Implementing a Multitier Portfolio Management Structure for Defense Acquisition
By David Ahern and John Driessnack 18 Jun 2019
The Section 809 Panel was charged by Congress to streamline and codify acquisition regulations. But its research indicated such changes would not be sufficient to make the leap in effectiveness and efficiency the United States needs to remain inside the turn of near-peer competitors in the 21st century. In addition to recommending necessary evolutionary changes, the panel also recommends revolutionary changes to how the DoD Decision Support System (DSS) integrates the three component systems of Big-A acquisition: requirements (the joint capabilities integration and development system, or JCIDS), budgeting/funding (the planning, programming, budgeting and execution process, or PPBE), and acquisition (DODI 5000.02).
The U.S. has the most formidable military power the world has ever seen. To maintain that dominance, the 2018 National Defense Strategy calls for a defense acquisition system that can “continuously deliver performance with affordability and speed as we change Departmental mindset, culture, and management systems.”
There is no simple way to achieve “performance with affordability and speed.” While the U.S. has many of the best systems in the world, the current DSS is fragmented. This inhibits the effectiveness and efficiency needed to create and sustain the enhanced warfighter capabilities necessary in the 21st century. The DSS articulates a program-centric mindset with major defense acquisition programs (MDAPs), and this limited view of defense systems needs to change to a capability/system multitier portfolio culture that has a focus on a total lifecycle viewpoint.
The F-16 weapon system provides an example of the limitations of the current program-centric system. There are nearly 1,000 F-16s in use within DoD today, constituting approximately half of the total U.S. fighter force. Since the F-16 is not classified as a MDAP, it is not an emphasis in the centralized system of reporting and program oversight as a major capability. Altering focus from individual major programs to defense systems, such as the F-16, F-15, F-22 and F-35. The goal should be to view the portfolio and make connections across the three parts of the DSS to enable coordinating assessments, trade-offs, and total lifecycle systems management to optimize combat capability of the portfolio.
The panel’s suite of recommendations on portfolio management (Recommendations 36-42) have the potential to change the departmental mindset, culture, and management systems in line with the NDS. These seven recommendations provide a bold vision of a total lifecycle, multitiered capability portfolio management framework within which requirements, resources, and acquisition processes are collaboratively integrated at all decision levels. This change is necessary for the defense acquisition system to continuously deliver the most timely, innovative, and supportable weapons, IT, and business systems to the warfighter.
EFFECTIVENESS MEANS DELIVERING CAPABILITY
The effectiveness of DOD’s acquisition organizations must be assessed in terms of developing, delivering, and supporting defense systems that enable U.S. dominance regardless of the fight. For more than 50 years, the fundamental structure and focus of acquisition has been on MDAPs, but the nature of capabilities has changed. Sustainment is taking on increased visibility and importance as defense systems remain in the inventory longer and are modified to improved effectiveness. MDAPs, while still a key component of defense capabilities, no longer constitute the majority of spending on research, development, test, and evaluation (RDT&E).
The other fundamental structure over the past 50 years has been the three independent, asynchronous, highly centralized decision support systems of requirements, PPBE, and acquisition. Multiple studies have documented the excessive time and effort required to achieve concurrence among the separate systems for a program to move forward. Neither innovation nor risk tolerance exist for long within these three decision structures if they are not synchronized at decentralized levels.
Two evolutionary changes are needed in strategy and structure to alter processes, procedures, resources, and culture:
· Establish that defense capabilities and systems are the outcome of the DSS components continuously working together. While separate expectations for specific elements of the DSS remain valid, the objective of the DODD 5000.01, The Defense Acquisition System, must change from “acquire quality products” to “timely and affordable delivery of capabilities.” This new goal will extend across the lifecycle to manage the tension between operational needs and resource availabilities, as well as across the decision support system. DoDD 5000.01 should become a cross cutting directive.
· Adopt a multi-perspective, multitiered portfolio framework, in which informed decisions with broad-based data are made by empowered representatives of appropriate functions in a capability-focused forum. This framework will drive a new multitiered management structure for how the defense capital investment and management enterprise is organized, including the roles of stakeholders within the enterprise. A centralized three tier structure hinders speed and struggles to make space for innovation.
The multitier portfolio framework (see Section 809 Panel Vol 3 of 3 Part 1 Report, see Figure 2-6, Notional Enterprise Capability Portfolio Management) provides decision makers timely access to the information they need in today’s dynamic threat landscape. By instituting two distinct but coordinated portfolio levels with a single framework, the panel recognizes the difference between enterprise-level management, which excels at long-term strategic planning of capabilities, and execution-level management, which requires flexibility to make tactical decisions in real-time. These two levels in the panel’s framework are represented by Enterprise Capability Portfolios (ECPs) at the strategic level and Portfolio Acquisition Executives (PAEs) at the execution level.
This new structure requires empowered representatives from requirements, acquisition, and resourcing communities assigned to the PAE office (see 809 Panel Report, Vol 3 of 3, Figure 2-3, Portfolio Acquisition Executive (Notional)). At the enterprise level the portfolios are co-led by nominees from the office of the secretary of defense (OSD) and the joint chiefs of staff (JCS); there is connectivity, but not oversight, with system portfolios (PAEs). The ECPs, at the enterprise level, have oversight across the DoD DSS, making trades at the enterprise level. The PAE does the tactical trades within the system portfolios. Revolutionary improvements in the effectiveness of defense capabilities will result from these changes that manage capabilities and resources within a multitier portfolio structure, refocus on defense systems lifecycle, delegate authority, and involve stakeholders at the execution level.
ACHIEVE EFFICIENCY WITH STRATEGIC DELEGATION
Congress has already addressed some efficiency and effectiveness improvements by directing that OSD delegate decision authorities for most MDAPs to the services. Services have further delegated some decision authority to Program Executive Officers (PEOs) for non-MDAP programs. Needed now is the same delegation by service chiefs of their authority for requirements and by service secretaries of their budget/funding authorities. This delegation is not blanket, but occurs within portfolios managed by a PAE to achieve collaborative decision making.
The changes needed include (which are further outlined in recommendations 36-42):
· Implement portfolio management best practices by creating critical questions on portfolio value, establishing 20-year strategies supported by analytical modeling, and leveraging data at the portfolio level at both the ECP and PAE levels. This approach goes beyond the traditional portfolio view of an organization’s product investments to capability and system lifecycle management.
· Create enterprise capability portfolios within a joint structure that condenses the current collection of over 1,000 programs and systems into fewer than a dozen capability-based portfolios.
· Have the military services and the defense agencies lead execution capability portfolios of systems, each managing approximately 10-15 portfolios through PAEs. Clear, broader mission requirements and resource pools can optimize these portfolios.
· Consolidate the fragmented governance structure of systems across current PEOs, product center commanders, and others who manage defense systems into a consolidated portfolio framework.
· Migrate from a larger set of system-centric requirements documents to a set of capstone requirements and related material for each execution portfolio.
To implement this vision of portfolio management, the panel has provided explicit actions that Congress and DOD can take. Congress must address recommended changes to funding, but much is achievable without congressional action. The panel has also provided a draft revision of DoDD 5000.01, re-titled The Defense Capabilities Acquisition and Sustainment Framework, that provides a path for a strategy and structure change that will lead to procedural, process, and resource changes.
No change in policy will easily undo the bureaucratic, program-centric culture that has defined the past half century. But the panel’s portfolio management recommendations provide a much needed bold start. This new structure can transparently address tensions between operational needs (effectiveness) and resource availability (efficiency). It streamlines processes and procedures by focusing broad strategic decisions at the enterprise level while empowering authorities and implementing a command by negation approach at the execution level. By collaboratively developing and sustaining all defense capabilities within an empowered multitiered portfolio management framework, the defense acquisition system can become innovative and agile enough to adapt at the speed of a changing world.
David Ahern is a commissioner on the Section 809 Panel. He previously served as the deputy assistant secretary of defense for strategic and tactical systems, deputy program executive officer for Navy C3 and surveillance systems, and senior program manager of major defense systems.
John Driessnack (PfMP) is the portfolio management expert for the Section 809 Panel. He was previously a senior program manager, senior logistician, financial manager and cost estimator for major defense systems.