Published: 04.01.2022
Modernizing the PPBE process
Aligning the process and its execution with the realities of today’s world
The Planning, Programming, Budgeting and Execution (PPBE) process that is the centerpiece of DoD financial management dates back to the 1960s. The world was very different back then and PPBE, while effective, hasn’t kept up with the times. In the context of today’s needs and expectations, the overall process can seem exceedingly slow.
PPBE improvement is far from a new idea. Various measures have been tried, but they’ve been more akin to stop-gap measures than meaningful evolution. In a way, PPBE is like a man born in the 1960s who finds himself facing the stereotypical mid-life crisis: he buys a sports car in an attempt to recapture the vitality of youth, rather than gracefully moving on.
In the first two articles of this series on ways to improve DoD financial management, we took a look at opportunities outside of PPBE itself: improving connections with Congress and addressing the prevailing culture of financial management. In this article, we’ll take a look at how changes to the process itself can carry PPBE into its seventh decade and beyond.
A narrow focus on one or more aspects of PPBE mechanics misses the larger point: namely, reducing the time it takes for the PPBE “supply chain” to deliver results.
Taking the macro view: It’s not about how change happens, it’s why
Typically, PPBE modernization efforts have addressed three areas: people, process and technology. Each can deliver improvements, but they’ve largely amounted to putting band-aids on individual problems or symptoms of dysfunction. A narrow focus on one or more aspects of PPBE mechanics misses the larger point: namely, reducing the time it takes for the PPBE “supply chain” to deliver results. The overall outcome matters more than fixing short term issues.
To put this thinking in perspective, consider the analogy of financial markets. When the PPBE process was implemented in the 1960s, stock trading was done on paper. Investors were acting on old information, making decisions based on prices and market movements published in newspapers the next day. Investing also required specialized knowledge and access.
Today, market data and transactions are available to anyone in near-real time and markets are moved by automated computer trading that takes human decision-making out of the process entirely. Speed has increased by several orders of magnitude. Equities are still bought and sold—it’s still a supply-and-demand-driven system—but it’s a far cry from the way it worked 60 years ago.
Today, ordinary individuals have the ability to research, buy and sell stocks on simple platforms such as E-Trade, Merrill Edge, Schwab, TD Ameritrade, and even apps such as Robinhood—notable because it’s aimed at people with little or no financial knowledge. Put this together with relatively new investment vehicles such as the tax-advantaged individual retirement accounts and 401ks that have largely replaced traditional pensions, and the result is a new market dynamic—one in which people are far more engaged, willing and able to act directly than they were six decades ago. They are empowered by the tools, but motivated by the outcomes they can achieve. Their motivation is the driver—the tools are simply the means.
What matters isn’t visibility, access or speed, however. The macro change driven by individual behavior has had a far greater impact than the tools and technologies that make it possible. In the last decade, the market landscape has evolved considerably. According to Bloomberg, retail investing in 2021 accounted for 23% of equity volume, up from just 10% in 2010. Ordinary people are putting more of their wealth into the markets and using it in new ways—even to the extent of “gamifying” the market with uncertain results, as evidenced by the high-profile GameStop bubble of early 2021.
“They are empowered by the tools, but motivated by the outcomes they can achieve. Their motivation is the driver—the tools are simply the means.”
The financial management community can take a lesson from this. A focus on motivating the desired DoD financial management outcome—a more efficient and speedier PPBE “supply chain”—should be the fundamental driver of current and future efforts to modernize the process. The same areas of focus (people, process and technology) still apply, but broadening the overall aim to one of long-term improvement can, we believe, deliver better results.
How motivating outcomes can change the way we think about PPBE reform
In our view, PPBE modernization should be a continuous effort focused less on incremental improvements in any given area and more on a sustainable overall outcome. The recommendations we made in prior articles (improving ties with Congress and shifting the DoD FM culture) come into play here.
To be fair, Congress hasn’t been idle in the modernization effort. The FY22 National Defense Authorization Act (NDAA) has established a Commission on Planning, Programming, Budgeting, and Execution Reform to provide an independent review and assessment of the DoD PPBE process.
The PPBE commission is tasked with “analyzing more efficient alternatives to the current PPBE process and develop recommendations that could help the department more quickly field cutting-edge technology to counter near-peer adversaries.” How this mandate will play out is not yet clear, but we believe there are two possible initiatives that should be given priority:
- New legislation (a “PPBE Modernization Act of 2022”) requiring the PPBE process to be no longer than 1 year, along with providing funding flexibility to the Department of Defense (DoD) across appropriations.
This will require a great deal of trust between both Congress and DoD with Congress providing funding flexibility (e.g., no-year money and less limitations on funds) and DoD being able to tighten up the entire PPBE process to occur within a year rather than the 2-3 year timeline that is currently the norm.
- Establishment of financial incentives for the organizations directly involved in the PPBE process (e.g., X% increase in resourcing requirements not funded in the organization’s original budget) as a reward for performing all PPBE actions effectively, efficiently, without error and with full auditability inside the proposed one-year timeframe and within authorities provided by Congress.
This, too, will require a great deal of trust between Congress and DoD, with both requiring a culture shift. The current mindset is “you get what you spent last year plus inflation.” A more outcome-driven mindset would be “only spend what is necessary in a given timeframe.”
Think about the “why,” not just the “what”
The two recommendations above are notable in that they do not specify what changes need to get made; rather, they point to compelling reasons to change. This gives participants in the process greater freedom to decide how to accomplish the mandate.
The underlying motivations to create a process that is more proactive than reactive—and also faster and more efficient—can be carrots or sticks, or a combination. The key is to make the goal realistically achievable so there is a reason to work towards it. In the case of the proposed legislation, there would be a mandate to speed up the process combined with the flexibility to make it a reality. In the case of financial incentives, the motivation is clear but the difference would be using overall outcomes as the gauge of success. The common factor is that both recommendations emphasize results rather than how they’re achieved.
The bottom line is that while there’s still plenty of room for improvement in the mechanics of PPBE—the people, process and technology—a greater emphasis on motivating change has the potential, in our view, to deliver far more extensive and sustainable benefit.