Reducing Overhead

InsideDefense.com reported earlier this month that the Pentagon had insulated its weapon system modernization accounts from a five-year, $78 billion cut imposed on military spending by the White House during the fiscal year 2012 budget endgame, allowing the services to retain $100 billion in efficiencies garnered since June by cutting overhead activities to bolster procurement and force structure accounts. Further:

Anticipating scrutiny of defense spending because of the nation's weakening fiscal position, Gates last spring began pushing the DOD to begin finding ways to be more efficient. In total, Gates today said the Pentagon identified $154 billion in efficiencies over five years, a sum greater than the $102 billion target he set in June.

"For all of these DOD-wide initiatives, a major objective beyond creating monetary savings was to make this department less cumbersome, less top-heavy, and more agile and effective in the execution of its responsibilities," Gates said. "My hope and expectation is that, as a result of these changes over time, what had been a culture of endless money, where cost was rarely a consideration, will become a culture of savings and restraint."

In the end, the military departments each found more than $28.3 billion over five years, as Gates requested, collectively identifying $100 billion in efficiencies. Of this sum, $28 billion will be spent by all four services to finance what Gates said are “higher-than-expected operating costs,” including health care, pay housing expenses, weapons maintenance and training.

"Frankly, using the savings in this way was not my original intent or preference, but we have little choice but to deal with these so-called 'must-pay' bills -- and better to confront them honestly now than through raiding investment accounts later," Gates said.

The defense secretary originally wanted efficiencies to be plowed back into modernization and force structure accounts.

One of the outside organizations tasked in recent years to explore ways of reducing overhead is the Defense Business Board. Arnold Punaro, who chaired a DBB task group that looked at the topic last summer, noted in July that this was not the first time the DBB has been asked to look into ways of reducing overhead:

I might point out that a number of the DBB members to include our Chairman Michael Bayer, Dov Zakheim, Denis Bovin and others worked on an effort I chaired in 1997 for then Secretary Cohen where we spent almost a year making recommendations on many of the same overhead problems the Department faces today. Not many of the problems identified then have been solved. These problems are difficult, both inside and out of the Pentagon, and they require discipline over a number of years to fully address.

In some cases, you never get to the facts or merits because of the emotion tied up in issues. Frankly speaking, many are in what some call the "too hard" box because about every three years either someone in the Pentagon or on the outside or both, conducts another study on trying to effectively address DoD’s overhead. Today the Task Group is identifying many of the tough choices that must be made, not only because it is good business management, but today's fiscal environment and future war fighting requirements will not tolerate these inefficiencies.

This Board has been recommending ways for the Department to improve its effectiveness and delivery of service for years. The Board's most important work to date was our advice for the Transition to the incoming 2009 Administration. In that report, the DBB articulated three existential challenges facing the Department that required immediate attention: (1) lowering the overhead cost, (2) slowing the ballooning acquisition costs, and (3) addressing the root causes of health care costs.

Time will tell whether DOD takes the board's recommendations into account -- and whether they pay off. Click here to read the DBB's findings from last year.

And see below for our coverage of some of the DBB's more recent work:

Defense Business Board: Establish New Office For Strategic Sourcing

DefenseAlert, Jan. 20, 2011 -- The Pentagon should establish an office within its acquisition directorate to oversee strategic sourcing directives and prevent duplication and inefficiency among the military departments, according to the Defense Business Board.
DOCUMENT: DBB Strategic Sourcing Task Force Final Report
RELATED: Business Board: Pentagon Should Reconsider CMO Position