Managing risk is a central element of the defense strategy. It involves balancing the demands of the present against preparations for the future consistent with the strategy's priorities. It entails assuring allies and friends, deterring threats of coercion and aggression, and, when necessary, defeating adversaries. It involves maintaining military advantages and developing new military competencies while dissuading future military competitors.
Over the past 60 years, the United States has spent an average of 8 percent of the Gross Domestic Product (GDP) on defense; in 2001, 2.9 percent of GDP was spent on defense. The tendency to reduce spending in periods with no clear or well-defined threat has the potential effect of creating risks by avoiding or delaying investment in the force. Consequently, an assessment of the capabilities needed to counter both current and future threats - across the spectrum of military challenges - must be included in the Department's approach to assessing and mitigating risk.
A New Risk Framework
DoD has developed a new, broad approach to risk management. The new risk framework ensures that the Defense establishment is sized, shaped, postured, committed, and managed with a view toward accomplishing the defense policy goals outlined in this report.
This risk framework is made up of four related dimensions:
- Force management - the ability to recruit, retain, train, and equip sufficient numbers of quality personnel and sustain the readiness of the force while accomplishing its many operational tasks;
- Operational - the ability to achieve military objectives in a near- term conflict or other contingency;
- Future challenges - the ability to invest in new capabilities and develop new operational concepts needed to dissuade or defeat mid- to long-term military challenges; and
- Institutional - the ability to develop management practices and controls that use resources efficiently and promote the effective operation of the Defense establishment.
This framework allows the Department to consider tradeoffs among fundamental objectives and fundamental resource constraints, and it reflects DoD's experiences over the last decade in attempting to balance strategy, force structure, and resources. By assessing the Defense establishment in these four areas, the Department is directly addressing the issues associated with developing and assessing the operational force, key enabling capabilities, and its supporting deployment and industrial infrastructure.
Force Management Risks
DoD must always be able to meet its missions. It must deploy forces to assure friends and deter potential adversaries; it must acquire new capabilities to dissuade potential enemies from challenging U.S. interests; and, if necessary, it must defeat foes in combat. All of these risks require members of the military force to risk their lives at home and abroad for extended periods of time.
However, the Department should not expect its people to tolerate hardships caused by inequitable or inappropriate workloads within the force, aging and unreliable equipment, poor operational practices, and crumbling infrastructure. Consequently, this strategy requires explicit measurement and control of force management risk.
As an illustration, the figure below depicts the number of active duty military personnel deployed to various operations from November 1994 through December 2000. The figure shows large variations in the number of personnel deployed during this period, which coincided with substantial reductions in active-duty deployable forces. In addition, the use of reserve forces increased from eight million to 12 million man-days per year. The bulk of the deployment burden during this time was not spread among the entire force, due in part to the belief that the deployments were temporary and that permanent changes in rotational procedures and forward presence were not required. Prior to the end of 1994, the Department did not even collect data at the Joint level on the number of deployed personnel. DoD must better control this turbulence and manage its effects.
[See Figure 1]
U.S. military involvement in operations throughout the 1990s revealed substantial shortages of certain types of forces. In response to these shortages, the Department instituted force management mechanisms. These included the Global Naval Forces Presence Policy (GNFPP) to allocate the peacetime presence of naval assets across warfighting theaters and the Global Military Force Policy (GMFP) to manage demand for LD/HD assets, such as key surveillance and reconnaissance platforms. DoD will seek to expand these policies by developing a Joint Presence Policy.
Mitigating Force Management Risks: Tempo Standards and Rotational Base. DoD can no longer solely rely on such "lagging" indicators as retention and recruiting rates to detect personnel problems; by the time those indicators highlight a problem, it is too late. Nor can DoD delay necessary action to address growing force management risk due to high personnel tempo.
Toward these ends, DoD has committed to developing realistic tempo standards and limitations to control explicitly the amount of time DoD personnel are deployed away from home station or stationed outside the United States. These standards will help the Department maintain personnel tempo at acceptable peacetime levels. More importantly, DoD has made the overseas posture of U.S. military forces a principal component of force design. The QDR analyzed the relationships between forward-stationed and rotational forces. As a result, DoD is developing more effective ways to compute the required "rotational base" across various types of forces to support forward posture. DoD will also implement a Joint Presence Policy to ensure that all elements of the force are considered in the development of rotational presence requirements. Adopting these principles for force design and management should greatly decrease force management risk.
Operational Risks
DoD's new force planning approach recognizes the need to size U.S. military forces not only for the most demanding near-term warfighting tasks, but also for a plausible set of other near-term contingencies, including small-scale contingencies. Consequently, all measurements of operational risk will reflect the full range of capabilities U.S. forces must possess and missions that U.S. forces must perform.
In the past, major elements of the forces were designed and evaluated against a narrow set of military missions and associated tasks. With a wider set of missions and tasks, the measurement of operational risk will consider both the missions that forces were designed to accomplish, and those that they are currently assigned to conduct.
Mitigating Operational Risks: Force Structure Priorities, Forward Posture, and New Readiness Measurements. The QDR has developed a broader approach to operational risk that involves assessing the Department's ability to perform the following:
- Defend the United States;
- Deter forward in critical areas;
- Swiftly defeat aggression in overlapping major conflicts; and
- Conduct a limited number of small-scale contingencies.
Promoting the defense of the United States to the top priority restores its primacy and better allows the Department to focus and prioritize its efforts to mitigate operational risk.
This approach requires analysis of a broader range of contingencies to determine operational risk than the Department has traditionally analyzed. While instituting such an approach to operational risk management requires a considerable expansion of DoD's previous process, it directly addresses the importance of assessing the force's adequacy for a wider range of near-term operations. To this end, DoD will undertake a comprehensive re-engineering of its current readiness reporting system. The new system will allow measurement of the adequacy of the force to accomplish all its assigned missions, not just major combat operations. Such a system will also help the Department identify - and transform - force elements that are less relevant to the full spectrum of missions and tasks.
Planning for a wider range of contingencies affects recent assessments conducted by the Department. In particular, a major study of the size and shape of the Department's airlift, sealift, and pre-positioned equipment was completed in FY2000, but was based on the previous defense strategy. The mix of new threats and missions that DoD will consider in the near- to mid-term requires the Department to reevaluate this study in detail and adjust the results as necessary.
Finally, rather than equating risk mitigation with additional force structure, the new strategy calls for assessing changes in capabilities, concepts of operations, and organizational designs to help reduce risk. For instance, contingencies involving adversaries armed with CBRNE weapons, as well as ballistic missiles and artillery to deliver them, impose high risks for U.S. and allied militaries regardless of the size of the force amassed against them. In those instances, risk mitigation is more dependent on the decisions taken to pursue offensive and defensive systems and to develop new concepts of operations to deal with those threats than on increases in force structure.
Future Challenges Risks
Despite the strains on U.S. military forces during the past decade, the U.S. military has conducted its operations superbly. Nonetheless, the United States cannot take its recent successes for granted or mistakenly assume that no other nation or group will seek to challenge the United States in the future. The attacks of September 2001 demonstrate that the risks of future challenges are a permanent feature of the international system.
While the United States cannot predict with confidence which adversaries will pose threats in the future, the types of military capabilities that will be used to challenge U.S. interests and U.S. military forces can be identified and understood. As in the September terror attacks in New York and Washington, future adversaries will seek to avoid U.S. strengths and attack U.S. vulnerabilities, using asymmetric approaches such as terrorism, information operations, and ballistic and cruise missile attacks. The President has directed the Department to transform to meet such emerging challenges. As discussed earlier, DoD has identified critical operational goals to focus the Department's transformation on such priority areas.
Assessing future challenges risk provides a measure of the ability to meet the transformational challenges described above in the mid-term and longer-term. It also recognizes that the desired capabilities and missions for the Armed Forces will change over time, and it provides a bridge to the future by institutionalizing the shift from a threat-based to capabilities- based paradigm. It provides a way to monitor how DoD balances the needs to preserve long-term military preeminence and address short- term priorities.
Future challenges risk not only addresses possible future threats, but also the ability to meet critical transformational challenges. For example, the decision not to pursue a new technology due to the lack of a current threat entails risk: introducing it early provides a military advantage for a time, and it may dissuade any potential adversary from pursuing similar capabilities.
Mitigating Future Challenge Risks: Experimentation, R&D, and Selective Procurement. Achieving DoD's strategic goals mandates embarking on the long-term transformation of U.S. military capabilities. It requires a substantial investment in explicit searches for new and improved capabilities. These capabilities may derive from innovative operational concepts, advanced systems, new organizational arrangements, and enhanced training. To achieve these ends, DoD will expand experimentation efforts under the leadership of Joint Forces Command. The Department will experiment with new forces and organizations - including new joint task force organizations - to address those operational challenges identified previously. In particular, the possible establishment of a Joint National Training Center, a space test range, and a Joint "opposing force" for training are intended to help mitigate future challenges risk via expanded experimentation.
Complementing this focus on experimentation will be a new DoD emphasis on concept development - that is, new ways to use existing and proposed forces. One advantage of the transition to Standing Joint Task Force organizations is an ability to provide more opportunities for joint and combined experiments and exercises, both to discover existing weaknesses and exploit emerging opportunities.
The Department also recognizes the value of stable investment in science and technology to identify new defense technologies. DoD plans to stabilize investment in science and technology at three percent of the defense budget for FY03-07.
The Department plans to reduce the time required to introduce new concepts and systems into the fielded force. The time between design and deployment for major DoD systems has doubled since 1975. Some of the delay can be attributed to the custom of making decisions program by program, rather than mission area by mission area. This practice leads to mere substitution of new weapons for existing ones, rather than a broader, system-level transformation. DoD's new approach will serve to hasten and integrate decision processes, as DoD plans to make selective procurement decisions within the transformation framework described by this report. Thus, the Department will reduce future challenges risk by assessing the contributions of combinations of options in each transformation area.
The Department has already committed to many transformation initiatives, as discussed in Section V. Initiatives in counterterrorism, missile defense, advanced weapons, and information operations are examples of programs that are underway to reduce future challenges risk.
Institutional Risks
The final dimension of risk is aimed at making the best use of the Department's resources in the day-to-day operations of the Defense establishment. By formally addressing institutional risk, the Department aims to maximize the efficient use of defense expenditures to sustain long- term public support for the Nation's defense needs. To manage DoD efficiently, the Defense establishment needs to be transformed - how it operates internally, how it deals with its industrial suppliers, and how it interacts with the Congress. Currently, DoD leaders manage under a set of controls that do not allow them to operate with the freedom necessary to transform the force. DoD recognizes that it must explicitly reduce these institutional risks to better manage the Defense establishment.
Mitigating Institutional Risk: Changes in DoD Operating Practices. One of the primary objectives in reducing institutional risk is the restoration of vitality in the Defense establishment. In particular, the military and civilian personnel systems merit serious examination. Consequently, DoD will develop a strategic human resources plan to help size and shape the Department's personnel for the new strategy. This plan will not only examine ways to ensure that DoD personnel have the necessary critical skills, but it will also examine the balance of personnel and work among the active, reserve, and civilian workforces.
DoD will work to achieve a transformation in business practices, with a particular emphasis on financial management. It will develop a new financial management architecture to guide the modernization of these practices.
DoD has also committed to a substantial streamlining and upgrading of its infrastructure. The Department needs another round of infrastructure reductions to reduce unneeded facilities. DoD has adopted a goal of achieving a 67-year recapitalization rate for 80 percent of current infrastructure by 2010, as specified in the Efficient Facilities Initiative. Currently, DoD recapitalization rates average 192 years.
In addition to the longer-term initiatives listed above, the Department is taking steps to reduce institutional risk immediately. An important managerial change is the establishment of the Senior Executive Council (SEC), which will conduct a comprehensive review of the Defense Agencies. In addition, the Department has already begun streamlining the processes associated with the Defense Acquisition Board (DAB) and the Planning, Programming, and Budgeting System (PPBS), as discussed in Section VI.
Mitigating Risks Across the Spectrum
These four dimensions of risk cannot be assessed and managed independently. As noted previously, increasing near-term risk in one area, such as force management risk, would most likely affect another area, such as operational risk. Maintaining a strategy-driven balance among the four dimensions of risk is essential, and that balance must be sustained and, where necessary, adapted over time.
Adopting this risk framework is not the end but just the beginning of the Department's effort to assess and manage risk. DoD has practiced risk management in the past, but by specifying this new strategy-driven risk management framework, the Department has begun to develop a management tool that will enable greater focus on the implementation of the QDR defense program. DoD has already committed to the risk mitigation steps discussed above to reduce risk in areas that have been well documented. The broader commitment to measure and balance risk using this framework requires extensive revisions to the readiness measurement system and development of new mechanisms to address the other risks. When implemented, these mechanisms will provide the needed assessments across all dimensions of risk.
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