This approach, known as portfolio management,  requires companies to view each of their investments from an enterprise  level as contributing to the collective whole, rather than as independent  and unrelated. This type  of approach depends on strong governance with committed leadership,  clearly aligned responsibility, and effective accountability at all levels of  the organization. Companies Follow a Disciplined Process to Identify New Products and Achieve a Balanced Portfolio

Once companies have identified and prioritized their market opportunities,  they follow a disciplined process to assess the costs, benefits, and risks of  potential product alternatives and allocate resources to achieve a balanced  portfolio that spreads risk across products, aligns with the company’s  strategic goals and objectives, and maximizes the company’s return on  investment. Lacking an Integrated, Portfolio-Based Approach, DOD Has Too Many Programs Competing for Limited Resources

Although the military services fight together on the battlefield as a joint  force, they do not identify warfighting needs and make weapon system  investment decisions together. DOD has taken steps to identify warfighting  needs through a more joint requirements process, but the department’s  service-centric structure and fragmented decision-making processes are at  odds with the integrated, portfolio management approach used by  successful commercial companies to make enterprise-level investment  decisions. Consequently, DOD has less assurance that its weapon system  investment decisions address its most important warfighting needs and are  affordable in the context of its overall fiscal resources. In addition, DOD  commits to products earlier than the companies we reviewed and with far  less knowledge about their cost and feasibility. These practices have contributed to the department starting more  programs than its resources can support. If this trend  goes unchecked, Congress will likely be faced with a difficult choice: pull  funds from other high-priority federal programs to support DOD’s  acquisitions or accept less warfighting capability than originally promised. In addition, the Secretary should ensure that the following commercial  best practices, identified in this report, are incorporated:  implement a review process in which needs and resources are  integrated early and in which resources are committed  incrementally based on the achievement of specific levels of  knowledge at established decision points;    prioritize programs based on the relative costs, benefits, and risks  of each investment to ensure a balanced portfolio;  require increasingly precise cost, schedule, and performance  information for each alternative that meets specified levels of  confidence and allowable deviations at each decision point leading  up to the start of product development;    establish portfolio managers who are empowered to prioritize  needs, make early go/no-go decisions about alternative solutions,  and allocate resources within fiscal constraints; and    hold officials at all levels accountable for achieving and maintaining  a balanced, joint portfolio of weapon system investments that meet  the needs of the warfighter within resource constraints. Specifically, our  objectives were to (1) identify best practices of successful commercial  companies for ensuring that they pursue the right mix of programs to meet  the needs of their customers within resource constraints and (2) compare  DOD’s enterprise-level processes for investing in weapon systems to those  practices. Defense Acquisitions: Major Weapon Systems Continue to Experience  Cost and Schedule Problems under DOD’s Revised Policy.
Why GAO Did This Study

Over the next several years, the Department of Defense (DOD) plans to invest $1.4 trillion in major weapons programs. While DOD produces superior weapons, GAO has found that the department has failed to deliver weapon systems on time, within budget, and with desired capabilities. While recent changes to DOD's acquisition policy held the potential to improve outcomes, programs continue to experience significant cost and schedule overruns. GAO was asked to examine how DOD's processes for determining needs and allocating resources can better support weapon system program stability. Specifically, GAO compared DOD's processes for investing in weapon systems to the best practices that successful commercial companies use to achieve a balanced mix of new products, and identified areas where DOD can do better. In conducting its work, GAO identified the best practices of: Caterpillar, Eli Lilly, IBM, Motorola, and Procter and Gamble.

What GAO Found

To achieve a balanced mix of executable development programs and ensure a good return on their investments, the successful commercial companies GAO reviewed take an integrated, portfolio management approach to product development. Through this approach, companies assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives. They weigh the relative costs, benefits, and risks of proposed products using established criteria and methods, and select those products that can exploit promising market opportunities within resource constraints and move the company toward meeting its strategic goals and objectives. Investment decisions are frequently revisited, and if a product falls short of expectations, companies make tough go/no-go decisions. The companies GAO reviewed have found that effective portfolio management requires a governance structure with committed leadership, clearly aligned roles and responsibilities, portfolio managers who are empowered to make investment decisions, and accountability at all levels of the organization. In contrast, DOD approves proposed programs with much less consideration of its overall portfolio and commits to them earlier and with less knowledge of cost and feasibility. Although the military services fight together on the battlefield as a joint force, they identify needs and allocate resources separately, using fragmented decision-making processes that do not allow for an integrated, portfolio management approach like that used by successful commercial companies. Consequently, DOD has less assurance that its investment decisions address the right mix of warfighting needs, and, as seen in the figure below, it starts more programs than current and likely future resources can support, a practice that has created a fiscal bow wave. If this trend goes unchecked, Congress will be faced with a difficult choice: pull dollars from other high-priority federal programs to fund DOD's acquisitions or accept gaps in warfighting capabilities.