Reform of Budgeting for Acquisition: Lessons from Private Sector Capital Budgeting for the Department of Defense
Abstract
The ongoing replacement of Department of Defense (DoD) capital assets, as well as other much needed capital investments, will likely take place during a time of decreasing or slowly growing financial resources over the long term. This situation is due to the growth of entitlements, the size of the predicted deficit, and the long-term cost of military activity in Afghanistan and Iraq, predicted by CBO to be $450 billion over the next 10 years. In addition, DoD is in the midst of an era of "transformation" under Secretary of Defense Donald Rumsfeld that calls for the modernization of DoD warfighting doctrine, capital goods, and business systems. It has been argued that the Federal Government and other public agencies should adopt "corporate" methods of budgeting to include the use of separate capital and operating budgets. This argument has not made much progress so far, but budget forecasts are giving DoD an incentive to revisit it. Significant changes would have to occur in the present system if private budgeting methods were adopted by the DoD and other federal agencies. The governments of New Zealand and Australia and most U.S. state governments have already adopted private budgeting practices with varying degrees of success. Recent efforts by the DoD and other federal agencies have improved conditions to some degree. However, more progress needs to be made. In the authors' view, DoD (and most of the federal government for that matter) should adopt and implement capital budgeting. In doing so, the DoD probably ought to completely discard PPBES and replace it with a long-range and accrual-based planning and budgeting process, ending what we now know as programming and the POM. Also, ideally, the period of obligation of all accounts in the new DoD budget process would permit obligation over a period of two or three years for all accounts, ending the highly wasteful end-of-year "spend it or lose it" incentive syndrome.
Document Details
- Document Type
- Technical Report
- Publication Date
- Apr 30, 2006
- Accession Number
- ADA498476
Entities
People
- Jerry Mccaffery
- Larry Jones
Organizations
- Naval Postgraduate School