Department of Energy: Progress Made Under Its Strategic Alignment and
Downsizing Initiative (Testimony, 06/12/96, GAO/T-RCED-96-197).

GAO discussed the Department of Energy's (DOE) progress under its
Strategic Alignment and Downsizing Initiative. GAO noted that DOE: (1)
has met most of its targeted budget savings under the initiative and
will save $221 million by amending its fiscal year (FY) 1996 budget
request and selling excess assets; (2) plans to expand its savings to
$1.7 billion by FY 1997; (3) is depending on process improvements and
reengineering efforts to achieve its missions under a reduced budget;
(4) is unlikely to reduce its costs to the maximum extent, since
downsizing initiatives are premature; and (5) management needs to be
accurate in validating cost savings, focus attention on implementing all
planned actions, and consider additional opportunities for savings.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-RCED-96-197
     TITLE:  Department of Energy: Progress Made Under Its Strategic 
             Alignment and Downsizing Initiative
      DATE:  06/12/96
   SUBJECT:  Reengineering (management)
             Strategic planning
             Federal downsizing
             Information resources management
             Budget cuts
             Federal agency reorganization
             Future budget projections
IDENTIFIER:  DOE Strategic Alignment and Downsizing Initiative
             DOE Automated Transportation Management System
             Internet
             DOE Explorer System
             
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Cover
================================================================ COVER


Before the Subcommittee on Energy,
and Power, Committee on Commerce,
House of Representatives

For Release on Delivery
Expected at
10 a.m.  EDT
Wednesday
June 12, 1996

DEPARTMENT OF ENERGY - PROGRESS
MADE UNDER ITS STRATEGIC ALIGNMENT
AND DOWNSIZING INITIATIVE

Statement of Bernice Steinhardt, Associate Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-96-197

GAO/RCED-96-197T


(308687)


Abbreviations
=============================================================== ABBREV

  DOE -
  NEPA -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to summarize the results of our
recently completed report on the progress the Department of Energy
has made on its Strategic Alignment and Downsizing Initiative.  At
your request, we (1) determined whether savings projected to date
under the Initiative have been met and if additional savings will
likely be achieved and (2) identified additional opportunities for
DOE to reduce its current and future expenditures.  This testimony is
based on our May 1996 report, which your committee is releasing
today.\1

In summary, we found that DOE's planned budget savings are on target. 
By amending its fiscal year 1996 budget request and selling excess
assets, DOE will save the $221 million that it had planned to achieve
this year under the Initiative.  During the rest of the Initiative's
5-year period, DOE plans to maintain and expand the first year's
savings to achieve the Initiative's goal to save $1.7 billion. 

In addition, DOE is depending on process improvements and
reengineering efforts to enable it to fulfill its missions under the
reduced budgets called for by the Initiative.  Because some
activities are in their early stages and many milestones have yet to
come due, it is not yet clear if DOE will reduce costs in certain
areas to the extent planned in its budget reductions.  Furthermore,
some overly optimistic initial reports of cost savings illustrate the
need for DOE management to be diligent in validating claims of cost
savings.  Otherwise, managers might believe those savings were
occurring in specific activities, when the target reductions were
being absorbed elsewhere. 

Discussions with DOE officials revealed several opportunities to
achieve additional cost savings by more broadly applying some aspects
of the Initiative's plans and strategies.  For example, one way would
be to encourage its contractors to sell more of DOE's excess assets
by providing incentives and policies for the contractors to identify
and sell them.  However, fulfilling the potential of these
opportunities will require further actions by DOE. 


--------------------
\1 Energy Downsizing:  While DOE Is Achieving Budget Cuts, It Is Too
Soon to Gauge Effects (GAO/RCED-96-154, May 13, 1996). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

DOE's May 1995 Strategic Alignment and Downsizing Initiative is part
of a broader set of DOE efforts to reduce its budget.  In December
1994, the Secretary identified the following major efforts to save
$14.1 billion between fiscal years 1996 and 2000:  (1) implementing a
strategic alignment and downsizing initiative; (2) selling four of
its Power Marketing Administrations, one of its Naval Petroleum
Reserves, and stores of highly enriched uranium; (3) improving
cleanup techniques and contracting approaches at its weapons sites;
and (4) implementing recommendations from two commissions to improve
DOE's defense laboratories and applied research programs. 

The Initiative's efforts to achieve savings use six strategies: 
reduce federal staffing levels, travel budgets, and support service
contracts as well as sell assets, improve information management
systems, and streamline its National Environmental Policy Act (NEPA)
process.  Under these six strategies, DOE allocated federal staffing
reductions and budget targets to individual offices.  DOE senior
managers next instructed offices to develop workforce plans to absorb
their assigned cuts.  They then established teams led by senior-level
"champions" to prepare plans to implement DOE's strategies to work
within its staff and budget reductions.  Both sets of plans include
reengineering and process improvement efforts. 


   BUDGET SAVINGS ARE ON SCHEDULE,
   BUT IT IS TOO SOON TO GAUGE
   SUCCESS OF COST-SAVING
   STRATEGIES
---------------------------------------------------------- Chapter 0:2

By amending its fiscal year 1996 budget request to reflect planned
savings, DOE has already achieved the savings projected for the first
year of its Initiative.  It plans to achieve future savings under the
Initiative through additional reductions in its budgets.  DOE's
strategies for cutting costs to absorb the fiscal year 1996 budget
reductions are on track.  However, many planned actions, such as
process improvements and reengineering efforts that are needed to
fulfill DOE's missions within future budget reductions, are just
starting. 


      DOE'S TARGETED SAVINGS ARE
      ON SCHEDULE
-------------------------------------------------------- Chapter 0:2.1

DOE has met most of its fiscal year 1996 targeted savings.  In June
1995, DOE amended its fiscal year 1996 budget request to reflect
savings of $208 million from implementing the Initiative.  DOE also
anticipates an additional savings of $15 million from asset sales
during fiscal year 1996.  DOE has made the cuts needed to meet the
targeted cost-savings reflected in its fiscal year 1996 budget
request.  As of March 31, 1996, DOE had cut 1,467 positions from its
fiscal year 1995 allocation of 14,057 full-time positions; this
reduction surpasses its goal of eliminating 1,380 positions by the
end of this fiscal year.\2

Other plans to achieve cost savings for fiscal year 1996 also appear
to be on track.  For example, obligations for support service
contracts are currently lower than planned.  In fact, DOE projects
that its cost savings from these contracts, as well as its strategies
for travel and information resources management, will be greater than
planned.  Savings from selling assets and streamlining the NEPA
process are also on track to reach DOE's targeted cost savings for
fiscal year 1996. 

DOE plans to use future budget reductions to achieve the Initiative's
remaining savings.  For some strategies, DOE could achieve its
targeted cost savings for the Initiative's remaining years by
maintaining the cost savings it will have achieved in fiscal year
1996.  For example, DOE's strategies relating to the budgets for
travel and support service contracts require only that DOE maintain
fiscal year 1996 cost savings each year through the year 2000.  For
other strategies, DOE must take additional actions to achieve the
necessary cost savings.  The targeted cost savings from reducing the
workforce require eliminating an additional 2,408 positions between
fiscal years 1997 and 2000.  Similarly, achieving the targeted cost
savings from improving information management, selling assets, and
streamlining the NEPA process will require additional actions each
year over the Initiative's 5-year period.  For example, DOE's
strategy to sell assets will require that it continue to identify
excess assets in its inventory and sell them. 


--------------------
\2 This base level excludes the five Power Marketing Administrations
and the Federal Energy Regulatory Commission. 


      CRITICAL MILESTONES, PROCESS
      IMPROVEMENTS, AND
      REENGINEERING EFFORTS TO
      ACHIEVE ADDITIONAL COST
      SAVINGS ARE IN THEIR EARLY
      STAGES
-------------------------------------------------------- Chapter 0:2.2

While DOE plans to improve many of its processes and operations and
take other actions to fulfill its missions within the reduced budgets
planned under the Initiative, the cost-savings potential of its
efforts is uncertain because most of them are just beginning and some
are not scheduled to be completed for several years.  For example, of
DOE's 45 implementation plans, 22 plans have milestones that
delineate future actions (to be met after May 1996) and 5 of those
plans have milestones that will not come due until the year 2000. 
Furthermore, many of the workforce plans identified process
improvements and reengineering efforts that were just beginning. 
Because these actions are in their early stages, it is not yet clear
if they will reduce costs to the extent DOE envisioned.  According to
DOE's Associate Deputy Secretary for Field Management, who is
chairing the Initiative's implementation team, if process
improvements and reengineering efforts do not keep pace with budget
cuts, operational problems could result.  This situation would likely
either force the improvements to occur or curtail the associated
function.  Finally, he stated that if a function could absorb major
cuts while not changing its processes, it may indicate that the
function was over-funded or is not critical to DOE's operations. 


      SOME INITIAL CLAIMS OF COST
      SAVINGS WERE OVERLY
      OPTIMISTIC
-------------------------------------------------------- Chapter 0:2.3

While DOE's Initiative has achieved some overall savings through
planned budget cuts, we identified several examples of initial
reports of cost savings that were overstated and thus do not reliably
depict the progress that DOE has been making toward operating within
its reduced budget.  According to DOE officials responsible for
monitoring the Initiative, these initial reports had not yet been
validated.  For example, an initial DOE report on the information
management strategy included an annual savings of $9.9 million for
fiscal year 1996 by providing electronic versions of DOE directives
departmentwide through a system called Explorer.  This annual savings
was based on using the Internet to eliminate hard-copy distributions
of DOE directives at 85 sites.  However, these officials believe that
this system has been implemented at only one site to date and thus
will result in savings of about $115,000.  Moreover, these officials
were uncertain if the system would be implemented at all the
remaining sites in time to achieve the full cost savings the initial
report had claimed. 

The same DOE report on the information management strategy also
overstated the savings from implementing DOE's Automated
Transportation Management System at the Hanford site.  According to
the headquarters transportation management official responsible for
implementing this system, the projected savings claimed by the
Hanford site should have been about $550,000 rather than $3 million,
which represented the projected saving for implementing this system
departmentwide. 

Both of these initial claims illustrate the importance of DOE's
validating claims of cost savings.  If DOE managers were to depend on
these reports containing overstated cost savings, they might think
that planned actions intended to absorb budget reductions occurred,
when in fact they had not.  Officials in DOE's Office of Information
Management told us that they have begun to develop a process and
guidance to validate cost savings claimed under its information
management strategy. 


   ADDITIONAL OPPORTUNITIES EXIST
   FOR DOE TO REDUCE CURRENT AND
   FUTURE EXPENDITURES
---------------------------------------------------------- Chapter 0:3

Discussions with DOE officials revealed opportunities to achieve
additional cost savings by more broadly applying some aspects of the
Initiative's plans and strategies.  However, to fulfill the potential
of these opportunities will require further actions by DOE. 

For example, according to DOE officials, the Department lacks an
adequate inventory system to identify excess assets to sell.  These
officials added that because of the vast supply of assets DOE owns,
it could potentially realize significantly more income than the $75
million projected by selling assets under the Initiative.  However,
DOE's contractors have no incentives to inventory and sell the excess
assets they manage.  DOE is developing policies to provide incentives
for identifying and selling excess assets and to transfer proceeds
from their sale to the Treasury.  However, until these policies are
implemented, DOE believes the strategy to sell excess assets will not
achieve its full potential. 

DOE could also achieve greater savings if it included its management
and operating contractors in its strategy to improve information
management.  According to its Office of Information Management,
although DOE based its goals to achieve cost savings through
improving information management on budgetary data for all of its
offices and sites, it does not plan to include all of DOE's
contractors.  DOE's information management office does not believe
the Department has the authority to compel contractors to identify
their site information resources or to implement improvements. 
However, if DOE included all of its contractors, the Department could
achieve substantial additional savings because its contractors
annually spend over 90 percent of DOE's funds for information
technology (an estimated $1.45 billion out of $1.6 billion for fiscal
year 1997). 

Moreover, according to DOE officials, substantially greater savings
could be achieved under the Initiative's planned action to
consolidate its transportation and packaging functions.  While
consolidating these functions at the headquarters level was estimated
to save $6.4 million, DOE officials said that implementing this
action at the site level could achieve an estimated cost savings of
$432.5 million during the Initiative's 5-year period.  This
additional savings will depend on DOE's ability to restructure its
field transportation activities and establish interfaces between site
and headquarters transportation management systems.  According to DOE
officials, however, DOE may not be able to accomplish these two tasks
because of staff and funding reductions. 


-------------------------------------------------------- Chapter 0:3.1

In conclusion, Mr.  Chairman, although DOE plans to meet the
Initiative's savings goals through budget cuts, many of its planned
actions to maintain operations under the Initiative's budget and
staffing reductions are just beginning.  For DOE to continue to
fulfill its missions, its management needs to focus its attention on
implementing all the Initiative's planned actions.  Some overly
optimistic initial reports of cost savings illustrate the need for
DOE management to be diligent in validating claims of cost savings,
lest managers believe those savings are occurring in specific
activities, when in fact, the reductions are being absorbed
elsewhere.  As DOE continues to implement its Strategic Alignment and
Downsizing Initiative, DOE also needs to be alert for and consider
additional opportunities for savings. 

Mr.  Chairman, this concludes our prepared statement, which has
highlighted some of the information contained in our report.  We will
be happy to respond to any questions you or any of the Members of the
Subcommittee may have. 


*** End of document. ***