This report discusses the (1) high-risk areas of financial management, information technology, weapon systems acquisition, contract management, infrastructure, and inventory management; (2) underlying causes of these high-risk areas; and (3) overall strategy we believe is needed to eliminate them.

DOD has severe management weaknesses in six high-risk areas: financial management, information technology, weapon systems acquisition, contract management, infrastructure, and inventory management. Due to its lingering financial management problems, which are among the most severe in government, DOD does not have accurate information to use in managing its budget of over $250 billion and reported $1 trillion in assets. DOD'S efforts to develop and modernize its computer systems and networks have yielded poor returns in reducing its operating costs, improving performance, and supporting sound financial management. DOD continues to generate and support acquisition of new weapon systems that will not satisfy the most critical requirements at the least cost to the government and commit more procurement funds to programs than can reasonably be expected to be available in future defense budgets. Many new weapon systems cost more and do less than anticipated, and schedules are often delayed. In spite of budget reductions and other changes, DOD'S contracting activity remains substantial, amounting to about $110 billion in fiscal year 1995.

DOD has severe management weaknesses in six high-risk areas: financial management, information technology, weapon systems acquisition, contract management, infrastructure, and inventory management. Due to its lingering financial management problems, which are among the most severe in government, DOD does not have accurate information to use in managing its budget of over $250 billion and reported $1 trillion in assets. DOD'S efforts to develop and modernize its computer systems and networks have yielded poor returns in reducing its operating costs, improving performance, and supporting sound financial management. DOD continues to generate and support acquisition of new weapon systems that will not satisfy the most critical requirements at the least cost to the government and commit more procurement funds to programs than can reasonably be expected to be available in future defense budgets. Many new weapon systems cost more and do less than anticipated, and schedules are often delayed. In spite of budget reductions and other changes, DOD'S contracting activity remains substantial, amounting to about $110 billion in fiscal year 1995.

The Secretary's November 10, 1997, DRI was DOD'S latest effort to reform operations and processes. The report was an outgrowth of recommendations made in the Report of the Quadrennial Defense Review. The Quadrennial Defense Review report noted that, while DOD had reduced active duty personnel by 32 percent between 1989 and 1997, it had reduced the number of people performing infrastructure functions by only 28 percent. That report called for significant additional reductions in military and civilian personnel. Reductions called for by the Quadrennial Defense Review and others already planned by DOD would reduce military and DOD civilian personnel end strength levels by an additional 59,000 and 130,000 positions, respectively, below their fiscal year 1998 levels.