All of these DOD areas are  on our high-risk list. ●  DOD had not established common investment criteria for system  reviews. DOD’s Efforts to Comply with National Defense Authorization Act for Fiscal Year 2005 Indicate Progress and a Foundation Upon Which to Build

As defined in Section 332 of the defense authorization act for fiscal  year 2005, DOD is required to satisfy several conditions relative to  its approach to managing its business systems modernization  program. The act also requires us to assess DOD’s efforts to comply with the  act within 60 days after approval of the business enterprise  architecture and transition plan. On September 28, 2005, the Acting  Deputy Secretary of Defense approved Version 3.0 of the business  enterprise architecture and approved the associated enterprise  transition plan. Our preliminary work suggests that Version 3.0 of DOD’s business  enterprise architecture may partially satisfy the major conditions  specified in the act. Without this element,  DOD would not be able to develop a gap analysis identifying  performance shortfalls, which as discussed in the next section , is a  critical input to a comprehensive transition plan. For example, it may  not yet be fully integrated with the enterprise transition plan. In  particular, we are currently attempting to determine why 21 syste identified in the architecture are not included in the “Master List of  Systems and Initiatives” in the transition plan (the master list serves as the baseline of currently planned—”To Be”—systems that begin  to address the transformational objectives of the program). In  addition, DOD has itself disclosed certain limitations. According to DOD officials, the department is taking an incremental  approach to developing the architecture and meeting the act’s  requirements. Similarly, our preliminary work suggests that the plan identifies  some of the legacy systems that are to be replaced by ongoing  programs (for example, it identifies the Defense Cash Accountability  System as a target system and lists several legacy systems that it  would replace), and it provides a list of legacy systems that will be  modified to provide capabilities associated with the target  architecture environment. Finally, the plan appears to include some of the required  information on milestones, performance metrics, and resource  needs. On the basis of our preliminary work, it appears that DOD has  satisfied some aspects of these conditions, and is potentially in the  process of satisfying other aspects. DOD’s Business Transformation Agency Could Help Strengthen Systems Modernization Management and Oversight if it is Effectively Implemented

On October 7, 2005, DOD established the Business Transformation  Agency (BTA) to advance defense-wide business transformation  efforts in general but particularly with regard to business systems  modernization. In our view, BTA offers potential benefits relative to the  department’s business systems modernization efforts, if the agency  can be properly organized, resourced, and empowered to effectively  execute its roles and responsibilities, and if it is held accountable  for doing so. In this regard, the agency faces a number of challenges  as described below. As the department moves forward with  implementing this new agency, it will important for it to address  these issues. Effective DOD Business Transformation Will Require Broader Focus than Recently Launched Business Systems Modernization Management Structures and Activities

For DOD to successfully transform its overall business operations, it  will need senior level management accountability, a comprehensive  and integrated business transformation plan that covers all of its key  business functions; people with needed skills, knowledge,  experience, responsibility, and authority to implement the plan; an  effective process and related tools; and results-oriented  performance measures that link institutional, unit, and individual  performance goals and expectations to promote accountability for  results. As I discussed earlier, DOD has taken several  actions, including setting up the DBSMC, publishing a business  enterprise transition plan and most recently, establishing the  Business Transformation Agency. While these management structures  and plan are positive steps, their primary focus, at this point,  appears to be on business systems modernization. However, business transformation is much  broader and encompasses not only the supporting systems, but also  the planning, management, organizational structures, and processes  related to all DOD’s major business areas. Recognizing that DOD is continuing to evolve its  efforts to plan and organize itself to achieve business  transformation, critical to the success of these efforts will be  management attention and structures that focus on transformation  from a broad perspective and a clear strategic and integrated plan  that, at a summary level, addresses all of the department’s major  business areas.
Why GAO Did This Study

For years, the Department of Defense (DOD) has embarked on a series of efforts to transform its business operations, including modernizing underlying information technology (business) systems. GAO has reported on inefficiencies and inadequate accountability across DOD's major business areas, resulting in billions of dollars of wasted resources annually. Of the 25 areas on GAO's 2005 list of high-risk federal programs and operations that are vulnerable to fraud, waste, abuse or mismanagement and in need of reform, 8 are DOD programs or operations, and 6 are government-wide high risk areas for which DOD shares responsibility. The Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 required DOD to satisfy several conditions relative to its approach to managing its business system modernization program, including developing an enterprise transition plan, which GAO is currently assessing. DOD also recently established a Business Transformation Agency intended to advance defense-wide business transformation. GAO was asked to testify on DOD's business transformation, including its preliminary observations on 1) DOD's efforts to satisfy fiscal year 2005 defense authorization act requirements; 2) the Business Transformation Agency; and 3) DOD's efforts to provide the leadership, structures, and plans needed to effect transformation.

What GAO Found

GAO's preliminary observation based on its ongoing work is that DOD has made progress in establishing needed business system modernization management capabilities and appears to have complied with some of the act's provisions, but more needs to be done. To comply with the act's requirement that it develop a business enterprise architecture and transition plan meeting certain requirements, DOD approved Version 3.0 of its architecture and associated transition plan on September 28, 2005. GAO's work so far suggests that this version of the architecture may satisfy the conditions of the act to some extent, but not entirely. For example, while Version 3.0 includes a target architecture, as required, it does not include a current architecture. Without this element, DOD could not analyze the gaps between the two architectures--critical input to a comprehensive transition plan. In addition, the transition plan appears to include certain required information (such as milestones for major projects), but it appears to be inconsistent with the architecture in various ways, such as including some systems that are not in the target architecture and vice versa, and it does not include system performance metrics aligned with the plan's strategic goals and objectives. Finally, GAO's preliminary work suggests that DOD may have satisfied some of the act's requirements regarding the review and approval of investments in business systems, but it either has not satisfied or is still in the process of satisfying others. For example, it has delegated authority and largely established review structures and processes as required. However, some of these structures do not yet appear to be in place, and some reviews and approvals to date may not have followed the criteria in the act. GAO expects to report on these issues shortly. DOD's Business Transformation Agency offers potential benefits relative to the department's business systems modernization efforts if the agency can be properly organized, resource, and empowered to effectively execute its roles and responsibilities and is held accountable for doing so. The agency faces several challenges, including standing up a functioning acquisition organization within a short period of time. As DOD moves forward with implementing this agency, it will be important for it to address these issues. DOD has taken several actions intended to advance transformation, such as establishing management structures like the Business Transformation Agency, and developing the enterprise transition plan. While these steps are positive, their primary focus appears to be on business system modernization. Business transformation is much broader and encompasses planning, management, structures, and processes related to all key business areas. As DOD continues to evolve its transformation efforts, critical to successful reform are sustained leadership, structures, and a clear strategic and integrated plan that encompass all major business areas. GAO believes a chief management official, responsible for business transformation, could provide the strong and sustained executive leadership needed in this area.