Document created: 16 June 04
Air University Review, January-February 1970

Air Force Management

Lieutenant General Duward L. Crow

While this issue of the Air University Review highlights comptroller activities, I have chosen to write about the broader topic of Air Force management rather than the Air Force Comptroller per se. The comptroller and comptroller functions are not an entity apart from other Air Force management. Rather, they are an integral part of total Air Force management, and an appreciation of total management and its problems—past, present, and future—is of vital importance to everyone in the Air Force. The case history of the Air Force fiscal year 1970 budget provides an excellent background—showing where the Air Force has been, where it is, and where it is going—against which to highlight attendant management problems.

As originally submitted to the Department of Defense, the FY 1970 Air Force budget exceeded $33 billion. The submission was the product of a system initiated by the Department of Defense that entailed a review of total requirements, with the Secretary of Defense approving all programs in detail. With virtually all decisions made at OSD level, Air Force management was simply not as hard-nosed as it would have been had it been more responsible for deciding as well as proposing.

The Air Force budget of some $33 billion was reduced in the review process to approximately $26.5 billion. The review process was tortuous, involving hundreds of separate actions. The budget that emerged was reasonably good. But whose budget was it? Not really the Air Force’s. To illustrate, the military construction submission of $767 million was cut in half, project selection being made largely by OSD analysts. While it is true that at the approved level of $385 million the Air Force would have selected most of the same projects, there would have been some differences. Further, the planning and cost estimates would have been better had the Air Force been directed to prepare a $400 million program in the first place.

Once in office in January of 1969, the new administration promptly made an assessment of the fiscal situation and the national economy. It determined that inflation had to be curbed. An immediate action was to cut the FY 1970 budget. For the Air Force this cut amounted to $1.1 billion. In the process of this reduction a subtle change in methodology came into play: the Air Force played a larger role in decisions. A clear go-ahead was given for the Advanced Manned Strategic Aircraft (AMSA) and the F-15. The munitions buy program was tightened, and support activities were trimmed. The resulting budget was austere, but relatively speaking it kept the Air Force in the realm of “business as usual” with a go-ahead for two vital new aircraft.

Shortly after these reductions, it became clear that further reductions would be made. The national frustration over Vietnam, domestic problems at home, continuing high inflation, and cost overruns on major defense programs gave the critics of military spending powerful arguments—and they used them skillfully. Budget reductions to meet federal expenditure ceilings were coupled with extension of the surtax; and while the full extent of the reductions is not yet defined, it is clear that they will require major retrenchment in the Air Force.

Most of the factors leading to this assault on the defense budget were beyond the control of the military. It was not recognized that the Air Force fought in Vietnam largely at the expense of force modernization and that its strength and its FY 1970 budget (in constant dollars) were about the same as in 1964, the last year before the expanded Vietnam effort.

The one compelling argument against the military, where its record should have been better, concerned cost overruns. The C-5 story was the big one, and it is somewhat ironic. The history of weapon systems acquisition in the 1950s and early 1960s is replete with large overruns. Peck and Scherer highlighted this in their book, Weapons Acquisition Process: An Economic Analysts.¹ Air Force management determined to do something about cost overruns and selected the C-5 as the place to start. The prior method of year-to-year procurement of advanced hardware put the Air Force at the mercy of the contractor, in a procurement sense, once development was complete. The total package concept for the C-5 was designed to avoid this. It “packaged” development and production and contractor’s bid in the grand total. Costs were estimated for the total span of the contract. It was truly a grand design, structured to avoid the deficiencies and criticisms of earlier procurements. Nevertheless, it fell victim to problems, attributable partly to lack of experience with this way of contracting and partly to external economic factors. It wound up being characterized by its critics as one of the greatest blunders of all time.

It certainly was not that bad. The concept remains good. The Air Force will unquestionably get a better airplane at less cost than would have been possible under prior procurement practices. What, then, went wrong? What made it so susceptible to criticism? The sheer size and nature of the program, of course, attracted attention. Its total visibility, too, was unique. No other program was ever structured and traced in detail over so many years; if others had been, the C-5 would have fared better. Two things, however, were really its undoing: first, cost estimates; and, second, complex contract provisions. Finite estimates should not have been given, particularly at a time when inflation was accelerating. Instead, likely ranges should have been used, with provision for periodic updating to take inflation into account. (Inflation alone accounts for between one-third and one-half of the cost increase.) The complex contract provisions, while well intentioned, are proving to be extremely troublesome.

The principal lessons learned from the C-5 are simple and straightforward:

· Recognize that estimates are just that, nothing more; and provide for periodic updating, with allowance for inflation.

· When dealing with totals, clearly separate each fiscal year portion in terms of fiscal year funding and applicable contract provisions.

· Monitor program progress closely and initiate corrective action early enough to avoid catastrophic accumulation of multiyear problems.

The overall retrenchment problem facing the Air Force, as a result of the budget reduction, challenges the talent of all Air Force personnel. Above all, due attention must be given to providing maximum mission capability represented by our combat aircraft and ICBM’s. This was basic to the “703” budget exercise that initiated retrenchment, known as “703” (DOD abbreviation for three-billion-dollar reduction in FY 70 defense budget).

With most “703” items now identified and now in various stages of implementation, what areas of management will require more attention in the future?

I believe that future budgets will level out at somewhat reduced totals. This means a smaller Air Force; however, if we are sufficiently skillful in applying reductions, it does not necessarily mean less combat-mission capability. The old adage, “more Air Force for the dollar,” must again be our watchword!

A number of things are working to facilitate this. First, as I mentioned earlier, more responsibility is being returned to the services. With more responsibility, there will be more effective administration at lower levels, particularly in systems acquisition programs. As General McConnell put it in commenting on past management in this area, “I can’t find anybody to fire.” With increased delegation all down the line, it should be easier for General Ryan to find somebody to fire.

In across-the-board internal management, a reappraisal and reordering of priorities is in progress and has been given impetus by the Chief of Staff in weekly reviews of key indicators in each function from the Air Force Management Summary. Management systems are devised periodically, installed, pursued for a time, and then permitted to wither away, to be reinvented later. The fundamentals of any effective system are quite simple, however: lay out principal chores over time and track progress against them, identifying reasons for “actual” varying from “plan” and corrective actions required. “Management by exception” is usually not managing at all but fighting fires, for unless any headquarters lays out its programs and systematically maintains surveillance over them, it finds itself completely absorbed in reacting to problems surfacing from below and shoved down from above.

The management analysis function should be directed toward maintaining the necessary surveillance over program accomplishment. Overall Air Force performance in this area has been spotty, particularly in Air Force Headquarters. However, at the direction of General Ryan a constructive program is evolving that will assure top staff surveillance over all major force programs keyed to weekly reviews of selected items from the Management Summary. Major commands have similar programs, but more uniformity in approach and documentation is to be encouraged.

Management innovations, with emphasis on what we get for our money, are needed. Defense management literature abounds in such catch phrases as “resource management,” “output measures,” and “performance measurement.” They are, of course, well intentioned, but their real meaning and application in a practical sense are elusive. Traditionally, the Air Force has measured the effectiveness of its units in terms of ratings on operational readiness inspection, accident rates, operational readiness of aircraft, combat crew readiness, etc. When a unit met these criteria well and its base was well kept, the commander was inevitably headed for bigger things.

Missing from that evaluation was the test of cost. Despite great effort to provide this test, it is still missing—that is, missing in any simple, identifiable, meaningful form. The elaborate systems we have established have not yet given us a methodology for integrating costs into our management processes in an acceptable and meaningful way. It should not be this difficult. Might not the annual cost of an operational aircraft at squadron level be a means? There are, of course, other measures at other levels. But would it not be meaningful to add costs to the other ingredients of a squadron’s accomplishment? If Squadron X can pass its Operational Readiness Inspection (ORI), has an average of Y aircraft operationally ready at a unit annual cost of Z, then wouldn’t Squadron W try to better X’s accomplishment at less cost?

Computers and data automation are absolutely essential to modern management. The use of computer systems has increased to the point where they present a paradox to management. On the one hand, they provide the greatest potential for management and conservation of resources, while on the other, they have become large consumers of resources themselves. Operating costs for USAF computers were in excess of $400 million in FY 69. Over 30,000 Air Force military and civilian personnel were directly associated with the data-automation effort. Over 1000 computers are now listed on the USAF inventory.

The trend is continuing. Each year automated systems are demanding a greater share of available resources. As changing technology gives greater capability to provide more, better, and more timely information to managers, the demand is made for more, better, and more costly automated systems. Managers at all levels must be made aware of this trend and must be encouraged to balance “appetite” with “need.”

The Air Force has pioneered in data automation. It has pursued three basic objectives in this area: centralization, standardization, and integration. Much progress has been made, but we must direct our management attention to the areas where the payoff is greatest. The early centralization of management of all automated systems at Hq USAF was a good procedure for the 1950s and 60s. The growth and dynamic nature of systems have now reached such proportions that it is not realistic to manage every detail of the data-automation program from Hq USAF level, nor can we afford to in an era of retrenchment. In recognition of this fact, action is now under way to delegate more authority for management of data-automation systems to lower echelons. This action will allow Hq USAF to devote more attention to the large standardized systems, more time to respond to the increasing interest from the Office of the Secretary of Defense, the Bureau of the Budget, and the Congress.

We must more clearly identify the major competitors for the Air Force dollar and our total requirements in the data-automation area. Special attention must be given to major system requirements. They must pass the test that they will provide more effectiveness than other alternatives for equal cost, and they must clearly promise to conserve more resources than they consume.

In order to provide the visibility needed by top management to make meaningful decisions on these systems, the Director of Data Automation is currently consolidating a list of all major systems planned for the next five years. This compendium should provide top Air Staff management with a tool to judge each requirement from the perspective of the total requirement at hand. Priorities can then be established and resources allocated accordingly. We have learned that we cannot live without the computer; we must now initiate strong management action to assure that we can, indeed, live with it.

This means that we must examine computer products to ascertain whether they are actually used—and are worth their cost. With computers we can design systems to collect data to feed information upward on virtually any facet of any activity—we have designed and operated such systems. Once installed, they are with us in perpetuity unless some inquisitive, imaginative individual asks “Why?” We now have to ask why more often. Data must be tailored to management needs, and the management effort should be directed to a continued scrutiny of the changing needs for data.

Like the total-package concept for the C-5, Project PRIME (Priority Management Effort) was also a grand design. But it was not designed around existing management systems. It did not begin with recognition of what resources are managed at what levels and then proceed with design of a system to provide budgets and costs accordingly.

Rather, its design was based on the assumption that the lowest element should be accountable for all resources consumed at that element. Thus, it is not surprising that the lowest level has detail that it cannot use meaningfully; nor is it surprising that budget and cost data at other levels are not appropriately identified. PRIME’s literature stressing an integrated “programming, budgeting, and accounting” structure fails to recognize the simple fact that resources must be looked at in at least two ways. For instance, military personnel costs are extremely important, and we must continue our traditional budgeting for salaries paid officers and airmen, as well as costs of permanent change of station (PCS), subsistence, etc. Sliced a second way, budgets must tell us how personnel are used in units. PRIME, in effect, identified this second way of looking at military personnel costs as the only way. This probably was not intended, but nonetheless this is the way PRIME comes through to a great many people. As we pursue the objectives of PRIME, we should make use of the two-way look. Also we should emphasize the need for appropriation and cost data throughout the chain of functional management. For instance, Manpower traditionally deals in spaces; it could and should deal in spaces and their costs. The two-way look must also recognize that obligations leading to PRIME expenses are a vital part of the management process.

Stock fund operations introduced as a part of the PRIME effort have had their expected growing pains but are achieving some of their purposes in facilitating better supply management. They would be even more successful if fiscal constraints could be eased to permit a freer customer-seller relationship. The Depot Maintenance Industrial Fund is giving the Air Force Logistics Command better knowledge of what goes into costs, and as it evolves this should lead to improved operations.

Thus, an overall appraisal of PRIME is that it is leading to improved management. It needs some streamlining. It needs to recognize that resources must be looked at two ways and that obligations not only precede expenses but are important in their own right. And PRIME should not be viewed as providing the total solution to management problems.

A final management area, auditing, deserves special attention. With the Air Force auditors, OSD auditors, the OSI, the IG, and the GAO examining virtually every phase of operations, inefficiency would seem to have disappeared long ago. On the contrary, instances of inefficiency are reported daily—and are receiving increased public attention.

We seem to move from one extreme to another. If a few years back we had too little surveillance from higher headquarters, I am positive that we now have too much. There are literally hundreds of higher headquarters visitors to all our bases every year, and the number increases. There is no easy way to reverse the trend; perhaps “703” reductions in headquarters will be some help.

The two most important efforts that provide the Air Force its best means of identifying deficiencies and taking corrective actions are appropriate management appraisal in principal functional areas—whether conducted by auditor or IG—and intelligent local auditor programs.

In considering what’s ahead, we must not assume the attitude of accepting a less effective Air Force because budgets will be lower. We should look upon retrenchment as an opportunity to trim to the hard-core mission of fielding combat aircraft and missiles. This requires hard decisions. Many “nice to have” missions and projects will be eliminated. Management will be streamlined, and there will be more delegation of authority. Costs will figure even more prominently in all decisions. More and more people from the very top level will be looking over our shoulders, and this is not necessarily bad. It puts a real premium on the individual who does his job well.

Hq United States Air Force

Note

1. Merton J. Peck and Frederick H. Scherer, Weapons Acquisition Process: An Economic Analysis (Cambridge: Harvard Business School, 1962).

Contributor

Lieutenant General Duward L. Crow (USMA; M.B.A., Harvard University) is Comptroller of the Air Force. In CBI for 3 ½ years during World War II, he served in various air depot assignments until becoming Group Commander, Southern India Air Depot. His postwar assignments include staff officer, DCS/Personnel, Hq Army Air Forces; Member, Munitions Board, Officer of the Secretary of Defense; Chief, Plans and Programs Division, Hq Air Materiel Command; Comptroller, Fifth Air Force, Korea, later of Central Air Defense Force; Deputy Chief, Plans and Programs Division, later Deputy Director of Budget; Comptroller, Air Force Systems Command; and Director of Budget, Hq USAF. General Crow is a graduate of the Command and General Staff College and Air War College.