USPS’s Conformance to Leading Practices Varies by Capital Investment Phase

In summary, we determined that USPS’s conformance to leading  practices is medium for planning, selecting, and managing capital  investment projects, and low for evaluating them, based on our review of  USPS policy and the practices employed for the five selected projects. These various  sources comprise USPS’s framework for selecting its investments. Such transparency would establish crucial accountability  for limited resources. Until USPS  modifies its policies to require such consideration, USPS may not be  placing itself in a position to identify the best option for reducing costs  and increasing the quality of its capital investments. However, with the exception of the  DRIVE initiative, USPS develops its business cases for approval and  allocates resources by project rather than by portfolio. Furthermore, modifying USPS’s policies to  require a comprehensive portfolio approach would enable USPS to  consider proposed projects alongside those that have been funded to  select the mix of investments that best meets its mission needs. For Managing Capital Investments, USPS’s Conformance to Leading Practices is Medium

USPS substantially conformed to two, and partially conformed to two, of  four leading practices for managing capital investments (see fig. However, USPS officials could only verify that a  reassessment decision to continue, amend, or terminate an  investment occurred for one of the five projects we reviewed. Examining the extent to which managers  regularly reassess projects to continue, amend, or stop a project,  would help manage risk, given limited resources. Therefore,  examining the extent to which managers identify problems and  implement corrective actions can better position USPS to make the  best use of its resources. Specifically, we found that USPS partially conformed to the leading  practice of:
Evaluating cost, schedule, and performance results of implemented  investments: USPS policy calls for a comparison of the actual return- on-investment and performance data for completed projects, against  the expected return-on-investment and performance results in the  business case. However, the detailed capital investment reports for four of  the five projects we reviewed did not have observed return-on- investment data that could be compared to expected return on  investment, and two projects did not have actual performance metrics  compared to their expected results. Incorporating best practices and lessons learned into the investment  process: USPS does not require developing or updating best  practices after project completion. The  absence of documented best practices and lessons learned that could  be incorporated into the capital investments process limits  opportunities for USPS to improve its process in a way that could  benefit future investments. Modify capital investment policies to more closely align with the  following leading practices, including:  for planning capital investments, consider whether an external  entity could better support all or part of a desired function when  evaluating alternative capital investment options;  for selecting capital investments, use a portfolio approach for  developing business cases and finalizing and allocating  resources; and  for evaluating capital investments, seek and leverage external  oversight and review, from a consultant or peer reviewer, and  require that best practices and lessons learned be incorporated  into the review process; and  3. We continue to believe that USPS should modify its investment polices as  recommended. Postal Service (USPS) follows  leading practices, we compared USPS’s process for planning, selecting,  managing, and evaluating capital investments to leading practices. We  identified leading practices for the four phases—planning, selecting,  managing, and evaluating capital investments—through analysis and  review of the Office of Management and Budget (OMB) Capital  Programming Guide supplement to Circular A-11, which identified leading  practices from government agencies and the private sector, and  examples of executive agency implementation of the Capital Planning  and Investment Control (CPIC) process. We also met with USPS  officials responsible for the Delivering Results, Innovation, Value and  Efficiency (DRIVE) strategic initiatives to assess the extent to which  USPS conformed to the leading practice of linking its capital investments  to its strategic plans. To gather more detailed information about how USPS policies were  applied in specific cases, and to determine whether USPS policies were  consistently followed for a selection of high-cost capital investment  projects, we selected 5 of 28 projects that were approved for over $25  million and were approved for funding after USPS experienced net losses  in fiscal year 2007. Partial: Either (1) USPS policy conformed to some elements; or (2)  USPS policy conformed substantially, but we identified instances in  the five projects we reviewed where the policies were not consistently  applied. Then, for each investment phase, we assessed USPS’s level of  conformance, as follows:
High: USPS substantially conformed to all or almost all of the leading  practices. Medium: USPS substantially conformed to multiple leading practices.
Why GAO Did This Study

USPS has reached its statutory borrowing limit and has projected unsustainable losses. GAO's prior work has stated USPS's financial challenges hinder its ability to make capital investments. GAO was asked to review USPS's capital investment process.
This report addresses the extent to which USPS follows leading practices for four phases of capital investments: planning, selecting, managing, and evaluating. GAO identified the phases and leading practices primarily by analyzing the Office of Management and Budget's capital investment guide and compared them with USPS's policies and practices. External stakeholders with both public and private-sector experience reviewed the leading practices and found them to be reasonable for USPS. To examine how USPS policies were applied in specific cases, GAO reviewed 5 of 28 capital investments greater than $25 million that were approved for funding since fiscal year 2007.

What GAO Found

For each of the four phases of capital investments, USPS's conformance with leading practices varied. There are several practices within each of the phases. GAO assessed conformance as "substantial" if USPS's policy conformed to all or almost all elements of the practice, and as "partial" if USPS's policy conformed to some elements, or GAO identified cases in the five projects reviewed where the policies were not consistently applied.
capital investments, USPS substantially conformed to most of the leading practices, such as identifying mission needs and gaps in services, reviewing and approving a framework for selecting its investments, and developing a long-term capital investment plan. However, USPS did not substantially conform to other practices such as evaluating alternative investments by considering whether an external entity could perform all or part of a function because USPS's investment policies do not require such evaluations. However, USPS is not precluded from conducting such evaluations. Modifying its policies to require such evaluations could place USPS in a better position to ensure the evaluations are completed and to identify the best option for reducing costs and increasing the quality of investments.
For selecting capital investments, USPS substantially conformed to most of the leading practices, such as ranking and prioritizing, and linking its investments with budget considerations. However, consistent with its investment policy, USPS developed business cases for approval by project rather than following leading practices that call for using a portfolio approach of allocating resources based on overall organizational goals linked to the agency's mission. Modifying policies to require a comprehensive portfolio approach would better enable USPS to consider projects alongside those that have been funded to select the mix of investments that best meets its mission needs.
For managing capital investments, USPS conformance with leading practices was mixed. For example, consistent with leading practices, USPS established oversight for its capital investments and tracks cost, schedule, and performance data for initiatives. USPS policy requires comparing the planned-investment timeline and performance metrics to actual results to reassess and determine whether to continue, amend, or terminate a project, consistent with leading practices. USPS managers, however, could only verify that such a reassessment occurred for one of the five projects GAO reviewed. Examining the extent to which managers regularly reassess projects to continue, amend, or stop a project would help to establish crucial accountability for limited resources.
For evaluating capital investments, USPS conformance with leading practices was partial. USPS policy calls for a comparison of actual return-on-investment and performance data for completed projects against expected results, consistent with leading practices. However, four of the five projects GAO reviewed did not have comparable return-on-investment data, thereby limiting the ability of managers to assess the investment's impact, identify modifications to potentially improve performance, and revise the investment process. Finally, USPS policy does not require incorporating best practices or lessons learned after project completion--another leading practice--which limits opportunities for USPS to improve its process in a way that could benefit future investments.

What GAO Recommends

USPS should, among other recommendations, modify some of its capital investment policies to more closely align with leading practices, particularly for planning, selecting, and evaluating capital investments and regularly examine the extent to which managers reassess projects. USPS partially concurred or concurred with all of GAO’s recommendations. GAO continues to believe that all of its recommendations are valid and implementation will help to improve USPS’s capital investment process as discussed further in this report.