How-To Methodology for DoD Budget Cuts

The United States defense strategy is being driven by budget cuts. As a percentage of GDP, the U.S. has largely reduced its spending on defense for the past three decades. Secretary of Defense, Leon Panetta stated, on January 26th, that the President will request Congress to authorize the use of the Base Re-Alignment and Closure Act (BRAC) process to identify savings. Currently, the Department of Defense (DoD) faces a $600 billion budget cut across ten years if Congress cannot achieve consensus on fiscal goals for fiscal year 2013.

With less money available, defense managers will have to make difficult choices in funding existing programs and making future investments and divestments within acquisition portfolios.

Total cost is no longer the singular driver of defense acquisition program economic decision-making. Defense programs must be evaluated according to their contributions to the overall capabilities of a Family of Systems (FoS), System of Systems (SoS) or as a part of a portfolio of products that together meet operational or administrative requirements.

A clear-cut, objective process for analyzing portfolios of acquisition programs can assist defense managers in making the tough choices in the face of impending funding cuts. Analysis from a portfolio perspective will account for the capabilities required to meet warfighter needs while minimizing redundancies, which will reduce costs and increase return on investment (ROI).

A Capabilities Based Portfolio Assessment (CBPA) methodology can be used to evaluate the relative contributions of a given program with respect to defined requirements and strategic goals. This approach combines the analytic disciplines of cost, benefit, risk, requirements and decision analysis.

A CBPA methodology applies the appropriate decision support skills to frame portfolio decisions and draws upon processes, analytics and tools needed to: prioritize investments; prioritize divestments; allocate resources; reduce decision-making uncertainty; and illuminate underlying decision rationale.

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