Industry wonders whether the Pentagon will ever reform its budgeting system

Tom Temin Let’s begin with the beginning, just the 30 second version of what PPBE is and why reforming it matters.

Rich Brady Yeah, PPBE, or the Planning, Programming, Budgeting, and Execution System, is the resource allocation system for the Department of Defense. It’s how they decide how to spend roughly $850 billion per year, and they usually look out over about a five-year period as well. So they’re dealing with a lot of money, large amount of dollars, plus systems and programs, manpower, operations that underpin all of that.

Tom Temin And it’s a disciplined process. It requires people to think ahead. What is the drawback of it in the 21st century?

Rich Brady The drawback, I think, is that it was built at a time Robert McNamara came into the Pentagon in the 1960s. It was build on that industrial management mindset, a very linear process. There are some overlapping parts, but it’s still incredibly linear when you look at, again, just like the name implies, planning, programming, budgeting, execution, the sense is that you go through each one of these processes sequentially. And that takes a lot of time when you’re moving that amount of money, $850 billion. And so it just is not agile or responsive enough today and doesn’t take into account modern ideas around resource allocation and the use of systems.

Tom Temin So best industrial practice has moved on since the 1960s.

Rich Brady Exactly. It’s definitely a throwback to mid-20th century management thinking.

Tom Temin So somehow this relates to the Pentagon’s often expressed desire and manifested in a lot of programs to get technology into the slipstream faster so that they can modernize more quickly their weapons platforms and so forth. Is that part of the drawback here?

Rich Brady Well, and they have been doing that. I want to say that there have been changes to the system since the 1960s. Almost every secretary that comes into the department puts their imprint on the PPBE process to a certain extent. But most of those changes have really been marginal changes. And where technology has been inserted, it really hasn’t been scaled across the entire process. It’s just in pockets or down in each individual service or defense agency. And so, what I think we’re looking at now is a period where there is going to be bolder change, and change across the entire process instead of in stovepipes within it.

Tom Temin Because the commission made 28 recommendations, and it’s a big, long report, I’m just looking at the two-page version. And there are a lot of small steps there that could just make things easier as they are, like a common analytics platform. So everybody’s looking at the same data, which is a big problem for DOD, but then it all adds up to “replace the PPBE process with a new defense resourcing system.” That seems like a heavy lift if all you’re doing in the other 27 steps is tweaking with analytics and better data and so forth.

Rich Brady Yeah, there’s definitely some low-hanging fruit there, and I think the department, the last administration was getting after some of that. The new administration is starting to take a look at what the last administration was doing. The teams are still in place. But just on that point of looking at the systems, I mean, there are hundreds of systems that are in place right now, not just the financial management system, but a lot of feeder systems as well, logistics systems, maintenance systems, human resources systems. All of these things have to be looked at. And so that is kind of a monumental task, just getting to a smaller number of systems. And if the goal is getting to a single system, it would be very difficult because of a lot of the dependencies. Actually, on the naming, the Defense Resourcing System, that might actually be one of the easier changes to make. And coming from an organization that just two years ago was the American Society of Military Comptrollers, now we’re the Society of Defense Financial Management, I believe that rebranding of the process is important to kind of move away from that industrial mindset that we’re in to a modern system.

Tom Temin Sure, and what can the Pentagon, what can the controllers do and so forth on their own versus what is statutorily required to change it?

Rich Brady Yeah, so great question, because if you look at the recommendations, as we like to say, there are things that are below the line and things that above the line. The below the lines are things the department can do themselves, can implement right away. The above the lines are issues that require some type of legislative change. And so the department, that was the first thing they looked at was, hey, what can we do internally here? Can we use data better? Can we use modern analytic systems and implement those? Can we leverage all of the authorities that we have, that Congress has already given us, and push those authorities down to lower levels? In any organization we like to aggregate authorities and power to the highest level. A lot of that can be reversed and pushed back down

Tom Temin We’re speaking with Rich Brady, he’s CEO of the Society of Defense Financial Management. And the effect of PPBE reform, I can think of three big effects. And you can tell us what the real goal here is. Make it easier for people to do their work so that they can plan better and more effectively. It can also maybe result in better accounting. So maybe at some point, the Pentagon could get that clean financial audit it’s never been able to get. At some level, it has to improve the readiness and lethality of the department itself to deter and win wars.

Rich Brady Yeah, I think the last point, really delivering warfighter capability is probably the most important. And it’s not just delivering it, but it’s delivering it at speed. We are in a great power competition right now. There are peer and near-peer competitors out there that are delivering capabilities faster than the U.S. military and the industrial complex is able to. And we need to speed that up. And part of it is the process that we have, this very linear, dated process that needs to be improved, needs to be more agile, needs to be more responsive, and needs to be more focused on the warfighter.

Tom Temin Because this manifests itself in a lot of ways, not just the inability to get that clean financial audit, but the slowness, the erosion of the industrial base, it takes 20 years to get a carrier from keel to where it’s actually used in warfare. Fighters are deteriorating and we can’t seem to push them out the door properly. There’s a lot manifestations of this.

Rich Brady There are. And there’s a lot of other systems in place. It’s not just the PPBE system, which is the Resource Allocation System. You also have the requirements generation system governed by groups like the Joint Requirements Oversight Council within the Pentagon. And then you’ve got the Acquisition Management System, which is run by the acquistion contracting community. So all of these three systems really have to work in concert to deliver that capability. And there have been efforts, obviously the PPBE reform commission looked at that process. The 809 panel a few years ago looked at the acquisition system. There’s talk now about do we need to have a more fulsome look at the requirements generation process and system and how the requirements are generated. So the ultimate goal is to align your requirements process with your resourcing process, with your acquisition process, to move requirements and your ultimate outcome that we’re fighting capability through the process quicker and get that delivered to the people down range.

Tom Temin And it’s a huge lift and it seems like that alone, those aligning procurement and finance and so forth, would occupy a couple of terms if we had a two-term Defense secretary as we did with McNamara. I think he was the last one to ever serve that long. And I always thought if Bob Gates couldn’t get this done, who can?

Rich Brady Well, I think that we’re operating in a unique period right now where we’re seeing that this administration is willing to make very bold changes. You look at a lot of the changes that took place just in the PBBE process or in these other systems over the previous administrations, most of the changes were fairly marginal, around the edges. And again, I think we’re at a unique time right now, where there’s an opportunity for bolder changes, and I think what the new administration is looking at when they look at those 28 recommendations. I think in the past we thought, hey, they’ll probably go after some of the low-hanging fruit, the easy stuff. I think this administration is turning that on its head and is like, let’s go after some of bolder issues here.

Tom Temin Because getting back to the figure you cited, the budget, $800 billion or so and rising, probably $1 trillion in a few years, a lot of that is fixed cost in their plant, in their rent, in their utilities, in their salaries and pension costs. And so the variable costs are a much smaller section of that. Would they be wise to look at those as a way to apply this and get this rolling out a new resourcing system for the things that are variable year to year? As opposed to the standing fixed costs.

Rich Brady Yes. And I think that, if you look at some of the recent orders that have come out of the Pentagon, they’re looking at getting after some of that fixed cost, the overhead that’s within the department, to give them more trade space. Because, again, when you look when they build the budget every year, the aggregate amount of what they really change is a very small percentage. Probably 2% to 3% actually changes because those fixed costs, when you start even buying a carrier over 20 years, that’s really kind of fixed in place. You don’t have a lot of wiggle room there. And so they’re looking to increase that annual trade space that they have. But to do that, you need, again, you need a more agile process. One, you probably need less people involved in it because it’s grown up over 50, 60 years now. There are whole institutions within the Pentagon that all they do day in, day out is work to build this. I think you’re going to see a lot of streamlining of those processes, fewer people involved in the development of this, recognizing that the trade base, to your point, is pretty small.

Tom Temin Right, and I was going to say, too, that the group that you represent, Defense Financial Management, if you look at what the Defense enterprise says about itself, war requires the expenditure of blood, iron and treasure. You are the treasure people, which pays for the rest of it. And I imagine this is something that, for the average controller of a department or a unit, a component, or someone in financial management anywhere, probably wants this as much as anybody.

Rich Brady Absolutely, absolutely. When we talk to people over the last, now, three years about PPBE reform, and it’s one of the reasons we, at SDFM, created a PPBE Reform Task Force to parallel what the Legislative Commission was doing, because our members were very interested in it. They wanted to be updated. They want to be involved in the process. We ran a number of surveys, because this is of great interest. They want a more efficient system. They want a more responsive system. They want modern systems, financial systems that they can use.

Tom Temin Yeah, the people dealing with the spreadsheets are the ones that feel it the most acutely.

Rich Brady Absolutely. And probably the number one issue they brought up was,  how do we solve the issue of the continuing resolutions, which I don’t know that there is a solution to that yet, but that was the number one issue that always came up.

Tom Temin Well, Congress has to have its own PPBE and fix that.

Rich Brady Absolutely.