I was please to host a webinar event with George Mason’s Center for Government Contracting featuring three former Pentagon executives. We discussed my white paper on defense budget reform, which provides an overview of (1) the history of budgeting; (2) why budget reform is necessary for accelerating innovation; and (3) a proposed solution. I argue that the budget is the primary obstacle to transforming the defense force structure away from legacy platforms and toward emerging technologies. If budget line items can be consolidated, allowing more flexibility to start, ramp up, pivot, or cancel projects, it will provide mission-driven organizations the one thing they’ve always lacked: the ability to become true portfolio managers.
I was joined by Katharina McFarland (former Assistant Secretary of Defense for Acquisition), Bill Greenwalt (former SASC staffer and Deputy Assistant Secretary for Industrial Policy), and Bob Daigle (former HASC staffer and Director of Cost Assessment and Program Evaluation). In general, they agree with the idea of budget reform I put forward, but each panelist had their own insights and perspectives to add.
Katharina argued that the defense acquisition process is not agile by design, and it cannot be changed overnight. There are too many people that have equity in each and every program, slowing the entire process down and creating roadblocks to substantial change. She considers the people aspect of the problem, as well as how to create better systems of data collection and analysis to inform decisions that will help move the DoD away from long and bureaucratic processes associated with the budget.
Bill considers the defense budget process as a relic of the Cold War that needs complete change. The DoD attached itself to central planning ideologies because (1) it was the best practices of 1950s firms like Ford Motor and GM; and (2) because the Soviet Union posed an existential threat. Yet as Bill argues, the waterfall planning processes the DoD installed actually led to the rapid decline of US auto-makers in the decades after. Moreover, the US didn’t win the Cold War because its defense management was better than at central planning than the Soviets, but simply because the US had a market economy. With modern tech companies doing agile development and a new Chinese threat, there may be a window to complete overhaul of the defense budget like was done in 1961.
Bob points to the requirements process as the root of many problems with budgeting and accelerating technology. Requirements take several years to get defined, and are detailed to an excruciating level. That detail hen gets reflected in the programs that get budgeted for, creating inflexibility. Bob argues that both requirements and budgets should be less specified — raised up a couple levels — but that the fundamental Planning-Programming-Budgeting-Execution process is sound. Bob argues that defense is too big and complex to change at once, and requires smaller pilot programs that carve out completely new space that can then be scaled.
Podcast annotations.
Here is a bit more from Bob Daigle:
I’m probably not allowed to say this as a former director of CAPE, but I will anyway. I think it’s important to recognize that we live in a world where none of us can know what tomorrow holds… I would challenge anybody to suggest that they know with any amount of certainty what innovation is going to come out of Silicon Valley or out of Austin or out of Boston and I think to your point, Eric, and to the point of this paper and the point of this discussion today, trying to project the future with certainty either through a requirements process or through a budget process does more harm than good these days.
One of the focus areas for reform — moving from long waterfall processes to quick, iterative, agile processes — has been software. There’s a new software acquisition pathway, and even a new “colorless” budget activity for software. But it isn’t clear that those pathways will result in much change. Katharina, who is a commissioner on the National Security AI Commission, said:
If you take a look at all of those entities that become part of your ecosystem — the time that it takes to brief them, answer their questions, and brief everyone to get to the point where you can have a yes — takes years out of your program timeline and that cost is burdened in there. Now take that to the budgetary system. Have you seen it? My favorite chart is how many lines are on that chart that says where you are in the budgetary process. You’re developing, you’re executing, you’re reviewing. oh my god! Right? Think of the manpower that’s involved in that.
All these people that have equities will be a major barrier to reform within the Department of Defense, not to mention Congress. And as Bill explained, the DoD will have to make its own case for budget reform. Without a single voice from the DoD, Congress will never see the need for change.
One primary obstacle is the way program oversight is perform. Congress listens to the oversight offices, which look at program success in a narrow and outdated way. They focus on cost growth, schedule delays, the completeness of planning and reporting, and so forth. Often left out is the effectiveness of the program — a question often left outside their purview because mission requirements were supposed to be settled up-front in the baseline. Here’s Bill:
Let me add one thing because there’s one part of this that we’re not focusing on that congress listens to a lot, and that’s what I’m going to call the oversight industrial complex. in other words, GAO, DoDIG, the audit agencies, the various stove pipes they’ve created to essentially be the checkers of the system to ensure compliance with the oversight and transparency process that’s been created over the last 60 years. this complex needs to come to a realization — and I think that has to come with a focus by senior management working with them — that they are now a part of the problem.
I’d like to thank Katharina McFarland, Bill Greenwalt, and Bob Daigle for joining me to discuss the future of defense budget reform. I’d also like to thank Jerry McGinn and Charlie Dolgas at Mason GovCon for hosting this event.
Full-Text Transcripts are available here.
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