Ellen Lord and Michael Brown joined me at the 2022 Conference hosted by George Mason University and Defense Acquisition University to discuss PPBE Reform. Ellen Lord is Vice Chair of the Commission on PPBE Reform and former USD A&S, while Mike Brown is a Partner at Shield Capital and Visiting Scholar at the Hoover Institute, just recently finishing up as Director of the Defense Innovation Unit. The audio has been republished on the Acquisition Talk podcast.
Download the full-text transcripts
Lessons from Ukraine
Ukraine has shown DoD that it needs a process for speeding up decision time, adopting commercial technologies, and building for simplicity and quantity rather than a few exquisite platforms. Here’s Ellen Lord:
We need to leverage that commercial capacity, bring it in very quickly. And then build capacity and capability within our industrial base…. We see that Ukraine has really been an inflection point for technology on the battlefield. And we see that quantity has quality all of its own. We talked about drones. When you have a thousand of them going out, that’s almost a self-healing network right there.
And Mike Brown’s view:
A process that takes three years to program a dollar of spending, that’s what we’re living with now. When you add on continuing resolution and very little flexibility because Congress allocates to 10,000 line items, that does not produce an agile organization.
I don’t think anyone at the Defense Department or anywhere else would say we could predict the future. Ukraine blew a hole in that if you thought you could. So we have to react now to events around the world that can’t be forecast, and we’ve got to be more agile.
Brown argues that back in the 1960s, the Air Force had a single line item for tactical aircraft which provided it flexibility. “You didn’t have congressional staffers telling the department, okay we’re gonna have this much of this aircraft, this much of another.”
The PPBE was designed for staff people and analysts not just in Congress, but in OMB, OSD, and multiple layers in the services, to inject their opinions into weapons development before there is empirical evidence to say what actually works. The whole idea was to eliminate duplication and overlap by fully determining the cost, schedule, and performance/technical characteristics before a program started development. That’s what we’re talking about when we say PPBE relies on prediction. And the 2009 WSARA doubled-down on prediction, moving the program baselining to Milestone A, which is initiation to prototyping.
How the Commercial Sector Does It
Here’s a good slice from Mike Brown, who spent more than 20 years in leadership positions in the commercial sector. Rather than thousands of locked-in line items, he recommends Congress and DoD:
Allow for more of a portfolio approach, more tradeoffs to occur in the Department. I think we’d be a lot better off with that system. And if you think about it, that borrows directly from how corporations do budgeting — Exxon Mobile, Google — you take whatever the most complex organization in the world is today that you want to pick on. Granted, DOD is bigger, but no one takes more than a year to do a budget. And you would not have the granularity coming from your board of directors to tell the CEO here’s 10,000 line items and don’t you dare deviate. From that, if you see things changing in the world you operate in and you’re trying to optimize, don’t change anything.
Ellen Lord also has decades of experience in the defense industry as an executive. She also double tapped on the fact that companies do not plan to such a low level of detail years ahead of time.
There needs to be more transparency about what the plan is, but we can’t predict the future. And that’s where the difference, if you look at how industry does budgeting versus how the government does budgeting industry, large corporations have to look at out years, but they perhaps look at the risks a little bit more honestly, if you will. Not to say that anything’s dishonest about DoD, but it just doesn’t get acknowledged because there’s a fear of failure.
Lord mentioned twice the “hidden factory” in DoD that performs so many review cycles at multiple levels before a decision gets made. The Rapid Capability Offices have no special authorities, but they can bypass the hidden factory of bureaucracy and go straight to a decision maker. They also have some of the brightest and most dedicated individuals. The challenge is scaling that. In her view:
And in order to scale that, you’re going to have to delegate more, which means risk taking. However, I’m not sure we really have a choice here. I think we have to.
In my view, the hidden factory uses cost-benefit analysis and a daisy chain of vetos such that only the biggest and most requirements gold-plated system gets funded. Cost-benefit analyses are often so naive that they miss the point entirely.
The simple fact is that for a weapons program of any sophistication, it is literally impossible to perform a cost-benefit analysis that derives a unique, unambiguous decision. Mathematics itself does not support the idea. All the paper being churned in DoD does not reduce risk. It vastly increases it. [See chapters 3 and 7 of Programmed to Fail for more on that.]
Focus on People
Perhaps the biggest problem of PPBE is that it extends timelines so much, and moves decisions so high up the chain, that the rank-and-file workforce has little influence over outcomes. PPBE replaces the concept of individual responsibility with control.
Mike Brown related a story from former Vice Chief of the Joint Chiefs of Staff John Hyten who, in the past, was allowed to take a lot more responsibility at a younger age for major programs:
When he started in his career, he was able to work on a big program when he was a Major and had responsibility for tens of millions of dollars. He said that would never happen today. He was given that opportunity to make some mistakes and drive some impact. So we’ve become more risk averse over time.
Ellen agreed that the defense workforce is too risk averse, not because it has bad people or doesn’t pay people Silicon Valley salaries, but because of the incentive structure related to empowerment:
It’s not as much about how much bonus money they’re taking home at the end of the year, right? I think it’s a feeling of accomplishment that they could see what they have done, what their efforts have led to in terms of fielding something down range, because that’s what it’s all about… Right now, there’s no incentive to take risk.
Reprogramming
I mentioned that the FY 2022 budget had 1800 line items in RDT&E and Procurement. The median line item was roughly $30 million and programmed multiple years before. Then, there’s limited ability to move money around when the facts on the ground change. FY20 reprogramming for the RDT&E title was about 2% for ATRs and 1% for BTRs. Here is Ellen Lord’s reaction to that:
I think it shows that the system is broken, frankly. And reprogramming, let’s be honest about it, with the wall and everything, has gotten incredibly difficult because it’s become so highly politicized. So I think we need to look at a system that treats those small procurements very differently.
Too often the smaller ACAT II and III programs get treated the same as if they were a ACAT I aircraft carrier of fighter jet. Lord mentioned that reprogramming thresholds haven’t changed in over 10 years, despite inflation. Mike Brown agreed that reprogramming wasn’t a viable option for flexibility most of the time:
Something would have to rise to an incredible threshold to be worth the amount of effort to reprogram… We never, in the six years I was at DIU, went through the reprogramming route because it’s so labor. And it’s discouraged.
The alternative to big increases in reprogramming, as Lord mentioned, was increasing flexibility in the year of execution. “And that gets to the concept of, gee, instead of having so many discreet PEs [program elements], could you broaden that a little bit and have capability elements?”
Capability of Record
Mike Brown agreed that moving from narrowly specified “programs of record” to a “capability of record” is a key aspect of the Fast Follower strategy to quickly adopt commercial and emerging technologies into defense systems. In a capability of record, multiple projects can be started, pivoted, or ended without an act of Congress, allowing for an agile funding mechanism. It would delegate more decisions to the Program Offices or an Executive Agent.
Ellen Lord seemed to agree in principle, but cautioned that interoperability between the services was required to allow such delegation:
If you have some common interface control requirements, I think then the services should get the money and hand it down. And then there should be intervention by exception. Just like in industry, what does the corporate layer of industry do? And I look at OSD as the same thing to DoD with the military services being the operating units like the Army, Navy, air Force, so forth. OSD should only get involved when there is something super high risk, super high dollar, or it affects everybody the same way.
I must agree with all that! She said DoD cannot add more layers, and some but be ripped out. The services themselves are different for a reason: they have different missions, personalities, and talents. That is healthy and good. Joint force integration must be a concern, but intervention by exception is the right way to handle it. Encourage a bias for action, and where conflicts exist, the senior leader should hear the arguments of his or her subordinates and then make a decision.
PPBE Reform Commission
The PPBE Reform Commission is due to provide an interim report in August 2023 and the final report in March of 2024. Lord said the commission wants to do “something very significant in terms of clear recommendations and not doing small nibbling around the edges.” She points to trust between DoD and Congress as a barrier, and reforming the budget justification documents as a good place to start.
The Commission is looking for examples of when PPBE was used in a way to accelerate capability delivery, as well as concrete examples where PPBE led to failure. If you have some, please reach out to the PPBE Reform commission at their website.
I’ll leave you with this final thought from Ellen Lord: “The reality is we’re debating these business issues while the Chinese are out there shooting hypersonic missiles around the world.”
“The PPBE Reform Commission is due to provide an interim report in August 2023 and the final report in March of 2024. Lord said the commission wants to do “something very significant in terms of clear recommendations and not doing small nibbling around the edges.” She points to trust between DoD and Congress as a barrier, and reforming the budget justification documents as a good place to start.”
That “trust” thing between DoD and Congress is going to be tricky. Many members of Congress – both in the House and Senate and on both sides of the aisle – regularly (and publicly) lambaste the Department for “not knowing” how it’s spending its money. They do that despite the fact, as pointed out in this piece, that the Congress gets extraordinarily detailed, “line-item” visibility in the DoD’s budget submissions that they (eventually) approve each year, e.g, “Congress allocates to 10,000 line items.”
“Reforming budget justification documents” (e.g., by using a “capability of record” structure as opposed to the current “programs of record” structure), is probably a good idea, but it’s not going to address the trust problem unless the Department can also get the Congress to understand and agree that “budget accountability” is what the Congress actually wants, (and is justified in wanting), not the private-sector-style “financial accountability” required by the CFO Act passed 32 years ago
It is worth noting, in that regard, that it was 8 years AFTER the CFO Act was passed when the Office of Management and Budget ADDED the requirement to produce an auditable Statement of Budgetary Resources (SBR) to the private-sector-style “financial statement” requirements of the CFO Act (balance sheets and income statements) – in recognition of the fact that it is the “Budget Process” (not the private-sector-style pursuit of profits) that underlies and controls the operation of every Executive Branch agency in the government, including the DoD.
Annual Statements of Budgetary Resources in receipt of unqualified auditor opinions should be enough to reassure the Congress that the DoD does, in fact, “know how it’s spending its money.”
If OMB was able to figure that out, so can the Congress – if they’re willing.
Great points! If oversight is unwilling to add flexibility until a clean audit including the balance sheet is passed, then there’s really no point to the conversation because it’ll be too late to impact the geopolitical situation. I think they hide behind that because it protects status and power. Plus is drives $200M + a year to auditors whose value is dubious. I do think the liabilities part is OK. There should be traceability of where obligations are going at the top level across 90+ financial systems. Some of the absurdity is a hodge podge of old systems, but also DoD driving absurd requirements rather than just tailoring superior commercial solutions.