United States General Accounting Office GAO Report to Congressional Requesters November 1996 DEFENSE IRM Strategy Needed for Logistics Information Technology Improvement Efforts G A O years 1921 - 1996 GAO AIMD-97-6 GAO United States General Accounting Office Washington D C 20548 Accounting and Information Management Division B-272459 November 14 1996 The Honorable Herbert H Bateman Chairman Subcommittee on Military Readiness Committee on National Security House of Representatives The Honorable John Glenn Ranking Minority Member Committee on Governmental Affairs United States Senate As requested as part of our continuing review of the Department of Defense’s DOD Corporate Information Management CIM initiative this report summarizes our findings on DOD’s efforts over the last 4 years to improve its informations systems in the depot maintenance materiel management and transportation business areas Our specific objective was to determine whether selected standard information systems will allow DOD to meet its business objective to dramatically improve the efficiency and effectiveness of its logistics operations These standard logistics systems in which DOD expects to invest more than $7 7 billion over the next few years are part of the Department’s CIM initiative CIM begun in October 1989 was initially an attempt to apply best business practices to dramatically improve DOD’s business operations In 1992 DOD estimated that such improvements to its logistics operations could save as much as $28 billion by fiscal year 1997 After some initial process improvement efforts were begun however DOD determined in October 1993 that these improvements would take too long to implement and would not produce needed short-term budgetary savings Consequently DOD changed its CIM implementation focus to what it termed a “migration systems” strategy This strategy was geared toward obtaining more short-term budgetary savings by selecting DOD’s best logistics information systems and standardizing them across all the military services and defense agencies These migration systems were expected to provide budgetary savings by eliminating the cost of developing and maintaining multiple information systems that support the same business functions By gradually implementing and improving these standard systems DOD believed it would eventually achieve the dramatic improvements originally expected from CIM Page 1 GAO AIMD-97-6 Defense Logistics IRM B-272459 In 1995 DOD recognized that the migration system deployments for materiel management and depot maintenance were consuming large amounts of money and taking longer than expected and would not be able to achieve significant benefits These deployments were scaled back and the strategy of standardizing automated systems across all the services and Defense agencies was abandoned in favor of efforts to achieve interoperability between services’ information systems and privatize logistics functions However DOD is continuing to deploy some of the system applications at selected sites determined by the services and defense agencies Results in Brief DOD’s continued deployment of information systems using a migration strategy for the depot maintenance materiel management and transportation business areas will not likely produce the significant improvements originally envisioned For the most part these efforts—which were intended to lay the groundwork for future dramatic change by first standardizing information systems and the related processes throughout the Department—are merely increasing the risk that the new systems that are deployed will not be significantly better or less costly to operate than the hundreds of logistics information systems already in place itself has acknowledged that its migration systems strategy will not provide necessary dramatic improvements and cost reductions and is now emphasizing alternative ways of improving logistics business operations such as turning to the private sector to carry out major logistics functions At the same time however it is continuing to deploy information systems selected under the migration strategy that are linked to the very same business functions it wishes to make more efficient and economical through outsourcing and or privatization DOD While we are encouraged that DOD is exploring alternative ways to improve its logistics operations we are concerned that the current path needlessly risks wasting a substantial amount of the more than $7 7 billion DOD plans to invest in improving automated logistics systems First DOD still has not taken the fundamental steps necessary to ensure that the automated systems it continues to deploy will yield a positive return on investment Second even as Defense embarks on its new improvement efforts it has not yet sufficiently tied these new efforts to its overall business objectives through the use of a strategic investment strategy to ensure that the billions of dollars will be wisely spent Such planning would be in keeping Page 2 GAO AIMD-97-6 Defense Logistics IRM B-272459 with best private and government sector practices as well as with new legislation which underscores the importance of strategic information planning for the efficient and effective use of information technology Without addressing these concerns Defense’s new improvement efforts—like the failed standard migration strategy—will proceed with little chance of achieving the objectives originally envisioned for substantial operational improvements and reduction in costs Scope and Methodology To determine whether DOD’s logistics migration efforts will meet its objectives for dramatic improvements in operational efficiency and effectiveness we reviewed DOD’s policies and guidance for enterprise integration corporate information management and logistics migration system selection to ensure that information technologies are acquired managed and used in the most efficient and effective manner Our assessment included analyzing DOD and prior GAO studies of the migration system strategy implementation and comparing DOD’s logistics information resources management practices to those followed by public and private organizations We conducted our review from August 1995 through August 1996 in accordance with generally accepted government auditing standards Details of our scope and methodology are contained in appendix I The Deputy Under Secretary of Defense for Logistics provided written comments on a draft of this report These comments are discussed at the end of this report and reprinted in appendix II Background DOD Logistics Is Big Business Defense logistics is the acquisition management distribution and maintenance of the DOD materiel inventory used to provide replacement parts and other items for sustaining the readiness of ships aircraft tanks and other weapon systems as well as supporting military personnel has said that it must either improve effectiveness and efficiency dramatically or face real losses in capability to meet its mission objectives As characterized by the Under Secretary of Defense for Acquisition and Technology USD A T “Every logistics dollar expended on outdated systems inefficient or excess capability and unneeded inventory is a dollar not available to build modernize or maintain warfighting capability ” Page 3 GAO AIMD-97-6 Defense Logistics IRM B-272459 Logistics business operations include four major business activities1 —depot maintenance distribution materiel management and transportation DOD has reported that it spends over $44 billion annually maintaining managing distributing and transporting a materiel inventory of $70 billion to support about $600 billion in mission assets CIM Established to Improve Business Operations In October 1989 DOD established the CIM initiative to dramatically improve the way DOD conducts business primarily by adopting best business practices used in the public and private sectors and building the automated information systems to support those improved practices Originally CIM focused on administrative areas such as civilian payroll civilian personnel and financial operations DOD quickly broadened the initiative to encompass all DOD business areas including the major logistics business activities In January 1991 the Deputy Secretary of Defense endorsed a CIM implementation plan under which DOD would “reengineer ” that is thoroughly study and redesign its business processes before it standardized its information systems The Deputy Secretary believed this implementation strategy would emphasize the importance of improving the way DOD did business rather than merely standardizing old inefficient business processes In 1992 DOD projected that by focusing on business improvement it could save as much as $36 billion by fiscal year 1997 DOD expected that improvements to its logistics operations would provide most—$28 billion—of these CIM savings By early 1992 DOD had identified a number of process improvement projects However later in the year the Acting DOD Comptroller concerned that the current CIM implementation approach would not produce the cost savings needed to help offset significant budget reductions recommended that focus be shifted from reengineering projects to the selection and implementation of standard information systems that could be used departmentwide 1 Depot maintenance is the manufacture overhaul and repair of large items such as tanks ships and airplanes as well as small ones such as communications and electronic components Distribution is the receipt storage issue and movement of materiel from suppliers to warehouses or from warehouses to users Materiel management is the determination of what and how many items DOD needs how to acquire and where to store them and tracking these items until their issue to users Transportation is the movement of people and cargo by truck rail air and sea performed by military services joint organizations or commercial carriers Page 4 GAO AIMD-97-6 Defense Logistics IRM B-272459 Migration Strategy for Implementing Logistics CIM In November 1992 the Assistant Secretary of Defense for Production and Logistics—now called the Deputy Under Secretary of Defense for Logistics DUSD L —issued the Logistics CIM Migration Master Plan This plan established the selection of migration systems as the CIM implementation strategy within the logistics business activities This “migration systems strategy” called for identifying the best operational logistics information systems and deploying them across all the services and defense agencies This DUSD L believed would not only make logistics operations more efficient areas would mirror the best in DOD but these standard systems would also eliminate the cost of developing and supporting redundant systems designed to perform the same basic business functions The strategy was designed to gradually migrate the military services and defense agencies from their multiple and often redundant information systems by 1 selecting and deploying migration systems—either single information systems or groups of information systems—in each logistics activity departmentwide 2 improving current business processes and adding new functions to fill voids and 3 combining the improved and new business processes with the new information systems to form a corporate logistics process For example Defense had identified over 200 large and numerous smaller depot maintenance and materiel management logistics systems with the goal of first reducing the number of these separate systems to as few as 32 and then using these systems to migrate toward a single logistics standard information system The Migration System Strategy Has Not Worked as Expected DOD’s efforts to standardize and migrate information systems across the logistics areas of depot maintenance materiel management and transportation have not achieved expected results Recently DOD acknowledged that the deployment of standard information systems will not provide the dramatic improvements and cost reductions envisioned under the CIM initiative and is now emphasizing alternative ways for meeting these objectives At the same time however it is continuing to deploy the information systems selected under the failed migration strategy GAO Reviews of DOD’s Migration System Efforts Our reviews of DOD migration system efforts for depot maintenance materiel management and transportation operations confirm that to date the strategy has failed to produce the dramatic gains in efficiency and effectiveness that DOD anticipated More specifically Page 5 GAO AIMD-97-6 Defense Logistics IRM B-272459 • • • Our review of depot maintenance2 systems found that even if the migration effort was successfully implemented as envisioned the planned depot maintenance standard system will not dramatically improve depot maintenance operations in DOD First under the CIM initiative DOD planned to invest more than $1 billion to develop a depot maintenance standard system However this would achieve less than 2 3 percent in reduced operational costs over a 10-year period Such incremental improvement is significantly less than the order-of-magnitude improvements DOD has said could be achieved through the reengineering of business processes Second by postponing reengineering efforts until after developing the standard system DOD may make it more difficult to reengineer in the future by increasing the risks of entrenching inefficient and ineffective work processes Our review of DOD’s materiel management3 systems effort showed that the Department itself abandoned the migration strategy for this logistics area after it realized that the original goal for achieving a standard suite of integrated systems would require significantly more time and money than originally anticipated For example it would take as long as 2 years and as much as $100 million more than originally estimated to develop and deploy the Stock Control System—an application that would assist in requisition receipt and inventory processing After spending over $700 million to migrate materiel management standard systems there were no dramatic improvements in materiel management business processes there were numerous development scheduling and contracting problems and only one application of the Stock Control System had been deployed That application was delivered basically untested did not meet user functional requirements and required much rework debugging and testing on the user’s part Our review of Defense’s transportation4 migration efforts found that the current migration strategy in the transportation area will not ensure improvements are made that Defense recognizes are critical to the transportation function A number of studies since 1950 have found that Defense traffic management processes are fragmented and inefficient reflecting the conflicts and duplication inherent in a traffic management organizational structure consisting of multiple transportation agencies each with separate service and modal responsibilities In a 1994 DOD 2 Defense Management Selection of Depot Maintenance Standard System Not Based on Sufficient Analyses GAO AIMD-95-110 July 13 1995 3 Defense IRM Critical Risks Facing New Materiel Management Strategy GAO AIMD-96-109 September 6 1996 4 Defense Transportation Migration Systems Selected Without Adequate Analysis GAO AIMD-96-81 August 29 1996 Page 6 GAO AIMD-97-6 Defense Logistics IRM B-272459 report Reengineering the Defense Transportation System The “Ought To Be” Defense Transportation System of the Year 2010 Defense officials maintained that nothing less than fundamental change would be required to achieve the quantum gains in savings and productivity needed to improve transportation business processes We recently reported5 that it will be difficult for Defense to realize the benefits of its current reengineering efforts because these efforts do not concurrently focus on how the transportation organization structure should be redesigned Moreover we have also recently reported6 that even though reengineering efforts for transportation are underway in making its migration system selections Defense did not assess the impact that these operational changes would have on its system selections DOD Acknowledges Migration Strategy Has Not Worked DOD’s own studies have acknowledged that the implementation of the migration strategy has not worked In May 1994 for example DUSD L chartered a team with representatives from the services and Defense Logistics Agency to identify ways to improve the business practices of DOD inventory control points The team with industry assistance found7 that the migration approach to standardizing and upgrading materiel management information systems was not workable and recommended that efforts to develop the Materiel Management Standard System be discontinued Similarly the Commission on Roles and Missions of the Armed Forces 8 in its logistics case studies concluded that DOD’s efforts to standardize its management information systems under its CIM initiative would merely result in more compact standardized versions of DOD’s traditional business operations In late 1994 the Assistant Secretary of Defense for Command Control Communications and Intelligence ASD C3I acknowledged that DOD’s logistics migration systems strategy was seriously flawed The Assistant Secretary said that as opposed to the private sector which uses a very different approach “DOD has virtually no chance of making high impact quantum changes using the current approach ” In October 1995 the 5 Defense Transportation Streamlining of the U S Transportation Command Is Needed GAO NSIAD-96-60 February 22 1996 6 GAO AIMD-96-81 August 29 1996 7 Final Report of the Inventory Control Point Benchmarking Team April 1995 8 The National Defense Authorization Act of 1994 Public Law 103-160 Section 952 a established the Commission to provide an independent review of the current roles missions and functions of the Armed Services evaluate and report on alternatives and make recommendations for changes in their current definition and distribution Page 7 GAO AIMD-97-6 Defense Logistics IRM B-272459 Under Secretary of Defense for Acquisition and Technology called for a revision to the standard migration systems strategy DOD Is Emphasizing Alternative Ways to Improve Logistics Operations Currently for all business areas DOD is trying alternative ways to achieve its CIM objectives of dramatic business improvement and cost reductions while at the same time continuing to deploy migration systems To improve logistics operations DOD is now emphasizing systems interoperability—the ability to exchange information between and among business activities—as a critical means for achieving dramatic improvements To reduce operational costs DOD is seeking to privatize and outsource certain functions—relying on the private sector to provide services that need not be performed by the Department These three efforts make up a de facto DOD strategy for improving logistics systems Each of the current efforts is discussed in more detail below Interoperable Systems In calling for a revision to the migration strategy the Under Secretary of Defense for Acquisition and Technology in October 1995 stressed the importance of building interoperable systems and processes by relying on common operating environments9 and standard data exchange—elements which many migration systems do not have DOD has directed business area managers to view their areas as part of the bigger DOD enterprise and develop information systems that are interoperable Accordingly business activities must be able to readily exchange information in order to provide senior managers with the comprehensive overview they need to make dramatic process improvements Privatization and Outsourcing In May 1995 the Commission on Roles and Missions of the Armed Services reported10 that more than 250 000 of DOD’s employees engage in commercial-type activities To significantly reduce the costs of Defense operations the Commission recommended that DOD rely primarily on the private sector for services that need not be performed by the government and reengineer those retained by the Department Specifically addressing depot maintenance and materiel management activities the Commission concluded that private contractors could provide essentially all of the services now conducted in government maintenance and inventory facilities more efficiently and effectively 9 A common operating environment is a profile of products selected for an organization or project in conformance with the standards defined in the organization’s or project’s technical architecture 10 Directions for Defense Report of the Commission on Roles and Missions of the Armed Forces May 24 1995 Page 8 GAO AIMD-97-6 Defense Logistics IRM B-272459 Consistent with the Commission’s recommendations the Deputy Secretary of Defense announced in late 1995 that DOD would review opportunities to privatize a whole array of functions that while important do not directly contribute to the warfighter in the field It has been reported that DOD spends about $125 billion each year performing commercial-type support functions including those of depot maintenance materiel management and transportation It has also been reported that by privatizing only half of these support functions DOD could save as much as of 20 percent or $12 billion annually We have however reported that under current conditions of excess depot capacity and limited private sector competition these savings may not be realized 11 To achieve these savings DOD established nine working groups including one for depot maintenance and one for materiel management According to materiel and distribution management working group officials all business activities are actively being considered for privatization including those the logistics migration systems are to support They emphasized however that their reviews would not be complete until mid-1996 and resulting privatization actions would likely take a year or longer to accomplish at initial sites They also stated that it could take longer than 5 years to fully implement any overall privatization strategy Migration System Deployment Although DOD has acknowledged that its migration systems strategy has failed it continues to deploy migration systems Over the next several years DOD plans to spend more than $7 7 billion to deploy these systems in addition to the $1 2 billion it reported having already spent Table 1 identifies the costs to date and those expected to accrue that DOD reported in its fiscal year 1996-1997 biennial budget exhibits We did not independently verify DOD’s budget estimates 11 Defense Depot Maintenance Commission on Roles and Mission’s Privatization Assumptions Are Questionable GAO NSIAD-96-161 July 13 1996 Page 9 GAO AIMD-97-6 Defense Logistics IRM B-272459 Table 1 Logistics Migration Information Systems and DOD Budget Estimates for Fiscal Years 1996 and 1997 Dollarsa in millions Logistics activity Migration systems applications Costs to Costs to Life cycle date complete costs Completion date Depot maintenance 8b $190 3 $2 616 9 $2 807 2 Late 1998 Materiel management 9c 437 8 3 967 6 4 405 4 None estimated 1999 Defense transportation 23 587 0 1 122 7 1 709 7 Totals 40 $1 215 1 $7 707 2 $8 922 3 a All costs in then year dollars inflated dollars b The number of depot maintenance migration systems has declined from nine to eight because one system became a major component of another system c Materiel management migration systems declined from 24 to 10 applications through combining two or more systems into one In March 1995 one of the 10 was terminated We asked DOD logistics officials why they continued deployment of the logistics migration systems They told us that the costs associated with stopping deployment of these systems and then restarting them would be significant However they had not performed an analysis to support this view Also officials cautioned that stopping migration system deployments could result in a lengthy delay in providing these systems to the services and Defense agencies However they acknowledged that immediate assessments are needed to ensure that the Defense investments in these systems were justified Concerns About DOD’s Current Logistics Improvement Efforts We encourage DOD to explore alternative ways for improving logistics operations However we have two major concerns with its current efforts to develop systems interoperability privatize commercial-type logistics activities and deploy migration systems First Defense still has not completed the analyses required to determine that its logistics system deployment effort will yield a positive return on investment Without this decision-making tool Defense has no assurance that any efforts it makes to improve logistics systems will support its operational improvement and cost reduction objectives Second Defense has not yet sufficiently tied its improvement efforts to its overall business objectives through the use of strategic planning—a necessary step to ensure that the billions of dollars being invested in logistics improvement efforts will result in significant improvements in operations Had it strategically planned for its system Page 10 GAO AIMD-97-6 Defense Logistics IRM B-272459 migration efforts it may well have avoided costly strategy failures We are currently reviewing DOD’s progress in its implementation of its overall logistics strategic plan Fundamental Cost-Benefit Analyses Necessary to Ensure Success of System Efforts In continuing to deploy migration systems without addressing the fundamental problems associated with its selection and deployment of migration systems to date DOD risks wasting a substantial amount of the additional $7 7 billion it plans to spend over the next few years In developing systems for depot maintenance materiel management and transportation Defense did not adequately ensure that the hundreds of millions of dollars it spent on development efforts would be cost-effective and beneficial Defense requires12 that decisions to develop and deploy information systems be based on convincing well-supported estimates of project costs benefits and risks These directives establish a disciplined process for selecting the best projects based on comparisons of competing alternatives Defense’s principal means for making these comparisons is a functional economic analysis For each alternative a functional economic analysis identifies resource schedule and other critical project characteristics and presents estimates of the costs benefits and risks Once an alternative is chosen the analysis becomes the basis for project approval Any significant change in expected project costs benefits or risks requires reevaluation of the selected alternative In our reviews of DOD’s efforts to implement the migration system strategy across its depot maintenance materiel management and transportation business activities we found that DOD routinely selected and is deploying migration systems without 1 sufficiently analyzing their costs and benefits and 2 considering possible better commercial alternatives such as reengineering privatization and outsourcing of business functions Only recently has DOD began to consider such options The following are the results of our previous reviews on DOD’s cost benefit and risk analyses 12 Defense Directive 5000 1 Defense Acquisition March 15 1996 and Defense Regulation 5000 2 Mandatory Procedures for Major Defense Acquisition Programs and Major Automated Information System Acquisition Programs March 15 1996 and draft Defense Manual 8020 1-M Functional Process Improvement Functional Management Process for Implementing the Information Management Program of the Department of Defense Page 11 GAO AIMD-97-6 Defense Logistics IRM B-272459 • • • Our review of depot maintenance13 migration found that Defense selected the Depot Maintenance Standard System without analyzing the systems’ full development and deployment costs Instead it relied on a functional economic analysis of a previously proposed project—the Depot Maintenance Resource Planning system This analysis understated Depot Maintenance Standard System project costs by at least $140 million by including costs for only some components and it understated costs for the components it did include Had Defense followed its own regulations and calculated investment returns on its transportation migration selections 14 it would have found—based on data available when the migration systems were selected—that two of the selected systems would lose money The Air Loading Module ALM would lose $0 67 out of every dollar invested and the Cargo Movement Operations System CMOS would lose $0 04 out of every dollar invested DOD’s analyses also did not include all costs associated with its evaluation of in-house systems At least $18 million in costs were excluded—$16 million for an analysis of candidate migration systems and $2 million for maintaining migration system hardware 15 We also found that had DOD included these costs in its systems selection analyses it would have found that the overall return on investment would have decreased Our review of materiel migration system16 efforts showed that a complete economic analysis was never made for the migration strategy until July of 1995—nearly 3 years after the strategy began Further when Defense dramatically changed the course of materiel management systems development—abandoning the concept of developing a standard system and instead moving to incremental and individual deployments—it again did not set out to first assess risks costs and benefits before proceeding with such a change in strategy Our reviews also found that major changes to operations or potentially better business practices were not assessed during the system selection process Without a comparison of alternatives DOD has no assurance that it has selected the most efficient and effective solution For example Defense selected a migration system to support its transportation of personal property and plans to spend $63 million over the next 5 years to 13 GAO AIMD-95-110 July 13 1995 14 GAO AIMD-96-81 August 29 1996 15 All costs representing the understated investment have been discounted according to Department of Defense Instruction DODI 7041 3 16 GAO AIMD-96-109 September 6 1996 Page 12 GAO AIMD-97-6 Defense Logistics IRM B-272459 implement it Recently however DOD began actively seeking to privatize major components of this function As a result further spending on the migration system may be questionable since the system may no longer be needed Similarly DOD is deploying migration systems to support its materiel management operations without sufficient assessment of recent DOD initiatives focusing on privatizing materiel management operations or consolidating inventory control points As a result Defense may end up spending millions of dollars on systems for functions that it no longer performs or on inventory control points that are later consolidated Our previous reports made a number of recommendations to help ensure that DOD selected the systems that offered the most effective solutions at least cost These recommendations included preparing documentation that described system efforts and validated that they were the best alternatives for improving their respective business areas Although DOD partially agreed with some of our recommendations it essentially has continued to deploy systems without adequate economic analysis and full comparisons of available alternatives needed to ensure that it is making the best investment of its resources Nevertheless DOD is required to manage its information technology as investments The Clinger-Cohen Act of 199617 was passed to stop government spending on systems projects that were found to be far exceeding their expected costs and yielding questionable benefits to mission improvements Specifically under the Clinger-Cohen Act DOD is required to design and implement a process for selecting IT investments using such criteria as risk-adjusted return-on-investment and specific criteria for comparing and prioritizing alternative information system projects If implemented properly this process should provide a means for senior management to obtain timely information regarding progress in terms of costs capability of the system to meet performance requirements timeliness and quality Strategic Planning Necessary to Achieve Improvements Many of the problems we found in our past reviews of logistics systems efforts may well have been prevented had Defense employed strategic information planning before embarking on its CIM improvement efforts Studies of private sector organizations show that strategic information planning is fundamental for achieving any significant level of performance improvement Through the Clinger-Cohen Act the Government 17 This act was formerly known as the Information Technology Management Reform Act of 1996 Division E of Public Law 104-106 February 10 1996 Page 13 GAO AIMD-97-6 Defense Logistics IRM B-272459 Performance and Results Act18 GPRA and the Paperwork Reduction Act19 PRA the Congress has underscored the importance of strategic planning for the efficient and effective use of information technology The Clinger-Cohen Act also requires that the investment process for information technology be integrated with processes for making budget financial and program management decisions For Defense such planning would establish a direct link between its business objectives and information technology use In turn this would have helped Defense focus on meeting the objective of dramatic improvement in operations rather than incremental change Private industry and our studies of public and private organizations have identified that cohesive plans resulting from strategic information management—managing information and information technology to maximize improvements in business performance—are crucial for developing information systems that support substantial business improvement For example in early 1993 the International Business Machines IBM Consulting Group20 reported on its extensive case study of 17 exemplary companies chosen from an initial list of 200 companies in a wide range of industries The IBM study found that the best companies had well-structured and well-explained information management plans that closely integrated with their business planning processes Also these plans aligned the use of information technology with business objectives to improve performance and deal effectively with changes in the business environment The study also found that these companies did not invest in an information system until they clearly understood how and to what extent the proposed information system would enhance their business environment Our studies21 of how leading private and public organizations have applied information technology to improve their performance have also found that organizations achieving substantially higher levels of performance had a disciplined outcome-oriented and integrated strategic information management process For example one organization that lacked a business vision—a definition of how the organization would work in the 18 Public Law 103-62 August 3 1993 19 Public Law 104-13 May 22 1995 20 An American Express IBM Consortium Benchmarks Information Technology Planning Review January February 1993 21 Strategic Information Planning Framework for Designing and Developing System Architectures GAO IMTEC-92-51 June 1992 and Executive Guide Improving Mission Performance Through Strategic Information Management and Technology GAO AIMD-94-115 May 1994 Page 14 GAO AIMD-97-6 Defense Logistics IRM B-272459 future—and an integrated strategic information management process spent the majority of its resources maintaining existing aging information systems By integrating its planning budgeting and evaluation processes the organization was able to shift about a third of its information systems personnel to reengineering projects These new improvements in turn increased productivity and the quality of customer service With GPRA the Congress has recently underscored the importance of strategic planning by clarifying and expanding the requirement for a strategic information resources management plan first called for under the Paperwork Reduction Act of 1980 GPRA requires that agencies submit to the Office of Management and Budget by September 1997 a strategic plan for their activities including a comprehensive mission statement as well as goals and objectives for the agency’s functions and operations The Clinger-Cohen Act supports the GPRA requirement of establishing goals for improving the efficiency and effectiveness of agency operations by improving the delivery of services to the public through more effective use of information technology In late 1995 DOD proposed a new policy requiring the development of a strategic information resources management plan with supplements for each DOD component that would integrate the use of its information technology resources with its budgeting processes While we support DOD’s efforts to establish a strategic information resources management planning process the new policy as proposed does not require the DOD-wide plan and component supplements to be anchored in the Department’s business strategies Without a direct link between its business objectives and information technology use we believe that DOD risks developing a strategic information resources management IRM planning process that will become merely a reactive exercise to immediate priorities that are not adequately weighed against those of the future DOD-wide We discussed our concern about DOD’s current efforts to make dramatic logistics improvements without a cohesive strategic information plan with the DUSD L and the Assistant Deputy Under Secretary of Defense for Logistics Business Systems and Technology They stated that they had begun developing a strategic IRM plan that integrates business and systems strategies This plan they said is needed to move from the migration systems strategy to a new business-oriented strategy and they agreed that migration systems that do not fit under this new strategy should be halted Page 15 GAO AIMD-97-6 Defense Logistics IRM B-272459 Conclusion has acknowledged that its logistics migration strategy for improving its automated logistics information systems is flawed and has embarked on other efforts to develop interoperable systems and privatize commercial-type functions where it can save money However as it embarks on these other efforts Defense is still not addressing the critical weaknesses associated with its previous strategy By not doing so it will continue to encounter unmanaged risks low-value information technology projects and too little emphasis on redesigning outmoded work processes In essence the new strategy will be just as risky as the previous strategy until Defense adopts the key ingredients needed to ensure successful information technology investments 1 conducting thorough economic and risks analyses so that senior managers can begin examining trade-offs among competing proposals and prioritizing projects based on risk and return and 2 developing a strategic IRM plan defining how information technology activities will help accomplish agency missions By adopting the framework for strategic planning mandated by the Government Performance and Results Act and managing its information technology projects as investments as called for in the Clinger-Cohen Act DOD can begin delivering at an acceptable cost high-value information technology solutions for logistics operations Recommendations To ensure that DOD optimizes its use of information technology to achieve its logistics CIM goals of dramatic business process improvement and operational cost reduction we recommend that the Secretary of Defense DOD • • Agency Comments Direct that immediate cost-benefit analyses of each logistics migration system be undertaken and halt deployment of those that 1 cannot be shown to have significant return-on-investment 2 will not facilitate ongoing efforts to privatize logistics business functions or 3 do not support efforts to achieve interoperability between and among business activities Expedite development of a strategic information resources management plan that anchors DOD’s use of logistics information resources to its highest priority business objectives The plan should conform with requirements established by the Government Performance and Results Act of 1993 the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996 The Department of Defense provided written comments on a draft of this report These comments are summarized below and reprinted in appendix II The Deputy Under Secretary of Defense for Logistics generally agreed Page 16 GAO AIMD-97-6 Defense Logistics IRM B-272459 with our findings and conclusions Defense also agreed with our recommendation that the Department develop a strategic information resources management plan for logistics and is currently developing such a plan Defense disagreed with our recommendation to conduct cost-benefit analyses of current logistics development activities to ensure that those systems now being deployed will provide significant returns on investment It contended that the strategic information resources plan being developed for the logistics area will create an environment that effectively controls the development and modernization of information systems As part of this plan Defense stated that overall DOD business objectives mission requirements and economic efficiency will be considered in making decisions to halt proceed or change the direction of the development deployment process We support DOD’s stated efforts to establish a more effective investment process for logistics information systems However we believe that as it develops its strategic plan Defense should conduct cost-benefit analyses for its ongoing development efforts As noted in our report Defense still plans to spend more than $7 7 billion in the next few years developing and deploying migration systems If it does not take steps to determine whether this significant investment is worthwhile it will continue to risk wasting it as has been the case in the past In the past had cost-benefit analyses been correctly done for transportation Defense would have found that some of its migration investments would have produced negative returns Had a cost-benefit analysis been correctly done for depot maintenance Defense would have found benefits to be far less than the dramatic improvements originally envisioned Had Defense conducted cost-benefit analyses before it embarked on its materiel management efforts it would have likely concluded that it should abandon the concept of developing standard systems before spending hundreds of millions of dollars on the effort For the future if Defense does not follow our recommendation to conduct cost-benefit analyses of its current projects it will miss out on opportunities to identify more projects showing little promise for return and to redirect its investment to development efforts that more effectively support military missions Page 17 GAO AIMD-97-6 Defense Logistics IRM B-272459 We are sending copies of this report to the Chairmen and Ranking Minority Members of the Senate and House Committees on Appropriations Senate Committee on Armed Services the House Committee on Government Reform and Oversight and the House Committee on National Security the Chairman of the Senate Committee on Governmental Affairs the Ranking Minority Member of the Subcommittee on Military Readiness of the House Committee on National Security the Secretaries of Defense Army Navy and Air Force the Commandant Marine Corps the Director of the Defense Logistics Agency the Deputy Under Secretary of Defense for Logistics and the Director of the Office of Management and Budget Copies will be made available to others on request If you have any questions about this report please call me at 202 512-6240 or Carl M Urie Assistant Director at 202 512-6231 Major contributors to this report are listed in appendix III Jack L Brock Jr Director Defense Information and Financial Management Systems Page 18 GAO AIMD-97-6 Defense Logistics IRM Page 19 Defense Logistics IRM Contents Letter 1 Appendix I Objectives Scope and Methodology 22 Appendix II Comments From the Department of Defense 24 Appendix III Major Contributors to This Report 26 Table Table 1 Logistics Migration Information Systems and DOD Budget Estimates for Fiscal Years 1996 and 1997 10 Abbreviations ALM ASD C3I CIM CMOS DOD DUSD L GPRA IBM IRM PRA USD A T Page 20 Air Loading Module Assistant Secretary of Defense for Command Control Communication and Intelligence Corporate Information Management Cargo Movement Operations System Department of Defense Deputy Under Secretary of Defense for Logistics Government Performance and Results Act International Business Machines information resources management Paperwork Reduction Act Undersecretary of Defense for Acquisition and Technology GAO AIMD-97-6 Defense Logistics IRM Page 21 Defense Logistics IRM Appendix I Objectives Scope and Methodology To determine whether DOD’s efforts to standardize its logistics migration systems will allow Defense to meet its business objectives of dramatically improving the efficiency and effectiveness of its logistics operations we identified problems DOD has had implementing information systems selected under its migration strategy by analyzing prior GAO reports on DOD’s CIM efforts related to logistics business activities Also other ongoing GAO reviews provided the results of cost and benefit analyses risk assessments and interviews with program and technical officials responsible for implementing migration systems in the materiel management and transportation business areas We evaluated the strategies policies and memoranda establishing DOD’s Enterprise Model CIM initiative and logistics migration information systems strategy to determine whether DOD’s migration systems strategy is consistent with DOD’s corporate business vision for balancing investments across the Department and optimizing its operational effectiveness Also we reviewed the findings of studies conducted by the Commission of Roles and Missions of the Armed Services and DOD for achieving dramatic increases in operational efficiency To identify private and public organizations that have successfully managed information technology use to obtain superior business performance we researched technical and business databases reviewed literature by technology vendors and reviewed prior GAO work and compared the private sector approach to DOD’s strategy in using information technology Focusing on DOD’s new efforts to develop interoperable information systems emphasized in the enterprise model and to privatize and outsource commercial-type activities as recommended by the Commission on Roles and Missions we compared DOD’s actions and plans for implementing depot maintenance materiel management and transportation migration systems with its business vision Also we compared the business activities DOD is considering privatizing with those the migration systems are to support We compared the “best practices” of private and public organizations with DOD’s logistics migration strategy to identify actions that could increase the probability of achieving logistics business objectives and maximizing the return on technology investments We interviewed senior Defense officials responsible for managing the CIM initiative implementing the logistics migration strategy and developing privatization plans We also met with program and functional officials including DOD managers responsible for deploying the depot maintenance and materiel management migration systems Our work was performed Page 22 GAO AIMD-97-6 Defense Logistics IRM Appendix I Objectives Scope and Methodology from August 1995 through August 1996 in accordance with generally accepted government auditing standards We performed our work primarily at the offices of the Deputy Under Secretary of Defense for Logistics in Washington D C the Joint Logistics Systems Center Wright-Patterson Air Force Base Ohio and the Automated Systems Demonstration Warner Robins Air Logistics Center Georgia Page 23 GAO AIMD-97-6 Defense Logistics IRM Appendix II Comments From the Department of Defense Page 24 GAO AIMD-97-6 Defense Logistics IRM Appendix II Comments From the Department of Defense Page 25 GAO AIMD-97-6 Defense Logistics IRM Appendix III Major Contributors to This Report Accounting and Information Management Division Washington D C Carl M Urie Assistant Director Alicia L Sommers Senior Information Systems Analyst Cristina T Chaplain Communications Analyst Chicago Dayton Field Office James E Hatcher Core Group Manager Sanford F Reigle Evaluator-In-Charge Thomas C Hewlett Staff Evaluator 511366 Page 26 GAO AIMD-97-6 Defense Logistics IRM Ordering Information The first copy of each GAO report and testimony is free Additional copies are $2 each Orders should be sent to the following address accompanied by a check or money order made out to the Superintendent of Documents when necessary VISA and MasterCard credit cards are accepted also Orders for 100 or more copies to be mailed to a single address are discounted 25 percent Orders by mail U S General Accounting Office P O Box 6015 Gaithersburg MD 20884-6015 or visit Room 1100 700 4th St NW corner of 4th and G Sts NW U S General Accounting Office Washington DC Orders may also be placed by calling 202 512-6000 or by using fax number 301 258-4066 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