THE UNITED STATES NAVAL WAR COLLEGE

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1 THE UNITED STATES NAVAL WAR COLLEGE NATIONAL SECURITY AFFAIRS DEPARTMENT Theater Security Decision Making Course PLANNING PROGRAMMING BUDGETING AND EXECUTION (PPBE) WORKBOOK by Professor Sean C. Sullivan Naval War College Faculty 30 June 2014 Updated 2015 TSDM Policy 16-2

2 From the beginning in January 1961, it seemed to me that the principal problem in efficient management of the Department's resources was not the lack of management authority. The problem was rather the absence of the essential management tools needed to make sound decisions on the really crucial issues of national security. Robert S. McNamara Robert McNamara Implements Planning Programming Budgeting System (PPBS) President John F. Kennedy selected Robert S. McNamara as Secretary of Defense in McNamara assessed that the Defense Department needed a more effective decision making process which made decisions based on analysis and criteria rather than compromise and concern over organizational equities. The fundamental idea behind PPBS was decision making based on explicit criteria of the national interest in defense programs, as opposed to decision making by compromise among various institutional, parochial, or other vested interests in the Defense Department. The main purpose of PPBS was to develop explicit criteria, openly and thoroughly debated by all interested parties, that could be used by the Secretary of Defense, the President, and the Congress as measures of the need for and adequacy of defense programs. 2 Secretary McNamara, selected the former head of Rand Corporation s Economics Division, Charles J, Hitch, as Assistant Secretary of Defense (Comptroller). Hitch was a leading authority on program budgeting and McNamara tasked him with development of a decision making system that conducted analysis, developed criteria, presented and competed alternatives, considered cost, engaged experts, and resulted in decisions made by the Secretary. 3 Hitch developed the PPBS process in less than nine months. McNamara implemented the process immediately and PPBS was used to craft the FY 1963 defense budget. Charles Hitch would subsequently be known as the Father of PPBS. 4 McNamara s Fundamental Question: How Much is Enough? You cannot make decisions simply by asking yourself whether something might be nice to have. You have to make a judgment on how much is enough. PPBS Endures ROBERT S. MCNAMARA April 20, 1963 PPBS was designed to improve national security force structure, programming, and budget decisions made by the Secretary of Defense. This system provided the Secretary with the

3 analysis necessary to make more effective program and budget decisions and to exercise management and control of the activities of the department. PPBS was designed and implemented in the early 1960 s and continues to serve the Secretary and department as the principle deliberate decision making process. In the past, the Department of Defense has often developed its force structure by starting with a budget and sending it off in search of a program. Our new system of program packaging has reversed this procedure, by first determining our overall strategy, then fitting the hardware and the manpower to those objectives. 5 The Planning, Programming, Budgeting, and Execution (PPBE) process serves as an annual resource allocation process for DoD. Within OSD, programs and budgets are formulated annually. The budget covers one year, and program planning encompasses an additional four years. 6 The Secretary of Defense uses PPBE to exercise centralized control of executive policy. SECDEF utilizes PPBE to make major policy decisions, define planning goals, issue programming guidance, and allocate resources. The Deputy Secretary of Defense (DEPSECDEF) manages the day-to-day operation of PPBE. 7 DoD utilizes PPBE to provide the most effective mix of forces, equipment, manpower, and support attainable within fiscal constraints. The process facilitates the alignment of resources to prioritized capabilities. It considers strategy and requires leadership to balance required warfighting capabilities with risk, affordability, and effectiveness. PPBE provides mechanisms for making and implementing fiscally sound decisions in support of national strategy. It facilitates execution reviews of past decisions and previous actions. These reviews assess actual execution against performance goals and strategic objectives. Recommendations from these reviews are linked to decisions regarding continued or future resource allocation. PPBE accepts inputs from JCIDS and DAS and is intended to operate synergistically with these processes. 8 PPBE consists of four phases: 1. Planning. In the planning phase, defense posture, military roles and missions, and the security environment are examined. National strategy and security objectives are analyzed and military support to foreign policy is considered. The planning phase develops a defense policy framework that considers priorities, risk, resources, cost, and affordability. The planning process develops strategic decision making options for SECDEF regarding national defense, military missions, defense priorities, and resources Programming. DoD Components (Services and DoD Agencies) develop proposed programs consistent with planning, programming, and fiscal guidance. The programs reflect systematic analysis of missions, objectives, alternatives, and efficient resource allocation. 3. Budgeting. DoD Components develop and submit detailed budget estimates for their programs. Budget estimates must comply with programming and fiscal guidance. Budgeting occurs concurrently with programming.

4 4. Execution. DoD Components conduct annual reviews of their programs to assess program performance and fiscal execution. The Components assess compliance with SECDEF planning and programming guidance and acquisition policy. In the execution phase, Components can recommend program and budget adjustments for SECDEF approval or SECDEF can make alterations to Component programs. The analysis, actions, and decisions of the PPBE process result in the Program Objectives Memorandum (POM). A POM is a budget of programs, services, and activities that fund DoD Components for a fiscal year. The POM is the final product of the concurrent programming and budget phases of PPBE. POM programming decisions reflect guidance from the planning phase and the risk accepted by DoD decisions made during the process. POM is referred to throughout this chapter on force structure development. The PPBE process annually supports the President s Budget Submission to Congress on the first Monday of February in each year. Joint Staff actions are depicted across the top of the diagram, OSD actions are provided across the middle, and Component actions are included across the bottom of the diagram. PPBE Annual Process Operations Under Title 10, U.S. Code, the Chairman and JROC are tasked with the prioritization of requirements from the Combatant Commands and Serve program and budget plans. 10 One of the objectives of the Goldwater-Nichols Act was to ensure that the Combatant Commands (CCMDs) had appropriate influence on national defense matters. This objective seeks to utilize the significant experience and knowledge of CCMDs in the validation of critical capabilities and the development of future forces. Combatant Commands provide valued inputs into force planning. These warfighters inputs are used to assist the Chairman and JROC in prioritization of capability requirements and gaps. Combatant Commands provide input into the formal processes of force planning through the Integrated Priority List (IPL). The Chairman of the Joint Chiefs of Staff delivers an annual report to Congress on these Combatant Command requirements. The Integrated Priority List (IPL) is a list of the Combatant Commanders highest priority requirements, prioritized across Service and functional lines. IPLs define shortfalls in key programs or capabilities that may adversely affect the operations and missions of the combatant commands. 11 IPLs are the formal means by which the Combatant Commands identify those areas that require priority attention during program development. IPLs are submitted annually in October to the SECDEF and the Chairman with copies to each Service Chief. Figure 1 is a calendar which depicts the timing of the IPLs.

5 Capability Gap Assessment (CGA) Figure (1). Timing of the IPL. The CGA is led by the JROC and starts in December of each year after the Combatant Commanders have submitted their IPLs. IPLs are combined with other capability gap issues submitted by defense components and additional gaps validated in JCIDS CBAs and DCRs. The JROC uses the CGA to execute the Title 10 responsibility for advice to the Chairman regarding assessment and prioritization of critical warfighting capabilities and gaps. This assessment uses Combatant Command Integrated Priority List (IPLs), the Chief of the National Guard Bureau Capability Gap Assessment (CGA) input, and the Joint Combat Capability Assessment deficiency action list. These documents are initial inputs to the Capability Gap Assessment. Chairman s Program Recommendation (CPR) The CPR provides the Chairman s personal recommendations to the Secretary of Defense regarding programming and budgeting. The CPR articulates the Chairman s specific programming recommendations that will enhance joint readiness, promote joint doctrine and training, improve joint warfighting capabilities, and satisfy joint warfighting requirements within resource constraints and acceptable risk levels. 12 The CPR also informs Component programmers of the Chairman s priorities during the development of their Program Objective Memorandum (POM). The Directorate for Force Structure, Resources, and Assessments (J-8) is responsible for the preparation of the CPA. 13 Figure 2 depicts the timing of the CPR.

6 Defense Planning Guidance (DPG) Figure (2). The timing of the CPR. The DPG is published at the end of the second quarter of each fiscal year and used by SECDEF and DEPSECDEF to guide programming and acquisition. 14 It is a document that contains strategic capability priorities, analytic agenda guidance, transformation guidance, and guidance on science, technology, experimentation, and concepts. 15 The DPG is used as written policy guidance for programmers in their preparation of the POM. Figure (3) depicts the timing of the DPG.

7 Figure (3). Defense Planning Guidance. Once service and agency programmers receive SECDEF guidance from the DPG, the next critical input necessary in POM development is determination of the fiscal resources available to DoD Components. Fiscal Guidance (FG) By the beginning of the third quarter of every fiscal year, the Director, Cost Assessment and Program Evaluation (CAPE) issues the Fiscal Guidance (FG) which provides DoD Component programmers with fiscal resource and budget information. DoD Components use the Fiscal Guidance in the preparation of their POMs. The Fiscal Guidance is a closely held document and provides each service and agency with its top-line funding figure. The Fiscal Guidance is based on budget projections provided by the Office of Management and Budget (OMB), the Congressional Budget Office (CBO), and other OSD staff projections from the Director Cost Analysis and Program Evaluation (CAPE). 16 Figure (4) depicts the timing and input of FG.

8 Figure (4) Timing and input of FG. Each DoD Component organization has the latitude to create its own processes, analysis, and decision boards that provide the assessments and analysis necessary to support PPBE programming and budget decisions. In practice, DoD Component processes are similar to PPBE and are designed to interact with Joint Capabilities Integration and Development System (JCIDS), Planning Programming Budgeting and Execution (PPBE) and Defense Acquisition System (DAS). Program Objective Memorandum Building Period DoD Components consider Fiscal Guidance (FG), Defense Planning Guidance (DPG), and the Chairman s Program Recommendation (CPR) during the POM building phase of PPBE. The POM building period concurrently develops both a programming plan and a projected budget. DoD Components build their recommended POMs and associated budget projections, called a Budget Estimate Submissions (BESs). Early in the fourth quarter of each fiscal year, the Office of the Under Secretary of Defense (Comptroller / Chief Financial Officer) consolidates the Component POMs for review, coordination, and final resource decision. Figure (5) depicts the timing of the POM building period and the inputs that are considered in this process.

9 Figure (5). Timing of and inputs to the POM building period. Each service and agency submits its POM to an OSD central database. The next step for DoD is an integrated Program/Budget Review. Program and Budget Review The Program and Budget Review commences early in the fourth quarter of every year. Each year, this review focuses on a five-year period. 17 DoD Component POMs are reviewed by OSD for DPG and FG compliance. Additionally, the Chairman submits a review of Service POMs. OSD and DoD Components conduct the Program and Budget Review between July and December of each year. In December, SECDEF makes all final programming and budget decisions and submits DoD s President s Budget Submission to the executive branch. The Office of Management and Budget (OMB) includes DoD s budget input in the President s Budget, which is delivered to Congress no later than the first Monday in February. In national defense planning, rarely are resources sufficient to fund all programs. During the Program and Budget Review, DoD defense organizations and leaders assess DoD Component POMs for compliance with strategic, programming, and fiscal guidance. The Program and Budget Review provides the analysis for SECDEF and DEPSECDEF to render final decision on programming and budget decisions or to accept risk within the associated mission area, task, or capability by not funding specific programs. These decisions are supported by a system of issue identification, analysis, comment, and recommendation during issue resolution. The product of the Program and Budget Review is the DoD POM. The PBR commences after the DoD Components submit their Program Objective Memorandum (POM) and Budget Estimate Statements (BES) to the OSD Comptroller. All

10 POMs and BESs are submitted by the end of July each year and this action marks the database lock. 18 POM and BES are closely related and include service programs, program costs, and schedules of unit quantities per year. DoD Components prepare their POM/BES inputs reflecting their systematic analyses of their assigned missions and tasks and the resulting program and budget requirements. Figure (6) shows the timing of the Program and Budget Review. Figure (6). Timing of the Program and Budget Review. During the PBR, a series of POM briefs are conducted at the three-star and DEPSECDEF level where DoD Component leaders discuss and defend their POMs/BESs. Programming and budget issues are identified and analyzed by OSD, the Joint Staff, and DoD Components. The result of these briefs is a draft Future Years Defense Program (Draft FYDP). 19 An important step in the PBR is Issue Nominations. Issues focus on mismatches among funding, cost, priority, and compliance with existing OSD guidance for programming. There are relatively few issues, normally about 2 3 percent of the line items in the POM. DEPSECDEF convenes the Deputy s Management Action Group (DMAG) to assess these issues, options, and impacts. Combatant Commanders may be invited to DMAG sessions concerning issues relating to their priorities. In most cases, the DMAG can facilitate consensus on issue resolution. After DMAG sessions, DEPSECDEF makes the preliminary decision on the issues and presents recommendations for SECDEF final decision. 20 The PBR is used to make difficult choices in resource allocation. The reviews are led by the Director, Cost Assessment and Program Evaluation (CAPE) and are conducted through collaborative interactions among the stakeholders. Decisions are made by senior defense

11 leadership using the analysis and assessments conducted during this process. Figure 52 portrays the Program and Budget Review Issue identification process. The Chairman of the Joint Chiefs of Staff exercises his Title 10 responsibility for programming and budget advice to SECDEF during the Program Review Process. In February or March of each year, the Chairman provides the Chairman s Program Recommendation (CPR) to SECDEF as an input into the SECDEF s Defense Planning Guidance (DPG). During the Program and Budget Review, the Chairman provides an assessment of how effectively the Components have met the capability and program requirements of the Joint Force. 21 Chairman s Program Assessment (CPA) The CPA provides the Chairman s personal appraisal on program recommendations, alternatives, and budget proposals to the Secretary of Defense for consideration in refining defense programs and budget. The CPA comments on the risk associated with the programmed allocation of defense resources and evaluates conformance of POMs to the priorities established in strategic plans and combatant commanders priority requirements. 22 Figure (7) depicts the CPA as an input into the Program and Budget Review. 23 Figure (7). CPA as an input into the Program and Budget Review. The PBR culminates with resource allocation decisions made by SECDEF, DEPSECDEF, and the Components. The program and budget process requires allocation of resources to programs. Since resources are seldom sufficient to fund all the programs desired by the Department of Defense fully, the resource allocation decision process requires risk identification, risk assessment, decision advocacy, and risk acceptance. These decisions have significant impacts on DoD Components as stakeholders in defense.

12 Resource Management Decisions (RMDs) Decisions regarding program and budget issues are published in Resource Management Decisions (RMD). These decisions analyze and render programming and budget decisions on issues from the Strategic Portfolio Reviews (SPRs), OSD Issues, and OSD budget hearings. During the PBR, decisions are made and a draft RMD is constructed. If a draft RMD is not acceptable to the Chairman or Component, these leaders can take the decision to the DEPSECDEF as a Major Budget Issue (MBI). Each year there are a small number of issues identified as MBIs. MBIs are reviewed by the DMAG and a recommendation is made to SECDEF. SECDEF and DEPSECDEF can meet individually with the Chairman, Service Chiefs, or Service Secretaries to discuss the issue. SECDEF renders a final decision and it is included in the RMD. 24 Figure (8) depicts the Resource Management Decision and corresponding PBR inputs. Figure (8). Resource Management Decision and corresponding PBR inputs. The RMD serves as SECDEF s directive guidance to DoD Components regarding resource decisions and priorities. The RMD provides the final decisions necessary to construct Component POMs. Figure (9) depicts the inputs and actions required in POM construction.

13 Figure (9). Inputs and actions required in POM construction. Upon receipt of the RMD, components update their POMs/BESs on the basis of the RMD and Director, CAPE makes the required changes to the Future Years Defense Program (FYDP). The Under Secretary of Defense for Financial Management and Comptroller prepares the DoD budget for submission to the Office of Management and Budget (OMB) for inclusion in the President s Budget Submission. Figure 56 portrays the POM, FYDP, and President s Budget Submission and the culmination of DoD s annual force planning process. Future Years Defense Program (FYDP) The FYDP is the program and financial plan for DoD as approved by SECDEF. The FYDP arrays cost data, manpower, and force structure over a five-year period. Force structure includes an additional three years of data and is organized by DoD Major Force Program. Major Force Programs are categories of military functions and include inputs from the POMs of multiple Services and Agencies. The FYDP is prepared and published by Director, CAPE. Figure (10) depicts the timing of the POM, FYDP and President s Budget Submission. The update to the FYDP is the final step prior to the submission of the Defense Budget to the Executive Branch for inclusion in the President s Budget submission to Congress in February of each year.

14 Figure (10). POM, FYDP, and President s Budget Submission. CONCLUSION Force structure is a vital element of force planning. During the creation of force structure, the government renders decisions that implement strategy, develop operational concepts, validate associated capabilities, and dedicate national resources to force structure development. Force structure development produces the Joint Force required to conduct military operations in the execution of national defense and in support of U.S. national interests and strategic objectives.

15 1 Robert S. McNamara, The Essence of Security (New York: Harper & Row, 1968), pp Alain C. Enthoven, K. Wayne Smith, How Much is Enough?: Shaping the Defense Program, / (Santa Monica, CA: Rand Corporation 2005), pg Enthoven and Smith, pg. 33, 35, Enthoven and Smith, pg. xix. 5 David Novick, Program Budgeting: Long-Range Planning in the Department of Defense, (Santa Monica, CA: Rand Corporation 1962), pg.7. 6 Department of Defense, The Planning, Programming, Budgeting, and Execution (PPBE) Process, DODD , (Washington D.C.), 25 January 2013, pg.1. 7 DODD , PPBE Directive, pg.2. 8 DODD , PPBE Directive, pg.2. 9 DODD , PPBE Directive, pg U.S. Code. Title 10 Armed Forces Secretary of Defense Section 153 and Chairman of the Joint Chiefs of Staff, Chairman of the Joint Chiefs of Staff, Combatant Commanders, Chief National Guard Bureau and Joint Staff Participation in the Planning Programming Budgeting and Execution Process, CJCSI B, (Washington: 21 August 2012) pg. GL Chairman of the Joint Chiefs of Staff, Joint Capabilities Integration and Development System, CJCSI I, (Washington: 23 January 2015) pg. A Ibid, A Deputy Secretary of Defense, Procedures and Schedule for Fiscal Year (FY) Integrated Program/Budget Review. Washington D.C. 09 April pg Joint Staff, J-7. Guidance for the Employment of the Force (GEF) and Joint Strategic Capabilities Plan (JSCP). Washington D.C. 8 January pg DODI , PPBE Directive, pg Deputy Secretary of Defense, Procedures and Schedule for Fiscal Year (FY) Integrated Program/Budget Review. Washington D.C. 09 April pg Ibid. pg Ibid. pg CJCSI B, pg. B CJCSI B, pg. B CJCS, CJCSI A, pg. D2-D3,D6. 23 Chairman of the Joint Chiefs of Staff, Joint Capabilities Integration and Development System, CJCSI I, (Washington: 23 January 2015) pg. A CJCSI B,pg. B-4.