Concepts, Techniques and Tools that Support Program Budgeting

Transcription

1 Concepts, Techniques and Tools that Support Program Budgeting Scott Adams, Inc./Dist. By UFS, Inc. Defense Resources Management Institute Naval Postgraduate School Monterey, California 1

2 Learning Objectives Understand the link between strategy, programs and budgets, and the main difficulties in implementing resource decisions linked to strategy. Discuss different types of budget systems and their purposes. Explain how program budget concepts such as program structures, multi-year budgets and appropriate databases support sound resources management decisions in defense. Discuss how to evaluate alternatives within and across programs. 2

3 Resource Allocation Requirements: Shelter Food Transportation Entertainment Mansion Dine Out Mercedes World Tour

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5 Resource Allocation Requirements: Shelter Food Transportation Entertainment Mansion Dine Out Mercedes World Tour First Great Fallacy of Resource Allocation: Pure Requirements We have no objection to living this way We can t afford it!!

6 Resource Allocation Requirements: Shelter Food Transportation Entertainment Tent or Trailer Hotdog & Beer Hitchhike ESPN & Beer

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8 Resource Allocation Requirements: Shelter Food Transportation Entertainment Second Great Fallacy of Resource Allocation: Minimum Essentials Tent or Trailer Hotdog & Beer Hitchhike ESPN & Beer We can afford it!! We object to living this way

9 Resource Allocation Requirements: Shelter Food Transportation Entertainment #2 #1 #3 #4 Third great fallacy of resource allocation: Sequential Priorities

10 Resource Allocation Requirements: Shelter Mansion Suburban House Tent Food Dine Out Chicken Hotdogs Transportation Mercedes Used Car Hitchhike Entertainment World Tour Domestic Vacation ESPN The Muddle in the Middle

11 Focus on Tradeoffs Due to resource constraints, tradeoffs are necessary. But how do we make them? 11

12 Categories Shelter Food Transportation Average Unit Costs $2,000 1,600 sq. ft. $1,500 2,000 lbs. $1,000 5,000 miles = $1. 25 per sq. ft = $.75 per pound = $.20 per mile Entertainment $ days = $50 per day Compare!!

13 Tradeoffs Analyze the mix within programs Hotdogs MB H MC H MB DO? >=<MC DO Food $ 0 Dine out

14 Tradeoffs Analyze the mix between programs Food MB F MC F MB S? >=<MC S Basic Needs $ 0 Shelter

15 Tradeoffs: Where do I Spend the Money? What goals do I want to achieve? Determine outcomes Develop output needs Analyze inputs to outputs Allocate funding How can PPB help? 15

16 Military (Planning) Before PPBS Civilians (Budgeting)

17 PPBS (1962) Military (Planning) P Programming P Civilians (Budgeting) B

18 PPBES* Summarized DOD uses PPBES to link its resources to the defense strategy: Strategy and Policy (Why do it?) Identifies strategic goals and objectives that provide the framework for the resource allocation process Planning (What to do?) Establishes strategic priorities and capabilities required to achieve the strategy Programming (How to do it?) Applies the resources to programs that provide the capabilities required to achieve strategic priorities Budgeting (How much will it cost?) Properly prices the programs, develops justifications, and an execution plan Execution (Do it) Performs and monitors the spending of approved plans *In 2003 Budget Execution was added as a formal phase by MID

19 Strategy vs. Operational Efficiency Strategy Operational Efficiency What unique position will we be able to achieve and sustain? Strategy asks and answers the difficult question of what we desire to be rather than how we should get there The essence of strategy is choosing to perform activities differently than rivals do. Source: Michael Porter, What is Strategy?, Harvard Business Review, November 1996 Operational efficiency is performing activities better than your rivals OE includes adopting improved technologies, reducing waste, improving processes all with a focus on doing an activity better OE does not ask the question of whether you are doing the right things, only if you are doing things right 19

20 PPBES Challenges: Weak Links Poor performance is often to be found in the weak links between policy making, planning, and budgeting. Designing and sustaining institutional arrangements that facilitate and require choices to be made in the public interest is very demanding. Restraints, in terms of tight strategy and affordability, are crucial. World Bank (1999) Public Expenditure Management Handbook 20

21 Some Questions How many strategic plans do you think are meant to influence your organization? Of those strategic plans, how many have you actually read? Have you read your organization s strategic plan this year? Strategic planning is an oxymoron. Strategic thinking does not lead to a plan, it leads to a strategy. Rather, planning must follow strategy. If you don t want to call it operational planning, call it Planning that Follows Strategy. Henry Mintzberg 21

22 Scott Adams, Inc./Dist. By UFS, Inc. Budget Systems

23 What is a budget?

24 Need for Management Systems Resources are scarce. Managers must make choices among alternative uses of resources. Management systems provide data and an analytical framework to help managers evaluate alternatives.

25 Defense Management Systems Answer four questions: 1. What to do? 2. How to do it? 3. How much will it cost? 4. How can we improve? Effectiveness Efficiency Budgets Performance

26 Budget Fundamentals Purpose Legal reason for use of funds Time Fiscal years; five-year programs Amount Financial; non-financial Format Matrix of rows and columns

27 Budget Systems Budget Forces Policies/Strategies Threats Funds Organizations Inputs Tasks Outputs Outcomes

28 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Military Personnel Operations Procurement Research & Development Military Construction

29 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes DoD Air Force Pilot School Air Force Pilot School

30 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Past Current Budget Year Year Year Salaries $125 $150 $250 Supplies Other Total

31 Control Budget Input focused ( legal use of funds) Improve fiscal transparency & accountability Simplest to prepare Short-term (usually one year) Often referred to as a line-item budget But were we efficient? Effective? Or just legal?

32 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Tasks, workloads, intermediate products Basic $1400 $1400 $1400 Bomber Fighter Total Unit cost?

33 Unit Cost Perspective FY 2013 FY 2014 Basic Bomber Fighter Basic Bomber Fighter Expenditures $1,400,000 $1,750,000 $2,750,000 Expenditures $1,400,000 $1,750,000 $2,850,000 Students Students Cost per Student $1,750 $4,375 $7,857 Cost per Student $1,750 $4,375 $8,143 33

34 Management Budget Performance oriented (efficiency) performance measures (average, unit cost) Activity focused: What is being done? Illustrates priorities Primarily used to examine quantity of outputs and productivity But were we effective?

35 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes By Systems: Bomber Forces B-2 B-52 Air Launched Cruise Missile Tankers Intercontinental Ballistic Missile Forces Minuteman Peacekeeper Sea-Launched Ballistic Missile Forces Trident.. etc.

36 Planning Budget Best use of funds (effectiveness) Why are resources used (purpose) Cost of program, mission, capability Comparison of alternative systems Tradeoffs Long-term Life cycle costs Central control of policy and objectives High-level strategy

37 Crosswalking Budgets Systems

38 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Control Budget Salaries $125 $150 $250 Supplies Other Total

39 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Management Budget Basic $1400 $1400 $1400 Bomber Fighter Total

40 Control Budget Salaries $125 $150 $250 Supplies Other Total Management Budget Basic $1400 $1400 $1400 Bomber Fighter Total

41 Control Budget Salaries $125 $150 $250 Supplies Other Total Management Budget Basic $1400 $1400 $1400 Bomber Fighter Total

42 Control Budget Salaries $125 $150 $250 Supplies Other Total Management Budget Basic $1400 $1400 $1400 Bomber Fighter Total

43 Crosswalking at Lower Levels Control and Management Budget Systems Basic Bomber Fighter 2014 Salaries $105 $10 $35 $150 Supplies Other Total

44 Crosswalking at Strategic or Planning Level

45 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes Planning by systems

46 Budget Systems Funds Organizations Inputs Tasks Outputs Outcomes $ Planning by systems Time

47 Crosswalking the Strategic Level Budget Strategic Forces General Purpose Forces Intelligence & Communications Mobility Forces Guard and Reserve Research & Development Supply and Maintenance Training and Personnel Administration Support of Other Nations Special Operations Forces YR 1 YR 2 YR 3 YR 5 YR 4

48 Integrating the three Systems Control budget Management Budget Planning Budget Identify Inputs/Resources Identify key Processes and Activities Identify Outputs/Capabilities Measure quantity and cost of Inputs Trace costs of Inputs to Outputs Trace cost of Outputs to Outcomes Accountability Efficiency Effectiveness

49 Budget Perspectives Funds Organizations Inputs Tasks Outputs Outcomes Control to buy Mgmt. to do Planning by systems low level high level past future present future continuity discontinuity

50 Program Budgeting the connecting link

51 What is a Program? A combination of activities that produce distinguishable capabilities * Airlift/ Sealift * Infant Health Care * Supply and Logistics

52 What is a Program Budget? A program budget focuses on the expected results of activities to be carried out by an organization Connects life-cycle costs to the attainment of long-term, organization-wide goals. Cuts across organizational lines. For example, the U.S. program budget grew out of interservice conflicts over resources.

53 SecDef Army Navy Air Force MC

54 SecDef Army Navy Air Force MC Missiles Helicopters Predeployed R&D Reserves Missiles(subs) Carriers Cargo R&D Reserves Missiles Bombers Fighters Cargo R&D Reserves

55 Service Rivalries There is no duplication among the military services. What we have is triplification. President Eisenhower

56 SecDef Army Navy Air Force MC Missiles Helicopters Predeployed R&D Reserves Missiles(subs) Carriers Cargo R&D Reserves Missiles Bombers Fighters Cargo R&D Reserves

57 SecDef Army Navy MC Air Force Strategic Forces Missiles Missiles(subs) Missiles Bombers General Purpose Mobility Helicopters Predeployed Carriers Cargo Fighters Cargo R&D R&D R&D R&D Reserves Reserves Reserves Reserves

58 Resource Management System A way to provide the information needed to set objectives in light of resource constraints and to develop budget recommendations so that resources (inputs) are related to achieving our objectives (outputs). What should we do? How should we do it? How much will it cost? How well are we doing? What are the trade-offs?

59 Resource Management Phases Planning--What to do Threat Assessment Strategy/Policy Development Capabilities (Forces) Development Programming--How to do it Alternatives/Tradeoffs/Risks/Future years program Budgeting--How much will it cost? Recognizes constraints Allocate resources to programs Links inputs to outputs/outcomes (effects) Execution--How did we do? (or are we doing?) Performance metrics Assess actual output against planned performance Adjust resources/programs

60 Strategy Forces Budgets Guidance Goal # 1 Goal # 2 Goal # 3 Option # 1 # 2 # 3 # 4 Option # 1 # 2 # 3 Option # 1 # 2 Budget Manpower Operations Procurement Infrastructure What? Why? How? How Much?

61 Key Decision Criteria Will it do the job? benefit, outcome, performance When can we get it? Present vs future How much will it cost? marginal, life cycle, opportunity What can go wrong? likelihood and consequences of a bad outcome

62 Four Objectives Minimize (reduce) cost Maximize (increase) effectiveness Minimize (reduce) time to field Minimize (reduce) risks

63 Program Budget Concepts 1. Program Structure 2. Multi-Year Schedule (FYDP) 3. Program Memoranda 4. Analytic Capability -Cost -Effectiveness -Time -Risk

64 Program Structure A classification system that helps us think about the relationships between strategy/policies and budgets A system that connects resources to capabilities

65 Program Structure There is no perfect program structure Collectively exhaustive ALL forces (program elements) must be represented Mutually exclusive All forces (program elements) must be represented only once Systems arrayed according to their primary purpose Substitutes and/or complements should be grouped together without regard for military service

66 Program Structure Levels Major Programs (general, top-level focus) Independent (combat) Dependent (support) Sub-Programs Program Elements (specific, detailed, operational focus) Weapons Systems, Organizational Units

67 Major Programs Categories related to defense environment Capability or purpose Theater of assignment Geographical focus Major threats Other? Not by military service or funding source

68 DoD Major Programs (FY2014 TOA, Millions of Dollars) 1. Strategic Forces 11, General Purpose Forces 230, Command, Control, Communications, Intel, Space 82, Mobility Forces 16, Guard and Reserve Forces 42, Research and Development 44, Central Supply and Maintenance 29, Training, Medical, Other General Personnel Activities 84, Administration and Associated Activities 22, Support of Other Nations 8, Special Operations Forces 13,848 Total $586,117 Source: The Future Years Defense Program accompanying the President s 2015 Budget Request

69 Program Elements The Building Blocks of the Programs A program element is a system A program element describes the program mission, identifies the forces, manpower, material, services, and costs To obtain program cost, each element needs to have a multi-year cost and output schedule 69

70 Program 1: Strategic Forces Bomber Forces B-2 B-52 Air Launched Cruise Missile Tankers Intercontinental Ballistic Missile Forces Minuteman Peacekeeper Sea-Launched Ballistic Missile Forces Trident..

71 DHS Major Programs 1. Border and Transportation Security 2. Port Security and Water Safety (Coast Guard) 3. Emergency Preparedness and Response 4. Information Analysis and Infrastructure Protection 5. Science and Technology 6. Other DHS Activities and Support

72 Attempt to revise DoD Major Programs Force Application Force Protection Command and Control Battlespace Awareness Logistics Manpower Infrastructure Net-centric Warfare Building Partnerships Force Support Corporate Management and Support Joint Defense Capabilities Study: January Quadrennial Roles and Missions Review

73 Program Budget Concepts 1. Program Structure 2. Multi-Year Schedule (FYDP) 3. Program Memoranda 4. Analytic Capability -Cost -Effectiveness -Time -Risk

74 Future Years Defense Program A database that records DoD-approved decisions to acquire the capabilities needed to accomplish the tasks described in the defense guidance a collection of individual program elements Structure used to: Match people, equipment and dollars to military capabilities described in the defense guidance May involve resources from more than one service

75 Program Structure of Country X 1. Coastal Security Forces 2. Border Security Forces 3. Logistical Support 4. Personnel Support 5. Executive Direction

76 Future Years Defense Program Country X Coastal Security Forces Border Security Forces Logistical Support Personnel Support Executive Direction BY BY+4 BY+3 BY+2 BY+1

77 Crosswalking Programs to Appns Coastal Security -----DS North -----OPV Border Security -----RDF -----ABD Logistical Support Personnel Support -----AF Pilot Executive Direction Total MP OP PR RD MC TOT In the BY

78 Program Element: 11200N Description: NAVY OF COUNTRY X Name: DS North PY CY BY BY+1 BY+2 BY+3 BY+4 Units: Manpower: Officers: Enlisted: Civilians: Operating Expenses: Appropriations (M$): Military Personnel: Operations & Maintenance: Procurement: Research & Development: Military Construction: Total:

79 Coastal Security Program FYDP Summary: PY CY BY BY+1 BY+2 BY+3 BY+4 (millions of dollars) 10000X Coastal Security Forces X Surveillance Forces A Sloat Radar Station N DS North N DS Central N DS South N DS Watchdog X Counter Air Forces A Sloat Defense Battery F 1st Fighter Group F 2nd Fighter Group F 3rd Fighter Group X Counter Sea Forces N DS Vigilant N DS Paratus N DS Battersea F 1st Bomber Group F 2nd Bomber Group N Sloat Naval Squadron N DS Troll N OPV

80 NAVY OF COUNTRY X FYDP SUMMARY PY CY BY BY+1 BY+2 BY+3 BY+4 (millions of dollars) 10000X Coastal Security Forces N DS North N DS Central N DS South N DS Watchdog N DS Vigilant N DS Paratus N DS Battersea N Sloat Naval Squadron N DS Troll N OPV X Border Security Forces N DS Relic N DS Tugalong N DS Swamper N ***New PE*** X Logistical Support N Naval Materiel Command D Defense Supply Service N Naval Ship Yard N Naval Repair Yard D Defense M&R Facility X Personnel Support N Naval War College N Naval Training Command N Naval Gunnery School N Non Unit Personnel X Executive Direction N Navy Headquarters Staff D Ministry of Defense PROGRAM TOTALS

81 Program Element: 11200N Description: NAVY OF COUNTRY X Name: DS North PY CY BY BY+1 BY+2 BY+3 BY+4 Units: Manpower: Officers: Enlisted: Civilians: Operating Expenses: Appropriations (M$): Military Personnel: Operations & Maintenance: Procurement: Research & Development: Military Construction: Total:

82 NAVY OF COUNTRY X MANPOWER ANNEX PY PY PY CY CY CY BY BY BY BY+1 BY+1 BY+1 OFC ENL CIV OFC ENL CIV OFC ENL CIV OFC ENL CIV 10000X Coastal Security Forces N DS North N DS Central N DS South N DS Watchdog N DS Vigilant N DS Paratus N DS Battersea N Sloat Naval Squadron N DS Troll N OPV X Border Security Forces N DS Relic N DS Tugalong N DS Swamper N ***New PE*** X Logistical Support N Naval Materiel Command D Defense Supply Service N Naval Ship Yard N Naval Repair Yard D Defense M&R Facility X Personnel Support N Naval War College N Naval Training Command N Naval Gunnery School N Non Unit Personnel X Executive Direction N Navy Headquarters Staff D Ministry of Defense MANPOWER TOTALS

83 The Time Dimension: Rolling and Fixed Methods

84 Decision period METHODS OF TREATING TIME TRADITIONAL ANNUAL BUDGET Fiscal years CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY

85 Decision period METHODS OF TREATING TIME ROLLING FIVE YEAR PLAN Fiscal years CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY +1 PY CY BY

86 Decision period 1 2 METHODS OF TREATING TIME FIXED FIVE YEAR PLAN Fiscal years BY BY BY 4 5 BY 5 BY PLANNING BY BY BY 4 5 BY 5 BY

87 Decision period 1 2 METHODS OF TREATING TIME FIXED FIVE YEAR PLAN Fiscal years BY BY BY 4 5 BY 5 BY PLANNING BY BY BY 4 5 BY 5 BY Decision period METHODS OF TREATING TIME ROLLING FIVE YEAR PLAN Fiscal years CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY PY CY BY +1 PY CY BY public document average 3 years goals in 5 years difficult to change economical of talent designed for certainty executive tool 5 year horizon easy stretchout feedback & update consumes talent designed for uncertainty

88 Program Budget Concepts 1. Program Structure 2. Multi-Year Schedule (FYDP) 3. Program Memoranda 4. Analytic Capability -Cost -Effectiveness -Time -Risk

89 Program Memoranda Balanced set of programs submitted by the services (Program Objective Memoranda or POMs). Provide detailed descriptions of and justifications for proposed programs, including a time-phased allocation of resources by program. May describe important programs not fully funded (or not funded at all) and assesses the risks associated with the shortfalls. Decisions documented in the Program Decision Memorandum (PDM) 89

90 Program Budget Concepts 1. Program Structure 2. Multi-Year Schedule (FYDP) 3. Program Memoranda 4. Analytic Capability -Cost -Effectiveness -Time -Risk

91 Analytic Capability Economic concepts (economy and efficiency; production functions; opportunity costs; marginal analysis; etc.) Quantitative concepts (structuring decisions problems; decisions under uncertainty; costeffectiveness analysis; risk analysis; etc.) Cost concepts (relevant vs. irrelevant costs; discounted life cycle costs; learning curve; ABC/ABM; etc.)

92 Program vs. Budget Program Priorities, Risk and Balance Provide Capability Solutions Total Program Funding FYDP perspective Iterative POM Budget Pricing, Schedule and Consistency Provide executable Budget Precise pricing and phasing Budget Year perspective Analyst driven BES, President s Budget

93 DOD uses PPBES to link its resources to the defense strategy: Planning (What to do?) Establishes strategic priorities and capabilities required to achieve the strategy Programming (How to do it?) Applies the resources to programs that provide the capabilities required to achieve strategic priorities Budgeting (How much will it cost?) Properly prices the programs, develop justifications, and an execution plan Execution (Do it) Performs and monitors the spending of approved plans Performance (How well did you do?) Closing the Loop Assess progress and identify weaknesses Ask whether the position of the organization has improved strategically 93