The  expected growth combined with the fact that DOD accounted for more  than half of all discretionary spending in fiscal year 2004 raises concerns  about the sustainability and affordability of increased defense spending. Pervasive Business Management Weaknesses Place DOD’s Overall Business Transformation at Risk

Numerous management problems, inefficiencies, and wasted resources  continue to trouble DOD’s business operations, resulting in billions of  dollars of wasted resources annually at a time when our nation is facing an  increasing fiscal imbalance. The 8 DOD specific  high-risk areas, along with six government-wide areas that apply to DOD,  mean that the department is responsible for 14 of 25 high-risk areas. We  now consider DOD’s overall approach to business transformation to be a  high-risk area because (1) DOD’s business improvement initiatives and  control over resources are fragmented; (2) DOD lacks a clear strategic and  integrated business transformation plan and an investment strategy,  including a well-defined enterprise architecture, to guide and constrain  implementation of such a plan; and (3) DOD has not designated a senior  management official responsible and accountable for overall business  transformation reform and related resources. DOD spends billions of dollars to sustain key business  operations intended to support the warfighter. DOD  needs to develop a plan to better guide and sustain the implementation of  its diverse business transformation initiatives in an integrated fashion. To ensure these three elements are incorporated  into the department’s overall business management, we believe Congress  should legislatively create a full-time, high-level executive with long-term  “good government” responsibilities that are professional and nonpartisan  in nature. The CMO would not assume the responsibilities of the  undersecretaries of defense, the services, and other DOD entities for the  day-to-day management of business activities. Chief Management Official Is Essential for Sustained Leadership of Business Management Reform

As DOD embarks on large-scale business transformation efforts, we believe  that the complexity and long-term nature of these efforts requires the  development of an executive position capable of providing strong and  sustained change management leadership across the department—and  over a number of years and various administrations. The  position would divide and institutionalize the current functions of the  Deputy Secretary of Defense into a Deputy Secretary who, as the alter ego  of the Secretary, would focus on policy-related issues such as military  transformation, and a Deputy Secretary of Defense for Management, the  CMO, who would be responsible and accountable for the overall business  transformation effort and would serve full-time as the strategic integrator  of DOD’s business transformation efforts by, for example, developing and  implementing a strategic and integrated plan for business transformation  efforts. DOD continues to face pervasive, decades-old management problems  related to its business operations and these problems affect all of DOD’s  major business areas. In this time of growing fiscal  constraints, every dollar that DOD can save through improved economy  and efficiency of its operations is important to the well-being of our nation. Second, we believe that the implementation of two proposed  legislative initiatives—establishing central control of business system  funds and creating a CMO—is crucial. We believe that a CMO, serving a 7-year term  with the potential for reappointment, would have the institutional clout and  an adequate term in office to work with DOD’s senior leadership across  administrations to make business transformation a reality.
Why GAO Did This Study

In addition to external security threats, our nation is threatened from within by growing fiscal imbalances. The combination of additional demands for national and homeland security resources, the long-term rate of growth of entitlement programs, and rising health care costs create the need to make difficult choices about the affordability and sustainability of the recent growth in defense spending. At a time when the Department of Defense (DOD) is challenged to maintain a high level of military operations while competing for resources in an increasingly fiscally constrained environment, DOD's business management weaknesses continue to result in billions in annual waste, as well as reduced efficiencies and effectiveness. Congress asked GAO to provide its views on (1) the fiscal trends that prompt real questions about the affordability and sustainability of the rate of growth of defense spending, (2) business management challenges that DOD needs to address to successfully transform its business operations, and (3) key elements for achievement of reforms. One key element would be to establish a full-time chief management official (CMO) to take the lead in DOD for the overall business transformation effort. In this regard, we support the need for legislation to create a CMO in DOD with "good government" responsibilities that are professional and nonpartisan in nature, coupled with an adequate term in office.

What GAO Found

Our nation's current fiscal policy is on an imprudent and unsustainable course and the projected fiscal gap is too great to be solved by economic growth alone or by making modest changes to existing spending and tax policies. In fiscal year 2004, DOD's spending represented about 51 percent of discretionary spending, raising concerns about the affordability and sustainability of the current growth in defense spending and requiring tough choices about how to balance defense and domestic needs against available resources and reasonable tax burdens. GAO has reported that DOD continues to confront pervasive, decades-old management problems related to business operations that waste billions of dollars annually. These management weaknesses cut across all of DOD's major business areas. These areas, along with six government-wide areas that also apply to the department, mean that DOD is responsible for 14 of 25 high-risk areas. To move forward, in our view, there are three key elements that DOD must incorporate into its business transformation efforts to successfully address its systemic business management challenges. First, these efforts must include an integrated strategic plan, coupled with a well-defined blueprint--referred to as a business enterprise architecture--to guide and constrain implementation of such a plan. Second, central control of system investments is crucial for successful business transformation. Finally, a CMO is essential for providing the sustained leadership needed to achieve lasting transformation. The CMO would not assume the day-to-day management responsibilities of other DOD officials nor represent an additional hierarchical layer of management, but rather would serve as a strategic integrator who would lead DOD's overall business transformation efforts. Additionally, a 7-year term would also enable the CMO to work with DOD leadership across administrations to sustain the overall business transformation effort.