Transcript Managing Your Budget In a Declining Economy June 2010

Managing Your Budget
In a Declining Economy
June 2010
Army Day
COL C. A. Cruse, Chief
OMA Budget Formulation
Mr. Todd Nethery, Chief
OMA Current Operations
Army Budget Office, ASA (FM&C)
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Pentagon Math
Imbed Video of Abbot and Costello 7 X 13 = 28
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Agenda
Setting the Stage
 DoD Budget Growth
 Army Budget
 Challenges Ahead
 Managing Your Budget
 Conclusion
 Building the Next Army Budget

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Setting the Stage

“Therefore, as the Defense Department begins the
process of preparing next year’s Fiscal Year 2012
budget request, I am directing the military services,
the Joint Staff, the major functional and regional
commands, and the civilian side of the Pentagon to
take a hard, unsparing look at how they operate – in
substance and style alike.”
Secretary of Defense Robert M. Gates
Eisenhower Library, Abilene, Kansas
8 May 2010
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OSD Top Line
($B)
Supp/OCO
Base
750
708
700
667
662
691
2008
2009
2010
650
604
600
535
550
500
468
479
2004
2005
437
450
400
350
345
316
300
250
200
150
100
50
0
2001
2002
2003
2006
2007
2011
2012
2013
2014
2015
Fiscal Year
2016
4
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Army Funding Trends
$B$300
Base
OCO
OCO Surge
OCO Requested
$1.7 Trillion in 10 years
$252
$250
$234
$221
$239
$20
$200
$167
$121
$176
Business practices
changed.
DepSecDef 9 Apr Memo:
“POM 12-16 “
$246
$102
$92
$78
$109
$143
$150
$64
$122
$72
$40
$26
$100
$78
$86
$2
$50
$78
$84
FY01
FY02
$97
$103
$103
FY03
FY04
FY05
$131
$105
$112
FY06
FY07
$142
$141
$143
FY09
FY10
FY11
$0
OEF
OIF
GTA
FY08
Surge
FY12
FY13
FY14
FY15
FY16
Responsible Drawdown
* OCO appropriations include war and non-war funding
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Army Budget Growth
OMA
FY 2000
$18.9B
FY 2011
Equipment
Rents 5%
5%
Other
2%
Other
2%
Equipment
3%
Rents
6%
Transport
5%
$33.9B
Pay
26%
Pay
29%
Transport
3%
Supplies
17%
Supplies
15%
Travel
4%
Travel
3%
Contracts
37%
Contracts
38%
*Contract growth includes CLS
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Challenges Ahead

OCO Shrinking



U.S. Economy






OCO to base movement
Increased limitations/rules
Health care
Banking reform
Housing foreclosures
Oil spill
Unemployment
Peace Dividend


Following Korea, Vietnam, and Gulf War I
• A 17 – 22% reduction to the DoD budget
What will the reduction be after OIF/OEF?
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DoD Funding vs. GDP
40%
35%
% of GDP
GDP (TY $ in B)
$25,000
(TY $ in B)
Key Summary
• FY10 (3.7% excluding OCO,
4.6% including OCO):
WWII (1945)
34.5%
─
30%
─
─
25%
GDP: $14,405B (CBO est.)
Base: $534B
OCO: $130B
OMB
Projection
CBO
Projection
$20,000
$15,000
20%
FY2019*
3.3%
KOREA (1953)
11.7%
15%
VIETNAM (1968)
8.9%
REAGAN (1986)
BUILD UP
6.0%
$10,000
FY2010*
4.6%
FY2015*
3.5%
10%
GULF WAR (1991)
4.4%
5%
CBO
Projection
0%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Notes:
FY10 DoD funding includes $130B for OCO
FY11-19 DoD funding includes $50B/year for OCO
$5,000
$0
Projections:
FY09-19 GDP based on OMB and CBO projections
*FY09-19 DoD % of GDP based on CBO GDP projections
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Managing Your Budget
“…to convert sufficient ‘tail’ to ‘tooth’ to provide the
equivalent of the roughly two to three percent real
growth…” Secretary of Defense Robert M. Gates



Set the Stage
 Requirements ≠ Funding
• Schedule 8s
• Concept plans
Over 300 Schedule 8s
and Concept Plans
approved for FY 2011 to
compete for funding…
but there is no funding!
Business School Answer
 Divesture
 Streamlining
 Reduction in overhead
 Eliminate redundant processes
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Managing Your Budget
Setting the Stage
Business School Answer
 Divesture
• Wants vs. Needs
• Change in Mission
 Streamlining
• Supposed to be cleaner
• Careful that we do not streamline into a mission failure
 Reduction in Overhead
• Fastest growing component of budget
• Relationship to centralization of systems – finance,
accounting, human resources, IT networks/communications
 Elimination of Redundant Processes
• Do I have to do this? Why?
 Recommendations to Find the Savings
 Budgeting
 Execution
 Follow through!

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Managing Your Budget
Find the Savings in the Budget
 Budgeting
 Currently – Last years’ plus 2-3%
 Set the baseline
 Are the models still accurate?
 Create a Cost Culture
 Physical upgrades to access control points will equal a 26%
reduction in guard requirements
 1SG Barracks Initiative – recoup excess BAH; $130M
savings in ten years
 Defending the Budget
 Idea formed
 G8/PAE POMs for the idea with the PEG
 ABO documents the idea in a “stub”
 Army defends the idea to OSD
 Army briefs and defends the idea to Congress
 Congress appropriates budget
If my grandmother can not understand the new idea, it will probably not get funded!
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Managing Your Budget
Find the Savings in Execution
Get/Keep your commander involved
 Live within your means—the base is the base
 Get everyone invested
 Reviews

Joint Reviews
 Periodic Reviews—tradition vs. actual requirements
 5th Quarter analysis

Program Budget Advisory Committee
 Develop a requirements consideration process
 Accurate accounting--$$ in the details
 Truth in lending
 Cost/Benefit analysis; cost estimation
 Train your subordinate unit resource managers
 Moral courage . . . .

Why Do We Reward 100% Obligation?
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Managing Your Budget
Find the Savings in the Follow Through
 After Action
Reviews
 Do the Models Give You What You Need?
 Rate Adjustments for Estimation
 What about Overhires?
 Temporary
 Permanent
 Publish Successes – Reward Successes!
Do You Conduct AARs? Do You Follow Thru?
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Conclusion
“I say the patriot today is the fellow who can do the job
with less money.” President Dwight D. Eisenhower
 Take Aways:
 OCO limitations/rules
 Status quo will not do
 Involve your leaders and get everyone invested
 Create a “cost culture”
 Live within your means
 Aim for success

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Building the Next Army Budget
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