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 unbalanced, the PPBS product will lose much of its value, and confidence in DoD's resource allocation process will be undermined.

4. FAILURE OF THE PPBS TO EMPHASIZE THE OUTPUT SIDE OF THE DEFENSE PROGRAM

When PPBS was instituted, it was described as providing "a mission-oriented program budget" and "output-oriented programming". While PPBS has enhanced the prospects for such results, it has fallen far short of its potential in this regard. PPBS focuses on inputs and not on outputs. One of the effects of the failure to emphasize outputs is the imbalance between modernization and readi

ness.

General David C. Jones, USAF, commented as follows on this problem while he was serving as JCS Chairman:

There is not enough emphasis in the government on the "output" side of the Defense program (e.g., readiness). In particular, there is too little emphasis on Joint activities, which are primarily output-oriented. The Department of Defense traditionally organizes around inputs, not outputs; its priorities are driven by such issues as procurement decisions, manpower levels and policies, budget deadlines, Congressional hearings, and other program-oriented activities. Thus, the DoD has tended not to deal effectively with "output" issues such as readiness, integrated force capabilities, and crisis management preparations. The latter are all primary JCS issues -difficult under the best of circumstances, and certainly not resolved effectively when not given equal time in the defense management process. (Chairman's Special Study 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:

...the Service Chiefs and their Service staffs devote most of their time to Service programs and budgets —the input side of defense management. (page 6)

5. INABILITY OF THE JCS SYSTEM TO MAKE MEANINGFUL PROGRAMMATIC INPUTS

The resource allocation process does not yield the optimum military capability with the fiscal resources available because there is an insufficient joint military input. The current PPB system, through the Joint Program Assessment Memoranda, theoretically provides for this input. Instead of providing strong joint military comment about broad defense priorities, the JPAM is used only to restate the requirements for narrow, cross-Service programs already outlined in the Defense Guidance. The JPAM remains constrained by the institutional limitations of the current JCS system which are discussed at length in Chapter 4 of this study.

6. INSUFFICIENT ATTENTION IN THE PPBS TO EXECUTION OVERSIGHT AND CONTROL

As noted in Section C of this chapter which addresses key trends in the PPB system, there has been increased emphasis on oversight of budget execution. As Assistant Secretary Puritano's statement submitted to the Senate Committee on Armed Services cites:

There is what I would like to describe as a fourth phase to PPBS, perhaps best referred to as "management execution." We have spent a good deal of time and effort seeing that once a decision has been made through the above described process, that it is in fact carried out in as effective and cost-efficient a manner as possible. We have set up management responsibilities to see that just that happens. (Part 9, page 371)

Despite this desirable emphasis, the PPB system continues to be too "forward-looking."

As the programming and budgeting phases of PPBS represent DoD's management control system, they must include adequate provisions to monitor the execution of program and budget decisions (and, to a lesser extent, planning decisions). The Defense Resource Management Study recognizes this need in its description of the budgeting phase of PPBS: "budgeting includes formulation, justification to the Congress, execution, and control" (page 1)

Anthony and Herzlinger in their book, Management Control in Nonprofit Organizations, identify two benefits of a good management control system for an organization:

1. It can make better plans: plans that are related to organizational objectives and which, in many cases, are based on an analysis of the relative benefits and cost of proposed alternative courses of action.

2. It can have better control; that is, more assurance that operating managers will act efficiently and effectively to accomplish the organization's objectives. (page 337)

As currently structured, the PPB system in DoD is heavily oriented toward the first benefit of making better plans. The potential of PPBS to provide for better control has not been realized.

Chapter 3 discusses OSD's concerns about the Services' failure to comply with OSD guidance for program development and management. Chapter 6 discusses the ability of the Military Departments to block implementation of decisions by the Secretary and Deputy Secretary of Defense or senior DoD decision-making bodies. These problems clearly indicate that DoD does not have a structured process to exercise sufficient oversight of policy, program, or budget execution. The Defense Resource Management Study cited the absence of feedback as one of the PPB system's major problems:

The PPB System has never had an explicit measurement system for tracking the progress made in implementing approved programs....Better feedback is needed, not only to monitor execution, but also to make adjustments to past decisions that, in turn, will motivate better execution. (page 9)

Some observers believe that the current inattention to execution oversight and control is so severe in DoD that the PPB system should be modified to add an explicit control phase, thus becoming the_Planning, Programming, Budgeting, and Controlling System (PPBCS).

The Georgetown Center for Strategic and International Studies report, Toward a More Effective Defense, discusses the lack of attention to execution and oversight in PPBS:

In theory, PPBS should be a circular process with financial and performance data from one year's cycle serving as the planning base for the early phases of the next year's process. In practice, however, PPBS essentially starts fresh each year. Little systematic attention is given to the evaluation of past program decisions. Major weapon programs that have high congressional visibility are sometimes an exception to this generalization, because their cost and performance data tend to be monitored more closely. But PPBS has never included an explicit and comprehensive system for measuring and reporting progress in implementing approved programs. (page 42)

Increased emphasis on execution oversight and control would have four benefits:

• provide for more immediate feedback into the decision-making process;

。 result in improved financial control over spending;

o provide a more sound basis for budget revisions, reprogrammings, and contingency allowances; and

• help illuminate some of the undesirable behavioral patterns in subordinate organizations.

There are two major causes of the problem of insufficient attention in PPBS to execution oversight and control: (1) focus of principal PPBS participants on the future and (2) inadequate accounting and management information systems.

a. Focus of PPBS Participants on the Future

Of the 20 formal members of the Defense Resources Board (DRB), only three-the Service Secretaries -have direct responsibilities for program and budget execution. The other DRB members are fo

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cused on the future-on the budgets to be presented to the President and to the Congress next year and subsequent years. They make decisions as if they were missiles that can be "fired and forgotten". Given the dominating focus on the future, there is little time to worry about execution. Put into perspective, however, despite all of the forward planning and decision-making, execution is what actually happens.

b. Inadequate Accounting and Management Information Systems The CSIS report, Toward a More Effective Defense, argues that both accounting systems and management information systems in DoD are inadequate to support effective execution oversight and control which CSIS terms "evaluation":

...the department's accounting base is inadequate to support effective evaluation. Department of Defense financial reports provide a mass of data, but the financial information in these reports is often inconsistent, incomplete, and untimely. The source of many of these shortcomings is the department's reliance on accounting systems that operate almost exclusively on an obligational basis. Under this system, an economic event is measured when the resources are "obligated," that is when contracts are awarded or orders placed an emphasis that is understandable in terms of the department's fiduciary responsibilities. Obligation-based data, however, inhibit the evaluation of program effectiveness and management performance by focusing attention on the time of the commitment, with little monitoring of the actual delivery or the effective use of the resources acquired.

...The absence of sophisticated management information systems also impedes effective program evaluation. There are some areas, such as personnel recruiting and retention, in which the department has developed effective management information systems, but there are numerous others in which such systems are either incomplete or do not exist. The lack of integrated performance data is particularly severe with respect to combat readiness, as the 1978 Steadman Report pointed out. (page 42)

7. LENGTH, COMPLEXITY, AND INSTABILITY OF THE PPBS CYCLE

The PPB system of the Department of Defense represents the most sophisticated resource allocation process within the Federal Government. Within a 15-month cycle, it is designed to translate broad national security objectives into a 5-year defense plan and a current year budget. It is so complex that it literally catches itself coming and going. Different phases of PPBS are often simultaneously addressing three different budgets: executing the current year's budget; programming, budgeting, or justifying next year's budget; and planning for the year beyond that.

Standing alone, there would be few concerns about the length or complexity of PPBS. However, PPBS is only one of several vital responsibilities of DoD's military and civilian leadership. The day-today administration of defense programs, communications with the Congress, international relations, and crisis management are all of equal importance with PPBS in the larger scheme of defense man