Defense issues contract to fix financial systems

The Defense Department on Wednesday signed a contract to fundamentally transform the way the department manages its finances.

Pentagon officials chose an IBM-led team to develop a department-wide financial management enterprise architecture. The team will try to take more than 1,000 individual "feeder" systems and replace them with a more rational method of financial management, Defense comptroller Dov Zakheim said during a Pentagon briefing Wednesday.

Zakheim called the Pentagon's current financial system a disaster. "There is no way on God's Good Earth that (the present) system will lead to financial statements that pass any kind of muster with any auditors worth their salt," he said. "It is my fond hope that those financial systems will be reduced by 90 percent."

He said the activities that these 1,000 systems represent have to operate in a coherent, interrelated fashion. By reducing the number to 100, the systems could talk to each other to the extent that they have to.

The new system will give Defense decision makers reliable, accurate and timely financial management information. "That's how business decisions get made everywhere else," Zakheim said. "The Pentagon somehow got left behind some years ago."

The financial information needed runs the gamut. It is literally a product of every action the department takes from logistics and acquisition to personnel and health care. Having better, more timely information will allow defense leaders to be better stewards of taxpayers' money, Zakheim said.

He said the department would examine and define what measurements and information defense leaders need to do their jobs. Different metrics apply for different levels of activity -- the metrics for the secretary of defense, for instance, are not the same as those for a program manager, he said.

Choosing what's important to measure is key. "There are all kinds of metrics," he said. "In fact, we have already collected metrics that are used by the department at each level. We've even looked at metrics that industry uses that might compare to given parts of the department. … You want metrics? I'll give you metrics, but which ones are helpful? We expect the government/contractor team to come up with meaningful metrics."

The contract with IBM will cost the department between $50 million and $100 million. IBM, working with Defense comptroller officials, will develop the blueprint for the enterprise architecture through March 2003.

But transforming the system will take much longer. Zakheim said it is incredibly complicated to transform a system the size of the Defense Department. The schedule now calls for officials to validate the new system architecture blueprint by November 2003. They will then select and buy the software solutions and install them in prototype sites. Prototype testing will run through May 2005 and, if acceptable, that is when DoD would begin widespread software installations.

"In general, transformation has been viewed as new weapon systems or communications or even culture," Zakheim said. "Those are all important and accurate and key elements of transformation. But there's another one, too, and that's transforming the way we do business in this place."

He said he expects the department will save money in the effort. He pointed to late fees the department pays each year simply because a system was too complicated to pay a vendor on time. "That's money that could be spent on bullets," he said.

He said the services or defense agencies would be able to keep any money they save under the transformation.