1. ASMC Washington Chapter Luncheon Meeting
How do we strengthen our national defense in this time of fiscal uncertainty?
Jamie Morin
OSD CAPE
19 February 2015
ASMC Washington Chapter Luncheon Meeting

2. Agenda Strategy to budget
PB15 to PB16
PB16 principles and choices
Challenges at BCA
Making every dollar count through smarter acquisition
Final thoughts

3. PB15 to PB16
PB15 made tough choices but maintained sufficient force structure to meet the strategy
Congress rejected many PB15 reforms the Department proposed
Compensation
Healthcare
BRAC
Force structure reductions
PB16 add resources and tightens our alignment to strategic guidance
Balancing joint force capacities, capabilities, and readiness
Increased focus on ISR and full spectrum combat readiness
Modified resubmit of the reforms Congress rejected
Key investments in nuclear deterrence, space, power projection and counter-A2/AD

4. PB16 Request PB16 is shaped by the 2014 QDR strategy
Protect the homeland
Build security globally
Project power and win decisively
Department’s Priorities
Rebalance to the Asia Pacific
Maintain a strong commitment to security and stability in Europe and the Middle East
Sustain a global approach to countering violent extremists
Reinvigorate efforts to build innovative partnerships
Keeping faith with and taking care of our service members and their families
Leverage the Defense Innovation Initiative
Prioritize and protect key investments in technology

5. Key Investment Areas ISR Nuclear Deterrence Space
Additional Gray Eagle and Reaper orbits
Slowing retirements of legacy forces to meet demand
Nuclear Deterrence
$8B in additional funding to address shortfalls in the Nuclear Enterprise
Infrastructure and ICBM Security force improvements, additional nuclear shipyard workers and force sustainment
Space
Improving space resiliency and space control to meet the growing threat
Power Projection and Counter-A2/AD
Additional missile capacity for Virginia class submarines
Maintain P-8A Poseidon aircraft for large area anti-submarine warfare
Increased funding for electronic warfare systems

6. PB16 Topline We’re still living with uncertainty
FY15 Opportunity, Growth, & Security Fund ($26B for DoD)
Readiness Enhancement
-- Training adds in Army
-- Spares and logistics in Navy
-- Unit training in USMC
-- Flying hours in Air Force
Installation support increase
-- All Services increase base sustainment
-- All Services add MilCon funding
Investment increases
-- Army helicopters (56)
-- Navy P-8 (8), E-2D Aircraft (1)
-- USMC Light Armored Vehicle and minor procurement
-- Air Force F-35 (2), C-130J (10), MQ-9 Aircraft (12)
FOR FY15–19:
Blue minus Green = PB14 minus PB15 = $113B
Green minus Red = PB15 minus BBA/BCA = $115B
SCMR
PB16
BCA

7. Challenges at BCA
At the PB16 funding level the strategy can bend without breaking
Significant changes coming if forced to fund to BCA levels
Reductions in select force structure areas
Reduce Army and Marine Corps end strength
Cut 11th Carrier and a carrier air wing
Reduce FYDP procurement by 8 ships
Divesting the Global Hawk Block 40 fleet
Cutbacks in modernization and investment
PB16 increase in Space control investment is reduced by 70%
PB16 increase in Nuclear Enterprise investment is reduced by 40%
Break many multi-year/quantity buys of critical capabilities
Reduced readiness
Reduce Service readiness funding by about $16B over the FYDP
Larger maintenance backlogs
Delay timeline to achieve joint readiness for full-spectrum operations
A mechanical sequester would be even worse

8. Making Every Dollar Count Through Smarter Acquisition
Defense acquisition is about balancing valid, competing considerations
We cannot have a strong defense with a feeble acquisition process
Military comptrollers play multiple roles in the acquisition process
Cost analysis advocates
Resource risk balancers in PPBE
Requirements generators (i.e., capability champions)
Proper balancing of these roles is critical to maximizing funding stability and creating a resilient acquisition enterprise

9. Cost Analysis Advocates
Strengthening the quality, relevance, and timeliness of cost estimation is key
Cost estimates are critical early in programs’ life cycles
Congressional direction to improve cost estimating and acquisition program performance (e.g., WSARA) paid significant dividends
Space Fence
Cost estimates are a tool to measure the risk of unmanageable cost growth
Air Force’s Non-advocate Cost Assessments (NACA) were used to reduce cost risk by more than 90% in just 4 years

10. Risk Balancers
PPBE has been significantly strained by the fiscal uncertainty we have been facing
Threat of BCA reductions have impaired program stability across DoD
Build fiscal resiliency into the process by remaining focused on strategy
Financial managers need to assess alignment of resources and strategy
Balancing short-term and long-term priorities is a challenge
Sequestration / continuing resolutions can create vulnerable programs
In such environments, financial managers must be engaged to avoid small blips becoming death spirals

11. Capability Champions Capability champions are not program champions
Requirements are not set in stone, it only seems that way
Sticking to a set of requirements after conditions have changed can be a recipe for acquisition failure or operational failure
Focus on the end goal
Change requirements and make trades when necessary
Seek to remain in the cost-schedule-capability “sweet spot”
Preventing DEAMS from becoming a nightmare
Keep asking questions / seeking options
Does this make sense?
Do we have to have ‘this program?’
Is there another way to get there?

12. Project Power and Win Decisively
Balancing Challenges
Build Security Globally
Protect the Homeland
Project Power and Win Decisively
Ends
Balance
Capacity
Capability
Readiness
Means
Balance

13. BACKUP

14. Principal Deputy Director LtGen Robert E. Schmidle Jr.
CAPE Org Chart
DIRECTOR, CAPE
Jamie M. Morin
Principal Deputy Director
LtGen Robert E. Schmidle Jr.
Front
Office
Team
Cost Assessment
Deputy Director
Rick Burke
Program Evaluation
Deputy Director
Scott Comes
Analysis & Integration
Deputy Director
Vacant
Program, Data, & Enterprise Services
Deputy Director
Joseph Nogueira
Economic and Manpower Analysis
Weapon Systems Cost Analysis
Advanced Systems Cost Analysis
Operating and Support Cost Analysis
Land Forces
Naval Forces
Tactical Air Forces
Projection Forces
Irregular Warfare
C4 and Information Programs
Strategic Defensive & Space Prgms
Force and Infrastructure Analysis
Intelligence, Surveillance, & Rec.
Program Analysis
Simulation Analysis Center
Force Structure & Risk Assessment
Enterprise Services
Joint Data Support
Program Resources & Information Systems Management

15. Historical Topline
Afghanistan/ Iraq
[Note: this chart shows the Department’s topline budget including OCO through FY15 with OCO placeholder amounts of $79B in FY15 and $30B per year during FY16-19]
Zooming out of a longer period of time, here’s another look at the Department’s topline budget – this time in constant (or inflation-adjusted) dollars broken out by major budget category (or “color of money”).
Not surprisingly, we tend to spend more money during times of conflict. You can see that after times of war, we typically reduce our budget by between 30 and 40 percent. Since the peak of the Global War on Terror, we’ve reduced our budget by 21 percent, with further cuts to come.
So these are the fluctuations in the Department’s overall topline budget, but which budget categories do we typically turn to first during times of budget cuts?

16. Historical Investment Accounts
Afghanistan/ Iraq
But are we done?
Procurement — and investment accounts in general — typically bear the brunt of budget cuts following major conflicts. While in the past the overall topline was reduced by 30–40 percent following times of conflict, investment accounts during these times were reduced by much more – between 50 and 70 percent! And although our topline has come down 21 percent during FY08–14, investment accounts have already been reduced by 39 percent during this same time period. And we expect there might be more cuts coming in these accounts in the out-years.
Why does the Department rely on heavy cuts to acquisition programs during budget drawdowns? The main reason is it’s difficult to cut force structure quickly so by default we’re forced to cut modernization accounts. This creates a serious challenge — maintaining a technologically advanced military in light of budget reductions is no easy task.

17. Balancing Challenges Internal Cost Pressures Fiscal Uncertainty
Topline
Timing
OCO
Action on prior requests
Internal Cost Pressures
People
Acquisition
Operations and Support
Strategic & Operational Challenges
Shift to Asia – away game, geography, & A2AD
EM Spectrum Dominance
Commercial technological pacing vs DoD OODA Loop
Adversary cost imposition

18. By Appropriation Title By Military Department
FY 2016 President’s Budget
(Dollars in Billions)
By Appropriation Title
FY 2015
FY 2016
Dollar Change
Military Personnel
135.0
136.7
+1.8
Operation and Maintenance
195.4
209.8
+14.5
Procurement
93.6
107.7
+14.1
RDT&E
63.5
69.8
+6.3
Military Construction/Family Housing
6.6
8.4
+1.9
Other
2.1
1.8
-0.3
TOTAL
496.1
534.3
+38.2
Numbers may not add due to rounding
By Military Department
FY 2015
FY 2016
Dollar Change
Army
119.5
126.5
+7.0
Navy
149.2
161.0
+11.8
Air Force
136.9
152.9
+16.0
Defense Wide
90.6
94.0
+3.4
TOTAL
496.1
534.3
+38.2
Numbers may not add due to rounding
Base Budget Request: $534.3 Billion

19. Military Construction Family Housing $8.4
FY 2016 President’s Budget
Base Budget
Budget By Military Department
Military Construction Family Housing $8.4
Others $1.8
(Dollars in Billions)
Defense Wide
$94.0
Air Force
$152.9
Army
$126.5
Navy
$161.0
Budget Request: $534.2 billion

20. PB 2016 Significant Modernization Programs
57 Joint Strike Fighters ($10.6B)
16 P-8 aircraft ($3.4B)
5 E-2D aircraft ($1.3B)
KC-46 tanker ($3.0B) and Long Range Strike development ($1.2B)
9 ships ($11.6B)
George Washington (CVN) overhaul ($678M)
Ohio replacement strategic submarine development ($1.4B)
Littoral Combat Ship capabilities improvements ($55M)
Cyber capabilities enhancements ($5.5B)
Ground Based Interceptor reliability ($1.6B)
Army helicopter modernization (e.g., Light Utility Helicopter) ($4.5B)
Reaper (MQ-9) procurement ($821M)

21. PB 2016 Continues to Pursue Compensation Reform
FY 2016 Budget request savings (FY16, $1.7B; FYDP $18.2B)
FY16 Basic Pay raise 1.3% (FY 2016, $0.7B; FYDP, $4.3B)
Slow growth in Basic Allowance for Housing – an additional 4% out-of-pocket above 1% authorized by Congress in FY 2015 (FY 2016, $0.4B; FYDP, $3.9B)
Reduce Commissary Operating costs and subsidy through efficiencies and revenue generating opportunities gained through legislative changes (FY2016, $0.3B; FYDP, $4.4B)
Consolidate TRICARE healthcare plans with altered deductibles/co-pays to encourage beneficiaries to seek care in the most appropriate setting and improve the overall continuity of care. (FY 2016, -$0.1B; FYDP, $3.1B)
Implement modest annual fees for TRICARE-For-Life coverage for retirees 65 and over (FY 2016, $0.1B; FYDP, $0.4B)
Additional changes to pharmacy co-pay structure for retirees and active duty family members above the FY 2015 authorized level to further incentivize the use of mail order and generic drugs (FY 2016, $0.3B; FYDP, $2.0B)

22. Overseas Contingency Operations
Included with this Budget Request
$50.9B
Continues decline since FY 2010
Reflects continued operational demands on U.S. forces
Continues responsible transition in Afghanistan
Includes training and equipping of Afghan security forces ($3.8B)
Funds Counter-ISIL Operations ($5.3B)
Includes training and equipping of Iraqi forces and vetted moderate Syrian opposition ($1.3B)
Includes Counterterrorism Partnerships Fund ($2.1B)
Continues European Reassurance Initiative ($789B)
Funds International support ($1.7B)
Coalition Support Fund
Resets/retrogrades equipment ($7.8B)
If sequestration lifted, plan to transition enduring costs currently funded in the OCO budget to the base budget beginning in 2017 and ending by 2020

23. (Current Dollars in Billions)
The FY 2016 President’s Budget is a Strategy-Driven, Resource-Informed Budget 33
$750
691
666
687
666 1 7
645
601
614*
585
597 3
162
159
578
581
574
583
591
534
560 27
187
146
115 27 27 27 8 51
479 82 85 64
$500
468
166 3
437
116 76 91
345 73
316 6 17 23
$250
287
328
365
377
400
411
431
479
513
528
528
530
495
496
496
534
547
556
564
570 $0
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
* Reflects FY 2013 Enacted level excluding Sequestration
Numbers may not add due to rounding
DoD Topline, FY 2001 – FY 2020
(Current Dollars in Billions)
Base Budget OCO Other
The $27 million shown in FY 2017 through FY 2020 for OCO are placeholder amounts 23