1. Military Costs and Challenge of Total Force Management 13 October 2004 Jo A. Decker DCNO for Manpower & Personnel (N10) Chief of Naval Personnel American Society of Military Comptrollers – Washington Luncheon

2. 2 Agenda Rising Military Personnel Costs –Historical Perspective & Trends Total Force Management –Human Capital Strategy –Synchronization Challenge MPN POM/Budget –Resourcing Process Deficiencies –Way Ahead

3. 3 Historical Perspective Before FY01 –Deployments were well defined – 6 months every 18 months Sea/Shore tours were 4 years at sea/ 3 years at shore Enlisted ranks were flat at Top 6 of 69% Retention was low and attrition high Since FY01 - USS Cole incident, 9/11 attack, Afghan War, Operation Iraqi Freedom –Deployments as long as 10 months. Under Fleet Response Plan (FRP), deployments will vary in the future. Sea/Shore tours are being lengthen – 5 years at sea/ 2 years at shore for junior enlisted The need to increase retention and lower attrition, increased the need to increase Top 6, targeted pay raises, & incentive pays

4. 4 Navy Active End Strength Profile Glide Slope 370K Active members in PRESBUD 04 Glide Slope 357K Active members in PRESBUD 05 Current Glide Slope 348K Active members Military Manpower Requirements Decreasing … Reduction targeted against Overhead and Shore Installations

5. 5 Average Costs Increasing... AVF “Marketplace “ Fact of Life per capita Costs Increasing Officer Enlisted TY$

6. 6 Result... MILPERS share of Navy TOA largely unchanged The Opportunity Cost... Navy Unable to invest in Recapitalization Requirements Navy TOA MPN % of Navy TOA

7. 7 373,800 Active 190,000 Civilian 180,000 Contractors 85,900 Reserve Navy Manpower Determination Approximately 830,000 Salaries 568,000 Shore (68%) (198,000 Military + 190,000 Civilian + 180,000 Contractor) 48,000 Individuals Account (6%) (Students, transients) 214,000 Battle Forces (26%) (Manpower Documents) Focusing Military on War Fighting Concentrating on Shore Support Infrastructure “Sea Enterprise” Efficiencies, Strategic Sourcing

8. 8 Total Force Past & Future 32.5% Decrease (- 87K) Contractor DoN Civilian Active and Reserve Military 39.5% Decrease (- 127K) 42.8% Decrease (- 317K) 39.9% Decrease (- 531K) Navy Post-Cold War Drawdown

9. 9 Strategic Vision Total Force Human Capital Strategy will deliver the right number of Navy team members. Active duty uniformed strength represents just one component of the larger Navy human capital resource universe. The Navy will leverage the human capital assets embedded in our active military, reservists, civilians, and contractors. Must be accomplished in a fiscally responsible manner and within a Total Force context.

10. 10 Our Human Capital Strategy Moving toward a Sea-Centric, Forward-Deployed Force –Recruiting and Retention at All-Time Highs –Quality of Life and Service Critical –Revolution in Training for Highly Tuned Skill Sets Significant cost-savings are in hand…more to come  Tools and processes for success  Free up military manpower Sea Warrior Initiative  The Right Sailor with the Right Skills at the Right Time for the Right Job  Putting the Sailor First in the way we design, engineer, and operate our ships and aircraft Re-shaping the Force…Reducing Costs…Winning the Battle for People

11. 11 Synchronization Challenge Policy changes are not instantaneous – time is required to properly reduce strength and synchronize targeted billets to targeted Strength –Funding cannot be removed until Work is eliminated, Strength reduced –Personnel reductions must be managed by community and Claimants Bottom Line: Billet reductions must be synchronized with executable Strength and Funding profiles to achieve savings

12. 12 MPN $ Challenge Current Business Processes are not Precise Programming –Military manpower priced based upon averages of averages –Limited data to support decision making Budgeting –MPN budget built on 12 to 24 month old data –Current methodology presumes Behavior and External Factors remain the same from year to year. Execution –Each year on average requires significant reprogramming Today’s legacy systems and methods are based on processes that have existed for 30 years

13. 13 Transformation critical to: –Capture and use updated Fleet requirements as the basis for future Strength and Budget projections –Shift to more accurate HR and Pay data sources –Obtain more granular data with increased detail –Provide visibility into programming & budgeting assumptions MPN $ Challenge

14. Way Ahead The Future Step 1Step 2Step 3 FY 2004 CFO Compliant Execution Reports Enterprise Data Warehouse Live Personnel Data DFAS detailed pay reports Replace Manpower Programming & Budget Process FMMP Focus Shift to accurate data sources Granular data for decision making Replace DFAS Legacy Pay and Reporting Forward Looking Focus Use Navy NSIPS as source data for pilot to test & evaluate new financial accounting functionality Build-Test COTS Financial Reporting System – CFO Compliant, Automated Data Entry Phased approach - manageable Embraces FMMP/BMMP Joint Pilot enables choices/options Builds functionality for the Future

15. 15 Additional Back-ups

16. 16 The best Sailor to the key assignment at the right time Sea Trial Sea Enterprise Sea Warrior Manpower Improving Navy’s Workforce Personnel Optimal Distribution Training Revolution in Training Sea Shield Sea Basing Sea Strike Sea Warrior Delivers Readiness with a market based approach in a competitive environment Sea Warrior – Key Manpower Enabler