There are three basic causes of the problem of an insufficient relationship between strategic planning and fiscal constraints: (1) fiscally unconstrained planning; (2) a flawed strategic planning process; and (3) the institutional deficiencies of the JCS system.

a. Fiscally Unconstrained Planning

The divergence between strategic planning and fiscal constraints originates with the second procedure in the PPBS cycle: the preparation of the Joint Strategic Planning Document (JSPD). As previously noted, the JSPD is not resource-constrained. Fiscally unconstrained planning fulfills a useful, if narrow, role in providing benchmarks from which to compare the required force structure with actual capabilities. However, using a fiscally unconstrained document as the principal, joint military input to the formulation of the Defense Guidance, which is resource constrained, provides an unsound foundation for subsequent strategic planning.

While strategic planners obviously would seek to distinguish those JSPD objectives, strategies, and policies that would be altered in a fiscally constrained environment, this is not an easy task. In essence, many of the conceptual products of fiscally unconstrained thinking are carried forward, unaltered, through subsequent PPBS steps the Defense Guidance, Service Program Objective Memoranda, the Joint Program Assessment Memorandum, and final programming and budgeting decisions. These concepts may also have undue influence on contingency planning which is conducted outside of the PPBS process. The Joint Strategic Capabilities Plan (JSCP), which furnishes guidance on military tasks to be accomplished in the short-range period for use in the preparation of contingency plans by the operational commands, may be substantially based on the fiscally unconstrained thinking contained in JSPD. b. Flawed Strategic Planning Process

The strategic planning process in DoD should contain the following sequential steps:

Step 1 - analysis of external conditions and trends, including threat and technology assessments

Step 2 - setting of policy and planning objectives and identifying constraints, especially fiscal

Step 3 - definition and examination of alternative defense strategies to meet these objectives within these constraints

Step 4 setting of program objectives and broad resource allocations

In the current DoD strategic planning process, Step 3 (strategy formulation) is underdeveloped. The Joint Strategic Planning Document does not fulfill the tasks associated with this step. The JSPD is part of Step 1 in that it merely helps to assess the inherent military risks associated with the resource-constrained posture adopted in Step 2. Essentially, in the current PPB system, Steps 2 and 3 have been combined in the Defense Guidance. The Defense Guidance does take the strategy recommended in the JSPD and create from it a resource-constrained strategy. The utility of such an approach is highly questionable.

Sir Basil Liddell Hart spoke of military strategy in the following

terms:

...strategy depends for success, first and most, on a sound calculation and coordination of the ends and the means. (Strategy, page 335)

It is absolutely clear that the Department of Defense does not have a military strategy that clearly tailors goals to resources. This is a serious deficiency because, as Jeffrey Record has stated in Revising U.S. Military Strategy:

A strategy whose goals far exceed resources available for their implementation is a recipe for potential disaster. (page 1) c. Institutional Deficiencies of the JCS System

The formulation of a strategy that is constrained by fiscal realities would place certain strategic goals of the Services at risk. Observers believe that the institutional deficiencies of the JCS system in which Service priorities predominate would place great strains on the organization if it attempted to formulate a fiscally constrained strategy.

3. ABSENCE OF REALISTIC FISCAL GUIDANCE

The development of fiscal guidance is one of the key tasks of the strategic planning process. The establishment of fiscal constraints is an important step before strategy can be formulated. The absence of realistic fiscal constraints, especially for the outyears of the planning effort, can undermine the value of the formulated strategy. The absence of realistic fiscal constraints (or guidance) has an effect, however, that reaches far beyond the planning phase into the programming and budgeting phases. Fiscal guidance which significantly exceeds the President's budget, which itself significantly exceeds the amounts eventually approved by Congress, clearly undermines and impairs the PPB system. The absence of stable and realistic budget constraints is a management, not a structural or procedural, problem. Even so, it is important to understand the impact of management problems on the resource allocation process.

The effect of over-optimistic fiscal guidance within the programming and budgeting framework is obvious. When the fiscal guidance is substantially higher than the budget guidance ultimately approved by the President, the hard decisions are thus deferred beyond the programming phase and, according to the Defense Resource Management Study: "set up pressures to unbalance the program as a way of coping with budget 'cuts' in the final stages of budget review, effectively wasting much of the year's programming effort." (page 7)

The relatively orderly process of POM preparation and review is, in practice, subsequently undercut by severe budget reductions, both internal and external to DoD. In fact, even within the internal DoD budget formulation and review process, significant programmatic decisions must be made to accommodate substantial budget reductions which are mandated late in the PPBS cycle. In recent years, between the time that the Joint Program Assessment Memorandum is submitted and Congress completes action on the budget (approximately 1 year), upwards of $30 billion has been reduced from the budget without making any joint military or civil

ian reassessment of program priorities. Such substantial reductions with their outyear implications are certain to produce a gap between planning and capabilities and undermine the benefits of the structured PPB system.

If the fiscal guidance is well above the levels attainable in the presidential budget review and/or the levels approved by the Congress, the PPB system will have allowed too many programs to enter or to be expanded during the programming phase, not just in the budget year, but also through the Five-Year Defense Plan (FYDP). Year-end budget adjustments, combined with congressional reductions, turn into major policy and programming problems — problems frequently unresolved and pushed further into the outyears of the FYDP. For example, 70 percent of the defense budget reductions made by the Congress for fiscal years 1982 through 1985 involved stretching out programs into future years. Rather than refining resource allocation decisions around the margins during the budget year, the PPB system becomes overburdened with major instabilities that consequently undermine the planning and programming phases of the next cycle. As an example, Table 7-1 shows the wide differences, totaling $165 billion, between the 5-year funding levels projected in the March 1981 FYDP and those actually approved by the Congress.

First Concurrent Budget Resolution as recommended by the Senate
during May 1985.

There are four basic causes of unrealistic fiscal guidance: (1) differences in political judgments; (2) economic uncertainties; (3) the bureaucratic tendency for built-in growth; and (4) competition over

fundamental constitutional responsibilities for the Federal budget. These four factors frequently combine to produce unattainable budgets which represent the first years of unattainable FYDP's.

a. Differences in Political Judgments

Fiscal guidance is promulgated by the Secretary of Defense to the Military Departments 12 months before the President submits his budget to the Congress and about 21 months before the Congress completes its review of the DoD budget request. Those Executive Branch officials who help formulate the fiscal guidance must project the politics of the budgetary process into a difficult-to-predict future. Wide swings in public opinion over relatively short periods of time indicate the difficulty of making such political judgments.

b. Economic Uncertainties

There are two aspects of economic uncertainty that have an impact on the defense budget. The first relates to the health of the national economy, its ability to support the Federal budget, and demands on the Federal budget or fiscal policy that flow from the economic situation. The second aspect is the extent to which events in the national economy raise or lower the costs to DoD to execute equipment or personnel programs. The uneven track record of economic forecasting is clear evidence of the inherent uncertainties in this area.

c. Bureaucratic Tendency for Built-in Growth

The Pentagon has historically had considerable difficulty in making the tough decisions to adjust programs to the fiscal resource levels provided for national defense. As a result, many fiscal problems are pushed into the outyears for solutions, known as "getting well in the future". The enormous procurement bowwaves in DoD are well-known examples. Programs are structured on the generally unrealistic assumption that substantial funds will be available in the outyears. This produces enormous internal pressures for projecting high rates of growth in the defense budget.

d. Competition over Fundamental Constitutional Responsibilities In recent years, there have been substantial discrepancies in the budgetary priorities of the Executive and Legislative Branches. Despite significant defense budget reductions by the Congress, the Executive Branch has continued to press for its priorities by proposing defense budgets with significant real growth. In this regard, there is the possibility that some "gaming" is present in the formulation of budget policy. Especially with regard to defense budgets, which are routinely cut by the Congress, the desire of any administration to achieve meaningful real growth may actually require that initial requests be considerably higher.

As a flexible support mechanism for management, PPBS is capable of responding to the problem of unrealistic fiscal guidance. Even so, no evidence was found that the PPB system is as actively involved in the well executed reduction of budgets as it is in constructing them. The effectiveness of PPBS depends upon the internal consistency and political feasibility of the policy, programming, and fiscal inputs which begin the PPBS cycle. To the extent these

inputs are unbalances the PPBS procus wil 108 mum of its value and confidence r. Dols resource allocation process

undermined

4. FAILURE OF THE PPBS 1: EMPHASIZE THE USTEET SIDE OF THE DEFENSE PROGRAM

When PPBS was instituted I was described & proVICE & TE sion-oriented program Duage and output-crester

ming While PPBS nas enhanced the prospects for sur resuite I has faller far snort et is potentar this reger PPE tomuser or inputs and not or outputs Une cf the effects of the tale phasize outputs is the imbalance betwee: modernization and read

ness.

General David C. Jones USAF commerie: as follows of problem while he was serving as JCS Charman

There is not enough emphasis in the government of the "output side of the Deienet program 4. reaches in paticular. there is to emphasis or on activities what are primarily output-oriented The Department of Defense the ditionally organizes around mu not output the priorities are driver by such issues as procurement decisions mantower leveis and policies budget deadlines Congresona hearna and other program-oriented activities the DoD has tended not to deal effectively with output ASUS Suct & readiness, integrated force capabilities and criss management preparations The latter are all primary JOS issues -difficult under the best of circumstances and certainly no resorer eifectively when not giver equal time in the defense management process (Chairman & Special Stud Group Report page 22)

There are five basic causes of the failure of PPBS to emphasize the output side of the defense program: 1 the Defense Resources Board is dominated by officials who have a strong input orientation; (2) the absence of OSD organizations that have a multi-functional, mission (or output orientation; (3) the limited influence of the unified commanders on the resource allocation process: 4 the limited independent authority of the JCS Chairman; and 5 the inability of the JCS system to make meaningful programmatic inputs.

The last four causes are discussed in detail in other chapters of this study; the last cause is also discussed in the following subsection as a distinct problem area because of its broader impact on the resource allocation process. As to the first cause, the only DRB officials who might be viewed as having at least some orientation toward output considerations are the Deputy Secretary of Defense, JCS Chairman, Under Secretary (Policy), Assistant Secretary (International Security Affairs), and Assistant Secretary (International Security Policy). However, the last three officials have played only a limited role in resource allocation decisions. As a result, the functional OSD assistant secretaries and the Service representatives who are clearly input-oriented -dominate DRB proceedings. As to the Services, the Chairman's Special Study Group confirms their input focus: