Achieving an “ideal” end state for financial management

In previous articles covering DoD financial management in general and the Planning, Programming, Budgeting, & Execution (PPBE) process in particular, we’ve shared our thoughts on improving connections with Congress, shifting the FM mindset, and PPBE modernization.

In this final article, we’ll wrap up the three-part series by putting ourselves in the shoes of Congress and take a look at how they view the problem, as well as approach existing, outdated DoD FM processes. Along the way, we’ll outline the optimized FM environment that is the ultimate aim.

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What does the “ideal” end state for DoD FM look like?

The objective is to ensure that DoD is able to consistently “do it right” when it comes to spending on mission priorities. This stands in stark contrast to the existing tilt towards meeting obligation goals and spending with a “use it or lose it” mindset. The potential overarching benefits are clear: more timely, effective, and efficient use of taxpayer dollars in pursuit of DoD priorities.

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The objective is to ensure DoD FM is able to consistently “do it right” when it comes to spending on mission priorities.

Follow the money (spoiler: that puts Congress in charge)

In the previous articles we explored three potential approaches to improving financial management from the perspective of the FM community, each of which can play a role in overall optimization. Successful execution, however, requires the U.S. Congress to motivate the change through their approach to DoD FM – specifically when it comes to spending habits such as “use it or lose it.”

As the legislative branch of our government, from our viewpoint Congress has and always will have the ability to instill change within the culture and processes of DoD FM. There are two fundamentals for this: control of money and lawmaking authority.

Congress has the ability to tax and spend public money for the Federal government. Congress has the power of the purse, holding the strings on DoD’s budget. In coordination with DoD, it controls and prioritizes spending within the Department.

Federal appropriations law puts real power into the hands of Congress. The legislative branch controls the Purpose, Time, & Amount (PTA) of spending for the entire DoD FM community and can act as it sees fit to restrict or enable DoD FM professionals when it comes to meeting DoD mission requirements.

Congress may have the power to drive change, but even it faces hurdles

Even with Congress’s power of the purse and ability to drive the change there are still barriers to progress.

• Competing interests that create internal struggles over money and influence. The Abrams tank funding cited above is an example of this. That money did deliver benefit in one sense, but it could have been spent elsewhere (and perhaps better) had priorities been considered objectively.

• Cultural inertia that inhibits change. The DoD FM mindset is “use it or lose it” while for elected members of Congress it’s to obtain funds for their state or district. Overcoming these persistent attitudes makes achieving an “ideal” end state very difficult.

• Turnover that stifles momentum regarding large-scale, systemic change. Turnover in the senior ranks of career Federal workers is less than that of political appointees, but the realities of election cycles are inescapable. This makes it difficult to establish cohesive long-lasting expertise, institutional knowledge, and most importantly, clarity of future vision.

• Lack of meaningful repercussions for wasteful DoD spending. Currently, DoD just needs to show improvement. Non-compliance with the audit doesn’t carry any consequences. This mode of operation is one of the reasons we believe we are stuck in an endless cycle of antiquated FM processes and lack of progress between Congress and DoD.

As discussed in the earlier articles in this series, we believe there are several ways in which Congress and DoD can instill a more trustworthy connection and overcome barriers to improving DoD FM. Some of those include:

• Tying money to both DoD mission and Congressional priorities to mitigate internal conflict. This would mean having the willingness to compromise and adapt to find the best path forward.

• Self-reflection regarding spending priorities and habits on the part of both DoD and Congress, ideally on a quarterly basis, to better plan for the future. This is a matter of balancing current priorities against future benefit. This is not unlike a child having an allowance: The child can opt for instant gratification and spend it all on candy bars – or to use a DoD analogy, a wasteful or antiquated program. A child with the ability to reflect and think more deeply about how that money could be spent may well cut spending to a minimum, save up and invest in something far more useful and substantial in the future.

• Consistent, clear two-way communications with the DoD FM community (both internal and external) to assess motivating factors that influence the “do it right” vs. “do it right now” decision point. Keeping a finger on the pulse of the DoD FM community is critical to motivating change, just as it is in the corporate world: if leadership doesn’t communicate with the workforce, how can it know what motivates them? This knowledge can help determine whether incentives need to be adapted by individual office, or whether there are opportunities for change on a larger scale.

• Fostering better transparency and collaboration by establishing a platform that securely enables all information and people involved in the various parts of the PPBE process the ability to connect with one another in a targeted, role-specific and relevant manner.

A wish list to advance towards the “ideal” end state

As we look holistically at the many challenges and opportunities for optimizing DoD FM – and our suggestions for action – two specific changes rise to the top. If implemented, these could go a long way to enabling the flexibility to improve the situation in a lasting way. This in turn could lead to more rapid advancement in other areas. They are:

1. Provide DoD FM “no-year” spending appropriations to enable better long-term planning
   
   
2. Allow DoD FM to spend as required especially at year end, rather than continue down the longstanding (and in our view, wasteful) “use it or lose it” path.

These two initiatives are a solid start. They may not happen overnight and likely won’t, but at some point, changes such as these need to be attempted and enforced.

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The DoD FM community can lead

To promote and, ideally, drive implementation of the multiple changes we’ve suggested, the DoD FM community needs to put in the work. Congress holds the power but the community has the ability to guide the application of that power. It’s like any relationship – positive, proactive engagement is critical and the message needs to be sent on a constant and consistent basis. This ongoing communication must be done by influencers well versed in the topic with the following of the widest possible audience of stakeholders.

This is the key: to make the case for clearly and concisely, have realistic and actionable proposals and show that every problem is also an opportunity to learn from the past and do better in the future.

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.

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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.

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“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.

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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.

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.

Making better and more timely use of resources

Historically, DoD financial management has tended to be more reactive than proactive. At times it may seem as if the DoD has plenty of money to spend, so the focus is on spending it. The reality is that there are constraints. There’s enough money to meet the need, but it’s by no means unlimited. It’s somewhat analogous to an individual with a credit card. Spending can happen freely up to the credit limit, and circumstances may create a compelling reason to use the card… but those spending decisions have real consequences that may not be fully taken into consideration up front.

All too often, this results in excess work and logistical, bureaucratic and time waste on the back end. We believe that by shifting the DoD financial management culture to a more proactive stance, considerable improvements in efficiency and cost-effective use of taxpayer dollars are possible.

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Often, the DoD’s financial management stance is forced to be reactive because sufficient time and effort aren’t always put in to making the buy with strategic intent.

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“Right” vs. “right now”

The focus on spending highlights the inherent tension between operational requirements and resource stewardship. Putting the mission first is essential, particularly in times of active conflict when time is of the essence. All other priorities become secondary because that procurement has to be made right now: in effect, the operational side doesn’t care about what it will cost or what the fallout might be. The financial side, on the other hand, is deeply concerned not only with making sure resources are available when needed, but also with planning, budgeting, procurement and logistical issues: it’s important to do it right to avoid wasting time, money and effort. This tension naturally results in unplanned-for costs and excess work after the fact.

Scenarios such as this happen frequently in wartime. The operations side is given resources—obligated for a specific purpose, amount and time frame—without doing the up-front planning and work needed to fully document what, where and when, or think about budgets.

For example, supplies or equipment may be purchased whether all of it is needed or not, perhaps because it’s available at a good price and the money is available. On the surface it looks like a smart move, so a snap buying decision gets made without fully considering the need for full documentation, auditability, or even finding a place to store what’s been acquired.

Often, the DoD’s financial management stance is forced to be reactive because sufficient time and effort aren’t always put in to making the buy with strategic intent. Without addressing the full lifecycle of an expenditure up front, DoD financial managers are put in the position of constantly playing catch-up on the back end of the purchase documenting, explaining, and paying for the resource requirement.

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The good news is that we believe there are a number of opportunities to make small-scale improvements in financial management practices that foster a proactive culture of intent.

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Instilling a culture of intent

The “right now” mindset contributes to a mind-over-money culture that embraces expediency at any cost. The money flows and the mess is, all too often, dealt with later. Doing it “right”—acting with intent and financial responsibility—takes time and effort that are seen as getting in the way of mission requirements, so the necessary activities are given due consideration only when circumstances force the issue. The reactive stance becomes culturally embedded and it seems as if there’s no way out.

A vicious cycle is created that puts finance farther and farther behind, incurring mounting time debt. At some point, that comes home to roost… but with a proactive, strategic mindset and little extra effort to get ahead of the game now it’s possible to make things easier when planning for next year.

In a way, it’s like ignoring upkeep on a car or truck. Failure to do preventive maintenance has no immediate downside, but sooner or later it leads to issues that must be dealt with—painfully. By doing a better job in the first place, that pain can be avoided.

The good news is that we believe there are a number of opportunities to make small-scale improvements in financial management practices that foster a proactive culture of intent. By establishing and nurturing such a culture, the benefits and savings could potentially far outstrip the time and effort required to achieve them.

Become a trusted and insightful influencer to communicate more directly and clearly

We’re in an age of information and change, bombarded by so much input that focusing on what’s most important can be a debilitating struggle. There’s a genuine desire for a means to make sense of it all, and that’s led to the appearance of influencers—people who have captured attention and gathered a following, enabling them to break through all the noise.

The rise of the influencer culture points to a prime opportunity for the DoD financial management community. By offering a cadre of knowledgeable voices able to speak with authority on complex issues, engagement with key government stakeholders can become far more productive, effective and efficient in their stewardship role.

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Who would make a good influencer?

Helping members of the U.S. Congress and other authorities in government make sense out of DoD budgets and expenditures requires the unique relationships, skills, and knowledge to be found in the DoD domain. Individuals who have developed all three elements are well positioned to become “brand ambassadors” for DoD financial management, promoting new ideas, successes, and the efficient and effective use of U.S. taxpayer funds.

It’s not necessary for an individual such as this to be a political appointee. Effectiveness as an influencer comes from knowledge, credibility, and a talent for connecting with people. The ideal influencer could be a federal employee or a contractor—the role does have relevance but the key is the individual’s skill in communicating effectively by articulating key challenges and concepts in a clear and consistent way.

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Helping members of the U.S. Congress and other authorities in government make sense out of DoD budgets and expenditures requires the unique relationships, skills, and knowledge to be found in the DoD domain.

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Working within the chain of command

Every organization has a hierarchy or chain of command that must be respected. That’s not going to change (nor should it), but we believe there are opportunities to enhance communication and collaboration—to rethink the way business is done between the Legislative branch and the country’s largest agency from a financial management perspective.

Influencers can add value and perspective in using their relationships to facilitate conversations within the chain of command and with Congress. Influencer culture is a product of pervasive connectivity, and the same tools that give all of us instant access to one another—emails, blogs, and group chats, for example—can be leveraged to help the DoD financial management community speak with a unified voice.

By enabling better collaboration through more effective communication on matters of financial management, the potential exists to facilitate better decision making and faster responses to queries from the U.S. Congress. Communication among key stakeholders up and down the chain of command becomes more immediate, which can help build stronger relationships within the financial community and its support team as well as with Congressional counterparts.

The bottom line: It’s all about the outcome

Improving connections with Congress is, ultimately, a means to an end: better and more timely results. This is the essential guiding principle for any communications initiative: First, determine and articulate the desired outcome, then open a dialogue about ways to achieve it, and finally take decisive, fact-based action.

This is something that existing structures and relationships are not always able to accomplish consistently… and it’s where tapping into the way we interact with one another in today’s world can, in our view, be of great benefit. By connecting with people and articulating the case for better financial management, it becomes possible to uncover new opportunities and find the right answers more effectively than ever before.

First of a series exploring ways to improve DoD financial management

It’s easy to lose sight of how long the Planning, Programming, Budgeting and Execution (PPBE) process has been at the heart of DoD financial management. If PPBE were a United States citizen, it would soon be eligible to receive Social Security benefits!

That doesn’t mean it’s time to retire PPBE—far from it, because it’s tried and true. It works, thanks not only to the intelligence of its design but also to the dedication of the men and women in uniform, civilian DoD employees and contractors who support it. But at the same time, we at MDUBB Financial believe there are opportunities for improvement.

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The ultimate goal is to minimize lost time: to make the PPBE process run smoother and faster; to reduce the time between each phase; and to eliminate time spent on activities that do not add value.

Over the next several articles in the series, we’ll explore not only the PPBE process itself, but the institutions and culture that is interwoven with it—all with an eye towards finding ways to ensure that the military as well as the taxpayer are getting the most efficient use of resources.

Time is of the essence

No matter how much funding the DoD receives, it cannot buy more time. Optimizing the process—and enabling the people who make it work—is therefore a worthwhile endeavor, and that’s where we believe the most promising opportunities for improvement exist.

A key issue is where time and effort should be focused. There’s a balance to be struck between execution and improvement. The process functions well and there’s a strong case for “if it ain’t broke, don’t fix it.” That approach has led to very slow evolution over time and institutional acceptance of the status quo. The financial management community tends to work within and around the process as it is, taking it for granted that this is simply the way things are.

At MDUBB Financial we’re more forward-leaning. We fully acknowledge the value and efficacy of PPBE, but at the same time we believe the process can be made to work better by looking at and addressing the issues holistically. PPBE does not exist in a vacuum so improvement can be made both to the process itself and to the activities and behaviors surrounding it. By better understanding the big picture, precious time can be devoted to those efforts that will have the greatest impact.

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The PPBE process can span 2–3 years from initial planning to final execution

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The ultimate goal is to minimize lost time: to make the PPBE process run smoother and faster; to reduce the time between each phase; and to eliminate time spent on activities that do not add value. There’s potential to accomplish these within the context of the process itself, but there’s also fertile ground in the people and relationships that are such a vital part of financial management.

Check back in over the coming weeks as we explore these opportunities in greater detail.