Friday, November 5, 2010

DoD Savings From Operations & Maintenance

The DoD IT executives have always concentrated on IT investments rather than on operations. Investments, and particularly money labeled as an acquisition costs have been always separated from operations and maintenance expenses. The budget processes and the funding rules (color of money) arranged for O&M to remain with the Services. Here it attracted less attention than the oversight from OSD that monitors investment costs.

This focus on investment has also received attention from OMB and reinforced by the Clinger Cohen Act. Efforts to bring investment budgets under closer surveillance from OSD, such as in the cases of the Corporate Information Management initiative in 1990, DISA in 1999 and the Business Transformation Agency in 2005 were not successful. Greater centralization of control was never accepted by the DoD components.

The fundamental flaw in the management of DoD IT is the separation of investment money from operations & maintenance money throughout the budget processes. The major program Acquisition executives, who are accountable for managing IT investments and for awarding IT operations & maintenance (O&M) contracts, will have no responsibility for life-cycle O&M costs, which are now absorbing increasing shares of IT budgets. 79 major investment programs account of $12.3 billion, or 34% of total spending. *

The total number of DoD investment programs is 2,232 in FY2011. * A large share of these programs is designed to function as self-sufficient enclaves.  They do not share a coherent design (often labeled as “architecture”), do not adhere to common standards and do not have data interoperability. This proliferation functions only because hard to maintain software “bridges” will be constructed and then maintained to make systems interoperable.



If an IT project does not fit the criteria for making it a major program, it will be managed by program managers in the services, though their short tenure will always result in outsourcing program management to contractors. There are now over 2,100 program that do not fall under the surveillance of major program reviews, but would be handled by program managers who often manage program with budgets of less than $5 million.

However, all of these programs will obtain funding that separates development from the budgets for operations. There are exceptional cases where an entire program, such as NMCI, is outsourced to a prime contractor. The prime will then proceed to insulate their contract from DoD practices in order to assure control over costs and schedule.

Such breaking up of IT work into a multiplicity of development contracts while also breaking up accountability for a multiplicity of O&M projects will result in systems that are fractured, incompatible and enormously expensive.

One can summarize the current state of affairs in DoD IT as a twenty years old approach to building of computer systems. DoD IT is a series of stand-alone static bunkers. The DoD IT environment does to meet the needs of cyber operations for mobile configuration that adapt in real time to changing conditions.

Current DoD practices must be contrasted with the ways in which commercial organizations manage their systems. In the commercial environment there is no separation in accountability between development and O&M. Investments are incremental short-term expenses, budgeted as cash flow permits. Commercial operations are funded as a seamless evolution that adds new capabilities to an existing large inventory of legacy applications. The acquisition of hardware, networks and software does not take place separately for each individual program, but as an enterprise-wide service. Commercial program managers are long-tenured executives who are bound by enforced standards.

Cost Reduction in DoD
Until now DoD has managed to provide adequate computer services by means of greater than 5% annual increases in IT budgets. DoD has also benefited from the declining costs of information technologies which decreased by at least 10%/yr.

When faced with the FY2012-2013 IT budget pressures, DoD finds that further budget increases for IT will not take place while capital for new equipment will be less available.

Meanwhile the demands for IT are rising to support cyber operations, to implement costly information security requirements and to replace what is an obsolete inventory of hardware, software and communications. Payroll and benefit costs – not accounted for as IT – are also rising.

Total FY2010 IT and Investment Spending for the Department of Defense from OMB IT Dashboard **:


Concentrating on cost reductions from O&M cost cuts is now the only way for delivering short-term savings.

The current approach to seek cost reductions from the $10.6 billion of IT investments has not been successful. It has the following disadvantages:
The DoD phase program management approach has a long lead time and even longer implementation schedules;
There is no organization in place that would help DoD to reach agreements on the consolidation of financial, human resources and logistics;
The adoption of shared networks, data dictionaries and standards has not been successful and is unlikely to improve in the short run.

Reducing the costs of the $25.1 billion O&M has a better chance of succeeding:
Virtualization technologies allow a 50%+ reduction in the costs of computing;
O&M consolidations can take place even if legacy applications remain in place. That will deliver better capacity utilization as well as improvements in security while keeping local controls from the Services untouched;
The technology and vendor base for managing O&M is mature and competitive.

SUMMARY
The idea of shifting DoD executive attention from reducing development budgets to cutting O&M is an attractive opportunity. The technology for doing that is readily available and significantly cheaper than the “bunker” designs currently in place.

* http://it.usaspending.gov/?q=portfolios
** http://it.usaspending.gov/?q=portfolios/agency=007 

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