Acquisition Reform: Defense Management Report Savings Initiatives

Published by the Government Accountability Office on 1990-12-04.

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

Ihw~nlI,t~r   I!~!~0

                       Defense Management
                       Report Savings


     1--,1-   ” -___--   -_-.----.-_--_--_.-   ____   -.-   _.--
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20648

                   National Security and
                   International Affairs Division


                   December 4,199O

                   The Honorable William V. Roth, Jr.
                   United States Senate

                   Dear Senator Roth:

                   The 1986 report by the President’s Blue Ribbon Commission on Defense
                   Management (commonly known as the Packard Commission) made
                   many recommendations to improve the management and organization of
                   the Department of Defense (DoD). In February 1989, the President
                   directed the Secretary of Defense to develop a plan to fully implement
                   the Commission’s recommendations, as well as to substantially improve
                   defense management overall. In July 1989, the President approved and
                   the Secretary issued the Defense Management Report (DMR) which out-
                   lined actions needed to improve DOD management. In January 1990, DOD
                   issued a status report on DMR implementation that contained specific
                   management improvement initiatives intended to (1) save an estimated
                   $39 billion in program costs and (2) eliminate an estimated 42,900
                   civilian and military positions over fiscal years 1991-95.

                   As you requested, we have evaluated DOD'S implementation of several of
                   the DMH savings initiatives. Our specific objectives were to (1) determine
                   the status of those initiatives, (2) evaluate the savings estimated to
                   result from implementing some major (high dollar) initiatives, and
                   (3) determine whether the services have reduced the number of acquisi-
                   tion personnel since the Packard Commission’s 1986 recommendation.

                   DOD has implemented a number of DMR savings initiatives and has begun
Results in Brief   to realize some savings, but the larger, more complex initiatives are still
                   in the planning stages, To fully implement the initiatives and achieve
                   the DMR savings goals, continued management support will be needed.

                   Although the DMR initiatives were estimated to save about $39 billion
                   over fiscal years 1991-95, these estimates were not always based on cost
                   analyses supported by historical facts or empirical cost data. Our review
                   of $24.5 billion in estimated savings showed that about 82 percent of
                   such savings were based primarily on management judgments. While
                   this does not mean the estimated savings will not be achieved, it does
                   indicate that the reliability of the estimates may vary. DOD has reflected
                   these savings in budget documents for fiscal years 1991-95 and officials
                   have stated that current budget negotiations and changes in the world

                   Page 1                               GAO/NSIAD-91-11   Defense Management   Report
             environment, including Operation Desert Shield, will not delay the
             implementation of the efficiencies to generate these savings.

             Since the Packard Commission’s 1986 recommendation to streamline
             and reduce the acquisition work force, no reductions had been made as
             of June 1990. The number of acquisition personnel actually increased
             slightly. The DMR contains initiatives that DOD estimates will result in
             acquisition work force reductions of 23,900 civilians and 1,981 military
             personnel over fiscal years 1991-95. The fiscal year 1991 National
             Defense Authorization Act requires much deeper cuts in acquisition and
             headquarters personnel.

             The Packard Commission’s 1986 report on defense management recom-
Background   mended changes in national security planning, military organization and
             command, acquisition organization and procedures, and government-
             industry accountability. As we reported in November 1988 and 1989,
             prior to the DMR, many of these recommendations had not been fully

             To fully implement the Commission’s recommendations and to improve
             overall defense management and the acquisition organization, the Secre-
             tary of Defense issued 66 DMR initiatives in January 1990. Many of these
             initiatives were based on previous recommendations by the DOD
             Inspector General, service Inspectors General, and us. For example, we
             issued reports on controlling various aspects of supply system costs as
             well as other logistics issues, such as the need for adequate controls and
             accountability over inventories. We also commented on the need for con-
             solidating functions within DOD and encouraged DOD to develop standard
             automated information systems. Many of our reports focused on the
             need to streamline and improve the acquisition process. We also testified
             on the need to improve the accounting for contracted advisory and
             assistance services. These concerns are being addressed in the DMR

             Along with the savings initiatives such as changes to the logistics
             system and improvements in automated support and information sys-
             tems, the DMR also generated several other management changes. For
             example, according to an official from the Office of the Secretary of

             ‘Defense Management: Status of Recommendations by Blue Ribbon Commission on Defense Manage-
             ment (GAO/NSIAD8%l?%% Nov. 1988). Acquisition Reform: DOD’s Efforts to Streamline Its Acqui-
             sition System and Reduce Perknnel (GAOmAD-90-21,      Nov. 1989).

             Page 2                                       GAO/NSIAD91-11     Defense Management   Report

                         Defense (OSD), DOD has completed a review of its regulatory require-
                         ments. This project will consolidate, streamline, or delete DOD directives
                         and instructions and procurement and contracting guidance. A review of
                         military specifications and standards is scheduled for completion by
                         199‘2.Also, DOD has submitted a package of legislative proposals to the
                         Congress, on which we have testified,2 and a report to the President on
                         the relationship between DOD and the Congress.

                         In January 1990, the Secretary of Defense released a progress report
                         with more details on the DMR initiatives and the associated budget sav-
                         ings According to an OSD official, a second progress report is currently
                         being prepared and OSD has begun a second round of cost savings initia-
                         tives by asking the military services to generate new initiatives and

                         According to OSD officials, DOD’S efforts to implement the DMR initiatives
DMR Initiatives Are in   are in various stages. Some initiatives, such as the effort to reduce
Various                  transportation costs, are already underway and have generated savings.
Implementation Stages    Other initiatives are planned for implementation in the near term. For
                         example, the stock funding of reparables is scheduled to begin in early
                         fiscal year 199 1. Some of the more complex initiatives are undergoing
                         extensive planning or study for implementation at a later time. The initi-
                         ative to standardize and improve automated data processing systems,
                         for instance, is scheduled for implementation over the next several

                         A few of the initiatives have been combined with other budget reduction
                         efforts, which could either delay or speed up their implementation. For
                         example, assigning some military support functions to civilian personnel
                         has been included in overall force reductions, which are still in the plan-
                         ning stages. Also, to streamline Army Materiel Command headquarters
                         and its subordinate commands, personnel reductions were planned over
                         a 5-year period. According to an OSD official, this effort may be acceler-
                         ated to accommodate budget requirements in fiscal year 199 1.

                         2GA0 Comments on the Defense Management Improvement Act (GAO/T-NSIAD-9041,   May 1090).

                         Page 3                                     GAO/NSIAD-91-11   Defense Management   Report

                                          Although the DMR and follow-up budget documents estimated that the 66
Estimated Savings                         DMR initiatives would save about $39 billion over fiscal years 1991-95, at
From DMR Initiatives                      least one-half of the estimated savings were based on management judg-
Were Often Based on                       ments rather than detailed cost analyses. In reviewing $24.6 billion
                                          (about 60 percent) of the $39 billion total estimated savings, we found
- -                                       that $20.17 billion was based primarily on management judgments. For
Judgments                                 example, some of the estimates were generated by assigning a savings
                                          target, such as 3 percent annually, to a particular area. Other estimates
                                          were based on professional experience of DOD officials. In some
                                          instances, the services had concerns about the level of savings they were
                                          expected to achieve. This does not mean savings will not be achieved;
                                          however, it indicates that the reliability of these estimates may vary.

                                          An OSD official stated that the main goal of the DMR initiatives was to
                                          create efficiencies and better management and that the savings were a
                                          by-product of that goal. The estimated savings are significant and have
                                          been included in DOD’S budget estimates for fiscal years 1991-95. As indi-
                                          cated in table 1, a reduction of $2.3 billion has already been included in
                                          the President’s fiscal year 1991 budget proposals, and, according to OSD
                                          officials, the remaining savings are reflected in budget plans for fiscal
                                          years 1992-96. Table 2 shows the total DMR savings estimate by broad
                                          initiatives area.

Table 1: Estimated Saving8 Reflected in
Budget Plans                              Dollars in billions
                                          Fiscal year                                                                 Savings
                                          -.-----                                                                        $2.3
                                          1992                                                                            5.9
                                          1993                                                                            8.2
                                          1994                                                                           10.6
                                          1995                                                                           12.1
                                          Total      .                                                                  $39.1

                                          Page 4                               GAO/NSIAD-91-11   Defense Management    Report

Table 2: Estimated Savings by lnitlatlve
Area                                       Dollars in billions
                                           Initiative area                                                                                Savings
                                           Logistics                                                                          ----.-        $21
                                                                                                                                             --_- .o
                                           Consolidation studies                                                                                5.6
                                           Automated support and information systems  ----___                                            ____-. 4.3
                                           Administration                                                                                       4.3
                                           Finance, procurement, and contract rnanagement --~.....                                              3.9
                                           Base operations and                                                                                         a
                                                              ~ facility.. management
                                           Total                                                                                              $39.1
                                           ‘Less than $50 million.

                                           According to OSD officials, they tried to be conservative in estimating
                                           DMR savings to reflect anticipated reductions in budget authority and
                                           work load. Also, it was their view that these initiatives for management
                                           improvement were preferable to additional reductions in force levels or
                                           in essential programs. They said that if the savings estimates prove to
                                           be overly optimistic, DOD will have to find other efficiencies or reduce
                                           programs and operations. According to an OSD official, DOD is estab-
                                           lishing a system to track the savings attributable to the initiatives sepa-
                                           rately from budget-cutting efforts. However, because some DMR
                                           initiatives may be impacted by force level changes or other factors, the
                                           DMR specific savings may be difficult to track.

                                           We have reviewed the savings estimates for several specific initiatives
                                           in most of the areas shown in table 2. Information on these estimates is
                                           presented in appendix I.

                                           We found that the acquisition work force as defined by the Packard
Future Acquisition                         Commission in 1986 has slightly increased as of June 1990.3Between
Personnel Reductions                       December 1986 and June 1990, DOD and the services experienced an
Cannot Be Determined                       increase in their civilian acquisition personnel spaces and most experi-
                                           enced a decrease in military spaces. As shown in table 3, these changes
                                           resulted in an increase of 5,136 in the total acquisition work force.

                                           sWe used the Packard Commission’s definition of “acquisition work force.” That is, several skills,
                                           such as contracting and weapon system program management, are always considered acquisition
                                           skills, no matter where the individual is assigned, and skills, such as engineering, are considered
                                           acquisition skills only if the person is assignedto an acquisition command. In contrast, the DMR
                                           defined the acquisition work force as employees in all occupational fields, both military and civilian,
                                           at the service buying commands. Therefore, DMR’s estimate of approximately 580,000 employees
                                           differs considerably from our acquisition work force data.

                                           Page 6                                              GAO/NSIAD-91-11      Defense Management       Report

Table 3: DOD Acquisition Work Force
Change8                                                                                                                          Percent
                                                                                                           Increase or          increase
                                      Service/agency                 September 1986        June 1990        (decrease)        (decrease)
                                      Civilian                                   48,301         52,106             3,805                7.9
                                      Military                                    2,155          1,787               (368)            (17.1)
                                      Air Force:
                                      Civilian                                   42,941         41,289
                                                                                                 ____             (1,652)        ..-.-_ pfj)
                                      Military                                    8,801          8,467               (334)              (3.8)
                                      Civilian     __--                          63,105         61,301            (1,804)               (2.9)
                                      Military                                    2,905          2,864                 (41)             (1.4)
                                      Civilian                                     377             417                  40              10.6
                                      Military                                     133              15               (118)             (88.7)
                                      Other  DOD:-~~--~-.-
                                      . __-~--.~-~-.          --..--...---.~-
                                      Civilian                                   26,346         31,954             5,608
                                                                                                             __--.--.-.--..             21.3
                                                                                                                                      ..-- .-
                                      Total civilian                            181,070       187,067              5,997                 3.3
                                      Total military                             13,994         13,133              (861)     --__     (6.2)
                                      Total                                     195,064       200,200              5,136                2.6

                                      Past efforts to streamline the acquisition process and substantially
                                      reduce the number of acquisition personnel have failed.4 According to
                                      several DOD officials, the reason for the failures in the past have been
                                      because most of the streamlining initiatives had been imposed on DOD
                                      rather than generated from within the Department. As a result, the com-
                                      mitment to make the necessary changes was lacking. The officials
                                      expect the DMR to have a,greater impact on work force reductions
                                      because it was generated by DOD and the services and has support at the
                                      0sD level.

                                      DOD  projects that the DMR initiatives will eliminate a total of about
                                      42,900 personnel spaces-37,800 civilian and 5,100 military. However,
                                      a DMR initiative to replace military support function positions with civil-
                                      ians will result in 19,500 new civilian positions replacing a like number
                                      of military positions. This initiative will reduce total civilian reductions
                                      to 18,300 (37,800 reduced, 19,500 added) and increase military reduc-
                                      tions to 24,600 (5,100 + 19,500 reduced). According to DMR officials,
                                      about 23,900 civilian spaces and 1,981 military spaces will come from

                                      4DOD’s Defense Acquisition Improvement Program: A Status Report (GAO/NSIAD-86-148, July 23,
                                       986). Acquisition Reform: DOD’s Efforts to Streamline Its Acquisition System and Reduce Personnel
                                      &AO/~IA~-90-2       1, NOV. 1, 1989).

                                      Page 6                                          GAO/NSLAD-91-11     Defense Management         Report

                  the acquisition work force. These spaces will come in part from reduc-
                  tions to some acquisition commands. The Army Materiel Command plans
                  to reduce its personnel by 8,600 of which about 300 will be from head-
                  quarters. The Air Force Systems Command plans to reduce its personnel
                  by 4,800 of which 300 are headquarters staff. The Air Force Logistics
                  Command will reduce its personnel by 7,500 during fiscal years 1991-95.

                  The fiscal year 1991 National Defense Authorization Act requires
                  deeper cuts in acquisition and headquarters personnel. The act directs
                  DOD to cut the acquisition work force by 4 percent a year over the next
                  5 years. This reduction applies to the DMR'S definition of the acquisition
                  work force. Using this definition, the 580,000 acquisition work force
                  would be reduced by about 107,000 over the 5-year period. The act also
                  mandates a 4-percent reduction in all DOD headquarters personnel over
                  the same period.

                  In evaluating the implementation of the DMR initiatives, we reviewed
Scopeand          reports from the Congressional Research Service, DOD, and our Office.
Methodology       We also interviewed OSD, Army, Navy, and Air Force officials respon-
                  sible for developing and implementing the DMR initiatives and for moni-
                  toring their implementation. To evaluate the savings estimates, we
                  selected several of the larger dollar amounts, which together represent
                  over 60 percent of the savings, and discussed with OSD officials the
                  methodology used to calculate these estimates.

                  We obtained personnel data from the Office of Productivity and Civilian
                  Requirements, OSD, to determine whether the services had reduced their
                  acquisition work force. We analyzed these data for selected time frames
                  in 1986 and 1990 to update the information presented in our November
                  1989 report. We did not validate these data.

                  We performed our review between October 1989 and July 1990 in accor-
                  dance with generally accepted government auditing standards. A list of
                  our other ongoing work related to DMR initiatives is provided in
                  appendix II.

                  We did not obtain written agency comments on this report. However, a
                  draft of this report was provided to DOD officials and we have incorpo-
              Y   rated their views where appropriate.

                  Page7                                GAO/NSIAD-91-11DefenseManagementReport

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days from the date of this letter. At
that time, we will send copies to the Secretary of Defense and interested
parties and make copies available to others upon request.

This report was prepared under the direction of Paul F. Math, Director,
Research, Development, Acquisition, and Procurement Issues, who may
be reached on (202) 275-8400 if you or your staff have any questions.
Other major contributors to this report are listed in appendix III.

Sincerely yours,

Frank C. Conahan
Assistant Comptroller General

Page 8                               GAO/NSIADBl-11 Defense Management Report
Page 9   GAO/NSIAD-91-11 Defense Management Report

Appendix I
Savings   Estimates   and   Logistics Initiatives                                                            12
                            Consolidation Initiatives                                                        14
Status of Specific          Automated Support and Information Systems Initiatives                            14
DefenseManagement           Administration Initiatives                                                       15
                            Finance, Procurement, and Contract Management                                    16
Report Initiatives              Initiatives

Appendix II                                                                                                  17
Other Ongoing GAO
Reviews of the
Appendix III                                                                                                 18
Major Contributors to
This Report
Tables                      Table     1: Estimated Savings Reflected in Budget Plans                          4
                            Table     2: Estimated Savings by Initiative Area                                 5
                            Table     3: DOD Acquisition Work Force Changes                                   6
                            Table     I. 1: DMR Savings Estimates                                            12


                            ADP          automated data processing
                            CAM          contracted advisory and assistance services
                            DMH          Defense Management Report
                            DOD          Department of Defense
                            GAO          General Accounting Office
                            OSD          Office of the Secretary of Defense

                            Page 10                                GAO/NSLAD-91-11   Defense Management   Report

    Page 11   G A O /NSIADIl-11 D e f e n s e M a n a g e m e n t R e p o r t
Appendix I

SavingsEstimaks ad Status of Specific
DefenseManagementReport Initiatives

                                   This appendix discusses the savings estimates and status of implementa-
                                   tion for several of the DMR initiatives. At least one-half of the savings
                                   estimates for these initiatives are based primarily on management judg-
                                   ments in the absence of empirical cost data. The following table shows
                                   the DMR categories, the savings estimates we reviewed, and the amounts
                                   we found were based on management judgment.
Table 1.1: DMR Savings Estimates
                                   Dollars in billions
                                                                          DMR                                 Estimates reviewed
                                                                     estimated        Saving estimates     based on management
                                                                       saving5        reviewed by GAO                   judgment
                                   Logistics                               $21 .o               $12.284                      $10.142
                                   Consolidation studies             ____-   5.6              -5.6
                                                                                              __--_____                           5.6
                                   Automated support and
                                      information systems   __--             4.3                  4.343                        2.178
                                   Administration                                                 1.148-                       1.148
                                                                      ______ 4.3
                                   Finance, procurement,
                                      and contract
                                   _-___-.__-.--_.-_-..-~-___                3.9                  1.099                      1.099
                                   Base operations and
                                   __ facility    management
                                       __-......-_---. .-..-________
                                   Total                                   $39.1               $24.475’
                                   aLess than $50 million

                                           logistics initiatives are expected to improve logistics management
Logistics Initiatives              DMR'S
                                   and reduce costs by $21 billion. Included in this category are DoD-wide
                                   initiatives to reduce supply, repair parts, and transportation costs, as
                                   well as several service-specific logistics initiatives. We reviewed
                                   $12.28 billion of the estimated $21 billion savings and found that the
                                   $10.14 billion attributable to the initiative for reducing supply costs was
                                   based on management judgment. The $2.14 billion in estimated savings
                                   from transferring the cost of reparable parts to the Stock Fund was
                                   based on previous experience.

Reducing Supply Cost               This initiative is expected to save an estimated $10.1 billion in the ser-
                                   vices’ overall costs for supplies. The services will have budget authority
                                   to transfer supply costs to a Stock Fund, an account that finances the
                                   purchase and resale of materials to the military services and other
                   w               authorized customers. According to an OSD official, this change is
                                   expected to provide more visibility and control over the cost of supplies.
                                   Because all the cost associated with the procurement of supplies will be

                                   Page 12                                            GAO/NSIAD-91-11   Defense Management    Report
                             Appendix I
                             Savings Estimates and Status of Specific
                             Defense Management Report Initiatives

                             charged to a single account, managers will know all the costs associated
                             with the supply system and make spending decisions based on the most
                             efficient, economical way to manage that system. Also, the users will be
                             charged the full cost of the supplies.

                             According to OSD officials, the $10.1 billion savings for this initiative
                             was estimated by reducing the services’ supply costs by 3 percent each
                             year for fiscal years 1991-95. The 3-percent figure is a savings goal that
                             0s~ officials believe is reasonable. However, the services expressed con-
                             cern that the initiative would not achieve a 3-percent supply cost reduc-
                             tion per year. OSD officials stated that they were comfortable with the
                             calculation and that the Departments have agreed that savings of this
                             magnitude in supply system costs can be achieved.

Transferring Costs of        This initiative is expected to save $2.14 billion by transferring the costs
ReparableParts to the        of reparable parts to a Stock Fund. Users will have to pay for new
                             repair parts which previously have been issued without charge to the
Stock Fund                   user. This initiative will give users an incentive and option to repair
                             rather than purchase new parts.

                             According to OSD officials, the savings estimate was based on Army and
                             Air Force savings of 10 percent per year through improved management
                             of reparable parts. The Navy has been managing the cost of reparables
                             through a Stock Fund since fiscal year 1982 and, according to these offi-
                             cials, has realized a savings of over 20 percent. OSD did not expect the
                             Army and Air Force to initially achieve the same 20-percent savings.
                             However, OSD did believe a lo-percent savings was reasonable. Again,
                             the Army and Air Force expressed concerns about meeting this goal.
                             This effort is scheduled to begin in fiscal year 1991.

ReducingTransportation       The DMR initiative to reduce transportation costs is expected to save
costs                        $988 million through such policy changes as

                         . establishing regional freight consolidation centers which will consolidate
                           small shipments into larger shipments,
                         . allowing DOD to ship priority material to a requisitioner by a cheaper
                           mode unless the requisitioner requires faster delivery, and
                         l conducting DOD audits of bills before payment to permit overbillings or
                           erroneous charges.

                             Page 13                                    GAO/NSlAD-91-11   Defense Management   Report
                                Appendix I
                                Savinga Estimates and Status of Specific
                                Defense Management Report Initiatives

                                This initiative is already underway and, according to an OSD official, has
                                already generated savings in shipping costs.

Other Logistics Initiatives     Other logistics initiatives
                                aresummarized     asfollows with total expected savings of over $7.7 billion

                              . Studies of contracting services for Army ammunition plants and Navy
                                shipbuilding and repair are scheduled for completion on January 3 1,
                                1991. Implementation decisions will be made sometime after that date.
                              . An effort is underway to reduce the costs of clothing and textiles by
                                limiting clothing purchases, using more commercial specifications, con-
                                solidating specification development, and changing the policy for new
                                clothing introduction.
                              . Various service-specific initiatives include improvements to the Army
                                logistics system and operating cost reductions at the naval aviation
                                depots. According to an OSD official, some of these initiatives are
                                underway, while others are in the planning stage.

                                These initiatives, with expected savings of $5.6 billion, called for study-
Consolidation                   ing the possible consolidation of supply depots, inventory control points,
Initiatives                     maintenance depots, automatic data processing (ADP) design centers and
                                operations, accounting operations and finance centers, and research and
                                development laboratories and test facilities. Our review of the savings
                                found that management estimated the savings based on previous consol-
                                idation proposals. According to an OSD official, the savings estimate was
                                revised downward to be conservative.

                                Implementation decisions have been announced in four of the six
                                areas-supply depots, inventory control points, maintenance depots,
                                and finance centers. Decisions are still pending in the two others. The
                                consolidation of supply depots has begun with five depots in the San
                                Francisco Bay area.

                                Two initiatives to standardize and consolidate ADP systems and imple-
Automated Support               ment computer-aided logistics support are expected to save $4.34 bil-
and Information                 lion Of this $4.34 billion, $2.18 billion from the consolidation of ADP
Systems Initiatives
                                systems is based on management judgment by OSD and $2.16 billion from
                                the computer-aided logistics support initiative is based on experience
                                within the Navy.

                                Page 14                                    GAO/NSLAD-91-11   Defense Management   Report
                 Appendix I
                 Savings Estimates and Status of Specific
                 Defense Management Report Initiatives

                 The initiative to develop standard and consolidated ADP systems
                 throughout DoD-referred to as Corporate Information Management-is
                 estimated to generate a net savings of $2.18 billion during fiscal years
                 199195. An OSD Deputy Comptroller explained that this initiative,
                 involving about 200 people full time, is expected to save 10 percent of
                 the ADP development and modernization budget or about $3.6 billion
                 over the 5-year period. However, approximately $1.42 billion of this
                 savings will be used to develop and implement single business systems
                 in such areas as personnel, payroll, distribution, and so forth. According
                 to OSD officials, the savings were based on OSD management judgment,
                 the knowledge that many service business systems are duplicative and
                 the certainty that ADP technology exists to permit development and
                 implementation of single systems to serve the entire Department.

                 This effort is to be implemented over the next several years. Study
                 groups have formed to establish requirements and develop implementa-
                 tion plans for eight areas. However, these plans are not expected for 6 to
                 18 months, depending on the complexity of the subject area. After the
                 plans are completed, the systems will be designed and implemented.

                 The second initiative is a Navy effort using the DMR to accelerate an
                 ongoing project-computer aided logistics support. This initiative is esti-
                 mated to save $2.16 billion’ over fiscal years 1991-95. This program con-
                 sists of 10 initiatives grouped into 3 categories: technical documentation,
                 shipyard work procedures, and procurement.

                 Some DMR initiatives are underway to streamline headquarters opera-
Administration   tions and create other efficiencies that would lead to personnel reduc-
Initiatives      tions The DMR administration initiative which is expected to save the
                 most money-$ 1.1 billion- calls for more efficient management of
                 defense agencies, such as the Defense Logistics Agency and Defense
                 Mapping Agency. The savings estimate is based on management judg-
                 ment. &cording to an OSD official, the initiative does not identify spe-
                 cific efforts. Instead agencies were given savings targets to meet, either
                 by creating efficiencies or managing to budget reductions, of 5 percent
                 in fiscal year 1991, 10 percent in fiscal year 1992, and 15 percent in
                 fiscal year 1993.

                 ‘Due to an arithmetic error by the Navy in developing the savings estimate, the individual categories
                 comprising this initiative total $18 million less than the $2.16 billion cited by DOD.

                 Page 15                                           GAO/NSIAD-91-11 Defense Management Report
                        Appendix I
                        Savings Estimates and Status of Specific
                        Defense Management Report Initiatives

                        The DMR identified six initiatives which are expected to generate eco-
Finance, Procurement,   nomic benefits by more closely scrutinizing specific managerial over-
and Contract            sight responsibilities related to financial monitoring, by consolidating
Management              DOD contract management, and by reducing the use of consultants by
                        DOD. These initiatives are expected to save a total of $3.9 billion.
                        One of these initiatives, expected to save about $1.1 billion over 5 years,
                        calls for reducing spending on contracted advisory and assistance ser-
                        vices (CAM), such as contracts for individual experts and consultants;
                        studies, analyses, and evaluations; management support services; and
                        engineering and technical services. An OSD official explained that the
                        savings were based on a management judgment that CAASspending could
                        be reduced by 10 percent a year over 5 years. OSD Office of the Comp-
                        troller officials stated that the lo-percent assessment was determined to
                        be reasonable.

                        Another initiative is to consolidate contract management services within
                        the Defense Logistics Agency, which is expected to save $255 million.
                        According to an OSD official, the Defense Logistics Agency has the struc-
                        ture in place to absorb this function, and all resources for this effort,
                        including funding, have now been transferred from the services to the
                        Logistics Agency. We did not review this savings estimate.

                        Page 16                                    GAO/NSIAB91-11   Defense Management   Report

Other OngoingGAO Reviews of the Defense

              We have underway several evaluations of individual       DMR   initiatives,
              including the

              services’ strategies for incorporating the costs of reparable parts into
              the Stock Fund,
              consolidated information management effort,
              automation of inventory systems,
              the initiative on computer-aided logistics support,
              consolidation of supply depots,
              effort to increase inventory visibility,
              Navy’s efforts to improve its supply systems, and
              streamlining of the acquisition management structure.

              Additional reviews will be planned as the initiatives are implemented.

              Page 17                               GAO/NSIADOl-11   Defense Management     Report
Appendix III

Major Contributors to This Report

                        Michael E. Motley, Associate Director
National Security and   James F. Wiggins, Assistant Director
International Affairs   Charles W. Malphurs, Evaluator-in-Charge
                        Ann Borseth, Senior Evaluator
Washington, DC.

(886722)                Page 18                            GAO/NSIADBl-11   Defense Management Report
i --~-
         Ordt+ng   Information

         The first five copies of each GAO report are free. Additional copies
         i1t-e $2 each. Orders should be sent to the following address, accom-
         panitd by a check or money order made out to the Superintt?ndent
         of I)ocuments, when necessary. Orders for 100 or more copies to be
         nrailtvl to a single address are discounted 26 percent.

         1J.S. Gneral Accounting Office
         I’.(). Box 6015
         Gaitht~rsburg, MI1 20877

         Orders may also be placed by ca.Iling (202) 275-624 1.
.-..   “.,   .   .   -ll..l-l-l.l   .   ~.   ..”   ..-   ~l~l.~~-.-“l”--llll~““~l”“..~.““l..-”””.lll   ..“”   .   .   .   -.-.   -----_~-   ---------.-i;