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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

February 2015: 

Defense Business Transformation: 

DOD Has Taken Some Steps to Address Weaknesses, but Additional Actions 
Are Needed: 

GAO-15-213: 

GAO Highlights: 

Highlights of GAO-15-213, a report to congressional committees. 

Why GAO Did This Study: 

DOD spends billions of dollars each year to maintain key business 
functions intended to support the warfighter. While DOD maintains 
military forces with unparalleled capabilities, it continues to 
confront decades-old management weaknesses related to its business 
functions that support these forces. GAO designated DOD's approach to 
business transformation as high-risk in 2005 because DOD had not taken 
steps to achieve and sustain business reform on a strategic, 
department-wide basis. 

This report identifies the extent to which (1) DOD has addressed 
business transformation weaknesses and (2) the Office of the DCMO has 
effectively monitored the progress of its business transformation 
efforts. GAO reviewed documentation, such as DOD's Fiscal Year 2014-
2015 Strategic Management Plan and performance measures established 
for its business functions. GAO also interviewed officials responsible 
for DOD's business transformation efforts. 

What GAO Found: 

Department of Defense (DOD) senior leadership-—specifically the Chief 
Management Officer (CMO) and the Deputy Chief Management Officer 
(DCMO)-—have taken some steps to address business transformation 
weaknesses, such as establishing management responsibilities and 
issuing an updated Strategic Management Plan to provide a strategy for 
business transformation. However, DOD senior leadership has not 
implemented leading performance management practices for federal 
agencies to help ensure additional progress. For example, DOD's CMO 
and DCMO have not communicated priorities for its business goals or 
overseen the development of a corrective action plan that outlines the 
root causes hindering progress in its business transformation efforts 
and the solutions needed to address them. A provision in the Carl 
Levin and Howard P. “Buck” McKeon National Defense Act for Fiscal Year 
2015 to convert the DCMO to the Under Secretary of Defense for 
Business Management and Information in February 2017 will assist the 
Deputy Secretary of Defense in his role as the CMO by providing 
greater authority to supervise management of business operations and 
help, among other things, DOD further demonstrate its commitment to 
addressing business transformation efforts. However, without the 
implementation of these leading practices, DOD will continue to face 
challenges in addressing its business transformation weaknesses, such 
as its continued use of outdated processes and systems for key 
business functions, such as financial management and logistics. 

The Office of the DCMO has collected some performance information to 
satisfy government-wide requirements, but has not effectively 
monitored the progress of DOD's business transformation efforts. For 
example, DOD's performance measures are not clear, comprehensive, or 
aligned with its strategic goals, all of which are key attributes for 
such measures, and Office of the DCMO officials stated that its 
performance measures are not effective in monitoring progress toward 
meeting strategic goals. In addition, the Office of the DCMO conducted 
a high-level assessment of its personnel as part of its 2014 
reorganization to determine their placement within its office based on 
input and work experience, but Office of the DCMO officials have not 
fully assessed the skills of its personnel to determine whether 
critical gaps to effectively monitor performance exist. Office of the 
DCMO officials acknowledged that while its assessment served as a 
baseline for training needs, a more comprehensive analysis is needed 
to identify specific skill gaps. In May 2013, GAO recommended that the 
DCMO develop a comprehensive plan to address identified gaps as part 
of a strategic approach to human capital planning. DOD did not concur 
with the recommendation, stating that the Office of the DCMO is a 
relatively small DOD component and the recommended action was designed 
for an entire agency. GAO disagreed and continues to believe that the 
2014 reorganization provided an opportunity to undertake a more 
complete assessment. Until the Office of the DCMO develops new 
performance measures and implements GAO's May 2013 recommendation on 
determining whether it has personnel with the appropriate skills to 
effectively monitor performance, the Office of the DCMO will be 
hindered in assessing progress made by its business transformation 
efforts. 

What GAO Recommends: 

GAO recommends that the CMO and DCMO document and communicate 
priorities for DOD's business transformation efforts and oversee the 
development of a correction action plan. GAO also recommends that the 
DCMO develop clear and comprehensive performance measures that are 
aligned with strategic goals to monitor the progress of its business 
transformation efforts. DOD concurred with GAO's recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-15-213]. For more 
information, contact Zina D. Merritt at (202) 512-5257 or 
merrittz@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD Senior Leadership Has Taken Some Steps to Address Business 
Transformation Weaknesses but Has Not Consistently Implemented Leading 
Performance Management Practices for Federal Agencies to Help Ensure 
Progress: 

The Office of the DCMO Collects Some Performance Information but Does 
Not Have Performance Measures with Key Attributes and Has Not Fully 
Assessed Its Capacity to Effectively Monitor Its Efforts: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Agency Priority Goals and Associated Performance Measures 
for the Department of Defense: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Roles and Responsibilities of the Chief Management Officer 
(CMO) and Deputy Chief Management Officer (DCMO): 

Table 2: List of Department of Defense and Department of Homeland 
Security Organizations We Contacted: 

Table 3: Department of Defense's (DOD) Agency Priority Goals and 
Associated Performance Measures Outlined on performance.gov: 

Figure: 

Figure 1: Timeline of Recommendations and Actions Related to Business 
Transformation: 

Abbreviations: 

CMO: Chief Management Officer: 

DBC: Defense Business Council: 

DCMO: Deputy Chief Management Officer: 

DHS: Department of Homeland Security: 

DMAG: Deputy's Management Action Group: 

DOD: Department of Defense: 

GPRA: Government Performance and Results Act of 1993: 

GPRAMA: GPRA Modernization Act of 2010: 

QDR: Quadrennial Defense Review: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

February 11, 2015: 

Congressional Committees: 

The Department of Defense (DOD) spends billions of dollars each year 
to maintain key business functions intended to support the 
warfighter.[Footnote 1] While DOD maintains military forces with 
unparalleled capabilities, it continues to confront pervasive, decades-
old management weaknesses related to its business functions--including 
outdated processes and systems--that support these forces.[Footnote 2] 
DOD's approach to business transformation is inextricably linked to 
DOD's ability to perform its overall mission, directly affecting the 
readiness and capabilities of U.S. military forces. 

In 2005, we designated DOD's approach to business transformation as 
high risk because DOD had not taken the necessary steps to achieve and 
sustain business reform on a broad, strategic, department-wide, and 
integrated basis.[Footnote 3] Overall, our high-risk program has 
served to identify and help resolve serious weaknesses in areas that 
involve substantial resources and provide critical services to the 
public. Since our program began, the government has taken high-risk 
problems seriously and has made long-needed progress toward correcting 
them. 

We define the scope of this high-risk area as encompassing the 
activities of the Chief Management Officer (CMO) and Deputy Chief 
Management Officer (DCMO) in engaging with responsible leaders to 
influence and provide oversight of business transformation efforts 
across DOD's business functions, and result in demonstrated and 
sustained progress.[Footnote 4] DOD's historical approach to business 
transformation has not proven effective in achieving meaningful and 
sustainable progress in a timely manner. For example, in February 
2013, we found that DOD had not established clear and specific 
management responsibility, accountability, and control over business 
transformation related efforts and applicable resources across its 
business functions.[Footnote 5] In February 2013, we also found that 
DOD did not have an integrated plan for business transformation with 
specific goals, measures, and accountability mechanisms to monitor 
performance and achieve progress.[Footnote 6] In August 2014, we also 
provided DOD with a letter outlining 13 actions and outcomes that we 
believe it should take to address long-standing weaknesses in its 
business transformation efforts, including ensuring that the Office of 
the DCMO has the capacity to collect accurate, useful, and timely 
performance data. We have identified long-standing issues that affect 
all of DOD's business functions and, as a result, determined during 
subsequent updates to GAO's High-Risk List that this area remains high 
risk.[Footnote 7] DOD devotes billions of dollars each year to 
maintain its business functions, and any failures of these functions 
can affect national security and DOD's ability to meet its missions. 

We initiated this review under the authority of the Comptroller 
General to address issues of broad interest to the Congress, with an 
emphasis on longer-range and transformational issues. This report 
determines the extent to which (1) DOD has taken steps to address 
DOD's business transformation weaknesses, and (2) the Office of the 
DCMO has effectively monitored the progress of its business 
transformation efforts. 

To determine the extent to which DOD has taken steps to address 
business transformation weaknesses, we reviewed policies and guidance 
for CMO and DCMO responsibilities and assessed whether policies and 
guidance are being implemented. In addition, we reviewed and assessed 
DOD's progress on meeting all five criteria for removing DOD's 
approach to business transformation from GAO's High-Risk List. This 
information can be found in GAO's 2015 High-Risk Update.[Footnote 8] 
We also identified leading performance management practices for 
federal agencies and compared those to current practices at DOD for 
its business transformation efforts.[Footnote 9] We reviewed the 
charter and agendas of the Defense Business Council (DBC) from 
calendars years 2013 and 2014 to determine the extent to which the CMO 
and DCMO discussed performance across DOD's business functions since 
our previous 2013 report on DOD's approach towards business 
transformation. Additionally, we researched and identified other 
agencies that had a CMO or Under Secretary for Management to identify 
leading practices in implementing these positions. From this, we 
selected the Department of Homeland Security (DHS) to include in our 
review because it (1) faced similar management challenges to DOD and 
(2) had an Under Secretary of Management. We examined the extent to 
which DHS implemented leading performance management practices for 
federal agencies to narrow the number of issues in its high-risk 
areas. We did not directly compare DOD to DHS, as the agencies differ 
in terms of mission, size, and structure, among other characteristics. 
Instead, we used examples from DHS to highlight efforts that agencies 
have made to address the criteria for removal from GAO's High-Risk 
List. 

To determine the extent to which the Office of the DCMO has 
effectively monitored the progress of its business transformation 
efforts, we reviewed performance measures for DOD's 13 Agency Priority 
Goals outlined on performance.gov. We also obtained information on how 
these measures were determined and how they were being applied, and 
interviewed Office of the DCMO officials and those responsible for 
DOD's business functions to verify this information.[Footnote 10] We 
compared DOD's performance measures to a subset of key attributes of 
successful performance that we selected based on the attributes used 
in our February 2013 business transformation report to assess DOD's 
performance measures for its business transformation efforts. We 
assessed these attributes to remain consistent with the methodology 
followed in 2013. This allowed us to gauge progress that has been made 
in improving these performance measures since our February 2013 
report.[Footnote 11] While these may not cover all key attributes of 
successful performance, we feel they are important for accurately 
assessing the strengths and weaknesses of performance measures. In 
addition, we interviewed Office of the DCMO officials and officials 
responsible for DOD's business functions about the progress made in 
monitoring its business transformation efforts. We also compared DOD's 
efforts to assess its capacity to monitor business transformation 
efforts with GAO's High-Risk List criteria for removal and leading 
performance management practices for federal agencies. 

We conducted this performance audit from December 2013 to February 
2015 in accordance with generally accepted government auditing 
standards.[Footnote 12] Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to 
provide a reasonable basis for our findings and conclusions based on 
our audit objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. 

Background: 

Key Recommendations and Actions Related to Business Transformation 
since 2005: 

In addition to GAO's High-Risk Update every 2 years, we have issued 
several reports on DOD's approach to business transformation since 
2005. DOD and Congress have also taken various actions related to this 
high-risk area. Figure 1 shows a timeline of our reports, including 
recommendations, as well as actions that DOD and Congress have taken. 

Figure 1: Timeline of Recommendations and Actions Related to Business 
Transformation: 

[Refer to PDF for image: timeline] 

Year: 2005; 

GAO reports and recommendations: 
GAO-05-207; 
* We designated DOD's approach to business transformation as a high-
risk area. 
Recommendations:
* Establish the Chief Management Officer (CMO) position as a separate 
full-time position with sufficient authority and an appropriate term 
to sustain progress across administrations. 
* Develop a comprehensive and integrated strategy for reforming DOD's 
major business areas. 

Department of Defense (DOD) and congressional actions: 
* DOD establishes the Defense Business Systems Management Committee 
(DBSMC) to recommend policies and procedures required to integrate DOD 
business transformation. 

* DOD establishes the Business Transformation Agency to integrate work 
of Principal Staff Assistants across DOD's core business mission 
activities. 

Year: 2006; 

Department of Defense (DOD) and congressional actions: 
* National Defense Authorization Act (NDAA) establishes a reporting 
requirement to conduct a study on the feasibility of establishing a 
Deputy Secretary of Defense for Management. 

Year: 2007; 

GAO reports and recommendations: 
GAO-07-310; 
* We found the need for DOD to establish sustained leadership with 
overall responsibility and accountability for business transformation.
Recommendations: 
* Create a Chief Management Officer position to have overall 
responsibility and accountability for business transformation. 
* Develop and implement an acquisition investment strategy. 

Department of Defense (DOD) and congressional actions: 
* DOD submits letter to Congress outlining plans to issue a directive 
designating the Deputy Secretary of Defense as the CMO responsible for 
business transformation. 

Year: 2008; 

Department of Defense (DOD) and congressional actions: 
* DOD releases its first Strategic Management Plan for business 
transformation. 
* NDAA requires the Secretaries of the military departments to 
designate their Under Secretaries as CMOs. 
* NDAA codifies CMO and DCMO positions without specifying a term 
appointment for the CMO. 

Year: 2009; 
GAO reports and recommendations: 
GAO-09-271; 
* We reiterated the importance of establishing a CMO position as a 
separate, full-time position with sufficient authority and an 
appropriate term to sustain progress across administrations.
Recommendation:
* Reiterated the importance of establishing the CMO position as a 
separate full-time Executive Level position with sufficient authority 
and an appropriate term to sustain progress across administrations. 

Department of Defense (DOD) and congressional actions: 
* DOD releases its fiscal year 2009 Strategic Management Plan for 
business transformation. 

Year: 2010; 

Department of Defense (DOD) and congressional actions: 
* Senate confirms the first DCMO appointment. 
* DOD releases its fiscal year 2011 Strategic Management Plan. 

Year: 2011; 

GAO reports and recommendations: 
GAO-11-278; 
* We found that DOD needed to take additional action to more clearly 
define management roles and responsibilities for the CMO and Deputy 
CMO (DCMO). 
Recommendation:
* More clearly define the relationship between the DCMO and military 
department CMOs. 

Department of Defense (DOD) and congressional actions: 
* DOD releases its fiscal year 2012-2013 Strategic Management Plan. 
* DOD disestablishes the Business Transformation Agency. 
* Deputy Secretary of Defense establishes the Deputy's Management 
Action Group as a senior leadership forum to prioritize issues having 
resource, management, and broad policy implications. 
* DOD establishes the Defense Business Council to implement and 
provide oversight of business management operations, monitor and 
review implementation of strategic goals, and evaluate departmental 
performance. 

Year: 2013; 

GAO reports and recommendations: 
GAO-13-283; 
* We found that greater clarity is needed to fully define how the 
department will measure progress and address long-term system 
challenges in key business areas. 
Recommendations:
* Refine measures to reflect core activities needed to assess progress.
* Develop corrective action plans that identify steps needed to 
achieve goals. 

Department of Defense (DOD) and congressional actions: 
* DOD releases its fiscal year 2014-2015 Strategic Management Plan. 
* Senate Armed Services Committee proposes draft legislation elevating 
DCMO to Under Secretary of Defense for Management. 
* Secretary of Defense Hagel announces intention to strengthen DCMO 
position by: 
- Reorganizing the Office of the Director of Administration and 
Management and its components as well as the Office of the Assistant 
to the Secretary of Defense for Intelligence Oversight under the 
Office of the DCMO. 
- Realigning oversight of business systems from the DCMO to the Office 
of the DOD Chief Information Officer. 
* DCMO retires. 

Year: 2014; 

Department of Defense (DOD) and congressional actions: 
* Acting DCMO appointed. 
* Reorganization of the Office of the DCMO to be completed by December 
2014. 

Year: 2015; 
 
Department of Defense (DOD) and congressional actions: 
* 2015 NDAA combines DCMO and Chief Information Officer into Under 
Secretary of Defense for Business Management and Information effective 
February 1, 2017. 

Source: GAO analysis of DOD data and legislation. GAO-15-213. 

[End of figure] 

The Role of DOD's CMO and DCMO: 

The CMO and DCMO have primary responsibilities set forth under 
statutes and department guidance related to improving the efficiency 
and effectiveness of operations across DOD's business functions. The 
CMO is responsible for ensuring that DOD's business functions are 
optimally aligned to support DOD's mission, and the DCMO is 
responsible for coordinating with officials in the Office of the 
Secretary of Defense, those responsible for DOD's business functions, 
and the military department CMOs through overseeing investment 
reviews, building analytic capabilities, and measuring 
performance.[Footnote 13] Additionally, the CMO--who is also the 
Deputy Secretary of Defense--authorizes the DCMO as the Principal 
Staff Assistant to issue policy and guidance regarding matters 
relating to the management and improvement of DOD business operations. 
In December 2013, the Secretary of Defense also issued a memo that 
broadened the responsibilities of the Office of the DCMO to facilitate 
better coordination and integration of DOD's business 
operations.[Footnote 14] Given these key responsibilities, our work on 
DOD's approach to business transformation focuses on CMO-and DCMO-led 
efforts to work with officials responsible for DOD's business 
functions. Effectively coordinating these functions is critical to 
aligning DOD's goals for improved business functions to achieve 
desired outcomes across the department. Table 1 summarizes the roles 
of the CMO and DCMO. 

Table 1: Roles and Responsibilities of the Chief Management Officer 
(CMO) and Deputy Chief Management Officer (DCMO): 

Role of CMO: 
Filled by the Deputy Secretary of Defense; 
* Ensure DOD's core business missions are optimally aligned to support 
DOD's warfighting mission; 
* Oversee the development of a department-wide Strategic Management 
Plan; 
* Chair the Deputy's Management Action Group, which is used to make 
cross-cutting departmental management decisions; 
* Improve DOD management and performance under the GPRA Modernization 
Act of 2010 (GPRAMA). 

Role of the DCMO: 
Currently filled by the Assistant DCMO; 
* Develop and maintain the defense business enterprise architecture, 
as well as integrate business operations; 
* Issue DOD policy and guidance in instructions as assigned by the CMO; 
* Advise the Secretary of Defense on performance goals and measures 
and assess progress against those goals; 
* Co-chair the Defense Business Council (DBC), which oversees DOD's 
business functions and identifies business process improvements; 
* Serve as the agency Performance Improvement Officer and assist the 
CMO in performance measurement and planning under GPRAMA. 

Source: GAO analysis of DOD data and legislation. GAO-15-213. 

Note: Data are from DOD Directives 5105.02 and 5105.82 and 
memorandums; 31 U.S.C. §1123; and 10 U.S.C. §§ 132 and 2222. 

[End of table] 

Government Performance and Results Act of 1993, GPRA Modernization Act 
of 2010, and Agency Performance Reviews: 

In 1993, Congress passed the Government Performance and Results Act of 
1993 (GPRA), which required federal agencies to develop strategic 
plans with long-term goals; performance plans with annual goals and 
measures; and performance reports on prior-year performance.[Footnote 
15] Congress subsequently amended GPRA with the GPRA Modernization Act 
of 2010 (GPRAMA), which includes several provisions intended to 
increase federal agencies' use of performance information to improve 
their performance and results.[Footnote 16] Under GPRAMA, the Deputy 
Secretary of Defense, as CMO and Chief Operating Officer, is 
responsible for improving the management and performance of the 
agency. The DCMO serves as the agency Performance Improvement Officer 
under GPRAMA and is to advise and assist the CMO in areas such as 
performance measurement and planning.[Footnote 17] 

GPRAMA also requires an agency head and Chief Operating Officer to 
conduct quarterly priority progress reviews.[Footnote 18] Such top 
leadership involvement can foster ownership and help ensure that 
participants take the reviews seriously and that decisions and 
commitments can be made during a review session.[Footnote 19] 
Specifically, agencies are required to assess how relevant programs 
and activities contribute to achieving agency priority goals; 
categorize goals by their risk of not being achieved; and, for those 
at risk, identify strategies to improve performance. GPRAMA also 
specifies that the reviews must occur on at least a quarterly basis 
and involve key leadership and other relevant parties both within and 
outside the agency.[Footnote 20] 

In addition to the requirements of GPRAMA, we also have identified 
nine leading practices for federal agencies to promote successful data-
driven performance reviews--also referred to as quarterly performance 
reviews--at the federal level.[Footnote 21] These leading practices 
include the following: 

* Agency leaders use data-driven reviews as a leadership strategy to 
drive performance improvement. 

* Key players attend reviews to facilitate problem solving. 

* Reviews ensure alignment between agency goals, program activities, 
and resources. 

* Agency leaders hold managers accountable for diagnosing performance 
problems and identifying strategies for improvement. 

* Agency has capacity to collect accurate, useful, and timely 
performance data. 

* Agency staff has skills to analyze and clearly communicate complex 
data for decision making. 

* Rigorous preparations enable meaningful performance discussions. 

* Reviews are conducted on a frequent and regularly scheduled basis. 

* Participants engage in rigorous and sustained follow-up on issues 
identified during reviews. 

Governance Structures: 

DOD has established governance structures to help monitor progress of 
its business transformation efforts, such as the Deputy's Management 
Action Group (DMAG) and the Defense Business Council (DBC). DOD 
established the DMAG in 2011 as the Deputy Secretary of Defense's 
principal forum for making cross-cutting department management 
decisions.[Footnote 22] The DBC was established in October 2012 to, 
among other things, review performance results to track performance 
goals. The DBC is co-chaired by the DCMO and DOD's Chief Information 
Officer.[Footnote 23] The DCMO chartered the DBC to provide "unified 
direction and leadership among DOD's functional areas and Components 
to synchronize actions across business areas and end-to-end processes 
and empower cross-functional, collaborative action to optimize DOD 
business operations and promote cost transparency." The charter 
specifically assigns the DBC responsibility for supporting the 
identification and development of business priorities for 
incorporation into relevant plans and policies and for overseeing 
performance management throughout DOD. The DBC, which is more narrowly 
focused and more responsible for improving the performance of DOD's 
business functions than the DMAG, can provide recommendations to the 
DMAG as necessary, as DOD works towards improving the performance of 
its business functions.[Footnote 24] 

DOD Senior Leadership Has Taken Some Steps to Address Business 
Transformation Weaknesses but Has Not Consistently Implemented Leading 
Performance Management Practices for Federal Agencies to Help Ensure 
Progress: 

DOD senior leadership--specifically the CMO and DCMO--has taken some 
steps to address business transformation weaknesses, but has not 
consistently implemented several leading performance management 
practices for federal agencies to help ensure additional progress in 
addressing those weaknesses. For example, the CMO and DCMO have not 
documented or communicated priorities to help ensure progress towards 
addressing business transformation weaknesses. In addition, until 
March 2014, the DCMO had not used the DBC governance structure to 
regularly discuss and hold responsible officials accountable for 
progress toward business goals. Finally, the CMO and DCMO have not 
overseen the development of a corrective action plan--one of the five 
criteria for an area to be removed from GAO's High-Risk List--to help 
ensure they and officials responsible for DOD's business functions 
address existing weaknesses. 

DOD Senior Leadership Has Taken Some Steps to Address Business 
Transformation Weaknesses: 

DOD senior leadership has taken some steps to address some business 
transformation weaknesses that we identified in our prior work, 
resulting in DOD partially meeting two of the high risk criteria, 
leadership commitment and capacity. In February 2013, we found that 
the CMO issued directives broadly outlining the responsibilities of 
the CMO and DCMO, and the DCMO issued an updated Strategic Management 
Plan to provide a strategy for business transformation.[Footnote 25] 
Since then, the Secretary of Defense issued a December 2013 memorandum 
to reorganize the Office of the DCMO by consolidating management 
activities from the Office of the Director of Administration and 
Management into the Office of the DCMO, and by reassigning 
responsibility for the department's business systems to DOD's Chief 
Information Officer.[Footnote 26] The Secretary of Defense also issued 
accompanying memorandums outlining broad steps for implementation of 
this reorganization that acknowledged the need for improved oversight 
of DOD's business areas. 

In July 2014, the Deputy Secretary of Defense issued a memorandum 
approving the consolidation of the Office of the Director of 
Administration and Management and the Office of the Assistant to the 
Secretary of Defense for Intelligence Oversight into the Office of the 
DCMO, and approved the realignment of designated functions and 
resources.[Footnote 27] As part of this reorganization, Office of the 
DCMO officials stated that they are planning to conduct Business 
Process and System Reviews for defense agencies and other offices 
within the Office of the Secretary of Defense to determine the extent 
to which cost savings and efficiencies can be achieved within these 
organizations. According to Office of the DCMO officials, the reviews 
are underway and there is no set deadline for completion. 

Additionally, in October 2014, Office of the DCMO officials stated 
that they were in the process of replacing the Strategic Management 
Plan with an agency strategic plan which will lay out a strategy for 
addressing business transformation weaknesses and identifying cost 
savings and efficiencies across DOD. In December 2014, the Office of 
the DCMO provided us with an outline of its agency strategic plan, 
which at the time was under development, but Office of the DCMO 
officials stated that they expect this plan to be finalized in 
February 2015. Based on our review of the outline, the agency 
strategic plan will provide a high-level strategy for addressing DOD's 
business operation weaknesses, but may not include all of the elements 
of a corrective action plan such as identifying the root causes of 
each business operation weakness, timelines for implementing 
corrective actions, specific personnel designated and responsible for 
implementing corrective measures, and identifying trade-offs for 
corrective actions taken. The Office of the DCMO has also developed a 
portfolio-based investment management process for its business systems 
called the Integrated Business Framework. According to DOD, this 
framework is expected to help better align DOD's business system 
investments with the guiding principles established by DOD to enable 
the department to strengthen efforts to identify costs associated with 
the operations of its business functions, and make cost reductions for 
these functions a priority. Furthermore, to assist DOD in its 
oversight of business transformation efforts, Congress passed and the 
President enacted a provision in the Carl Levin and Howard P. "Buck" 
McKeon National Defense Authorization Act for Fiscal Year 2015 to 
convert the DCMO to the Under Secretary of Defense for Business 
Management and Information.[Footnote 28] This new position, to begin 
in 2017, is expected to provide greater authority to supervise 
management of business operations and help, among other things, DOD 
further demonstrate its commitment to addressing business 
transformation efforts. 

DOD Senior Leadership Has Not Consistently Implemented Leading 
Performance Management Practices for Federal Agencies to Help Ensure 
Progress toward Addressing Business Transformation Weaknesses: 

Priorities: 

DOD senior leadership has not documented or communicated priorities 
for its business functions to help achieve progress toward addressing 
business transformation weaknesses. We found that there has been 
significant turnover of the CMO and DCMO as well as within the Office 
of the DCMO in recent years that may have contributed to the absence 
of documented business transformation priorities. Leading performance 
management practices for federal agencies state that documenting and 
communicating priorities is critical to ensure stakeholders have a 
clear understanding of the goals and direction of the organization. 
This can ultimately lead to improving performance.[Footnote 29] 
Additionally, DOD Directive 5105.02 states that DOD's CMO shall, among 
other things, be responsible for overseeing and improving DOD 
management and performance.[Footnote 30] Since 2007, there have been 
four CMOs with responsibilities for overseeing business transformation 
efforts. Also, since 2010, there have been one DCMO and two acting 
DCMOs with responsibilities for overseeing business transformation 
efforts. Additionally, in May 2014, the Office of the DCMO's Director 
of the former Planning and Performance Management Directorate resigned 
from his position and there has not yet been a permanent replacement 
assigned to the position.[Footnote 31] While federal agencies 
experience turnover in senior-level executive positions, we found that 
DHS has adopted leading performance management practices for federal 
agencies to help ensure its organizational priorities are documented 
and communicated. For example, in January 2011, DHS issued its initial 
management plan, the Integrated Strategy for High Risk Management, 
which includes key management initiatives and related corrective 
action plans for addressing its management challenges and addressing 
the weaknesses we identified as part of GAO's high-risk work.[Footnote 
32] Since issuing this plan, DHS has provided regular updates of the 
plan to update stakeholders on the agency's progress in implementing 
various management initiatives. In addition, DHS developed a web page 
in February 2014 to provide a single access point for communicating 
progress in achieving goals to all business functions. DHS officials 
stated that their integrated strategy and frequent meetings helped 
business functions continue to work towards meeting established goals. 
Further, DHS stated in its 2014 Integrated Strategy for High Risk 
Management that the efforts taken to develop an integrated strategy to 
ensure the department has a clear, well-defined plan for addressing 
its high-risk area, helped it narrow the number of issues identified 
as part of GAO's high-risk work.[Footnote 33] 

Office of the DCMO officials told us that they expect to communicate 
priorities in February 2015 as part of their agency strategic plan. 
However, officials responsible for DOD's business functions stated 
they had not received any guidance on establishing priorities for the 
new agency strategic plan. Providing guidance to DOD's business 
functions is an important step in ensuring that these business 
functions develop appropriate plans and implement applicable efforts 
to meet DOD priorities. Until DOD's CMO and Office of the DCMO 
documents its business transformation priorities and communicates 
these priorities to the officials responsible for DOD's business 
functions, it will be more difficult for the department to make 
anticipated progress in its business transformation efforts. 

Accountability Mechanisms: 

Until March 2014, the DCMO has not used the DBC--one of DOD's key 
governance structures for overseeing its business operations--to hold 
officials accountable for progress toward meeting its department-wide 
business goals, including addressing the business transformation 
weaknesses we have identified. According to leading performance 
management practices for federal agencies, requiring performance 
meetings be conducted on a frequent and regularly scheduled basis can 
help promote and improve agency performance as officials address 
performance deficiencies and ensure accountability for 
results.[Footnote 34] We found that of the 20 DBC meetings held in 
2013, 5 discussed performance management, including measures and 
progress, related to DOD's business goals. Seventeen meetings held in 
2013 generally focused on efforts to modernize DOD's business systems. 
According to Office of the DCMO officials, the office is legally 
required to ensure DOD is meeting requirements for its business 
systems, and thus its focus over the last few years has been on 
reviewing progress toward modernizing DOD business systems rather than 
assessing the progress of the department's business functions more 
broadly.[Footnote 35] 

DHS, which has faced a number of weaknesses in its business functions, 
took steps to ensure that the Deputy Secretary engages with officials 
responsible for the department's lines of business on a monthly basis 
to provide consistent senior-level oversight to address management 
integration and performance issues. Among other things, DHS 
established standard operating procedures that call for the Deputy 
Secretary to be briefed at least monthly to ensure senior leadership 
is informed on progress made toward addressing GAO's High-Risk areas 
and that management is held accountable for producing results. 

DOD's current CMO, who is also the Deputy Secretary of Defense, has 
brought an increased focus on business operations at DOD. In May 2014, 
DOD issued updated guidance to emphasize the DMAG's commitment to 
ensuring DOD continues to prioritize management decisions and 
identifying resources needed to accomplish DOD's business functions' 
efforts. Also, since March 2014, DBC meetings have been held more 
regularly and have begun focusing more heavily on the performance of 
DOD's business functions. We found that of the 13 DBC meetings held in 
2014, more than half of them discussed performance as it relates to 
DOD's business transformation efforts. In addition, the DBC is to 
recommend certification of business systems investments and is also 
responsible, among other things, for improving the department's 
business activities and management structures under its revised 
December 2014 charter.[Footnote 36] The revised charter also specifies 
that DBC meetings should be conducted on a biweekly basis. 

Corrective Action Plan: 

DOD senior leadership has not overseen the development of a corrective 
action plan to help officials responsible for DOD's business functions 
better understand the root causes hindering progress in its business 
transformation efforts and the solutions needed to address them. GAO's 
criteria for removal from the High-Risk List call for agencies to 
develop a corrective action plan that defines the root causes and 
solutions, and provides for substantially completing corrective 
measures in the near term.[Footnote 37] Leading performance management 
practices also state that agency leaders must hold managers 
accountable for diagnosing performance problems and identifying 
strategies for improvement.[Footnote 38] Office of the DCMO officials 
told us that they have not overseen the development of a department-
wide corrective action plan because they believe that DOD's business 
functions, rather than the office, are responsible for the development 
and implementation of their own individual corrective actions plans. 
While we agree that DOD's business functions could develop their 
corrective action plans, as DOD's Office of the Under Secretary of 
Defense (Comptroller) has done for financial management, it is 
important that the Office of the DCMO also oversee the development of 
any such plans to help ensure corrective actions are appropriate and 
fully address identified shortfalls throughout the department. 
[Footnote 39] 

DHS, which experienced similar organizational transformation 
challenges over the past several years to those of DOD, established 
its first corrective action plan in 2011 to address its management 
challenges and hold its leaders accountable for achieving performance 
results. Each chief executive for DHS's lines of business is also 
required to submit monthly action plans with projected dates for fully 
addressing each weakness identified as part of GAO's High-Risk work. 
In addition, the Deputy Secretary for Homeland Security convenes 
monthly meetings to discuss the latest report submissions and identify 
potential challenges to reaching stated goals. 

Given its oversight responsibility for improving the efficiency and 
effectiveness of business operations throughout DOD, we believe that 
the Office of the DCMO could initiate and work with DOD's business 
function officials to develop and assess such plans. For example, the 
Office of the DCMO could help DOD's business functions identify roles 
and responsibilities across DOD for implementing corrective actions 
needed to address business transformation weaknesses. In addition, the 
office could assist DOD's business functions with developing goals and 
timelines needed to strengthen business transformation efforts and 
identifying specific activities needed to achieve progress, including 
trade-offs, priorities, and any sequencing needed to implement the 
initiatives, and could help leaders plan for and provide the resources 
needed to implement the corrective actions identified. Further, DOD's 
agency strategic plan, currently under development, could be used to 
identify goals and establish an accountability mechanism for the 
development of a department-wide corrective action plan in 
coordination with any individual corrective action plans prepared by 
DOD's business functions. Without such an accountability mechanism for 
achieving results in their business transformation efforts or a 
corrective action plan to address related weaknesses, the CMO and DCMO 
will not be able to effectively hold DOD's business functions 
accountable for achieving their goals. 

The Office of the DCMO Collects Some Performance Information but Does 
Not Have Performance Measures with Key Attributes and Has Not Fully 
Assessed Its Capacity to Effectively Monitor Its Efforts: 

The Office of the DCMO collects some performance information related 
to its business transformation efforts; however, the Office of the 
DCMO does not have effective measures in place to assess progress 
toward DOD's strategic goals and has not effectively monitored the 
progress of its business transformation efforts. For example, the 
office does not have performance measures that are clear, 
comprehensive, or linked to strategic goals outlined in DOD's 
Quadrennial Defense Review (QDR). In addition, the office has not 
fully assessed the capacity needed to monitor its business 
transformation efforts. 

The Office of the DCMO Collects Some Performance Information from 
DOD's Business Functions, but Its Performance Measures Do Not Include 
Several Key Attributes: 

The Office of the DCMO collects information from its business 
functions on 13 performance measures associated with the Agency 
Priority Goals, which are a subset of the performance goals from its 
agency performance plan that is required by GPRAMA for certain 
executive agencies.[Footnote 40] These Agency Priority Goals are 
intended to reflect the highest priorities of the agency and are 
required to include ambitious targets that can be achieved within a 2-
year period with existing resources as well as clearly defined 
quarterly milestones.[Footnote 41] The 13 Agency Priority Goals' 
performance measures are outlined at performance.gov, a website that 
the White House uses to provide performance-related information about 
federal agencies to the public.[Footnote 42] The Office of the DCMO is 
also participating in a several-year pilot with the Office of 
Management and Budget to develop a standardized federal data 
collection system with dashboard capabilities to monitor performance. 
According to DOD, this system should provide the office with tools to 
implement an effective management system. 

In February 2013, we assessed DOD's progress in improving its measures 
along three of nine key attributes of successful performance.[Footnote 
43] These three attributes are the following: 

* Clarity: measure is clearly stated and the name and definition are 
consistent with the methodology used to calculate it. 

* Core program activities: measures comprehensively cover the 
activities that an entity is expected to perform to support the 
content of the program. 

* Linkage: measure is aligned with division and agency-wide goals and 
missions and clearly communicated throughout the organization. 

Furthermore, these attributes are important in establishing an 
effective set of performance measures that allows program managers to 
assess progress against goals over time. For example, a measure that 
is not clearly stated or has a definition that is not consistent with 
how it is calculated could confuse users and cause managers to think 
that performance was better or worse than it actually was. Similarly, 
measures that provide linkage with agency goals and missions are 
critical in demonstrating how an agency's day-to-day activities 
contribute to attaining agency-wide goals and missions. Likewise, 
measures that are not assessing the key programmatic activities of an 
agency--its core program activities--will hinder the ability of 
program managers and other stakeholders to assess progress and target 
the appropriate areas for improvement. As part of this review, we 
assessed DOD's 13 Agency Priority Goals' performance measures against 
these same three key attributes to assess what progress DOD had made 
in improving its performance measures and found that their measures 
did not consistently incorporate these attributes. For example: 

* Clarity. Office of the DCMO officials and those responsible for 
DOD's business functions have cited difficulty in developing 
performance measures across its business goals using a consistent 
methodology. For example, officials with the Office of the Under 
Secretary of Defense for Personnel and Readiness stated that some 
performance measures are difficult to quantify and report. Office of 
the DCMO officials also noted that the information provided by the 
business functions is unclear and not consistently collected across 
all business functions. Based on our assessment of the 13 Agency 
Priority Goals' performance measures, the information these measures 
are collecting is unclear. For example, according to officials from 
the Under Secretary of Defense for Personnel and Readiness, it is 
difficult to quantify some measures and report on them, such as 
improving the agency's civilian hiring plans. 

* Core program activities. Office of the DCMO officials and those 
responsible for DOD's business function cited difficulties in 
developing a set of performance measures that reflect all of the 
activities that DOD's business functions carry out. For example, 
officials in the Office of the Chief Information Officer, and the 
Under Secretary for Acquisition, Technology and Logistics acknowledged 
that the current performance measures are not useful because they do 
not reflect their programmatic activities and that reporting on them 
is instead a compliance drill rather than an assessment of 
performance. Office of the DCMO officials expressed similar concerns. 
These officials briefed the DBC on the performance measurement process 
in May 2013 and said the current measures do not include all of DOD's 
core program activities. Under Secretary of Defense for Personnel and 
Readiness officials stated that while some aspects of performance 
management seem to be a compliance drill, the measures used by the 
Office of the DCMO do reflect its day-to-day activities and 
operations, and are relevant. Based on our assessment of the 13 Agency 
Priority Goals' performance measures, these measures do not 
incorporate some of DOD's business functions, such as supply chain 
management and enterprise information technology infrastructure. 

* Linkage. Office of the DCMO officials and those responsible for the 
acquisition, personnel, and financial management business functions 
also acknowledged that the 13 Agency Priority Goals' performance 
measures do not align with strategic goals outlined in DOD's 2010 
Quadrennial Defense Review, DOD's most recent overarching defense 
strategy available at the time the performance measures were 
developed.[Footnote 44] All of the officials responsible for business 
functions with whom we spoke cited challenges in developing measures 
that align both with the QDR and the President's annual budget. For 
example, officials from the Under Secretary of Defense for 
Acquisition, Technology and Logistics said that some of the measures 
used to gauge its program success, such as the accomplishments it has 
achieved by its demolition program, do not link to the goals in the 
QDR or the measures included in the Agency Priority Goals' performance 
measures.[Footnote 45] See appendix II for the list of DOD's Agency 
Priority Goals and associated performance measures. 

Office of the DCMO officials and those responsible for DOD's business 
functions have acknowledged that the 13 Agency Priority Goal 
performance measures do not effectively assess performance. The Office 
of the DCMO is in the process of developing new measures. Office of 
the DCMO officials said that they will continue to use the 13 Agency 
Priority Goals' performance measures until they develop new ones. 
Office of the DCMO officials started meeting with officials 
responsible for DOD's business functions over the summer 2014 to 
revise the existing measures for its new agency strategic plan. 
However, officials ended the planning meetings and did not indicate 
when the meetings would resume. Furthermore, according to several 
officials responsible for DOD's business functions, the Office of the 
DCMO has not provided them with guidance to develop new performance 
measures as of December 2014. Office of the DCMO officials stated that 
they expect to develop a more effective set of performance measures as 
they complete their Business System and Process Reviews. However, as 
noted earlier, while these reviews were initiated in September 2014, 
the time frame for completion remains uncertain. The Office of the 
DCMO could take specific actions to improve its process for monitoring 
the performance of its business transformation efforts. For example, 
the office could develop performance measures that ensure linkage 
between DOD goals, business function activities, and resources. The 
office could also ensure that the performance measures hold DOD's 
business functions accountable for providing needed input to assess 
progress. Until the Office of the DCMO works with DOD's business 
functions to develop performance measures that are clear, 
comprehensive, and aligned with DOD's strategic goals, it will be 
difficult for DOD to have all of the information necessary to measure 
progress in achieving its business goals. 

The Office of the DCMO Conducted an Analysis of Workforce Skills but 
Has Not Fully Assessed the Capacity Needed to Collect and Analyze 
Performance Information: 

The Office of the DCMO conducted a high-level assessment of its 
personnel in October 2014 as part of its reorganization to determine 
their placement within its office based on input and work experience. 
However, Office of the DCMO officials have not fully assessed the 
skills of its personnel to determine whether critical gaps exist for 
effectively monitoring DOD's business transformation efforts, 
specifically personnel with the skills needed to collect and analyze 
performance information. Prior to the reorganization, the Office of 
the DCMO had three full-time employees assigned to monitor its 
business transformation efforts. One of GAO's High-Risk criteria for 
removal is for agencies to have the capacity--people and resources--to 
resolve identified issues. Further, key practices for successful data-
driven performance reviews identify that agency staff have skills to 
analyze and clearly communicate complex information for decision 
making.[Footnote 46] 

Office of the DCMO officials responsible for monitoring DOD's business 
transformation efforts acknowledged in July 2014 that they do not know 
whether the current personnel have all of the skills necessary to 
collect and analyze performance information in order to effectively 
monitor its business transformation efforts. For example, many of the 
personnel in this office have expertise in business systems and 
information technology, but few have expertise in strategic planning 
and performance management. After its analysis in October 2014, the 
Office of the DCMO increased personnel to monitor business 
transformation efforts from 3 to 16, but officials have not fully 
assessed how many of these personnel have the skills needed to collect 
and analyze performance information. Office of the DCMO officials 
acknowledge that while its analysis serves as a baseline assessment of 
the training needs of its personnel, a more comprehensive and 
objective analysis of critical skills and competencies may be needed 
in the future. 

DOD's annual strategic workforce plan requires it to report on the 
critical skills and competencies that will be needed in its future 
workforces.[Footnote 47] We have previously found that having civilian 
personnel with relevant skills is critical to achieving DOD's mission, 
and that it is important for DOD to conduct gap analyses of its 
critical skills and competencies.[Footnote 48] We concluded that doing 
so can help an agency align its human capital requirements and sustain 
the contributions of all its critical skills and competencies needed 
for the future. For example, in May 2013, we reviewed the DCMO's 
management of DOD's business systems modernization efforts, which 
includes improvements for approximately 1,200 business systems and 
about $6.8 billion in approved funding for fiscal year 2013.[Footnote 
49] However, we found that the department was not able to effectively 
implement key components of its business systems modernization 
program, strategic planning activities, and other efforts, in part 
because Office of the DCMO personnel did not have the necessary skills 
to do so. Therefore, we recommended that the Secretary of Defense 
direct the DCMO to develop a skills inventory, needs assessment, gap 
analysis, and plan to address identified gaps as part of a strategic 
approach to human capital planning for the Office of the DCMO. DOD did 
not concur with our recommendation and stated that the Office of the 
DCMO is a relatively small component of the Office of the Secretary of 
Defense and that we had directed the office to undertake a level of 
activity normally designed for an entire agency. 

While we recognized that the office was a relatively small component 
of DOD, as we concluded, the success of any program depends on 
effectively leveraging people to achieve defined outcomes and results. 
Further, the Office of the DCMO continues to face challenges in, among 
other things, monitoring the progress of its business transformation 
efforts. The Office of the DCMO's reorganization provided an 
opportunity for officials to undertake a more complete assessment of 
the skills and competencies of the office's personnel. However, 
officials in the Office of the DCMO did not take advantage of this 
opportunity, although they stated to us that a more detailed 
assessment of the skills and competencies would likely be needed at 
some time in the future. Implementing our May 2013 recommendation 
would help ensure that its personnel are appropriately sized and have 
the right mix of skills and competencies to effectively monitor its 
business transformation efforts. 

Conclusions: 

Long-standing management weaknesses related to DOD's business 
functions hinder the department's ability to address higher-priority 
needs. While DOD has taken some steps to address business 
transformation weaknesses, the CMO and DCMO have not consistently 
applied leading performance management practices for federal agencies 
to document and communicate business transformation priorities or 
overseen the development of a corrective action plan, or set thereof, 
that outlines root causes and solutions to address them. Documenting 
and communicating priorities along with overseeing the development of 
a corrective action plan will better position DOD to fulfill its 
mission with greater efficiency and effectiveness. In addition, the 
Office of the DCMO has not implemented effective mechanisms to monitor 
the progress of DOD's business transformation efforts. Additionally, 
the performance measures DOD currently uses lack key attributes of 
successful performance measures, including not being linked to its 
overall strategic plan. Developing clear, comprehensive performance 
measures that align with DOD's strategic goals could help DOD to 
assess department-wide progress against its business goals and clarify 
what additional steps decision makers need to take to carry out 
effective oversight. Further, we continue to believe that fully 
assessing the skills and competencies of its personnel--as we 
recommended in May 2013--will allow the Office of the DCMO to more 
effectively monitor the progress of its business transformation 
efforts. Without taking these steps, including implementing our May 
2013 recommendation, DOD will be hindered in addressing its long-
standing weaknesses or achieving expected business transformation 
outcomes. Once these actions are taken, DOD will be better positioned 
to demonstrate the sustainable progress needed in its approach to 
business transformation to meet the criteria for removal from GAO's 
High-Risk List. 

Recommendations for Executive Action: 

We are making three recommendations to help DOD increase the 
efficiency and effectiveness of its management of its business 
operations. 

To enhance DOD's ability to achieve its business transformation 
efforts, we recommend that the Secretary of Defense direct the Deputy 
Secretary of Defense, in his capacity as the CMO, to ensure that the 
DCMO takes the following two actions: 

* document business transformation priorities and communicate these 
priorities to officials responsible for DOD's business functions; and: 

* oversee the development of a corrective action plan, in coordination 
with officials responsible for DOD business functions, that outlines 
the root causes for business transformation weaknesses and the 
solutions needed to address those weaknesses. 

To enhance DOD's ability to monitor the progress of its business 
transformation efforts, we recommend that the Secretary of Defense 
direct the Office of the DCMO to, in coordination with officials 
responsible for DOD's business functions, develop performance measures 
that reflect key attributes of successful performance measures, such 
as clarity, comprehensiveness, and linkage. 

Agency Comments: 

We provided a draft of this report to DOD for review and comment. In 
written comments, which are reprinted in appendix III, DOD concurred 
with our recommendations and stated that they look forward to 
continued cooperation and dialogue toward improving business 
transformation and performance management throughout the department. 
DOD also provided technical comments, which were incorporated into 
this report as appropriate. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Defense, the Deputy Secretary of Defense, 
and the Secretary of Homeland Security. In addition, the report is 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-5257 or merrittz@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. Key contributors to this report are 
listed in appendix IV. 

Signed by: 

Zina D. Merritt: 
Director: 
Defense Capabilities and Management: 

List of Committees: 

The Honorable John McCain: 
Chairman: 
The Honorable Jack Reed: 
Ranking Member: 
Committee on Armed Services United States Senate: 

The Honorable Mac Thornberry: 
Chairman: 
The Honorable Adam Smith: 
Ranking Member: 
Committee on Armed Services House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the extent to which the Department of Defense (DOD) has 
taken steps to address business transformation weaknesses, we reviewed 
policies and guidance for Chief Management Officer (CMO) and Deputy 
Chief Management Officer (DCMO) responsibilities, such as DOD 
Directive 5105.02, which identifies the responsibilities of the CMO, 
and Directive 5105.82, which describes those of the DCMO, as well as 
DOD's Strategic Management Plan, and assessed whether policies and 
guidance are being implemented. We also identified leading performance 
management practices for federal agencies established in our prior 
work and compared those to current practices for DOD's business 
transformation efforts. We reviewed the charter and agendas of the 
Defense Business Council (DBC) from calendar years 2013 and 2014 to 
determine the extent to which the CMO and DCMO discussed performance 
across DOD's business functions and held officials responsible for 
DOD's business functions accountable. We selected these two years to 
provide us with a better understanding on the progress made by DOD 
since our 2013 review on DOD business transformation. We also met with 
Office of the DCMO officials to determine the extent to which both the 
CMO and DCMO have demonstrated leadership commitment and set 
priorities for business transformation. 

Additionally, we researched and identified other agencies that had a 
CMO or Under Secretary of Management to identify leading practices in 
implementing these positions. From this, we determined the Department 
of Homeland Security (DHS) was an appropriate agency to include in our 
review because it (1) faced similar management challenges to DOD and 
(2) had an Under Secretary of Management. We examined the extent to 
which DHS implemented leading performance management practices for 
federal agencies to narrow the number of issues in its high-risk 
areas. We also examined leading performance management practices DHS 
implemented to identify those that may be potentially applicable for 
DOD. Additionally, we conducted interviews with officials responsible 
for DHS lines of business as well as its Office of Management 
Integration, which serves as the lead office within DHS responsible 
for coordinating management activities, along with tracking 
performance measurements across all DHS lines of business, among other 
responsibilities. We did not directly compare DOD to DHS, as the 
agencies differ in terms of mission, size, and structure, among other 
characteristics. Instead, we use examples from DHS to highlight 
efforts that agencies have made to address the criteria for removal 
from GAO's High-Risk List. 

To determine the extent to which the Office of the DCMO has 
effectively monitored the progress of its business transformation 
efforts, we compared the 13 performance measures associated with the 
Agency Priority Goals listed on performance.gov to key attributes of 
successful performance measures for federal agencies that GAO 
previously established by, among other steps, considering key 
legislation such as the Government Performance and Results Act of 
1993. Of the nine key attributes GAO previously established, we 
selected the same three attributes used in our February 2013 report to 
assess DOD's performance measures for its business transformation 
efforts. We assessed these three attributes to remain consistent with 
the methodology used in our February 2013 report on DOD's business 
transformation, and to evaluate the department's progress in 
addressing its business transformation weaknesses. Following this 
approach also allowed us to gauge what progress has been made in 
improving these performance measures since our February 2013 report. 
While these measures may not cover all key attributes of successful 
performance, we feel they are important for accurately assessing the 
strengths and weaknesses of performance. We shared these attributes 
with Office of the DCMO officials and those responsible for DOD's 
business function officials, and they agreed that these criteria were 
appropriate. We also obtained information associated with these 
measures from and interviewed Office of the DCMO officials and those 
responsible for DOD's business functions. We compared DOD's 
performance measures to the three key attributes of successful 
performance measures we selected. We did so by asking one analyst to 
assess whether each of the 13 performance measures included the three 
key attributes we selected based on the description of those 
attributes from our prior work, and then another analyst verified this 
assessment. Any discrepancies in the assessment of the two analysts 
were discussed and addressed by the analysts. In addition, we 
interviewed Office of the DCMO officials and those responsible for 
DOD's business functions about their monitoring of business 
transformation efforts. 

We also compared DOD's efforts to assess its capacity to monitor 
business transformation efforts with GAO's high-risk criteria for 
removal and our prior work on a leading performance management 
practices for federal agencies.[Footnote 50] We did so by asking one 
analyst to assess whether the steps DOD had taken to monitor its 
business transformation efforts met, partially met, or did not meet 
the monitoring criterion from GAO's high-risk criteria for removal, 
and then another analyst verified this assessment. Any discrepancies 
in the assessment of the two analysts were discussed and addressed by 
the analysts. Table 2 shows the organizations we visited or contacted 
during the course of our review. 

Table 2: List of Department of Defense and Department of Homeland 
Security Organizations We Contacted: 

Department of Defense: 

Office of the Deputy Chief Management Officer; 
Office of the Under Secretary of Defense for Acquisition, Technology 
and Logistics; 
Office of the Under Secretary of Defense for Personnel and Readiness; 
Office of the Under Secretary of Defense (Comptroller); 
Office of the Chief Information Officer; 
Joint Staff, J8 - Acquisition Policy and Process; 
Department of the Army, Business Transformation Office; 
Department of the Navy, Business Transformation Office; 
Department of the Air Force, Business Transformation Office. 

Department of Homeland Security;: 
Office of Management Integration; 
Office of the Chief Information Officer; 
Office of Human Capital; 
Office of Financial Management. 

Source: GAO. GAO-15-213. 

[End of table] 

We conducted this performance audit from December 2013 to February 
2015 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Agency Priority Goals and Associated Performance Measures 
for the Department of Defense: 

As required by the Government Performance Results Act (GPRA) 
Modernization Act of 2010, the Department of Defense (DOD) has 
established four Agency Priority Goals to improve performance and 
accountability within its organization, improve expected performance 
outcomes, and drive progress. In addition, specific performance 
measures have been created to determine how close DOD is toward 
meeting its priority goals. Table 3 shows DOD's four Agency Priority 
Goals and its 13 performance measures, which were outlined on 
performance.gov. 

Table 3: Department of Defense's (DOD) Agency Priority Goals and 
Associated Performance Measures Outlined on performance.gov: 

Transition to Veterans: 

1. Verified percent of service members who have separated and attended 
(a) pre-separation counseling, (b) a Department of Labor Employment 
workshop, and (c) Veterans Affairs Benefits briefings prior to their 
separation. 

2. Percent of Service members who meet DOD core Integrated Disability 
Evaluation System process time and satisfaction goals. 

3. Verified percent of eligible service members who separated and met 
Career Readiness Standards prior to their separation. 

4. Percent of wounded, ill and injured service members who are 
enrolled in a service recovery coordination program and have an 
established and active recovery plan administered by a DOD-trained 
Recovery Care Coordinator. 

Transition to Veterans: Improving Energy Performance: 

5. Cumulative average percent reduction in building energy intensity. 

6. Percentage of renewable energy produced or procured based on DOD's 
annual electric energy usage. 

Transition to Veterans: Reform the DOD Acquisition Process: 

7. Median cycle time deviation from the previous year for active Major 
Defense Acquisition Programs (MDAPs) starting in fiscal year 2002 and 
after. 

8. Average rate of acquisition cost growth from the previous year for 
MDAPs starting in fiscal year 2002 and after. 

9. Number of MDAP breaches equal to or greater than 15 percent of 
current Acquisition Program Baseline (APB) unit cost or equal to or 
greater than 30 percent of original APB unit cost for reasons other 
than approved changes in quantity. 

10. Percentage of contract obligations that are competitively awarded. 

Transition to Veterans: DOD Financial Statement Audit Readiness: 

11. Percent of DOD's General Funds, Fund Balance with Treasury, 
validated as audit-ready. 

12. Percent of DOD's general funds Statement of Budgetary Activity for 
material Components validated as audit-ready. 

13. Percent of DOD mission-critical assets (Real Property, Military 
Equipment, General Equipment, Operating Materials and Supplies, and 
Inventory balances) validated as audit-ready for existence and 
completeness. 

Source: Performance.gov. GAO-15-213. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office of the Deputy Chief Management Officer: 
9010 Defense Pentagon: 
Washington, DC 20501-9010: 

February 6, 2015: 

Ms. Zina Merritt: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548-0001: 

Dear Ms. Merritt: 

This is the Department of Defense (DoD) response to the Government 
Accountability Office (GAO) draft report GAO-15-213, “Defense Business 
Transformation: DoD Has Taken Some Steps to Address Weaknesses but 
Additional Actions Are Needed,” dated January 23, 2015 (GAO Code 
351883). GAO recommended that the Secretary of Defense direct the 
Deputy Secretary of Defense, in his capacity as the Chief Management 
Officer (CMO), to ensure that the Deputy CMO takes the following three 
actions: 

* Document business transformation priorities and communicate these 
priorities to officials responsible for DoD's business functions. 

* Oversee the development of a corrective action plan, with officials 
responsible for DoD business functions, that outlines the root causes 
for business transformation weaknesses and solutions needed to address 
those weaknesses. 

* In coordination with officials responsible for DoD's business 
functions, develop performance measures that reflect key attributes of 
successful performance measures, such as clarity, comprehensiveness, 
and linkage. 

The Department concurs with each of the draft report recommendations 
and appreciates the opportunity to respond to your draft report. We 
look forward to your continued cooperation and dialog toward our 
common goal of improving business transformation and performance 
management throughout the DoD. 

Should you have any questions, [redacted] 

Sincerely, 

[redacted] 

David Tillotson III: 
Assistant Deputy Chief Management Officer: 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Zina D. Merritt, (202) 512-5257 or merrittz@gao.gov. 

Staff Acknowledgments: 

In addition to the contact named above, Tina Won Sherman (Assistant 
Director), Tracy Barnes, Elizabeth Curda, Timothy DiNapoli, Gina 
Flacco, Michael Holland, Mary Catherine Hult, Jason Jackson, James 
Kernen, Asif Khan, Joanne Landesman, Lisa McMillen, Richard Powelson, 
Ophelia Robinson, Kathleen Sharkey, Michael Silver, and Amie Lesser 
made key contributions to this report. 

[End of section] 

Footnotes: 

[1] DOD considers the following areas to be its business functions: 
financial management, acquisition, defense security enterprise, 
installations and environment, logistics, human resources and health 
care management, security cooperation, and enterprise information 
technology infrastructure. 

[2] Our prior body of work on DOD business transformation, dating back 
to 2005, has identified weaknesses associated with DOD's business 
transformation efforts. For example, we found weaknesses including 
DOD's inability to address acquisition inefficiencies, develop a 
reliable and comprehensive inventory of all defense business systems, 
and improve management and accountability of DOD's business functions, 
among other things. See for example, GAO, Defense Management: Key 
Elements Needed to Successfully Transform DOD's Business Operations, 
[hyperlink, http://www.gao.gov/products/GAO-05-629T] (Washington, 
D.C.: Apr. 28, 2005); GAO, Organizational Transformation: Implementing 
Chief Operating Officer/Chief Management Officer Positions in Federal 
Agencies, [hyperlink, http://www.gao.gov/products/GAO-08-34] 
(Washington, D.C.: Nov. 1, 2007); and GAO, Defense Business 
Transformation: Improvement Made but Additional Steps Needed to 
Strengthen Strategic Planning and Assess Progress, [hyperlink, 
http://www.gao.gov/products/GAO-13-267] (Washington, D.C.: Feb. 12, 
2013). 

[3] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-05-207] (Washington, D.C.: Jan. 2005). 

[4] We define business transformation efforts as actions taken by DOD 
to increase the efficiency of DOD business function programs, or to 
decrease costs associated with these programs. These efforts include 
consolidating business systems, or decreasing acquisition costs across 
DOD. Other DOD areas on GAO's High-Risk List span several of the 
department's business functions and are thus interrelated with DOD's 
business transformation efforts. These areas include: support 
infrastructure management, financial management, weapon system 
acquisition, contract management, supply chain management, and 
business systems modernization. 

[5] See [hyperlink, http://www.gao.gov/products/GAO-13-267]. 

[6] We recommended, among other things, that DOD define its 
performance management approach and better develop its plan for 
business transformation. DOD generally concurred with our 
recommendations. 

[7] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: Feb. 14, 
2013). 

[8] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-15-290] (Washington, D.C.: Feb. 11, 
2015). Agencies must meet the following five criteria to be removed 
from GAO's High-Risk List: (1) a strong commitment to, and top 
leadership support for, addressing problems; (2) the capacity to 
address problems; (3) a corrective action plan; (4) a program to 
monitor corrective measures; and (5) demonstrated progress in 
implementing corrective measures. 

[9] See [hyperlink, http://www.gao.gov/products/GAO-08-34] and 
Managing for Results: Data-Driven Performance Reviews Show Promise But 
Agencies Should Explore How to Involve Other Relevant Agencies, 
[hyperlink, http://www.gao.gov/products/GAO-13-228] (Washington, D.C.: 
Feb. 27, 2013). 

[10] For the purposes of this review, other offices responsible for 
DOD's business functions include the Office of the Chief Information 
Officer; the Office of the Under Secretary of Defense for Acquisition, 
Technology and Logistics; the Office of the Under Secretary of Defense 
for Personnel and Readiness; and the Office of the Under Secretary of 
Defense (Comptroller). 

[11] See GAO, Tax Administration: IRS Needs to Further Refine Its Tax 
Filing Season Performance Measures, [hyperlink, 
http://www.gao.gov/products/GAO-03-143] (Washington, D.C.: Nov. 22, 
2002) and [hyperlink, http://www.gao.gov/products/GAO-13-267]. GAO 
established criteria for developing performance measures by, among 
other steps, considering key legislation such as the Government 
Performance and Results Act of 1993. These criteria are applicable for 
all federal agencies to effectively assess overall program performance. 

[12] On August 15, 2014, we provided DOD with a letter identifying 13 
actions and outcomes needed to address its high-risk designation 
related to its business transformation efforts. These actions and 
outcomes include ensuring that the Office of the DCMO has the capacity 
to collect accurate, useful, and timely performance data and 
developing a corrective action plan. 

[13] DOD Directive 5105.02, Deputy Secretary of Defense (May 5, 2014) 
and DOD Directive 5105.82, Deputy Chief Management Officer of the 
Department of Defense (Oct. 17, 2008) outline the responsibilities of 
the CMO and DCMO. 

[14] Secretary of Defense Memorandum, Results of the Office of the 
Secretary of Defense Organizational Review (Dec. 4, 2013). 

[15] Pub. L. No. 103-62 (1993). 

[16] Pub. L. No. 111-352 (2011). 

[17] See Pub. L. No. 111-352 (2011) and DOD Directive 5105.82. Deputy 
Chief Management Officer (DCMO) of the Department of Defense (Oct. 17, 
2008). 

[18] See Pub. L. No. 111-352 (2011) (codified at 31 U.S.C. § 1121). 

[19] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[20] Although the law refers to them as "quarterly priority progress 
reviews," agencies may conduct these reviews on a regularly occurring 
basis that is more frequent than quarterly. GPRAMA requires these 
reviews to be conducted by an agency head and Chief Operating Officer, 
among other provisions. 

[21] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[22] See Deputy Secretary of Defense Memorandum, Management Process 
for the Deputy Secretary of Defense (Oct. 11, 2011). 

[23] Deputy Chief Management Officer Memorandum, Defense Business 
Council (Oct. 18, 2012) and charter revised by Office of the Secretary 
of Defense Memorandum, Defense Business Council (Dec. 10, 2014). DBC 
members are: DCMO; DOD Chief Information Officer; Under Secretary of 
Defense for Acquisition, Technology and Logistics; Under Secretary of 
Defense for Policy; Under Secretary of Defense (Comptroller)/Chief 
Financial Officer, DOD; Under Secretary of Defense for Personnel and 
Readiness; Under Secretary of Defense for Intelligence; Director, Cost 
Assessment and Program Evaluation; Joint Staff; Department of the 
Army, Deputy Chief Management Officer; Department of the Army, Chief 
Information Officer; Department of the Navy, Deputy Chief Management 
Officer; Department of the Navy, Chief Information Officer; Department 
of the Air Force, Deputy Chief Management Officer; and Department of 
the Air Force, Chief Information Officer. 

[24] The Deputy Secretary of Defense Memorandum, Framework for the 
Deputy's Management Action Group (May 23, 2014) provided a new 
framework for the DMAG and established an Executive Secretariat to 
ensure the effective prioritization of DOD resources, management, and 
broad strategic or policy implications, or both. 

[25] [hyperlink, http://www.gao.gov/products/GAO-13-267]. 

[26] See Secretary of Defense Memorandum, Results of the Office of the 
Secretary of Defense Organizational Review (Dec. 4, 2013). DOD's Chief 
Information Officer has now been assigned with the responsibility of 
monitoring and evaluating the performance of DOD information 
technology investments through applicable performance measures and 
advising the Secretary of Defense and other responsible stakeholders 
on whether to continue or terminate such investments, among other 
responsibilities. 

[27] See Deputy Secretary of Defense Memorandum, Reorganization of the 
Office of the Deputy Chief Management Officer (July 11, 2014). 

[28] See Pub. L. No. 113-291, § 901 (2014). 

[29] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[30] Department of Defense Directive 5105.02, Deputy Secretary of 
Defense. 

[31] The former Planning and Performance Management Directorate has 
been renamed as the Planning Performance and Assessment Directorate. 

[32] Department of Homeland Security, DHS Integrated Strategy for High 
Risk Management, Report to the Government Accountability Office 
(January 2011). 

[33] Department of Homeland Security, DHS Integrated Strategy for High 
Risk Management (March 2014). 

[34] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[35] See 10 U.S.C. § 2222, which requires DOD to certify that any 
business system program that will have a total cost in excess of 
$1,000,000 over the period of the current future-years defense program 
submitted to Congress complies with the business enterprise 
architecture and has undertaken appropriate business process 
reengineering, among other things. 

[36] Office of the Secretary of Defense Memorandum, Defense Business 
Council (Dec. 10, 2014). 

[37] [hyperlink, http://www.gao.gov/products/GAO-01-159SP]. 

[38] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[39] DOD's Office of the Undersecretary of Defense (Comptroller) has 
developed financial improvement and audit readiness guidance, which 
has been used as a plan to assist DOD in addressing its financial 
management weaknesses and becoming audit ready. 

[40] 31 U.S.C. § 1115. 

[41] The Office of the DCMO also collects performance information from 
all of DOD's business functions using the 52 performance measures 
contained in the Strategic Management Plan. However, Office of the 
DCMO officials told us that the 13 Agency Priority Goals' measures are 
those that they currently use to assess performance. The Office of the 
DCMO summarized results for both sets of measures for the DBC in 
fiscal year 2013, and most recently briefed this information to the 
DBC in April 2014. 

[42] See [hyperlink, http://www.performance.gov]. 

[43] See [hyperlink, http://www.gao.gov/products/GAO-13-267] and 
[hyperlink, http://www.gao.gov/products/GAO-03-143]. We assessed these 
three attributes to remain consistent with the attributes assessed in 
our February 2013 report on DOD's business transformation efforts. 
This allowed us to gauge progress that has been made in improving 
these performance measures since our February 2013 report. While these 
may not cover all key attributes of successful performance, we feel 
they are important for accurately assessing the strengths and 
weaknesses of performance. The remaining six attributes include 
measurable target, objectivity, reliability, limited overlap, balance, 
and government priorities. The absence of a particular attribute does 
not necessarily indicate that the measure is not useful; rather, it 
may indicate an opportunity for further refinement. 

[44] Department of Defense, Quadrennial Defense Review Report 
(February 2010). 

[45] Goals cited in DOD's 2010 QDR include: (1) prevail in today's 
wars, (2) prevent and deter conflict, (3) prepare to defeat 
adversaries and succeed in a wide range of contingencies, and (4) 
preserve and enhance the all-volunteer force. 

[46] [hyperlink, http://www.gao.gov/products/GAO-13-228]. 

[47] 10 U.S.C. § 115b. 

[48] See GAO, Human Capital: DOD Should Fully Develop Its Civilian 
Workforce to Aid Decision Makers, [hyperlink, 
http://www.gao.gov/products/GAO-14-565] (Washington, D.C.: July 9, 
2014). 

[49] See GAO, DOD Business Systems Modernization: Further Actions 
Needed to Address Challenges and Improve Accountability, [hyperlink, 
http://www.gao.gov/products/GAO-13-557] (Washington, D.C.: May 17, 
2013). 

[50] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-15-290] (Washington, D.C.: Feb. 11, 
2015). Agencies must meet the following five criteria to be removed 
from GAO's High-Risk List: (1) a strong commitment to, and top 
leadership support for, addressing problems; (2) the capacity to 
address problems; (3) a corrective action plan; (4) a program to 
monitor corrective measures; and (5) demonstrated progress in 
implementing corrective measures. 

[End of section] 

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