Here’s slices from a good discussion at the Aspen Security Forum with LinkedIn co-founder Reid Hoffman and chief of naval research Admiral Lorin Selby. Hoffman starts us off:
To give you a crisp historical example of how potentially concerning this is, is healthcare.gov, which you know the prime contractors spent $300 million dollars, spent years developing, and failed. [By contrast,] five million dollars and 15 people in modern software developed over the RFP spec. So the prime contractors in my point of view are so many decades behind in software I don’t know which decade they’re in.
That $5 million on a successful product was just 1.67 percent of the $300 million that went to traditional contractors like CGI Federal. Of course, the original contractors were not “price gouging” the government because they actually spent all that money on human bodies and could audit it. But certainly the previous contractors made more in profit from failing to deliver on the $300 million project than the entire cost of the successful build.
This problem isn’t entirely the contractor’s fault. As should be obvious in procurement, a lot of program failures actually derive from the government’s own practices:
The various services and the overall Department of Defenses [ask,] “how do we stay pace with what’s going in commercial?” Because when you create an RFP [request for proposals] and say well I want something that’s very specific here, you start aging the moment you’ve shipped the RFP especially when it gets the software.
Admiral Selby jumps off on that point:
I’m really glad you said that because that’s actually one of the premises for my way to try to transform the way we do business. We tend to want to set a requirement. Okay that’s what the military likes to do. We want to define a requirement and we want to do that because the way our budget cycle works, about two to two and a half years ahead of the time when you actually start building or coding. By that time on the scales we work at today, that thing has been overcome by events at least two if not three or more times.
… When it comes to China, we’ve got to turn that tide. This is a whole government approach. We’ve got to look at the way we resource things. We’ve got to change the game totally… When you’re going from a prototype to something at scale for the field, that’s where we struggle because we don’t have the resources. They’re in the wrong buckets. They’re they’re in POM 2025 not in FY 2022 today. They’re in in three years down the road in my budget which is not yet approved. We’ve got to figure out how to fix that.
And here’s Adm. Selby’s idea for the resourcing fix (tagline: PPBE reform!):
This is this is heresy, but I think you got a hedge strategy. What do you need to accomplish a hedge strategy, you need a hedge fund, and if you have a hedge fund you need a hedge fund manager. I don’t mean like 10 [managers], I mean like a single empowered individual who’s accountable to the Congress, to the senior leadership, and basically has check writing authority on the hedge fund to go find companies to go solve the problem… We don’t have a way of actually funding that today at scale we do little piece parts here and there.
The “hedge strategy,” as Adm. Selby describes it, sounds like the essence of risk management in a portfolio.