DOD believes  it can better address managing defense-wide business transformation— which includes planning, management, organizational structures and  processes related to all key business areas—by first transforming business  operations that support the warfighter while also enabling financial  accountability across DOD. DOD Lacks a Comprehensive, Integrated, and Enterprisewide Approach to Decisionmaking and Sustained Leadership

While DOD has developed plans that address certain high-risk areas  related to business transformation, and is taking other steps to guide and  lead transformation efforts, I believe that the department still lacks several  key elements that are needed to ensure a successful and sustainable  business transformation effort. However, the enterprise transition plan does not go far  enough to constitute a strategic plan for the overall business  transformation efforts since it is more focused on business systems. During  the past year, DOD has taken additional steps to address certain  provisions and requirements of the Ronald W. Reagan National Defense  Authorization Act for Fiscal Year 2005, including establishing the DBSMC  as DOD’s primary transformation leadership and oversight mechanism,  and creating the Business Transformation Agency (BTA) to support the  DBSMC, a decision making body. However, these organizations do not  provide the sustained leadership needed to successfully achieve business  transformation. Moreover, BTA has yet to fill a number of key positions for overseeing the  transformation process. DOD Has Made Important Progress Complying With Business Systems Modernization and Financial Management Accountability Legislation, But Much Work Remains

As we testified and reported earlier this year, we believe DOD has made  important progress in complying with legislation pertaining to its business  systems modernization and financial management improvement efforts. For example, we reported in May 2006 that DOD released a minor update  to its business enterprise architecture on March 15, 2006, developed an  updated enterprise transition plan, and issued its annual report to  Congress describing steps taken and planned, among other things. These  steps address several of the missing elements we previously identified  relative to the legislative provisions concerning the architecture, transition  plan, budgetary reporting of business system investments, and investment  review. Key DOD Systems Still Face Challenges

We testified in November 2005 that DOD faced a number of challenges,  including ensuring that the department’s many business system  investments are managed in a way to deliver promised system capabilities  and benefits on time and within budget. Since our report, DOD has made some progress in addressing concerns,  however significant challenges remain. Specific High-risk Program Areas Highlight the Need for Continued Attention to Ensure Effective Transformation

I would like to discuss the five remaining high-risk areas within DOD. Management of DOD’s Weapon Systems Acquisitions and Contractor Oversight

Two interrelated high-risk areas are the management of DOD’s major  weapon systems acquisitions and its contractors due to recurring  problems with cost overruns and scheduling delays. The consequence of cost and schedule growth is manifested in a  reduction of buying power of the defense dollar, at a time when the nation  is struggling with a large and growing structural deficit. In fact, all of these areas—along with weapon  systems acquisition—are on GAO’s high-risk list of major government  programs and operations. Notwithstanding this  positive first step, the department faces challenges and risks in  successfully implementing its proposed changes across the department  and measuring progress. In  addition, we are continuing to review DOD’s progress in implementing its  supply chain management plan, the extent the plan is strategically linked  to other logistics strategies, and the performance measures DOD is using  to track the plan’s progress in resolving supply chain problems. For over 2 decades, we  have reported on problems with DOD’s personnel security clearance  program as well as the financial costs and risks to national security  resulting from these problems. DOD Support Infrastructure Management

Since 1997, GAO has identified DOD’s management of its support  infrastructure as a high-risk area because infrastructure costs continue to  consume a larger than necessary portion of its budget.
Why GAO Did This Study

Of the 25 areas on GAO's 2005 high-risk list of federal programs or activities that are at risk for waste, fraud, abuse, or mismanagement, 8 are Department of Defense (DOD) programs or operations and 6 are governmentwide high-risk areas for which DOD shares some responsibility. These high-risk areas relate to DOD's major business operations. DOD's failure to effectively resolve these high-risk areas results in billions of dollars of waste each year, ineffective performance, and inadequate accountability. At a time when DOD is competing for resources in an increasingly fiscally constrained environment, it is critically important that DOD get the most from every defense dollar. DOD has taken several positive steps and devoted substantial resources toward establishing key management structures and processes to successfully transform its business operations and address its high-risk areas, but overall progress by area varies widely and huge challenges remain. This testimony addresses (1) DOD's progress in developing a strategic, integrated, enterprise-wide business transformation plan and its related leadership approach, (2) the extent to which DOD has complied with legislation that addresses business systems modernization and improving financial management accountability, and (3) selected additional DOD high-risk areas that highlight the need for continued attention.

What GAO Found

DOD has made some progress in its overall approach to business transformation, which GAO has designated as high risk. Yet, GAO still believes DOD needs an integrated, enterprisewide strategic plan and chief management official (CMO) to guide and oversee these efforts. DOD has developed a revised business enterprise architecture and enterprise business transition plan. However, this plan does not go far enough to constitute a strategic plan for the overall business transformation effort. DOD also established the Defense Business Systems Management Committee (DBSMC), as DOD's primary transformation leadership and oversight mechanism, and the Business Transformation Agency (BTA) to support the DBSMC. However, these organizations do not provide the sustained leadership needed to successfully achieve business transformation. Also, the BTA still faces challenges to become operational, such as filling a number of key positions to oversee the transformation process. DOD continues to take steps to comply with legislative requirements to improve business systems modernization, designated as a high-risk area. It has updated its business enterprise architecture and enterprise transition plan and issued its annual report to Congress. This report describes steps taken and planned that address several of the missing elements GAO previously identified relative to legislative provisions concerning the architecture, transition plan, budgetary reporting of business system investments, and investment review. While these steps certainly reflect progress, DOD continues to face challenges relative to ensuring that the department's key business system investments are managed in a way to deliver promised system capabilities and benefits on time and within budget. Further, in late December 2005, DOD issued its Financial Improvement and Readiness Plan to guide its financial management improvement efforts. Ensuring effective transformation of other defense areas that GAO has identified as high risk will require continued attention over many years. These other high-risk areas include weapon systems acquisition, contract management, supply chain management, personnel security clearances, and support infrastructure management. In the area of weapons system acquisition, recurring problems with changing requirements, cost overruns, and schedule delays have resulted in a reduction of buying power of the defense dollar at a time when the nation is struggling with a large and growing structural deficit. While it has made some progress in addressing its supply chain management problems, DOD faces challenges in successfully implementing its planned changes and measuring progress. Problems with the personnel security clearance program continue, although DOD has taken steps to address the financial costs, delays, and other risks associated with the program. Finally, much work remains for DOD to transform its support infrastructure to improve operations and achieve efficiencies so that infrastructure costs adequately fund but no longer consume a larger than necessary portion of DOD's budget.