DoD and Fortune 500 Financial Operations

The Army, Navy, and Air Force each manage annual budgets that would place them in the top 10 of Fortune 500 companies. They manage more money than the largest US banks, auto companies, or even Warren Buffett. 

 

Company

2011 Revenue

1

Wal-Mart

$422B

2

Exxon Mobil

$355B

3

Chevron

$196B

4

Conoco Phillips

$185B

 

Navy

$156B

5

Fannie Mae

$154B

6

General Electric

$152B

 

Air Force

$143B

 

Army

$137B

7

Berkshire Hathaway

$136B

8

General Motors

$136B

9

Bank of America

$134B

10

Ford

$129B

Sources: Fortune 500 List and Defense Budget

You’re probably familiar with the old adage: there are two things people don’t want to see being made, sausage and legislation.  I would add the Defense budget to that list.

The DoD’s Planning, Programming, Budgeting, and Execution (PPBE) process is in dire need of an overhaul.  Hundred billion dollar budgets are developed via Power Point slides, Excel files, and archaic software coded in Ada.  Decisions are made based on rank, who is in the room, and how well staffs can quickly convey value (or impact of a budget cut).  Budgets are programmed five to six years out, starting with a baseline extension – a program or organization’s current budget plus a standard inflation factor.  Over the next five years that budget element will vary widely based on fluctuating priorities, leaders, and budget targets.  Extensive work is done in estimating costs for major weapon systems based on requirements, but not enough energy is placed on truly analyzing alternatives.  While DoD programs conduct year long Analyses of Alternatives, the chosen solution is often known at the start and rarely develops viable, out-of-the-box, innovative, low cost alternatives.  Staffs work long hours conducting analysis, preparing reports, and briefing leadership, mostly in piecemeal, fragmented stovepipes with hopes that someone, somewhere is integrating their efforts.

Now examine how the 10 largest companies develop and execute their financials.  They have accounting systems that can close their books daily.  Business intelligence, data analytics, and portfolio management software are leveraged to analyze the complex patterns and inter-dependencies, support enterprise decision making, and devise optimal solutions.  They have a thorough understanding of their environments by compiling inputs from countless structured and unstructured sources.  They use crowdsourcing to develop innovative solutions.  They are frankly, much, much better at managing $100B enterprises than the DoD.

This is not another: “Government needs to be run like a business” piece, but rather the DoD needs to learn more how these industry leaders manage their operations and emulate their best practices.  The DoD has struggled for years to adopt portfolio management, mostly because of the battles over control.  There are other limiting factors such as a robust enterprise IT infrastructure, trained staffs and leaders, and a cultural resistance to changing decades old operations.  DoD leaders and key players in the PPBE process need to visit Fortune 100 companies to learn about their financial operations (as much as companies are willing to show their trade secrets).  DoD should hire some of the major consulting companies that analyze Fortune 500 operations to review the DoD’s PPBE framework, processes, players, products, and IT tools to recommend improvements or ideally a new model.  Having a major Department-wide review by an independent, external group (other than GAO or Congressional Research Service) would provide OSD leadership valuable insight into improving the financial execution of multiple $100B enterprises.

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