Understanding government budget resources, particularly those related to defense and military spending, can provide valuable insights into market opportunities and the potential value of different sectors. By analyzing these budgets, businesses and investors can identify funding priorities, emerging technologies, and strategic initiatives.  It’s important to understand these things when building a defense-focused go to market strategy.

One of my first steps in supporting a client is to try to understand the market opportunity. I often look at budget priorities to get an idea of where strategic leaders are prioritizing spending.  I often get asked what I’m looking at or looking for. The answer is a very unsatisfying “it depends” and becomes too convoluted to explain verbally.  

There is no one answer on how to review budget documents to learn from them. They’re complex and what you look for depends very much on the questions you’re asking. That said, I thought I’d share my general approach and provide an overview of the resources out there. Whether you’re a CEO gearing up for fundraising, a business development lead trying to find the most opportune angles, or a consultant aiming to provide the best value to your clients, this is a process that is worth understanding. 

Below is my best attempt at a high level “how to” on defense budget analysis.  

Step 1: Identify Relevant Budget Documents 

Start by identifying the key budget documents that provide detailed spending information. The Department of Defense (DoD) and various military branches publish comprehensive budget materials annually. These documents can be found on the Comptroller’s Website, and include:

• DoD Budget Overview 
• Budget Justification Books (JBooks)
• Program Acquisition Cost by Weapon System
• Research, Development, Test & Evaluation (RDT&E) documents
• Operations & Maintenance (O&M) documents
• Procurement documents

Which of these is most valuable to you will likely depend on your product and your question. Especially when it comes to weapon system analysis or JBooks. I find it’s best to start with the DoD Budget Justification to get a sense of the programs and services that are most interested in your technology, and let that guide you to the more detailed products. 

A list of budget resources with descriptions and a highlight of their utility can be found at the end of this article! 

Step 2: Analyze Spending by Service

Break down the budget by service (Army, Navy, Air Force, etc.) to understand how funds are allocated across different branches. This can highlight service-specific priorities and potential areas for contracts and partnerships.  You may also find that one service is spending deeply in R&D, while others hold the market for O&M and Proc.  Additionally, requirements processes, timelines, and engagement best practices vary from service to service. These distinctions can help guide your engagement strategy. 

Step 3: Review Major Programs

Identify major programs and initiatives that receive significant funding. These programs often indicate strategic priorities and areas where the government is likely to invest heavily.

Timing is as important to transition success as having the right relationships. Understanding the timing of system upgrades is important to aligning your technology development for test and integration.

Use cases that solve a problem that’s not already prioritized can be lucrative, but diverting funding from the major priorities is difficult at best. The major market in defense is tied to major weapon systems.  

Step 4: Separate R&D from O&M and Procurement

It’s important to have some understanding of appropriations going into this. If you are still developmental and are looking for non dilutive development spending, then you need to be reviewing research and development (R&D) spending. R&D spending, however, is not a good source of long term recurring revenue.  To get a real assessment of market value, you need to be reviewing Operations & Maintenance (O&M) and Procurement (Proc) dollars. 

Another way to consider the distinction is that R&D investments often signal emerging technologies and long-term opportunities, while O&M and Procurement indicate ongoing and immediate operational needs.

You may find that these things are not in alignment.  For instance, R&D spending may be high for a new technology, with no clear spending in the FYDP for O&M or Proc.  It may indicate that there’s an expectation that it is subsystem technology and these documents aren’t detailed enough to include it. It may also mean the interest is niche, limited, or exploratory. 

Whatever this breakout is, it can help you understand the path you need to take to break into or create the market to succeed. It can help to assess whether and when you need to consider bringing in a lobbying team, consider business to business partnerships, or focus on commercial success, first. 

Generally speaking, budget documents alone, cannot paint a clear picture of your market and opportunities, and it needs to be tied together with direct government interactions, and a deep nuanced understanding of corporate culture.  

Step 5: Examine Time-Based Trends

Analyze budget data over multiple years to identify trends. Look for increases or decreases in funding, shifts in priorities, and new program introductions. Trend analysis can help forecast future opportunities and market value changes.

It can be incredibly valuable to tie budget analysis to past spending trends to see if the spending allocations matched the spending. This analysis also gives some truth data on the detailed breakout of actual spending that’s not visible in published budget documentation.  I’ll get more into spending analysis another day, but I find the insights of these to sets of data side by side to be the most interesting when assessing longitudinally. 

It’s also important not to over invest in trend analysis, and make sure you’re considering global events in your analysis. As an example, the recent shift in focus from the War on Terror to Great Power Competition may spike some sudden shifts in spending priorities. 

Step 6: Utilize Additional Justification Books

Review additional justification books such as the Counter-Drug Activities, Security Cooperation, and Information Technology/Cyberspace Activities (ITCA) budgets. These documents provide insights into specific areas of interest beyond the main defense budget. You may consider sister agencies such as the Department of Homeland Security for further insight. 

Applying Insights to Market Opportunities

By following the steps above, you can:

• Identify sectors with growing government investment.
• Anticipate future technological advancements and market demands.
• Develop strategies for entering or expanding in government-focused markets.
• Align business development efforts with government priorities.

Budget Document Overview: 

There are a ton of resources. Each of the services shares and represents their products a little bit differently and chooses to provide varying levels of detail and types of information, so a review of the Army budget is likely to look different than that of the Navy or Air Force. That said, insights can be found in each. 

• Department of Defense Budget Justification

• Description: Overall budget justification for the DoD, providing a high-level overview of defense spending.
• Utility: Serves as a foundational document for understanding broad defense spending trends and priorities. If you’re uncertain, START HERE. This is also a great place to grab quotes to support R&D project proposals for SBIR and other entry-level programs.

• Department of Defense Comptroller's Budget Materials 

• Description: Detailed budget justification materials for the DoD, covering all branches and major programs. Provides comprehensive spending data, including high-level R&D, O&M, and Procurement, essential for understanding overall defense spending priorities.
• Utility: Gives the best bottom-line understanding of market, detailed insight into major programs, and guidance and direction on which additional materials are worth reviewing. 

• Army Financial Management & Comptroller Budget Materials 

• Description: Budget justification materials specific to the U.S. Army, detailing expenditures and funding allocations.
• Utility: Highlights Army-specific initiatives and funding priorities, useful for targeting Army-related opportunities. This will provide more granular program detail for the Army and can point you to actual program offices and organizations for customer discovery. 

• Department of the Navy Fiscal Year Budget Materials

• Description: Budget materials for the Navy and Marine Corps, including detailed program funding and future initiatives.
• Utility: Offers insights into naval and marine operational priorities and technology investments. This will provide more granular program detail for the Navy and can point you to actual program offices and organizations for customer discovery.  

• U.S. Air Force Financial Management Budget Materials 

• Description: Financial documents detailing the Air Force's budget, including specific program funding and strategic initiatives.
• Utility: Useful for identifying Air Force priorities, particularly in aerospace and defense technologies. This will provide more granular program detail for the Air Force and can point you to actual program offices and organizations for customer discovery. 

• Counter-Drug Activities Budget

• Description: Detailed funding allocations for counter-drug initiatives within the DoD.
• Utility: Useful for identifying opportunities in drug interdiction and related support services.

• Security Cooperation Justification Book

• Description: Justification for funding allocated to security cooperation and assistance programs.
• Utility: Highlights opportunities in international defense cooperation and assistance projects.

• 5-Year Force Structure Changes Exhibit

• Description: Document detailing planned changes in force structure over the next five years.
• Utility: Provides long-term insights into how the military is evolving, indicating future needs and market opportunities.

• FY2024 Information Technology/Cyberspace Activities (ITCA) Budget Overview

• Description: Overview of IT and cyberspace-related spending within the DoD.
• Utility: Critical for understanding investments in cybersecurity and information technology, highlighting tech sector opportunities.

• DOD Strategic Management Plan

• Description: Strategic plan outlining the DoD's management goals and priorities for a given fiscal year.
• Utility: When available, this offers context for budget allocations and strategic priorities, useful for aligning business strategies with DoD objectives.

By systematically analyzing these resources, you can gain a deep understanding of government spending priorities, identify market opportunities, and assess potential market value changes, allowing for more informed business and investment decisions. Again, I never suggest making decisions based on these documents alone, but they should be part of your process. 

Your Fan,