Senate Commission to Fix Defense Budgeting Is Right on the Mark
It is one of history’s great ironies that a major factor in defeating Soviet communism was one of the largest centrally planned economies in the world — the U.S. Department of Defense. The Senate’s defense authorization bill puts the Defense Department’s central planning process — called the Planning, Programming, Budgeting, and Execution (PPBE) system — back in the spotlight with its call for a reform commission. At over $700 billion per year, the Defense Department is by far the largest discretionary spending account in the federal government. It is no surprise, then, that its half-century-old PPBE process has been a regular target of criticism and calls for reform.
But this latest attention from the Senate has the potential to be different, and more impactful, than previous attempts for two key reasons. First, it is coming right on the heels of major and, so far, successful reform to the Defense Department’s acquisition oversight process. Over the last few years, Congress systematically restructured the defense acquisition system to make it faster, more agile, and more competitive for the 21st century. These congressional reforms, combined with their skilled execution from defense leaders like former deputy secretary David Norquist and former acquisition under secretary Ellen Lord, provide momentum and a good example of how to affect positive change in a complex public bureaucracy.
Second, near-peer competitors like China and Russia are eroding America’s competitive advantage. They were not sitting still while the United States fought terrorists in Iraq and Afghanistan. They were studying American vulnerabilities and taking advantage of rapidly developing technology — frequently through espionage and intellectual property theft — to gain military advantage, particularly in the space domain. The United States is now engaged in damage control, but this is made harder by management processes that can’t meet the needs or match the pace of rapid technology development. China’s industrial base can’t compete with the entrepreneurial spirit of America’s commercial sector, but sclerotic Defense Department decision processes hamper U.S. ability to leverage this fundamental strength. The traditional motivations for reform still hold (e.g., mispriced hammers and coffee mugs raising questions about the efficient use of taxpayer resources) but moving to a faster, more agile, and more competitive budgeting process is a necessary complement to acquisition reform if the United States wants to maintain and grow its advantage against China.
Many previous attempts at PPBE reform have had little impact. To be effective this time, we believe that there are two key questions that the Senate’s commission needs to start with: What are the red herrings and dead ends that tripped up previous PPBE reform efforts and should be avoided this time, and what problems is the commission trying to solve?
Issues to Watch Out For
First, don’t try to eliminate the reality of resource scarcity with process changes. Perhaps the most common complaint about the Department of Defense’s PPBE system that the commission will hear is that someone’s program, or the program that they think is most important, didn’t get funded. But this is not a flaw in the PPBE process, it’s the key feature. Allocating scarce resources is a tough job. Not everyone is going to get the money they want. A strength of the PPBE process, when it’s functioning properly, is the disciplined way in which it encourages the use of analysis to create clear choices for senior decision-makers. There is no process reform that eliminates the challenge of resource scarcity and the necessity for making decisions about what to fund and what not to fund.
Second, don’t try to fix bad leadership with process changes. Perhaps the second most common complaint that the commissioners will hear is that the PPBE process is broken because resource decisions are too often driven by bureaucratic interests, congressional politics, or the emotion of the moment. We have seen many examples where we feared this may be the case ourselves. But any decision process, PPBE or otherwise, is going to ultimately tee up decisions to a leader. The best that any process can do is encourage transparency and structure, bringing all points of view to the decision-maker and supporting them with the best possible analysis. No process can ensure good leadership or insulate senior leaders from the parochial interests within the department and from Congress, and only the accountable decision-maker can judge when those interests should outweigh the analytic merits of another option. Process reforms that are intended to constrain decision-makers would be a step in the wrong direction and will not succeed.
Third, don’t ignore incentives. Incentives matter — they are what govern and shape the behavior of decision-makers at every level of an organization. Participants in the PPBE system pursue their own and their organization’s priorities — usually expressed as obtaining support (and a larger budget) for their program. This is completely natural and understandable. They likely worked much of their career in this area and truly believe it is the most important element of national security. The PPBE system is a competitive framework that tries to channel this energy into producing analytic justifications for budgetary decisions so that competing alternatives for the use of available resources can be evaluated by senior leaders. There is no process reform that will change the behavior of people. Reform should be based on an understanding of individual and organizational motivation and should attempt to harness it for the accomplishment of national security goals.
Fourth, don’t ignore Congress and the realities of government management. Government organizations typically do not have clear, objective measures of performance like the private sector (e.g., profit). This means that program performance is often difficult to objectively measure and much of governance is more focused on oversight and control of public spending (e.g., preventing misuse of taxpayer dollars) than it is on accomplishing its mission. And this emphasis on oversight can come at the expense of agility. Congress is not going to give up its control of taxpayer resources and recommendations to give officials blank checks are not going to be adopted. Successful reform should avoid a zero-sum competition between control of funds and agility and instead focus on finding reforms that advance the priorities of both branches of government.
Finally, don’t legislate a policy process. The PPBE process is executive-branch policy. It can be changed at any time to meet the needs of the Defense Department leadership. This is a fundamental difference from acquisition reform. The acquisition process governs the department’s interaction with the private sector. That is a regulatory process. The defense budget presented to Congress is a policy document providing the policy choices of executive-branch leaders. Attempts to codify specific resource allocation processes internal to the department will make the process more antiquated (over time), slower, and less able to meet national security needs.
Key Problems to Solve
We believe that there are three key problems with the current system that the commission should try to solve.
First, we believe that the Defense Department is failing at strategic-level analysis. The bipartisan and widely supported National Defense Strategy was issued over three years ago and the Defense Department still does not have a well-formulated view of its implications for force mix, capability needs, and posture requirements. Within the PPBE process, these key analyses are elements of the first (and too often silent) “P” — the planning phase. Planning provides the (analytic) connective tissue between the National Defense Strategy and the allocation of resources to specific programs. Planning efforts have been called the analytic agenda, force development and design, strategic integration, and various other titles. The United States can’t execute the National Defense Strategy if it can’t figure out what the strategy means for priorities within the Department of Defense.
An example of these challenges is the recent effort to produce a joint warfighting concept. Initiated in 2019, the concept was supposed to be finished by December 2020 and identify the key implications of the National Defense Strategy on warfighting in the 2030 timeframe. It would provide a reference point that subsequent analysis could use to identify key gaps in military capability, requirements for force structure, and operational needs in areas like posture, basing and overflight access, and allied and partner engagement. This suite of analyses would bridge the National Defense Strategy to the programming phase of PPBE, providing clear direction for how to allocate resources to forces, research and development, and operational activities to ensure that the department was on track for a 2030 conflict. But the concept was not produced on time, and the document that was subsequently produced in 2021 failed to provide a useful guide for Defense Department decision-making.
There are many reasons for this failure. For valid reasons at the time, the Defense Department eliminated its previous version of its planning process a decade ago. For no valid reason, it has failed to replace it. Organizationally, there are three key offices that lead this function: the Office of the Under Secretary of Defense for Policy (Policy), the Office of Cost Assessment and Program Evaluation, and the Joint Staff. When the previous process was eliminated, Policy and Office of Cost Assessment and Program Evaluation divested many of their capabilities in support of headquarters personnel reductions. The Joint Staff moved the function from Force Structure, Resource, and Assessment (J8) to Joint Force Development (J7). The result is that the relevant offices don’t have adequate capacity or experience to execute these key functions and, equally importantly, no one is in charge. The “tri-led” function has worked occasionally in the past when led by the right mix of personalities, but it is not working now.
There are multiple ways to rebuild and reform the planning phase of PPBE, none of which will be easy. Our view is that a first-among-equals should be designated as the lead and put in charge of marshalling the efforts of the three offices to produce consolidated Defense Planning Guidance. Lack of meaningful planning guidance early in a PPBE cycle often results in delayed decisions and the inevitable “December train wreck,” where budget decisions pile up and don’t receive the scrutiny needed from senior leadership. We also believe that this role should be expanded to a larger strategic integration role supporting the secretary and deputy secretary on National Defense Strategy implementation and the coordination of strategic-level processes across the department. But there are other options, and the commission should review them all. The important point is that PPBE can’t work if the first “P” is silent.
Speed and Agility
The second problem that we believe the commission should focus on is that the deliberative, analytic, disciplined framework of the PPBE system is not fast or agile enough, in its current form, to support Defense Department capability development at the current pace of technological advancement set by American industry. This problem primarily resides in research and development resourcing but has examples across the defense budget. It is primarily an execution challenge but is experienced in programming and budgeting as well. As new technologies emerge and evolve, and new private-sector companies rise and fall around these technologies, Department of Defense decision-makers need to be able to adjust spending at a compatible pace. The current system makes that very difficult. And a lack of budget agility contributes to the “valley of death” when science and technology efforts fail to transition to advanced development or procurement phases. While the House of Representatives’ defense authorization bill includes two acquisition reforms to help bridge the gap, the commission should be mindful that making decisions at the speed of relevance requires a resource-allocation process that encourages rapid adjustment to new ideas and is closely synchronized to the acquisition oversight process.
Creating a more agile system for rapid technology adoption will require changes within the Defense Department, but also changes in Congress — this is reform that will most likely require legislative alterations. There are many basic reforms that the Defense Department can implement as it develops the president’s budget submission, such as broadening research and development accounts to allow for more flexibility within them (Congress can always reverse these changes in their appropriations bill if the department overreaches). But it should also include more fundamental changes to how the Department of Defense operates and engages with industry to purchase technology. For example, moving to the “space-as-a-service” and “infrastructure-as-a-service” purchase of technology shifts the resource management problem from a large, fixed-cost investment that must be made years in advance and locks the department into a specific solution for a generation to variable costs that can be managed every year as threats, needs, and technology change. This model has been successfully employed in recent years with the introduction of “launch-as-a-service” where fixed costs are spread among various customers, resulting in launch costs being halved several times already.
On the congressional side, appropriations will have to become more flexible. Since the appropriators, understandably, do not want to give up their oversight and control of resources, this means that the increase in flexibility should be accomplished in a way that complements rather than dilutes congressional oversight. For example, in the current process research and development funding is appropriated annually in narrow accounts and the Defense Department requests permission of its oversight committees intermittently throughout the year of execution to realign this funding, known as reprogramming actions. But these are generally discouraged and, even when approved, are slow and can only occur up to a fixed cap of dollars. An alternative arrangement might be to appropriate the funding in broader accounts with less programmatic specificity and then, during the year of execution, have regular (e.g., quarterly) touch points with the oversight committees to approve specific allocations of the funding.
A third key area where progress could be made is in institutionalizing the use of program evaluation and performance data into the PPBE process. Too often the PPBE system operates in an insular way, working off its own baselines with, at best, an ad hoc and incomplete incorporation of financial execution results, experienced performance levels, and congressional marks. The Government Performance and Results Act (GPRA) of 1993 and the GPRA Modernization Act of 2010 tried to bridge the measurement of realized performance with budget formulation, but the Defense Department has never fully embraced the spirit of these laws. And the department’s challenge is harder than those of most federal agencies because it executes its mission on a contingency basis, rather than a steady-state basis (fortunately major wars with a near-peer adversary are infrequent), creating a void of actual outcome performance data from operations. But the department does create a wealth of data that can inform decision-making, including exercise results, test and evaluation data, modeling and simulation data, and, for the combat service support and business operations functions that are executed every day, realized execution data. With annual full-scope financial statement audits well underway in the department, the pieces are now in place for major reform.
A key responsibility of the Office of Cost Assessment and Program Evaluation director is to lead annual strategic portfolio reviews, which are forward-looking studies designed to inform the subsequent program review and development of the Future Years Defense Program. However, the Office of Cost Assessment and Program Evaluation does not have a dedicated program-evaluation function that assesses the outcome of previous decisions (in contrast to the cost-estimating function of the Office of Cost Assessment and Program Evaluation, which focuses very closely on realized program costs to forecast costs into the future). Designing a feedback loop, such as a final evaluation or assessment phase, to fully integrate execution and performance data into the planning, programming, and budget formulation phases of PPBE could significantly improve the quality of Defense Department decision-making. We’ve seen this function successfully adopted elsewhere in the national security community — including at the Office of the Director of National Intelligence, where they perform annual retrospective strategic evaluation reports to complement their forward-looking studies.
Right Problems, Right Solutions
The Senate’s proposed commission is an exciting opportunity to advance the National Defense Strategy and help the U.S. defense establishment to maintain its competitive edge over China. But these efforts have come and gone in the past with little impact. A smart commission focused on the right problems, with a sober understanding of the realities of government decision-making, and open to creative solutions that involve more than just process reforms, including fully leveraging the strengths of America’s dynamic commercial sector, could make a real difference.
John Whitley has led the programming phase of the PPBE system at Department of Defense and the Department of Homeland Security and has led the budgeting phase in the Army. He most recently served as acting secretary of the Army.
Gregory Pejic has worked in the PPBE systems of the Department of Defense, the Department of Homeland Security, and the Intelligence Community. He most recently served in government as the deputy assistant secretary of defense for space policy, and is currently the strategic account director for national security space at Leidos.
The opinions expressed here are those of the authors and do not necessarily reflect those of the Department of Defense or Leidos.
Image: U.S. Navy (Photo by Mass Communication Spc. 3rd Class Brandon Roberson)