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    "title": "FY - 11/16/76 - Defense, Small Agencies (2)",
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    "ocrText": "The original documents are located in Box 11, folder \"FY - 11/16/76, Defense, Small\nAgencies (2)\" of the White House Special Files Unit Files at the Gerald R. Ford Presidential\nLibrary.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 11 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library\nNATIONAL ARCHIVES AND RECORDS SERVICE\nWITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)\nFORM OF\nCORRESPONDENTS OR TITLE\nDATE\nRESTRICTION\nDOCUMENT\n1.\nbriefing paper, 11/16/76 (cont.)\nla. papers\nDoD issues, pp. 82-143\n62 pages\n11/76n\nA\nFILE LOCATION\nSpe cial Files, Budget Decision Papers\nFY 1978, 11/16/76, DoD etc... (2)\npc 4/19/84\nRESTRICTION CODES\n(A) Closed by Executive Order 12065 governing access to national security information.\n(B) Closed by statute or by the agency which originated the document.\n(C) Closed in accordance with restrictions contained in the donor's deed of gift,\nGENERAL SERVICES ADMINISTRATION\nGSA FORM 7122 (REV. 1-81)\nMaintenance\n2.\nOperations and\n77\nIssue Paper\nDepartment of Defense\n1978 Budget\nIssue #15: Growth of purchases in Operations and Maintenance\nBackground\nThis issue addresses the level of funding and the rate of growth for the \"Operations and Main-\ntenance\" (O&M) appropriations of the four services. These appropriations provide the basic \"standard\nof living\" for the armed forces, operate and maintain the equipment in the current inventory, and\nprovide expenses for the recruiting and training of military personnel. Salaries and related personnel\nexpenses for military personnel are not included in O&M; the salaries and expenses of civilian personnel\nare funded in O&M, but have been excluded from this issue. The balance of the O&M appropriations can\nbe referred to as \"O&M purchases\" and exhibits the following pattern of historical and projected\ngrowth.\n$ Billions\n1974\n1975\n1976\n1977\n1978\nGERAL,\nO&M Purchases\nR.\nCurrent Dollars\n14.8\n15.5\n17.0\n19.8\n24.3\nConstant 1977 Dollars\n18.1\n17.9\n18.3\n19.8\n22.9\nFORD\nReal Growth (% Change\nLIBRARY\nConstant $)\n-1.1%\n+2.2%\n+8.2%\n+15.7%\nFunding required for O&M purchases should be, by its nature, governed - or driven - by workload\nfactors. While many different workload factors apply to individual pieces of the program, total O&M\npurchases are largely governed by: (1) Manyears being supported (primarily military), (2) the compo-\nsition of the force structure, and (3) related activity rates.\nAn analytical technique has been developed to measure fluctuations in force structure and\nchanges in manyears being supported. The principle underlying this analysis is that the funding\nlevel which sustained the forces in the last actual year (1976) is adequate, after adjustment\nfor inflation, to sustain the same forces in the budget year (1978). In addition, an allowance of\n1% per quarter for real growth has been included in accordance with Presidential guidance of two\nyears ago.\n78\nNo offsetting adjustment has been taken for productivity, although this is an area where increased\nfunding should result in management and operating efficiencies. This analysis indicates that the\nfunding requested in 1978 exceeds the 4% annual growth level by approximately $3.6 billion.\nImpact on Readiness\nDefense will probably not dispute the $3.6 billion increase, but will contend that these funds\nare necessary to improve the readiness of the forces.\nThe problem appears to have its origin in the very large, unanticipated, impact of inflation\nduring FY 1974. In preparing the 1974 Budget Defense, operating under OMB policy guidance, had\nnot budgeted for inflation. The actual impact of inflation on O&M purchases exceeded 19% during\nthat year. (This was the year of the fuel crisis and virtually all of Defense's fuel requirements\nare budgeted in O&M.) The most recent actual experience was FY 1974 at the time when the 1976\nbudget was being prepared. Based on the experience of 1974, the projection for purchases inflation\nin 1976 was approximately 15%. However, under A-11 policy which was still in force, Defense was\nnot permitted to budget explicitly for inflation. In a logical attempt to cope with this problem,\nthe Defense Department included in their 1976 O&M budget requests a large amount of program growth.\nThis provided a hedge to absorb the anticipated high inflation. The recognition that very high\ninflation rates might well occur in 1976 led to approval of large increases for program growth.\nIn fact, inflation experienced in 1976 was only about half the amount which had been originally\nforecast and about half of these improvement programs were implemented, becoming part of the basic\nstandard of living.\nIn preparing the 1977 budget, the extension of the program growth occurring in the past and\nnew proposed improvements generated further large increases. The concept of \"Improved Readiness\"\nwas presented as the single coherent rationale for these increases.\nOur studies indicate that there is no effective method for correlating readiness indicators with\nfunding. While various systems exist within DOD for measuring readiness, they are all imperfect as\nmeasures of readiness itself, and ineffective in terms of relating funding levels to readiness.\nThe clear demonstration of this, in our opinion, is the fact that Defense has been unable to\narticulate, in any quantifiable fashion, either what the original readiness problem was, or con-\nsequently, how funding increases could contribute to the solution.\n79\nIt is also not accurate to contend, as Defense may, that more funds will be beneficial even if\nwe are unable to define the problem. The Services will frequently point to various logistics\nindicators and assert that readiness funding increases are necessary because the indicator is showing\nan adverse trend. Relying on an indicator for resource allocation, which is not correlated with\nresource changes or mission capability, is counterproductive for the following reasons:\n-- Funding may not change the indicator. Even where funding may improve the situation,\nthe law of diminishing returns is particularly applicable to many of these logistics\nareas, showing little increase in the indicator after a significant resource\nincrease.\n-- The indicator may not even be tied to mission capability, so that an improvement in\nthe indicator may not improve readiness.\n-- The indicator may not be the critical path problem in the logistics support chain;\ntherefore, even if the indicator is tied to mission capability and it improves, it\nmay not improve mission capability if some other constraint still exists.\n-- Allowing the services to increase funding for readiness in areas where they have not\nprovided adequate analytic justification perpetuates the problem, since the services\ninterpret this as evidence that their \"system\" is working; i.e., leading to funding\nincreases, and, therefore, is acceptable.\n-- On the other hand, recognizing the limitation of the current indicators and requiring\nbetter analytic backup for increased funding of logistics will provide a strong incentive\nfor the services to identify the \"real\" problems or develop means of relating the problem\nto funding.\nWe believe there are certain improvements that can be made which will permit a realistic identifi-\ncation of the nature of readiness problems and an indication of potential solutions.\n-- DOD should develop broader based readiness measurement systems which will provide a\nmeasure of balanced logistics capabilities required for wartime mission capability and\nrelate this measure to resources. The Air Force is currently working on a system along\nthese lines.\n80\n-- Poor reliability, due to DOD's acceptance of equipment which doesn't meet contractual\nreliability standards, is often a cause of the most severe \"readiness\" problems. Addi-\ntional O&M funding for logistics support does not solve this type of problem. Services\nshould be more willing to slip equipment delivery rather than accept poor reliability\nand live with serious and expensive logistics problems for the life of the equipment.\nStatement of Issue\nShould guidelines be provided to govern the rate of growth of purchases in O&M?\nPros.\n-- Establishes broad visibility and fiscal control over a major segment of the DOD budget\nwhich is currently governed by piecemeal and somewhat conflicting policies.\n-- Permits the President to establish effectively the desired rate of real growth in\nO&M purchases.\nCons.\n-- Failure to provide the full funding requested in this area will generate assertions\nthat the \"readiness\" of the forces has been impaired.\n-- By taking a broad, level of effort approach to this area, the joint review is unable\nto address each individual proposed program change on its intrinsic merits.\nAlternatives\n#1. Accept the service requests for O&M purchases in 1978, which total $24.3 billion.\n#2. Accept the results of the joint OSD/OMB budget \"scrub\" which is forecast to reduce the\nservice submissions by $1.7 billion (DOD preference).\n#3. Provide guidelines to OSD for O&M purchases based on provision for anticipated inflation\n(using DOD projections) and a projected allowance of 1% per quarter for real growth over\nthe 1976 program. Growth in excess of 1% per quarter in 1977 would be discounted against\nthe allowable growth rate in 1978 and 1979. This alternative would reduce the service\nrequest by $3.6 billion in 1978. (OMB rec.)\n81\nAnalysis\n1976\n1977\n1978\nBA/Outlays\nBA\n0\nBA\n0\nBA\n0\n($ Billions)\nO&M Purchases:\nAlt. #1 (Ser. req) 17.0\n17.0\n19.8\n19.8\n24.3\n24.3\nAlt. #2 (DOD Pref) 17.0\n17.0\n19.8\n19.8\n22.6\n22.9\nAlt. #3 (OMB Rec.) 17.0\n17.0\n19.8\n19.8\n20.7\n21.2\nAgency Request\n(Difference from Alt. #1 (Agency Request)\n1978 Outlays\n1979 Outlays)\nAlt. #3 (OMB Rec.)\n-3.1\n-.5 -\n)\n(\nAlt. #2 (DOD Pref.)\n-1.4\n-.3\n)\nAgency Request: Alternative #2. OSD estimates that the joint review will reduce the service requests\nby $1.7 billion through the traditional methods of review.\nOMB Recommendation: Alternative #3. It seems clear that a programmatic review of O&M purchases\non an item-by-item basis has been unable, in the past, to keep the rate of real growth at the 4%\nannual rate decided by the President in his 1976 budget decisions. It also appears to us that\nDefense has been unable to define a real problem in the area of \"readiness\" which could be corrected\nby additional O&M funds.\nGERAL*\nModernization\nGERALD R. FORD LIBRARY\nThis form marks the file location of item number\nas listed on the pink form (GSA Form 7122, Withdrawal Sheet)\nat the front of the folder.\nObjectives\nPE, PMI\n144\nDepartment of Defense\n1978 Budget\nDiscussion of Agency Objectives and Program Evaluation Efforts\nI. DOD MBO Submission for FY 1977/1978\n-- In general, DOD has a good Planning, Programming, and Budgeting System (PPBS) for identifying\nprogram objectives, for specifying key milestones related to their achievement, and for managing\nagency resources to achieve these objectives in the schedules agreed to in the program development\nand budget process.\n-- DOD's MBO effort focuses on objectives in major areas which are not adequately covered in the\nPPB System, primarily because they are not single service or single line item program areas.\nExamples include:\nPromoting NATO weapon system standardization and interoperability.\nImproving NATO combat effectiveness (joint training, headquarter collocation, specialization\nof combat and support tasks).\nReducing unnecessary military support structure, overseas and in the U.S.\nIncreasing the representation of minorities and women in DOD policy positions.\n-- The department's record on 1976 MBOs was uneven, although significant progress was achieved in\nseveral areas, including:\nIncreasing combat strength in Europe\nNATO standardization/interoperability\nIncreasing Reserve force readiness\nReducing paperwork.\n145\n-- DOD has done a good job in developing its MBOs for 1977/78, choosing priority objectives in\nseveral areas; milestones are specific enough to measure progress. Experience with the FY 1976\nMBOs shows that significant accomplishment in some areas can be expected only if the Secretary\nor his Deputy use the MBOs on a regular basis as a management tool.\nII. Program Evaluations\n-- DOD has an extensive program evaluation effort which is related to budget development through\nthe formal PPB System. Both program impact and efficiency evaluations are included in the effort.\n-- Examples of completed (c) and on-going (o) evaluations include:\nProgram Evaluations:\nNSSM 246\n(o)\nNATO Theater Air Defense\n(o)\nAmphibious Lift Requirements\n(o)\nNavy Shipbuilding Program\n(o)\nLong-Range CONUS Base Planning Study\n(o)\nEfficiency Evaluations:\nStrategic Mobility Requirements\n(o)\nRotary versus Fixed-Wing Aircraft Missions\n(o)\nNorth Atlantic Air Defense\n(o)\nNew Missions for the Naval Reserve\n(o)\nManagement Headquarters Study\n(o)\nProcurement Rate for B-1 Bomber\n(c)\nAir Logistics Pipeline Study\n(c)\nCivil Defense\n(o)\nAppropriated Fund Support of Nonappropriated\nFund Activities\n(o)\n146\n-- DOD evaluation efforts are conducted by the various staff elements of the Office of the\nSecretary of Defense rather than in a single unit as well as by the military services, each of\nwhich has an extensive evaluation organization.\n-- In general, DOD force program objectives (e.g., the need for 16-2/3 active Army divisions\nor 26 active Air Force tactical fighter wings) are not amenable to precise definition through\nevaluation, although analysis is useful for providing rough limits.\n-- Much of DOD's force evaluation effort focuses on second order efficiency questions, defining\ncost-effective alternatives for achieving a predefined goal (e.g., the most cost-effective\nmix of mobility forces and prepositioned equipment for reaching a force build-up objective\nin NATO after M-Day).\n-- OMB staff has been a primary instigator of efficiency evaluations for the DOD, especially in\nthe areas of personnel requirements and compensation, logistics, and construction.\nIII. Agency Management Quality and Process\n-- In terms of capability and the recent record, DOD's management quality is varied. Most staff\nelements in OSD are good to excellent. Management quality in the services is poor to good,\nwith a few exceptions at certain support activities and in the operating forces.\n-- The management process is highly formalized, through the PPB System. A major weakness in DOD's\nPPBs, however, has been the lack of a system for tracking implementation of policy decisions,\nespecially in areas other than weapon system acquisition. Secretary Rumsfeld has requested OSD\nstaff elements to report by November 19 alternatives for improving the PPBS. The implementation\ngap is being addressed in this review.\n147\nDepartment of Defense\n1978 Budget\nDiscussion of Presidential Management Initiatives\nAgency Submission\nDefense submitted its action plan related to the Presidential Management Initiatives on August 27,\n1976. DOD's plan is comprehensive and covers all the initiatives outlined in the July 27\nmemorandum to department and agency heads.\nOMB Assessment\nThe DOD PMI action plan has been reviewed by various OMB staff, and the comments have been sent\nto the agency. Generally, DOD submitted a good action plan. Internal DOD response has not been\nenthusiastic, however, primarily because the agency already has organizations and functional statements\nof responsibility for the areas covered in the PMI.\nDOD's substantive performance, as opposed to the existence of responsible organizations and systems,\nin the various PMI areas ranges from very good to poor. The primary areas where DOD has lagged in the\npast are:\n-- Cash management\n-- ADP management\n-- Contracting out.\nOMB staff is emphasizing improved performance in these areas in both the PMI effort and in the budget\nprocess.\n148\nProgress Reporting\nDOD submitted its September and October reports a week late, although draft reports were submitted\non time. Some progress is evident in weak areas such as cash management and ADP; however, response\nto OMB suggestions has been slow in others. Continued OMB, and high-level DOD, interest should result\nin improved responses in future reports."
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