An Examination of DoD IT Spending

According to the DoD Comptroller, the following are DoD FY11 total payroll costs:  *

Pay and Allowances of Officers:  $33.03 billion

Pay and Allowances of Enlisted:  $74.57 billion

Pay and Allowances for Civilians: $10.6 billion

The pay includes: Basic pay, Retired Pay Accrual, Housing Allowance, Subsistence Allowance, Incentive Pay, Special Pay, Separation Pay and Social Security Tax for a total of $118.20 billion.

The total FY11 DoD headcount is 1,430,895 military personnel and 580,049 for civilian personnel, for a total of 2,010,944 persons.

The total cost of FY11 procurement is $134.16 billion, which includes a share of embedded IT costs (such as avionics), none of which is accounted for as an IT cost. Embedded IT are estimated to exceed the costs of the reported IT as the military increasingly depends on computer technologies.

SUMMARY

The FY11 IT budget is $36.3 billion. This makes it 30.7% of total payroll spending ($36.3/$118.20). This ratio exceeds averages for most commercial firms and is comparable to the ratios for large financial services firms.

The annual per DoD personnel cost for IT, which a key indicator used in all IT benchmarking, is $18,051/person/year which reflects an estimated cost of invested information capital of at least $100,000 per person. At this level DoD IT spending is comparable to the costs exceeded by U.S. retail banks.

For benchmarking comparison we have selected the most expensive Software-as-a-Service offering, the $260/user/month "unlimited license", which customizes cloud applications**.  The per person SaaS costs of $3,120/user/year show a substantial difference from the per person DoD costs of $18,051. This can be seen as an indication that there are differences in the ways how DoD manages IT as compared with a SaaS approach. The principal distinction between these two approaches is the reliance by SaaS on a single integrated infrastructure whereas DoD continues to operate with thousands of different infrastructures.

The current levels of DoD IT spending warrant a further examination to see whether adopting an SaaS cloud approach for parts of DoD operations could potentially offer major cost reductions.

 * http://comptroller.defense.gov/budget.html

** http://www.salesforce.com/crm/editions-pricing.jsp