The application of incentives and the Defense Business Operations Fund
Wallner, Michael H.
Gates, William R.
Milligan, Richard D.
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The Defense Business Operations Fund (DBOF) is an attempt to incorporate private sector business incentives into the public sector. Truly efficient incentive initiatives must provide the motivation and necessary resources for organizations to make cost reducing investments. If either the motivation or resources are missing an organization will not become more cost effective and efficient. The private sector goal is profit maximization. This goal is projected to the firm's production and service divisions through chargeback methods. DBOF is a variant of cost based chargeback. This thesis examines the application of this incentive with special emphasis on Navy contracting activities. It found that some motivation for making investments in efficiency and effectiveness is provided through gainsharing and competition. However, only nominal resources are provided for investment. DBOF could be enhanced by allowing for profit retention and mitigating price sensitivity. This requires the ability to carry unexpended funding forward to the next fiscal year and implementing success sharing or a similar initiative. Success sharing, an innovative suggestion by Dr. Francois Melese, allows the activity to share in some of the cost savings by reducing price (unit cost) slightly less than the cost savings. The Government captures most of the profits, but it provides the activity with some profit to reinvest in more cost reducing investments.
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