Secretary of Defense Donald Rumsfeld has suggested that his department could save $15 billion a year through efficiencies if given the freedom to do so. Numerous studies have also asserted the potential for efficiencies in the Department of Defense (DoD), some arguing that savings could total $30 billion a year or more. Actual savings, however, appear much more modest. Why is it hard for DoD to achieve efficiency savings? How can the department promote efficiencies more effectively?
Past Savings Appear Relatively Modest
In recent years the Defense Department has achieved efficiency savings that are significant in absolute dollars. (In this study efficiencies are defined as initiatives that reduce costs while providing the same or better levels of capability.) Base realignments and closures appear to have cut costs by at least $5.6 billion a year, though some of those savings are associated with force cuts that reflect changes in national security threats rather than efficiencies. Permitting private companies to compete for jobs currently performed by government employees, known as competitive sourcing, may yield savings of $1 to $2 billion a year if all current plans are carried out. Savings from acquisition reform and better business practices have added to the total, though by amounts that are difficult to quantify.
Despite these successes, the efficiency savings achieved in recent years appear to be modest compared with the size of the defense budget and fall well short of the tens of billions of dollars in savings some past studies have suggested might be possible. Nor have efficiencies halted the growth in operating costs. After adjusting for changes in force size and inflation, day-to-day operating costs have consistently and persistently increased for decades. Some of this growth reflects new missions such as peacekeeping operations and in health care costs. But in recent years much of the growth in operating costs has occurred in accounts related to infrastructure, which should be prime candidates for efficiencies. These aggregate budget trends make it more difficult to conclude that large efficiency savings have been realized.