responsibility onto an outside source (contractor) leaving the government free of any liability.
The final phase of the Risk Management Process is to monitor the risk you have identified and chosen to accept. PMs typically hold technical reviews to implement and track risks, as well as provide constant updates to their ongoing plans. The stakeholders involved, which includes soldiers, are kept up to date with how risks change over time and if the risk handling options are still successful. In the end, the overall objective of a risk management plan within the DoD is to ensure that a program remains on schedule, within budget, and performs at the expected level.
Recommendations and Conclusions:
Risk management is one of the most important management controls for the DoD, simply because of the products they develop. What they create is used on battlefield across the world and is involved in saving lives and taking lives, and knowing how to choose between the two. That is why the DoD has such a complex process for weighing the probabilities and consequences of their actions. The impact of risk to a program’s cost, schedule, and performance not only affects the people generating the technology but also the war fighters themselves, and the quality of product they ultimately receive. From my research and work experience, I believe the DoD has done their due diligence in proper risk management, because you can never too careful when loss of life is involved.
As the largest civilian employer in the nation, the Department of Defense has a duty to its constituents to keep a steady flow of operations. According to the DoD Directive 302.26, the DoD must follow a continuity of government (COG), continuity of operations (COOP), endure constitutional government (ECG) and state mission essential function (MEFs). This is crucial in times of war when emergencies happen every day, and the DoD has built in succession plans in the event a top leader should fall. Continuity also remains true in the civilian workforce, as stated by the Government Publishing Office (GPO): “under the direction of the President, the Secretary exercises authority, direction, and control over the Department of Defense. Deputy Secretary of Defense. The Deputy Secretary of Defense is delegated full power and authority to act for the Secretary of Defense and to exercise the powers of the Secretary on any and all matters for which the Secretary is authorized to act pursuant to law.” (GPO.gov) The passing of authority occurs in a sequential fashion, and is made clear to the employees who should take over power during a time of crisis.
If a disaster should occur at any given base across the world, there are relocation sites available for every branch of the military. The DoD has set in place “Allocate adequate resources to implement the requirements of this Instruction, ensuring that family readiness services are available to all Service members and their families regardless of geographic location or proximity to military installations.”
Recommendations and Conclusions:
As a member of the civilian workforce, I witness every day the implementation of continuity. Whether is when a branch chief falls ill or has to travel, there is always an email notification determining the 2nd in line as the “Acting Branch Chief.” We also have numerous Army bases throughout the D.C. area and all over the country that can act a temporary duty stations in case of an emergency. One major recommendation for the DoD is to find a better form of communication in the workplace. For security reasons, the DoD computer networks are all hard-wired Ethernet to prevent hacking. This can be troublesome for moving throughout the office or if employees had to relocate to a temporary work station, therefore working from home is not an option. I know this could be a very difficult task to implement and a serious threat to our country, but the idea of a virtual private network (VPN) for government employees would benefit the flow of operations.
In conclusion, the Department of Defense represents the largest employer in the United States, and has successfully implemented the management controls presented in this case study. Led by Ash Carter, the DoD has a model PPBE system in place that clearly defines how they get their money and what it is going to be spent on for budgeting purposes. There is a great deal of documentation on the type of accounting they utilize and how they report their state of finances to the public. Performance, knowledge, and risk management all play major roles in the functionality of the organization and how they operate as a whole. Lastly, continuity provides a steady flow of operations that ensures business will not be affected in the event of a crisis.