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14 Cost-Cutting Strategies That Feed Big Spending at Defense

Budgeting myths are hurting innovation and efficiency.

As I look back through many years of military, defense contractor and civilian service, I am struck by the lack of documentation on all the things we have done to keep our defense budget big and growing every year. Particularly hard to find are lessons learned from strategies that have simultaneously driven higher costs and lowered productivity. Our success at increasing the tail-to-tooth ratio seems to be an unintentional event.

Here are some examples of some cost-saving approaches and their unintended effects:

1. Reorganize. When threats change, it affects the way the defense community does business. The first reaction often is to reorganize the workforce. Reorganizations tend to obstruct the underlying issues, increase overhead costs, expand schedules, and require more staff to perform the same workload. The disruption creates anxiety and distracts workers from core acquisition and readiness responsibilities. Shifting the focus to improving processes, and clarifying roles, responsibilities and goals, could lead to a culture of flexibility, innovation and efficiency.

2. Reduce communications between customers and suppliers. Acquisition reforms have created legal wedges between contract administrators and defense companies. Discouraging informal discussions between customers and suppliers has caused contractors to focus on proper documentation rather than satisfying requirements. This generates expensive change orders, extends timelines, and increases life cycle costs. Performance-based contracting has never been fully implemented, which impedes cooperation and slows innovation.

3. Compete everything. One of the key principles of federal contracting is that competition is good and more competition is better. Contracts are being competed more often, and some require competition for every task, in an attempt to save money. But to recoup lost revenue, contractors raise overhead rates in the next competition. Competing everything all the time requires an army of contract administrators, which increases staffing costs, slows schedules and distracts managers from satisfying requirements.

4. Create stovepiped funding streams. Weapons systems have become more interoperable, yet fiscal controls have become more complex. Funding is approved through multiple channels, causing delays, authority and priority conflicts, confusion, poor communication, and a need for more accounting personnel. The bottom line is less integration, savings and timeliness.  

5. Implement high-tech early. Defense systems commands seek out cutting edge technologies to improve capabilities. Something flashy and sexy may be easy to sell, but its capabilities are often immature and incompatible with existing systems. Training, implementation and sustainability costs are usually underestimated. A systems approach would help determine which technologies can be integrated with existing systems, enhancing capabilities with fewer resources.

6. Convert top engineers and technicians to managers. In many cases, high-performing engineers must become managers to move up the ladder. But the skill sets that create excellent engineers are not the same ones needed for managing complex programs and personnel. Pulling experienced technical experts from their jobs and piling on management responsibilities slows productivity while increasing training costs and attrition.

7. Use matrix management. Chain-of-command management holds a single person accountable. A matrix management approach leaves no one accountable. This creates resource wars, multiple bosses with conflicting priorities, miscommunication, employee frustration and lost productivity.

8. Create more federal standards. Standards and regulations demand accountability, requiring myriad regulators, auditors, inspectors, analysts and legal checkers. Sustaining these armies has come at the expense of sustaining the real military forces.

9. Eliminate systems integration. Funding systems integration in the planning phase of big programs tends to save money in the execution phase. But it’s expensive in the short run and easily marked for cuts. Normal stovepiped programming can be fraught with disruptions in the later stages, which can lead to schedule delays, cost overruns and unfunded requirements.

10. Select the lowest price bid. Never underestimate the effects of cheap products and mediocre service on cost and technical performance. The result is high contractor turnover rates, which drive poor performance and higher costs. Selecting best-value bids increases the odds of better productivity and high-quality suppliers.

11. Cut jobs without eliminating requirements. Most organizations cut staff (usually the largest line item in their budget) to reduce spending. But cutting people without eliminating associated missions, performance standards and regulations harms productivity. Eventually, additional resources are needed to fix all the problems caused by this shortsighted attempt to cut budgets quickly. Before cutting jobs, organizations should eliminate duplication, rework and waste.

12. Punish cost cutters. Congressional budgeters are trained to pounce on any organization dumb enough to advertise a yearly cost savings. Single-year savings are seen as a sure sign of long-term over-budgeting, so, the overseers go after outyear budgets. This is like slowly draining the blood from an organization. Punishing cost cutters encourages agencies to spend every last nickel of their annual budgets and then beg for more the next year. Real cost cutting would reduce budget requirements and improve performance.

13. Underestimate program costs. When agencies calculate the cost of major programs they count only the program costs and big contract budget lines. But there is an iceberg of invisible program support costs floating beneath. If the true cost of such programs were known, it would blow the socks off management and incur the wrath of taxpayers. A true metric would itemize all the extra costs of developing and maintaining a single system. Only then can agencies evaluate the value added and eliminate waste.

14. Resist metrics. Very few people would think of flying a plane or driving a car without looking at the multitude of indicators on the dashboard. But few organizations have developed appropriate metrics to evaluate program effectiveness, determine true costs, create timelines and measure the quality of products and services. Appropriate data can help managers make informed decisions, set priorities, and create accurate budgets. Without data to help them identify where costs can be eliminated, managers will continue to resort to past practices like targeting jobs in response to cost-cutting pressures.

Without changing the way we manage defense resources, we will continue to get the results that drive the tail-to-tooth ratio ever higher.

Pat Tierney is a retired Navy commander with experience in the defense industry and in the civil service supporting the Pentagon and several Defense Department systems commands.

(Image via Oleg GawriloFF/Shutterstock.com)

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