Improving Capital Investment In Military Depots

Abstract

Each year the Department of Defense (DoD) fiscal calendar starts on October 1st and ends on September 30th. Once a fiscal year (FY) begins weapon system program offices, agencies, and other divisions throughout the DoD serve as the stewards for their budgets. In this role, these offices are tasked with the responsibility of ensuring that congressionally appropriated funding is allocated efficiently over the entirety of the twelve-month FY cycle. Furthermore, the DoD financial execution process operates under use-or-lose budgetary regulations. As the calendar moves closer to the end of the FY, September 30th, DoD offices undergo a FY close-out review. Dollars that are not adequately spent are at risk of being pulled-back or swept-up. In other words, funding can be taken away from an office that is underspending and essentially removed from their FY appropriated budget. During the FY close-out process, each year considerable time and energy is invested in assessing cash utilization levels (disbursements) across the DoD and then implementing where necessary the required "sweep-up" actions. In this research, we investigate the construct of using a learning algorithmic approach known as approximate dynamic programming (ADP) for modeling use-or-lose budgetary systems. ADP is a prescriptive analytics approach used to model sequential decision-making problems under uncertainty. In the context of use-or-lose budgets, we look to leverage ADP in order to generate an efficient month-to-month cash allocation policy in order to minimize both the amount of underspending as well as overspending that occurs during the FY close-out period. The research presents a framework for modeling and simulating use-or-lose budgets using ADP as well as discusses the computational complexity along with the implications for leveraging the ADP approach in practice. As of 2007, each military department must invest annually in the capital budgets of its depots at a minimum rate of six percent of their average funded workload. The relevant statute was enacted in response to the deteriorating state of organic depots in the 1990s, which lawmakers and military leaders attributed to insufficient investments in infrastructure and equipment. This study seeks to determine if and how policy should be modified in light of current depot conditions and capabilities. Specifically, it aims to identify the benefits and drawbacks of both fixed and flexible funding mechanisms within the context of the military depots. The findings of this study suggest that the fixed investment requirement should be maintained (but modified), at least until the military departments have implemented strategic investment plans. In addition, it is suggested that the Department of Defense (DoD) consider adopting an enterprise approach to management of capital investment to ensure the most effective and efficient expenditure of capital investment dollars. Among additional recommendations, the timeframe basis for the requirement should be changed, the Capital Investment Program should be streamlined, and that the DoD's definition of capital investment should be widened and clarified.