oversight

High-Risk Series: Strategic Human Capital Management

Published by the Government Accountability Office on 2003-01-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO

January 2003
               High-Risk Series
               Strategic Human
               Capital Management




GAO-03-120
               a
This Series
This report on strategic human capital management is part of GAO’s high-risk
series, first issued in 1993 and updated periodically. This series identifies areas at
high risk due to either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency, or
effectiveness. A companion series entitled the Performance and Accountability
Series: Major Management Challenges and Program Risks contains separate reports
covering each cabinet department, most major independent agencies, and the U.S.
Postal Service. The series also includes a governmentwide perspective on
transforming the way the government does business in order to meet 21st century
challenges and address long-term fiscal needs. A list of all of the reports in this
series is included at the end of this report.
                                                  January 2003


                                                  HIGH-RISK SERIES
                                                  Strategic Human Capital Management
Highlights of a high-risk area discussed in
the GAO report entitled High-Risk Series:
Strategic Human Capital Management
(GAO-03-120)




In its January 2001 High-Risk                     Leading public organizations here and abroad have found that strategic
Update (GAO-01-263), GAO                          human capital management must be the centerpiece of any serious change
designated strategic human capital                management initiative and efforts to transform the cultures of government
management as a governmentwide                    agencies. Unfortunately, the federal government’s strategic human capital
high-risk area. The basic problem,                approaches are not yet well positioned to enable the needed transformation.
which continues today, has been
the long-standing lack of a
consistent strategic approach to                  Since we designated strategic human capital management as a
marshaling, managing, and                         governmentwide high-risk area in January 2001, Congress has taken a
maintaining the human capital                     number of steps to address the challenges identified, including granting
needed to maximize government                     agencies significant new authorities for managing their human capital as part
performance and assure its                        of the Homeland Security Act of 2002. The strategic management of human
accountability.                                   capital was also placed at the top of the President’s Management Agenda.
                                                  Individual agencies have also taken action to address their specific
This report is part of a special                  challenges.
series of reports on
governmentwide and agency-                        Despite the considerable progress over the past 2 years, it remains clear that
specific challenges.
                                                  today’s federal human capital strategies are not appropriately constituted to
                                                  meet current and emerging challenges or to drive the needed transformation
                                                  across the federal government. Specifically, agencies continue to face
                                                  challenges in four key areas:
Reaching and maintaining an
approach to human capital                         •   Leadership: Top leadership in the agencies must provide the committed
management that is strategic will                     and inspired attention needed to address human capital and related
take considerable effort from the                     organization transformation issues.
Congress, agencies, the Office of                 •   Strategic Human Capital Planning: Agencies’ human capital planning
Personnel Management, and the                         efforts need to be more fully and demonstrably integrated with mission
Office of Management and Budget.                      and critical program goals.
Ultimately, Congress will need to
                                                  •   Acquiring, Developing, and Retaining Talent: Additional efforts are
consider additional legislative
reforms to existing civil service                     needed to improve recruiting, hiring, professional development, and
laws. While momentum continues                        retention strategies to ensure that agencies have the needed talent.
to build for comprehensive civil                  •   Results-Oriented Organizational Cultures: Agencies continue to lack
service reform, agencies need to                      organizational cultures that promote high performance and
use currently available flexibilities                 accountability and empower and include employees in setting and
to recruit, hire, develop, retain, and                accomplishing programmatic goals.
hold employees accountable for
mission accomplishment.                           Importantly, although strategic human capital management remains high –
                                                  risk governmentwide, federal employees are not the problem. Rather, the
                                                  problem is a set of policies and practices that are not strategic, and viewed
                                                  by many as outdated and over-regulated. In the final analysis, modern,
                                                  effective, and credible human capital strategies will be essential in order to
                                                  maximize the performance and assure the accountability of the government
www.gao.gov/cgi-bin/getrpt?GAO-03-120.            for the benefit of the American people.
For additional information about this high-risk
area, click on the link above or contact J.
Christopher Mihm at (202) 512-6806 or
mihmj@gao.gov.
Contents



Transmittal Letter                                                                                                 1


Strategic Human                                                                                                     3

Capital Management: A
High-Risk Area

Related GAO Products                                                                                               26


Performance and                                                                                                    27
Accountability and
High-Risk Series




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                        Page i                                   GAO-03-120 Strategic Human Capital Management
A
United States General Accounting Office
Washington, D.C. 20548
                                                                                             Comptroller General
                                                                                             of the United States




           January 2003                                                                                             T
                                                                                                                    ransmL
                                                                                                                         ta
                                                                                                                          ileter




           The President of the Senate
           The Speaker of the House of Representatives

           Our high-risk update is provided at the start of each new Congress in conjunction with a special series
           we have issued biennially since January 1999, entitled the Performance and Accountability Series:
           Major Management Challenges and Program Risks. This report, which discusses strategic human
           capital management, is a companion to our 2003 high-risk update, High-Risk Series: An Update
           (GAO-03-119). These reports are intended to help the new Congress focus its attention on the most
           important issues and challenges facing the federal government.

           In its January 2001 High-Risk Update (GAO-01-263), GAO designated strategic human capital
           management as a governmentwide high-risk area. The basic problem, which continues today, has
           been the long-standing lack of a consistent strategic approach to marshaling, managing, and
           maintaining the human capital needed to maximize government performance and assure its
           accountability. Specifically, agencies across the federal government continue to face challenges in
           four key areas:

           • Leadership: Top leadership in the agencies must provide the committed and inspired attention
             needed to address human capital and related organization transformation issues.

           • Strategic Human Capital Planning: Agencies’ human capital planning efforts need to be more
             fully and demonstrably integrated with mission and critical program goals.

           • Acquiring, Developing, and Retaining Talent: Additional efforts are needed to improve
             recruiting, hiring, professional development, and retention strategies to ensure that agencies have
             the needed talent.

           • Results-Oriented Organizational Cultures: Agencies continue to lack organizational cultures
             that promote high performance and accountability and empower and include employees in setting
             and accomplishing programmatic goals.

           This report should help the new Congress and the administration attend to these problems and
           improve agency strategic human capital management for the benefit of the American people. For
           additional information about this report, please contact J. Christopher Mihm, Director, Strategic




                                     Page 1                             GAO-03-120 Strategic Human Capital Management
Issues, at (202) 512-6806 or mihmj@gao.gov. Related GAO products on
strategic human capital management are listed at the end of this report.




David M. Walker
Comptroller General
of the United States




Page 2                            GAO-03-120 Strategic Human Capital Management
Strategic Human Capital Management: A High-
Risk Area

              The early years of the 21st century are proving to be a period of profound
              transition for our world, our country, and our government. As the
              governmentwide perspective volume of this series makes clear, this
              transition is being driven by a number of key trends, including global
              interdependence; diverse, diffuse, and asymmetrical security threats;
              changes in the nature of the economy; rapidly evolving science and
              technologies; dramatic shifts in the age and composition of our population;
              important quality of life issues; and evolving government structures and
              concepts. Given the challenges these trends present, the federal
              government needs to engage in a comprehensive review, reassessment,
              reprioritization, and as appropriate, a reengineering of what the
              government does, how it does business, and in some cases, who does the
              government’s business. Leading public organizations here and abroad have
              found that strategic human capital management should be the centerpiece
              of any serious change management initiative and efforts to transform the
              cultures of government agencies.

              Since we designated strategic human capital management as a
              governmentwide high-risk area in January 2001, Congress and agencies
              have taken a number of steps to address the federal government’s human
              capital shortfalls. In August 2001, President Bush placed the strategic
              management of human capital at the top of the administration’s
              management agenda. Later, in November 2002, Congress passed the
              Homeland Security Act of 2002 that created the Department of Homeland
              Security (DHS), and provided the new department with significant
              flexibility to design a modern human capital management system. 1 This
              act also included additional significant provisions relating to
              governmentwide human capital management.

              Nevertheless, despite building momentum for comprehensive and
              systematic reforms, it remains clear that today’s federal human capital
              strategies are not yet appropriately constituted to meet current and
              emerging challenges or to drive the needed transformation across the
              federal government. The basic problem, which continues today, has been
              the long-standing lack of a consistent strategic approach to marshaling,
              managing, and maintaining the human capital needed to maximize
              government performance and assure its accountability. Importantly,
              although strategic human capital management remains high risk
              governmentwide, federal employees are not the problem. Rather, the


              1
              Public Law 107-296, Nov. 25, 2002.




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                      Strategic Human Capital Management: A
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                      problem is a set of policies that are viewed by many as outdated,
                      overregulated, and not strategic. Human capital weaknesses in the federal
                      government did not emerge overnight and will not be quickly or easily
                      addressed. Committed, sustained, and inspired leadership and persistent
                      attention on behalf of all interested parties will continue to be essential to
                      build on the progress that has been and is being made, if lasting reforms are
                      to be successfully implemented.



Important Actions     A real and growing momentum for change is evident since we placed
                      strategic human capital management on our high-risk list in January 2001.
Taken since January
2001                  • In August 2001, President Bush placed the strategic management of
                        human capital at the top of the administration’s management agenda.

                      • In October 2001, the Office of Management and Budget (OMB) notified
                        agencies that they would be assessed against standards for success for
                        each part of the President’s Management Agenda (PMA), including the
                        strategic management of human capital. The first agency assessment
                        was made public in February 2002 as part of the President’s proposed
                        fiscal year 2003 budget. Subsequent assessments were later released in
                        June and September 2002, reporting on both the status and progress of
                        agency efforts.

                      • In December 2001, the Office of Personnel Management (OPM) released
                        a human capital scorecard to assist agencies in responding to the human
                        capital standards for success in the PMA.

                      • In March 2002, we released A Model of Strategic Human Capital
                        Management, designed to help agency leaders determine how well they
                        integrate human capital considerations into daily decision making and
                        planning for the program results they seek to achieve.2

                      • In April 2002, the Commercial Activities Panel, chaired by the
                        Comptroller General, sought to elevate attention to human capital
                        considerations in making sourcing decisions.




                      2
                      GAO-02-373SP.




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• In October 2002, OMB and OPM approved revised standards for success
  in the human capital area of the PMA, reflecting language that was
  developed in collaboration with GAO. To assist agencies in responding
  to the revised PMA standards, OPM released the Human Capital
  Assessment and Accountability Framework.

• In the fall of 2002, OPM began realigning it organizational structure and
  appointed four new associate directors with proven human capital
  expertise to lead federal efforts as part of a larger OPM effort to be more
  customer-focused.

• In November 2002, Congress passed the Homeland Security Act of 2002,
  which created DHS and provided the department with significant
  flexibility to design a modern human capital management system. The
  effective development and implementation of these flexibilities will
  prove essential to the performance and accountability of DHS, as well as
  provide a potential model for Congress to consider for wider application
  governmentwide.

• The Homeland Security Act of 2002 also included additional significant
  provisions relating to governmentwide human capital management,
  such as direct hire authority, the ability to use categorical ranking in the
  hiring of applicants instead of the “rule of three,” the creation of chief
  human capital officer (CHCO) positions and a CHCO Council, an
  expanded voluntary early retirement and “buy-out” authority, a
  requirement to discuss human capital approaches in Government
  Performance and Results Act reports and plans, a provision allowing
  executives to receive their total performance bonus in the year in which
  it is awarded, and other flexibilities.

• Congress has further underscored the consequences of human capital
  weaknesses in federal agencies and pinpointed potential solutions
  through its oversight process and a range of hearings.




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A number of individual agencies have also begun efforts to address human
capital challenges. The Department of Defense (DOD) published two
human capital strategic plans in April 2002, addressing military personnel
priorities and quality of life issues affecting service members and their
families. These plans represent a positive step forward in fostering a more
strategic approach to human capital management within DOD.3 In
addition, the National Aeronautics and Space Administration (NASA) is
developing an agencywide workforce planning and analysis system as part
of its new financial management system and has in place a strategic human
capital plan. It is also refocusing attention on hiring applicants just out of
college and implementing a student loan repayment program.4 Facing
immense challenges within its first year of existence, the Transportation
Security Administration (TSA) has simultaneously started to build the
infrastructure of a large organization as it focused primarily on meeting its
aviation deadlines. TSA reports that in just over 1 year it recruited, hired,
trained, and deployed more than 44,000 screeners in order to meet its
mandated deadlines to federalize passenger screening at airports across
the nation by November 19, 2002, and screen every piece of checked
baggage for explosives by December 31, 2002.5 Additionally, a number of
federal agencies are in the early stages of implementing new performance
management systems for their senior executives that are intended to
balance accountability for organizational results with a focus on customer
satisfaction and a consideration of employee perspectives.6

In addition to efforts being taken by the federal government, the National
Academy of Public Administration, the Partnership for Public Service, the
National Commission on the Public Service, the Kennedy School of
Government at Harvard University, the Council for Excellence in
Government, the IBM Endowment for the Business of Government, and
other interested parties have played valuable and important roles in

3
 U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Defense, GAO-03-98 (Washington, D.C.: Jan. 30, 2003), and Military
Personnel: Oversight Process Needed to Help Maintain Momentum of DOD’s Strategic
Human Capital Planning, GAO-03-237 (Washington, D.C.: Dec. 5, 2002).
4
 U.S. General Accounting Office, NASA Management Challenges: Human Capital and
Other Critical Areas Need to Be Addressed, GAO-02-945T (Washington, D.C.: July 18, 2002).
5
 U.S. General Accounting Office, Transportation Security Administration: Actions and
Plans to Build a Results-Oriented Culture, GAO-03-190 (Washington, D.C.: Jan. 17, 2003).
6
 U.S. General Accounting Office, Results-Oriented Cultures: Using Balanced Expectations
to Manage Senior Executive Performance, GAO-02-966 (Washington, D.C.: Sept. 27, 2002).




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                      drawing attention to problems and potential solutions to address federal
                      human capital challenges.



Continuing            Federal employees have often been viewed as costs to be cut rather than as
                      assets to be valued. This is partially reflected in the September 2002 PMA
Weaknesses            human capital scores assigned to agencies in which 21 of 26 agencies
Underscore Need for   received “red” scores, indicating substantial weaknesses in one or more of
                      the human capital areas.7 Governmentwide, agencies have only recently
Further Progress      begun to recognize and respond to the two principles that are central to the
                      human capital idea:

                      • People are assets whose value can be enhanced through investment. As
                        with any investment, the goal is to maximize value while managing risk.

                      • An organization’s human capital approaches should be designed,
                        implemented, and assessed by the standard of how well they help the
                        organization achieve results and pursue its mission.

                      Specifically, agencies across the federal government continue to face
                      challenges in the four key areas that we highlighted in January 2001 when
                      we added strategic human capital management to the high-risk list.




                      7
                       This represents the third set of agency grades released as part of the PMA. A baseline
                      evaluation was originally released in February 2002 as part of the President’s fiscal year 2003
                      budget message. A second set of grades on progress and current status was released in June
                      2002.




                      Page 7                                     GAO-03-120 Strategic Human Capital Management
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                 High Risk Challenges
                      Leadership

                      Strategic Human Capital Planning

                      Acquiring, Developing, and Retaining Talent

                      Results-Oriented Organizational Cultures




Leadership   To become a high-performing organization, an agency needs senior leaders
             who are drivers of continuous improvement and stimulate and support
             efforts to integrate human capital approaches with organizational goals.
             There is no substitute for the committed involvement of top leadership.
             Our work over the years, most prominently in the High-Risk and
             Performance and Accountability Series, has amply documented that
             agencies are suffering from a range of long-standing management problems
             that are undermining their abilities to effectively and efficiently accomplish
             their missions and achieve results. The nature of the management
             challenges and transformation issues confronting many agencies calls for
             approaches from leaders governmentwide that serve to

             • elevate attention to management issues and organization
               transformation,

             • integrate various key management and transformation efforts, and

             • institutionalize accountability for addressing management issues and
               leading organization transformation.




             Page 8                                   GAO-03-120 Strategic Human Capital Management
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As detailed in the DHS volume of the Performance and Accountability
Series, the creation of DHS will represent an enormous leadership
challenge, encompassing each of the four key human capital challenge
areas and many other management systems.8 Over 170,000 federal
employees from over 20 originating agencies or their components with
different missions, cultures, and procedures will need to be effectively and
efficiently integrated into a single department. Sustained and inspired
political and career leadership will be essential to the successful
implementation and transformation of DHS.

To assist DHS and other federal agencies undergoing transformation, we
convened a forum composed of participants with experience in managing
and studying large-scale mergers, acquisitions, and transformations, and
individuals with recent executive branch leadership experience and/or
significant management experience.9 The forum identified key practices
that have consistently been at the center of successful mergers,
acquisitions, and transformations. We convened an additional forum to
discuss strategies for addressing certain systemic federal governance and
management challenges.10




8
 U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Homeland Security, GAO-03-102 (Washington, D.C.: Jan. 30, 2003).
9
 U.S. General Accounting Office, Highlights of a GAO Forum: Mergers and
Transformation: Lessons Learned for a Department of Homeland Security and Other
Federal Agencies, GAO-03-293SP (Washington, D.C.: Nov, 14, 2002).
10
   U.S. General Accounting Office, Highlights of a GAO Roundtable: The Chief Operating
Officer Concept: A Potential Strategy to Address Federal Governance Challenges, GAO-03-
192SP (Washington, D.C.: Oct. 4, 2002).




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More generally, elevating, integrating, and institutionalizing attention,
responsibility, and accountability for management reform and
organizational transformation is important because of the sustained,
continuing efforts that are required. The experience of successful change
management initiatives in large public and private organizations suggests
that it can often take 5 to 7 years until such initiatives are fully
implemented and cultures are transformed in a substantial manner. This
time frame can easily outlast the tenures of top agency political leadership.
Governmentwide, the average tenure of political appointees for the period
1990 through 2001 was just under 3 years.11 The average tenure of political
leadership and the long-term nature of the change management initiatives
that are needed can have critical implications for the success of those
initiatives. For example, the Federal Energy Regulatory Commission
(FERC), which is responsible for regulating and overseeing major aspects
of the natural gas and electric power industries, has been slow to
implement a new regulatory and oversight approach in response to the shift
to competitive energy markets, due in part to frequent turnover in the
position of chief administrator over the past 5 years.12

Career executives must help provide the long-term commitment and focus
needed to transform an agency. However, the challenges facing our
executive corps require a comprehensive examination of opportunities for
better using the federal government’s career SES leadership. These issues
include concerns about Senior Executive Service (SES) compensation and
pay compression, including making pay increases variable and
performance-based rather than across-the-board and fixed. The
composition of the SES must also be carefully examined. In general,
current members of the SES fill three broad roles: executive leadership,
program management, and senior technical and specialist positions. The
implications that these differing roles have for a range of issues, such as
SES core competencies, performance standards, recruitment sources,



11
  This analysis included only those appointed after October 1, 1989 (fiscal year 1990) who
left before September 30, 2001 (fiscal year 2001). Political appointees who were appointed
before October 1, 1989 or who had not left by September 30, 2001 were not included because
they did not have appointment or separation dates in the database we reviewed and thus we
could not determine their length of service. Separations included resignations,
terminations, retirements, and deaths.
12
 U.S. General Accounting Office, Energy Markets: Concerted Actions Needed by FERC to
Confront Challenges That Impede Effective Oversight, GAO-02-656 (Washington, D.C.:
June 14, 2002).




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                          mobility, and training and development programs need to be carefully
                          considered.

                          In addition to addressing structural challenges facing the SES, the
                          retirement eligibility of executives is increasing governmentwide. For
                          example, 71 percent of career SES members will reach retirement
                          eligibility by the end of fiscal year 2005. Comparatively, during fiscal years
                          1992 through 1998, 60 percent of career SES members became eligible to
                          retire. The retirement eligibility trend suggests a loss in institutional
                          knowledge, expertise, and leadership continuity and underscores the need
                          for rigorous succession planning initiatives.

                          Furthermore, as reported by the Merit Systems Protection Board (MSPB),
                          one of the pipelines for future executives, the Presidential Management
                          Intern (PMI) program, designed to attract outstanding individuals to
                          careers in the management and analysis of public policies and programs, is
                          not universally viewed as a vehicle to hire and train future public
                          managers.13 According to the MSPB study, neither OPM nor participating
                          agencies consistently stress the management development aspects of the
                          PMI program.



Strategic Human Capital   High performing organizations align their human capital approaches with
Planning                  mission and goal accomplishment. They stay alert to emerging mission
                          demands and human capital challenges and reevaluate their human capital
                          approaches through the use of valid, reliable, and current data, including an
                          inventory of employee skills and competencies. The absence of such data
                          can seriously undermine efforts to identify and respond to current and
                          emerging challenges.




                          13
                           U.S. Merit Systems Protection Board, Growing Leaders: The Presidential Management
                          Intern Program (Washington, D.C.: August 2001).




                          Page 11                                 GAO-03-120 Strategic Human Capital Management
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We have noted that the Securities and Exchange Commission (SEC) lacks a
comprehensive workforce plan, despite its being plagued by a rapidly
increasing workload, and staff turnover that remains much higher than the
norm for comparable federal positions, and at a time when the agency is
trying to respond to a wave of corporate accounting scandals.14 Likewise,
although the Federal Aviation Administration (FAA) estimates that nearly
50 percent of currently employed air traffic controllers will retire by 2010, it
has not developed a comprehensive human capital management strategy
for hiring, training, and retaining controllers, thus increasing the risk that
the agency will not have enough qualified controllers to meet air traffic
demand.15 More generally, we estimate that 15 percent of the federal
workforce will retire from 2001 through 2006.16 This creates an opportunity
to consider the potential of different approaches to phased retirement,
such that federal employees with critical skills could transition from full-
time employment to part-time employment and receive a portion of their
federal pension.

Some federal agencies, on the other hand, are beginning strategic human
capital planning efforts. For example, the Environmental Protection
Agency (EPA) released its workforce strategy in November 2000, which
clearly identifies six major human capital goals, discusses implementation
plans, and identifies units within the agency that are responsible for
implementation. However, as we noted in our July 2001 report, the strategy
does not explain how achieving its human capital objectives will improve
the agency’s performance in meeting its strategic objectives, and does not
provide results-oriented measures for tracking the success of the human
capital approaches.17 In response to our recommendations, EPA has begun
to develop a workforce planning system that is expected to identify the


14
 U.S. General Accounting Office, SEC Operations: Increased Workload Creates Challenges,
GAO-02-302 (Washington, D.C.: Mar. 5, 2002), and Securities and Exchange Commission:
Human Capital Challenges Require Management Attention, GAO-01-947 (Washington,
D.C.: Sept. 17, 2001).
15
 U.S. General Accounting Office, Air Traffic Control: FAA Needs to Better Prepare for
Impending Wave of Controller Attrition, GAO-02-591 (Washington, D.C.: June 14, 2002).
16
 U.S. General Accounting Office, Federal Employee Retirements: Expected Increase Over
the Next 5 Years Illustrates Need for Workforce Planning, GAO-01-509 (Washington D.C.:
Apr. 27, 2001).
17
 U.S. General Accounting Office, Human Capital: Implementing an Effective Workforce
Strategy Would Help EPA to Achieve Its Strategic Goals, GAO-01-812 (Washington, D.C.:
July 31, 2001).




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                             technical skills and number and types of positions required, inventory the
                             skills of the current workforce, examine attrition rates, and forecast the
                             number of new hires needed.

                             Careful and thoughtful workforce planning efforts are also critical to
                             making intelligent competitive sourcing decisions. The Commercial
                             Activities Panel called for federal sourcing policy to be “consistent with
                             human capital practices designed to attract, motivate, retain, and reward a
                             high performing workforce” and highlighted a number of human capital
                             approaches to help achieve that objective.18



Acquiring, Developing, and   A high-performance organization needs a dynamic, results-oriented
Retaining Talent             workforce with the requisite talents, multidisciplinary knowledge, and up-
                             to-date skills to ensure that it is equipped to accomplish its mission and
                             achieve its goals. To acquire and retain such a workforce and replace the
                             sizeable cohort of federal employees eligible for retirement over the
                             coming years demands that agencies improve their recruiting, hiring,
                             development, and retention approaches so that they can compete for
                             talented people. As human capital approaches are designed to confront
                             this challenge, agencies should take advantage of available flexibilities that
                             are appropriate for their particular organizations and their mission
                             accomplishment.




                             18
                              Commercial Activities Panel, Improving the Sourcing Decisions of Government: Final
                             Report (Washington, D.C.: April 2002).




                             Page 13                                 GAO-03-120 Strategic Human Capital Management
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While federal agencies shift program priorities and policies to respond to a
dynamic environment, they should also be aware of and have the policies
and programs in place to respond to the recruiting, hiring, and development
challenges associated with the transformation. For example, we have
reported on the talent challenges facing consular staff worldwide,
including a changing workload due to new security procedures that are
compounded by staffing limitations and the shortcomings of the training
offered to these staff before July 2002.19 However, should the Congress
decide to require visas from current visa waiver travelers, the State
Department would be faced with an even greater challenge to hire and train
new staff to handle the resulting workload increase. Depending on the
percentage of visa applicants that State would be required to interview due
to the policy change, it could take at least 2 to 4 years to hire and train the
needed personnel, according to our November 2002 report.20 In addition to
the approximately 840 foreign service officers who are currently overseas,
we estimate that State would need from 350 to 800 additional officers to
implement the proposed changes to the visa waiver program.

The Food and Drug Administration’s (FDA) success in ensuring the timely
review of drugs and biologics depends how well it faces the challenge of
hiring and retaining its workforce. With the exception of chemists, FDA’s
attrition rate for employees in its drug review process is higher than the
comparable attrition rates for the same disciplines at the Centers for
Disease Control and Prevention, the National Institutes of Health, and
similar disciplines governmentwide. The loss of staff is aggravated by the
time the agency needs to hire and train replacement staff. Furthermore,
the agency’s currently employed reviewers have been forgoing training and
professional development to meet statutory drug review timelines. To
respond to the challenge, FDA has implemented a number of initiatives to
reduce attrition, including the payment of retention bonuses, so that it can
maintain the science base it needs to review increasingly complex
applications for new drugs.




19
 U.S. General Accounting Office, Border Security: Visa Process Should be Strengthened as
an Antiterrorism Tool, GAO-03-132NI (Washington, D.C.: Oct. 21, 2002).
20
 U.S. General Accounting Office, Border Security: Implications of Eliminating the Visa
Waiver Program, GAO-03-38 (Washington, D.C.: Nov. 22, 2002).




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A particularly critical area on which to focus better investments and more
attention in training and professional development is contract
management. For example, the Department of Housing and Urban
Development (HUD) has not taken steps to ensure that individuals
responsible for managing and monitoring contracts have the skills and
training that would enable them to perform their jobs effectively. 21
According to HUD’s records, over half of the staff who are directly
responsible for monitoring contractor performance have not received
required acquisition training. HUD’s procurement office management was
not aware that staff were serving in that capacity without the required
training. In response to our report, the department stated that it plans to
take action to improve the management of its acquisition workforce, but
that it believes its acquisition workforce is receiving the required training in
accordance with federal requirements. We remain concerned that a
significant portion of the staff responsible for contractor monitoring has
not received the appropriate training.

The effective, efficient, and transparent use of human capital flexibilities
must be a key component of agency efforts to address staffing shortages
and related human capital challenges. We have observed that agencies
should use available authorities to overcome the human capital challenges
they face. Moreover, the Homeland Security Act of 2002 not only provided
the President with additional authority to create new policies for managing
the workforce within DHS, it also authorized additional personnel
flexibilities to agencies across government. We have noted that while
authorizing additional flexibilities is important, how personnel authorities
are implemented is equally important. To assist agencies in that regard, we
recently reported on a set of practices that are key to the effective use of
flexibilities. 22 These practices are shown in figure 1.




21
 U.S. General Accounting Office, HUD Management: Actions Needed to Improve
Acquisition Management, GAO-03-157 (Washington, D.C.: Nov. 15, 2002).
22
 U.S. General Accounting Office, Human Capital: Effective Use of Flexibilities Can Assist
Agencies in Managing Their Workforces, GAO-03-2 (Washington, D.C.: Dec. 6, 2002).




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Figure 1: Key Practices for Effective Use of Human Capital Flexibilities

·    Plan strategically and make targeted investments. Agencies need to ensure that
     the use of flexibilities is part of an overall human capital strategy clearly linked to the
     program goals of the organization. Agencies also need a sound plan for how they
     will use and fund the authorities.

·    Ensure stakeholder input in developing policies and procedures. Agency
     leaders, managers, employees, and employee unions must work together and in a
     constructive and cooperative manner to effectively implement any flexibility in order
     to reach agreement on the need for change, the direction and scope that change
     will take, and how progress will be assessed.


·    Educate managers and employees on the availability and use of flexibilities.
     Agencies’ human capital offices need to ensure that they have effective campaigns
     not only to inform managers of their personnel authorities, but also to explain the
     situations where the use of those authorities is appropriate. Agencies also need to
     inform employees about relevant policies and procedures and about the employees’
     rights related to the use of these authorities.


·    Streamline and improve administrative processes. Agencies should streamline
     administrative processes for using flexibilities and review self-imposed constraints
     that may be excessively process-oriented.


·    Build transparency and accountability into the system. Agencies should
     delegate authority to use flexibilities to appropriate levels within the agency.
     Agencies must develop clear and transparent guidelines for using flexibilities and
     then hold managers and supervisors accountable for their fair and effective use.
     Agencies can also make public the extent to which the flexibilities are used and the
     results of the flexibilities. Finally, agencies’ use of flexibilities should, as appropriate,
     be subject to internal and external evaluations.


·    Change the organizational culture. Agencies need to address managers’ and
     supervisors’ concerns that employees will view the use of some flexibilities as unfair.
     Also, with appropriate accountability mechanisms in place, agencies can begin to
     foster an organizational culture that encourages managers to develop creative
     approaches and take appropriate risks.
Source: GAO.




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Results-Oriented          Federal agencies need to continue to incorporate a crucial ingredient found
Organizational Cultures   in successful organizations: organizational cultures that promote high
                          performance and accountability and empower and include employees in
                          setting and accomplishing the organization’s programmatic goals. To foster
                          results-oriented cultures, leading organizations have recognized that an
                          effective performance management system can be a strategic tool to drive
                          internal change and achieve external results. Effective performance
                          management systems create a “line of sight” showing how unit, team, and
                          individual performance can contribute to overall organizational goals. We
                          have reported that this “line of sight” can help the Federal Bureau of
                          Investigation (FBI) improve performance by helping its employees see the
                          connection between their daily activities and the agency’s success, and
                          encouraging employees to focus on performing their duties in a manner
                          that helps the FBI achieve its goals. 23 The FBI needs to review and revise
                          its performance management system in a way that is in line with the
                          agency's strategic plan, including results, core values, and transformational
                          objectives. In June 2002, the FBI outlined its plans to reorganize according
                          to new mission priorities and realign its workforce to support the
                          accomplishment of these priorities.




                          23
                           U.S. General Accounting Office, FBI Reorganization: Initial Steps Encouraging but
                          Broad Transformation Needed, GAO-02-865T (Washington, D.C.: June 21, 2002).




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Leading organizations use their performance management systems not
merely as once—or twice—yearly expectation and appraisal tools, but as
mechanisms to facilitate communication throughout the year so that
discussions about individual and organizational performance are integrated
and ongoing. These leading organizations typically seek to achieve three
key objectives with their performance management systems. First, they
strive to provide candid and constructive feedback to help individual
employees maximize their potential in understanding and realizing the
goals and objectives of the agency. Second, they seek to provide
management with the objective and fact-based information it needs to
reward top performers. Third, performance management systems provide
the necessary information and documentation to deal with poor
performers. We are concerned that federal performance management
systems do not achieve these objectives. Modernizing agency performance
appraisal and management systems and linking them to agency strategic
plans and desired outcomes should be a top priority if the federal
government is to successfully address the transformational challenges it
faces.24

To assist agencies in using their performance management systems to help
achieve organizational goals, we studied other countries’ experiences in
developing and implementing their performance management systems, and
identified practices that provide U.S. federal agencies with information and
insights as they undertake their own initiatives.25 For example, we found
that the Ontario Public Service and the Australian Tax Office place
considerable emphasis on the achievement of organizational results when
evaluating individual performance and determining individual rewards.




24
 U.S. General Accounting Office, Managing for Results: Using Strategic Human Capital
Management to Drive Transformational Change, GAO-02-940T (Washington, D.C.: July 15,
2002).
25
  U.S. General Accounting Office, Results-Oriented Cultures: Insights for U.S. Agencies
from Other Countries’ Performance Management Initiatives, GAO-02-862 (Washington,
D.C.: Aug. 2, 2002).




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To place increased emphasis on accountability for organizational results
governmentwide, starting in the appraisal cycles that began in 2001, OPM
requires agencies to establish performance management systems for senior
executives to hold them accountable for their individual and organizational
performance; evaluate senior executive performance using measures that
balance organizational results against customer satisfaction and employee
perspectives; and use performance results as a basis for pay, awards, and
other personnel decisions. We found that while the Bureau of Land
Management, the Federal Highway Administration, the Internal Revenue
Service, and the Veterans Benefits Administration are in the early stages of
implementing new performance management systems for their senior
executives, there are significant opportunities to strengthen their efforts as
they move forward in holding senior executives accountable for results. In
particular, more progress is needed in explicitly linking senior executive
expectations for performance to results-oriented organizational goals,
fostering the necessary collaboration both within and across organizational
boundaries to achieve results, and demonstrating a commitment to lead
and facilitate change.26

Ultimately, an effective performance management system must link pay
and incentive programs to individual knowledge, skills, and contributions
to achieve organizational results. However, this link will never be achieved
without modern and effective performance management strategies. In that
regard, leading organizations understand the importance of creating
effective incentives and rewards for high-performing employees that place
a greater emphasis on knowledge, skills, and contributions to achieving
organizational results and in connection with federal employment
promotion and compensation decisions at all levels, rather than the
passage of time, the rate of inflation, or geographic location, as so often is
the case today. Additional information on the performance management
programs in use in agencies and the relative strengths and weaknesses of
those programs, along with best practice information, would prove helpful
as agencies seek to link pay to individual knowledge, skills, and
performance.




26
     GAO-02-966.




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OPM’s recently released white paper on federal pay provides a good
foundation for the results-oriented pay reform discussion that must now
take place.27 The greater use of “broadbanding” is one of the options that
deserves to be discussed. In the short term, Congress may wish to explore
the benefits of (1) providing OPM with additional flexibility that would
enable it to grant governmentwide authority for all agencies (i.e., class
exemptions) to use broadbanding for certain critical occupations and/or
(2) allowing agencies to apply to OPM (i.e., case exemptions) for
broadbanding authority for their specific critical occupations. However,
agencies should be required to demonstrate to OPM’s satisfaction that they
have modern, effective, and validated performance management systems
before they are allowed to use broadbanding.

In addition to promoting high performance and accountability to foster
results-oriented cultures, successful organizations empower and involve
their employees. Leading organizations create a set of mission-related
program guidelines within which managers operate, and give their
managers extensive authority to pursue organizational goals. Involving
employees in planning helps to incorporate insights about operations from
a frontline perspective, increase their understanding and acceptance of
organizational goals and objectives, and improve motivation and morale.
We identified a number of barriers facing agencies as they began
empowering and involving employees, including a lack of trust, resistance
to change and lack of buy-in, workload demands, and poorly timed
training.28




27
 U.S. Office of Personnel Management, A White Paper: A Fresh Start for Federal Pay: The
Case for Modernization (Washington, D.C.: April 2002).
28
 U.S. General Accounting Office, Human Capital: Practices That Empowered and
Involved Employees, GAO-01-1070 (Washington, D.C.: Sept. 14, 2001).




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                          Engaging employee unions in major changes can help achieve consensus
                          on the planned changes, avoid misunderstandings, speed implementation,
                          and more expeditiously resolve problems that occur. For example, as the
                          U.S. Postal Service begins to implement its Transformation Plan,
                          improvements in its adversarial relationship with labor groups will be
                          required to improve workforce alignment and performance management
                          systems.29 For the Postal Service transformation to be successful, it is vital
                          for the service and its unions to share a common vision for the future and
                          mutual responsibility for finding solutions to the service’s workforce
                          problems. The recent formation of joint task teams with two major unions
                          is a constructive step.



Building on the Current   While important progress is being made, much more needs to be done to
                          address the federal government’s long-standing strategic human capital
Momentum to Create        management challenges. First and foremost, individual federal agencies
Lasting Change            need to more consistently and completely adopt a strategic approach to
                          their most important asset – their people. This requires persistent
                          leadership commitment; aligning human capital approaches with the
                          accomplishment of agency goals; implementing recruiting, hiring, training
                          and professional development, and retention approaches that foster
                          mission accomplishment; and instilling a results-oriented organizational
                          culture.




                          29
                             U.S. General Accounting Office, Major Management Challenges and Program Risks: U.S.
                          Postal Service, GAO-03-118 (Washington, D.C.: Jan. 30, 2003), and U.S. Postal Service:
                          Deteriorating Financial Outlook Increases Need for Transformation, GAO-02-355
                          (Washington, D.C.: Feb. 28, 2002).




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OPM and OMB Must Sustain   As the agency responsible for leading human capital management
Their Attention            governmentwide, OPM plays a central role in helping agencies tackle the
                           broad range of human capital challenges that are at the root of
                           transforming what agencies do, how they do it, and with whom they
                           partner. As detailed in our Performance and Accountability Series volume
                           on OPM, our work and the work of others continues to show that agencies
                           need and want greater leadership from OPM in helping them to address
                           their human capital challenges, especially in identifying new human capital
                           flexibilities, removing obstacles from the federal hiring process, and
                           assisting agency workforce planning efforts. 30 Opportunities exist for OPM
                           to be more vigorous in responding to a number of critical program
                           challenges, such as applicant examination, staffing, and compensation
                           approaches. In addition, OPM shares responsibility with agencies for
                           ensuring that human capital practices are carried out in accordance with
                           merit systems principles and other national goals. Effective and strategic
                           oversight of agencies’ systems is even more critical today because an
                           increasing number of agencies are seeking and obtaining exemptions from
                           traditional civil service rules at the same time that human capital staffs
                           responsible for overseeing these activities have dwindled.

                           In response to these ongoing challenges, OPM has taken a number of
                           important actions. First, OPM is realigning its organizational structure and
                           workforce to create a new, flexible structure that will “de-stovepipe” the
                           agency; enable it to be more responsive to its primary customers, federal
                           departments and agencies; and focus on the agency’s core mission. In
                           November 2002, OPM’s director appointed four new associate directors
                           with proven human capital expertise to lead the organization. OPM also
                           has the key role in leading the administration’s efforts to address strategic
                           human capital management, a critical part of the PMA, and issued a human
                           capital scorecard in December 2001 to assist agencies. OPM published two
                           reports in 2001 to increase agencies’ awareness of available human capital
                           flexibilities, and released a report on federal compensation practices in
                           April 2002. A major initiative begun in the spring of 2002 is designed to
                           improve the hiring process. Furthermore, OPM is addressing its oversight
                           challenge in part by encouraging agencies to develop and maintain internal
                           accountability systems in line with its HRM Accountability Standards.



                           30
                            U.S. General Accounting Office, Major Management Challenges and Program Risks:
                           Office of Personnel Management, GAO-03-115 (Washington, D.C.: Jan. 30, 2003).




                           Page 22                                 GAO-03-120 Strategic Human Capital Management
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                              The designation of human capital as the first item on the PMA and the
                              supporting standards for success have raised the profile of human capital
                              issues on OMB’s agenda. As OMB and the agencies learn to evaluate
                              themselves against the standards and implement policies to improve, OMB
                              will need to ensure that the standards are consistently and appropriately
                              applied while assessing agencies’ progress in managing their human
                              capital. Perhaps most important, OMB support will be needed as agencies
                              identify targeted investment opportunities to address human capital
                              shortfalls.



Congressional Leadership      Congress has had and will need to continue to have a central role in
Continues to Be Critical to   improving agencies’ human capital approaches. Traditionally, Congress
                              has been an institutional champion in improving management of executive
Improving Strategic Human     agencies. On an agency-specific basis as well, support and pressure from
Capital Management            Congress has been indispensable to instituting and sustaining management
                              reforms. Its confirmation, oversight, appropriations, and legislative
                              responsibilities provide Congress with continuing opportunities to ensure
                              that agencies recognize their responsibilities to manage people for results.
                              For example, the Senate has the opportunity during the confirmation
                              process to articulate its commitment to sound federal management by
                              exploring how prospective nominees plan to make a link between mission
                              accomplishment and human capital policies.31 As part of the oversight and
                              appropriations process, Congress can continue to examine whether
                              agencies are managing their human capital to improve programmatic
                              effectiveness and to encourage agencies to use the range of appropriate
                              flexibilities available under current law. Congress will also play a defining
                              role in determining the scope and appropriateness of additional human
                              capital flexibilities and targeted investments, while maintaining
                              appropriate safeguards to prevent abuse.

                              Ultimately, Congress may wish to consider comprehensive legislative
                              reforms to existing civil service laws, taking into account the extent to
                              which traditional approaches make sense in the current and future
                              operating environment. Consensus has yet to emerge on the degree to
                              which legislative changes are needed to


                              31
                               Toward this end, we developed a set of questions for political appointees that the Senate
                              may use during the confirmation process. See U.S. General Accounting Office,
                              Confirmation of Political Appointees: Eliciting Nominees’ Views on Leadership and
                              Management Issues, GAO/GGD-00-174 (Washington, D.C.: Aug. 11, 2000).




                              Page 23                                  GAO-03-120 Strategic Human Capital Management
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• design a more flexible and streamlined position classification system;

• design a more flexible compensation system that relies to a larger
  degree on performance, skills, and knowledge;

• design a hiring process that enables agencies to hire employees more
  rapidly while upholding merit system principles and other national
  goals; and

• ensure that agency-designed performance management systems provide
  (1) candid and constructive feedback to link employee performance
  with the accomplishment of organizational results, (2) fact-based
  information to management to reward top performers, and
  (3) information for dealing with poor performers.

Moving forward, we will continue to play a professional, objective, and
constructive role in assisting Congress and the executive branch as
agencies transform and implement strategic human capital approaches. As
part of this effort, we have released two tools to inform agency leaders as
they evaluate the current state of strategic human capital management in
their organizations. A Model of Strategic Human Capital Management is
designed to help agency leaders determine how well they integrate human
capital considerations into daily decision making and planning for the
program results they seek to achieve.32 In addition, agencies may find our
Human Capital: A Self-Assessment Checklist for Agency Leaders helpful
in assessing the success or shortcomings of particular human capital
policies.33

The challenge to manage federal human capital strategically will not be
quickly or easily addressed. Comprehensive human capital legislative
reforms will likely be needed, but agency leaders must not wait for them to
happen. Much of the authority agency leaders need to manage human
capital strategically is already available under current laws and
regulations.34 Therefore, we believe the first step toward meeting the


32
     GAO-02-373SP.
33
     GAO/OCG-00-14G.
34
 To assist agencies in identifying available human capital flexibilities, OPM has published
Human Resources Flexibilities and Authorities in the Federal Government (Washington,
D.C.: July 2001).




Page 24                                  GAO-03-120 Strategic Human Capital Management
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government’s human capital challenges is for agency leaders to identify and
make use of all the appropriate administrative authorities available to them
to manage their people for results. The use of these authorities often will
need to be undertaken as part of and consistent with proven change
management practices. The second step is for policymakers to pursue
incremental legislative reforms to give agencies additional tools and
flexibilities to hire, manage, and retain the human capital they need,
particularly in critical occupations. The third step is for all interested
parties to work together to identify the kinds of comprehensive legislative
reforms in the human capital area that should be enacted over time.

For additional information on strategic human capital management issues,
contact J. Christopher Mihm, Director, Strategic Issues, at (202) 512-6806 or
mihmj@gao.gov.




Page 25                                 GAO-03-120 Strategic Human Capital Management
Related GAO Products


             Major Management Challenges and Program Risks: Office of Personnel
             Management. GAO-03-115. Washington, D.C.: January 30, 2003.

             Human Capital: Effective Use of Flexibilities Can Assist Agencies in
             Managing Their Workforces. GAO-03-2. Washington, D.C.: December 6,
             2002.

             Highlights of a GAO Forum: Mergers and Transformation: Lessons
             Learned for a Department of Homeland Security and Other Federal
             Agencies. GAO-03-293SP. Washington, D.C.: November 14, 2002.

             Highlights of a GAO Roundtable: The Chief Operating Officer Concept: A
             Potential Strategy to Address Federal Governance Challenges. GAO-03-
             192SP. Washington, D.C.: October 4, 2002.

             Results-Oriented Cultures: Using Balanced Expectations to Manage
             Senior Executive Performance. GAO-02-966. Washington, D.C.:
             September 27, 2002.

             Results-Oriented Cultures: Insights for U.S. Agencies from Other
             Countries’ Performance Management Initiatives. GAO-02-862.
             Washington, D.C.: August 2, 2002.

             Managing for Results: Using Strategic Human Capital Management to
             Drive Transformational Change. GAO-02-940T. Washington, D.C.: July 15,
             2002.

             Improving the Sourcing Decisions of Government. Final Report of the
             Commercial Activities Panel. Washington, D.C.: April 30, 2002.

             A Model of Strategic Human Capital Management. GAO-02-373SP.
             Washington, D.C.: March 15, 2002.

             Human Capital: Practices That Empowered and Involved Employees.
             GAO-01-1070. Washington, D.C.: September 14, 2001.

             Office of Personnel Management: Status of Achieving Key Outcomes and
             Addressing Major Management Challenges. GAO-01-884. Washington,
             D.C.: July 9, 2001.




             Page 26                         GAO-03-120 Strategic Human Capital Management
Performance and Accountability and High-
Risk Series

              Major Management Challenges and Program Risks: A Governmentwide
              Perspective. GAO-03-95.

              Major Management Challenges and Program Risks: Department of
              Agriculture. GAO-03-96.

              Major Management Challenges and Program Risks: Department of
              Commerce. GAO-03-97.

              Major Management Challenges and Program Risks: Department of
              Defense. GAO-03-98.

              Major Management Challenges and Program Risks: Department of
              Education. GAO-03-99.

              Major Management Challenges and Program Risks: Department of
              Energy. GAO-03-100.

              Major Management Challenges and Program Risks: Department of
              Health and Human Services. GAO-03-101.

              Major Management Challenges and Program Risks: Department of
              Homeland Security. GAO-03-102.

              Major Management Challenges and Program Risks: Department of
              Housing and Urban Development. GAO-03-103.

              Major Management Challenges and Program Risks: Department of the
              Interior. GAO-03-104.

              Major Management Challenges and Program Risks: Department of
              Justice. GAO-03-105.

              Major Management Challenges and Program Risks: Department of
              Labor. GAO-03-106.

              Major Management Challenges and Program Risks: Department of State.
              GAO-03-107.

              Major Management Challenges and Program Risks: Department of
              Transportation. GAO-03-108.




              Page 27                       GAO-03-120 Strategic Human Capital Management
Performance and Accountability and High-
Risk Series




Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.

Major Management Challenges and Program Risks: Department of
Veterans Affairs. GAO-03-110.

Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.

Major Management Challenges and Program Risks: Environmental
Protection Agency. GAO-03-112.

Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.

Major Management Challenges and Program Risks: National
Aeronautics and Space Administration. GAO-03-114.

Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.

Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.

Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.

Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.

High-Risk Series: An Update. GAO-03-119.

High-Risk Series: Strategic Human Capital Management. GAO-03-120.

High-Risk Series: Protecting Information Systems Supporting the
Federal Government and the Nation’s Critical Infrastructures.
GAO-03-121.

High-Risk Series: Federal Real Property. GAO-03-122.




Page 28                                GAO-03-120 Strategic Human Capital Management
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