By Jordana Mishory
The Pentagon could save more than $125 billion over the next five years by instituting early retirements and reducing core business process services performed by outside contractors, the Defense Business Board found in a new study.
The board unanimously approved the findings Thursday at its quarterly meeting following a presentation by its task group on transforming the Pentagon’s core business processes for revolutionary change.
The task group’s report states that the money saved could be “redirected to critical warfighter priorities,” and could fund either 50 Army brigades, 10 Navy carrier strike group deployments or 83 Air Force F-35 fighter wings.
To achieve these goals, however, the department has to get a jump on the recommendations, according to the task group, which was co-chaired by board members Kenny Klepper and Roxanne Decyk.
“Early mobilization is the single biggest lever,” the report states. “Every billion saved in 2016 is worth $5 billion [fiscal years 2016 through 2020] due to the compounding effect.”
Deputy Defense Secretary Robert Work tasked the Defense Business Board with the study in October 2014, noting in his terms of reference that the Pentagon “lags behind” the commercial sector when it comes to achieving “significant cost savings through the implementation of process redesigns and agile reference architectures.”
“My goal is to modernize our business processes and supporting systems and create an agile enterprise shared services organization in order to reduce costs, maximize return on investment and improve performance while ensuring we maintain system security,” Work wrote at the time.
Work had touted the effort in November, saying he had made the Defense Business Board his “operational arm” to recommend new consolidation measures — “vertical integration opportunities” — and cuts to departmental overhead in the coming year, a departure from past initiatives that relied on Pentagon offices and agencies to recommend their own cuts.
In response to Work’s call, the task group laid out three different savings scenarios. The “base case” scenario would save $75 billion over the five year plan and an “aggressive” scenario would save $150 billion in the same time frame. The $125 billion in savings falls under the task group’s “moderate” savings scenario and calls for a “10 percent year 1 savings in contracted spend, modest early retirement adoption [and] limited backfill of retirements and attrition,” according to the report.
The plan calls for a 4 to 8 percent annual productivity gain for the department. The report notes that these gains are “business as usual” for the private sector.
However, the task group stressed that it was important to keep institutional knowledge in the Pentagon, and proposed granting “retention bonuses” in 2016 and 2017 to the “masters.”
To conduct the study, the task group interviewed more than 85 leaders from private industry and the Pentagon.
The task group also found that the department spends about $134 billion each year on core business processes — more than the $100 billion annually that was initially referenced in Work’s call to action.