Transforming resource management to support an Army at war: the Army's chief financial officer examines three priorities for best use of the nation's money

Public Manager, The, Winter, 2007 by Nelson M. Ford

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All managers, in both the public and private sectors, recognize that money is an essential element for meeting institutional objectives. While it might seem a bit of a stretch, the case can be made that money is an important weapon for today's Army. General Dave Petraeus, now senior U.S. military commander in Iraq, popularized this concept of money as a weapon when he commanded the 101st Airborne Division in the initial ground campaign of Operation Iraqi Freedom. In that role, he recognized that cash could be used on the battlefield to achieve positive results with local communities (building schools and clinics, buying intelligence, and so forth), and he later described money as the most powerful ammunition at his disposal in fighting the war. General Petraeus, of course, had a real-time, tactical perspective on money.

As the Army's chief financial officer, I view money as a weapon in a more strategic sense, as something the Army uses to deliver required military capabilities to the combatant commanders on the battlefield. Money, like Soldiers and tanks, is a finite resource, and my primary responsibility is to ensure the Army makes the most effective and efficient use of it. Of course, this is a shared responsibility: commanders and senior leaders must decide how to allocate resources among many, often competing requirements, and the Army's financial managers must support those decision makers in understanding how to use the available funds most efficiently. If we can accomplish that, we will have done our part to be good stewards of our nation's resources.

We have identified three high-priority actions (see box) essential in making the best use of the dollars the nation has entrusted to us and three critical conditions that enhance our ability to deliver on those priorities.

ASA(FM&C) Priorities

Determining the Cost of the Army

First, we needed to figure out what it costs to execute the missions assigned to the Army. Until eighteen months ago, we did not have a clear sense of how much money was required to operate and sustain the Army. Theoretically, the resourcing process starts with strategic guidance from the Office of the Secretary of Defense (OSD) that identifies the individual programs necessary to achieve required capabilities. Army resource allocation decisions then determine the priorities that must be fully funded and where we can take risk (that is, not fully fund specific programs). If the process worked perfectly (and it never has), it would optimize the use of the available dollars.

Unfortunately, this process for programming and budgeting does not force a match between available resources and the capabilities called for in OSD's strategic guidance. We prepare annual budget justifications and allocate available appropriations to cover as many of the requirements as possible. This process results in limited opportunities for financial managers to articulate the level of risk associated with the various shortfalls to the Army's senior leaders and OSD leadership, and there is rarely meaningful dialogue to determine how to bring resources and strategy into balance, either by increasing funding or reducing mission requirements.

In spring 2006,we modeled the cost of the "doctrinal" Army, the cost of the Army called for by the National Military Strategy before expenses associated with deployed operations. The Army's operational planners defined the size and composition of the Army required to meet the strategy and the doctrine under which the Army would fight. Our cost analysts then determined what it would cost to produce and sustain this Army.

The details of the cost-modeling techniques we used have been addressed elsewhere, but the analysis incorporates one important factor worthy of expansion here: the concept of depreciation. Many people think that the Army shouldn't or can't apply business concepts in the same way they are applied in private, profit-oriented companies, but the two types of organization are remarkably alike when it comes to managing their physical assets.

Each year the Army spends tens of billions of dollars to build facilities and buy the equipment that our forces need to fight current and future wars. While we don't calculate the return on investment associated with these acquisitions, these assets have finite useful lives; they will wear out over time. If the Army was planning to go out of business after each war, the gradual reduction in useful life of these assets would be of little concern, but such is not the case. Rather, to use another private-sector concept, the Army is a "going concern," an organization that has to be ready to come to the nation's defense immediately and is going to operate indefinitely.

Therefore, the Army needs a sustained level of investment to replenish its capital equipment. Although we know this intuitively, we give this fact minimal attention when we make our resourcing decisions. Rather than set aside the funds to replace a certain percentage of our assets each year, we focus on what we need today. When resources are less than requirements--that is, when money is less than mission--we pay Soldiers and train on existing equipment before we invest in tomorrow's requirements. Often, that leads to penny-wise, pound-foolish decisions on what we know we'll need to do in the future. The analysis of the cost of sustaining the doctrinal Army addressed this long-standing problem by incorporating depreciation of our equipment, including weapons and the buildings on our posts, camps, and stations, into our estimate.