How metrics led to the deprioritization of delivering capability: DoD obligation rates

Here’s a slice of a paper from Col. Jesse Marsalis at National Defense University: The Negative Impacts of the Benchmarks. The benchmarks in question of USD Comptroller’s Rule-of-Thumb acquisition obligation and expenditure rates. These benchmarks are not found anywhere in a DoD instruction, manual, regulation, or any historic record found by the author. Yet they have incredible impacts on the acquisition workforce.

Essentially, financial managers from DoD to Congress use the benchmarks to see who is spending money too slow and who is spending it too fast. The rates assume programs will obligate and expend in a linear fashion. For example, every month RDT&E funds should be obligated (e.g., put on contract) at a rate of 7.5 percent each and every months from the start of the year until it reaches 90% obligated by the end of the first year (even though the appropriation is good for obligations within two years). This is unrealistic because program offices don’t actually receive their allotment of funding for days or even weeks after the start of the fiscal year.

More to the point, if a program is not obligating funding fast enough according to the metrics, it becomes a prime target for reprogramming to other priority areas. Here is some discussion on the impact:

… instead of an evidence-based decrement, authorities took the funding through a simple “peanut butter spread” reduction across the enterprise based on how organizations ranked against the monthly benchmarks. The author’s command learned the lesson, and behaviors quickly changed, as leaders prioritized the benchmarks above everything else, including operational needs. The author was surprised sometime later when he saw the customer direct a shift of a higher priority effort to execute later in the year to support improved monthly benchmarks. In short, the aggressive focus on the monthly benchmarks had taken a stranglehold as the customer started prioritizing them to protect funding above the pursuit of capabilities deemed critical for its warfighters. The benchmarks became the target, not the delivery of capability.

And some quotes on that:

In explaining the focus on the benchmarks, one program manager said, “If you’re green, no one bothers you!” Another program manager said, “leaders don’t want to have to answer questions of appropriators…, so they set an extraordinarily high focus on the monthly rates so that they are not scrutinized.”

Col. Marsalis recommends adjusting the rule-of-thumb rates to look more like an s-curve: it starts out much slower, only 7.5 percent obligated in the first three months for RDT&E rather than in the first month alone. But then it ramps up quicker to meet the 90 percent obligated by the end of the first fiscal year. He also recommends allowing leaders to use the whole life of the appropriation rather than concentrating on the first year for RDT&E and first two years for Procurement.

Another interesting piece was that the total funding that remained unobligated after the life of the appropriation, and therefore expires, decreased from $35 billion to roughly $20 billion between FY2016 and FY2021. That decrease occurred despite the topline budget growing by over $100 billion over that time.