Estimating the annual, recurring cost of fraud, waste, abuse, warranty cases, poor quality software, and cost overruns in the United States by industry is a complex task, as there is no single comprehensive source of data for all industries. While it is difficult to provide an exact number, the total costs are substantial. Below are some estimates based on available data and studies from select industries:
- Software Industry: The Consortium for Information and Software Quality (CISQ) publishes a biennial report on the cost of poor software quality in the U.S. Here are the latest 3 reports from CISQ:
a) 2018 >> $2.84 trillion USD
b) 2020 >> $2.08 trillion USD
c) 2022 >> $2.46 trillion USD
- Healthcare Industry: Waste in the U.S. healthcare system is estimated to be between $760 and $935 billion per year, according to a 2019 study by the Journal of the American Medical Association (JAMA).
- Defense Industry: The annual Department of Defense (DOD) budget averages close to $700 billion USD per year. Although the American public has long suspected that the DOD is a cash cow for big contractors, there are no comprehensive studies or analyses that accurately calculate the annual fraud, waste, abuse (cost overruns) at the DOD. It does not seem that the government has the skills to hold contractors accountable by conducting the necessary in-depth analyses. And the contractors should not (cannot) be trusted to perform their own self-assessments.
The Pentagon does not work in a transparent manner, and the Government Accountability Office (GAO) is not holding the DOD accountable nor providing the American public with insights into their spending. However, in May 2021, a hearing was held by the Senate Budget Committee on the waste, fraud, and cost overruns at the Pentagon, providing statements that raise eyebrows.
a) According to some estimates, we cannot track $2.3 trillion in transactions at the Pentagon.
b) According to the GAO, the Pentagon’s $1.8 trillion acquisition portfolio currently suffers from more than $628 billion in cost overruns.
c) Since 1995, Boeing, Lockheed Martin, and Raytheon have paid over $5.4 billion in fines or related settlements for fraud or misconduct.
d) We have an acquisition system designed to increase costs. The most significant problem is the corrupting influence of the revolving door of senior Pentagon officials going to work for the defense industry. The end result is officials appearing to or actually confusing what is in the best interest of our national security with what is in the best financial interest of defense contractors.
e) The DOD does not just pay too much for complex weapons systems. They also get fleeced on spare parts. The overpriced plastic toilet seat covers that cost $640 in the 1980s now cost $10,000. One of the root causes of these overcharges is misuse of commercial item designations, which makes it difficult for the Government to obtain cost or pricing information to determine whether the prices contractors are charging are fair and reasonable.
- Construction Industry: The Association of Certified Fraud Examiners (ACFE) reports that the construction industry loses around 5% of its annual revenue to fraud. In 2020, the construction industry revenue in the U.S. was approximately $1.4 trillion, which means around $70 billion could be lost to fraud each year.
- Automotive Industry: Warranty costs for automakers can vary significantly, but a 2014 study by Warranty Week estimated that the average warranty costs per vehicle in the U.S. were around $400. With approximately 17 million vehicles sold in the U.S. each year, this would amount to roughly $6.8 billion in warranty costs annually.
These few examples put us well over $3 trillion USD per year!
These estimates focus on a few select industries in the United States and do not cover all sectors, but just with these few examples we are well over $3 trillion USD per year. These figures are based on available data and assumptions, and the actual total costs across all industries are likely to be significantly higher. How is this even possible? Because the GAO and other industry watchdogs do not have the skills to conduct the in-depth analysis that is required to identify and address the underlying complex, deep-seated latent organizational, programmatic and cultural weaknesses that are causing these recurring problems and associated costs.
Addressing the underlying causes of these issues could have a significant positive impact on the economy and society. If the United States could save $3 trillion USD per year by solving recurring problems caused by the deepest-seated latent organizational, programmatic and cultural weaknesses across all industries, it would have significant impacts on the economy and society. For example:
- Increased economic growth: With an annual savings of 3 trillion USD, the country’s GDP would increase, leading to higher economic growth, which would further improve living standards, create more job opportunities, and strengthen the nation’s global economic standing.
- Greater efficiency: Addressing recurring problems and their underlying causes would lead to more efficient and effective business operations across all industries, making them more competitive and better able to innovate.
- Increased investment: The savings generated could be invested in various sectors, such as infrastructure, education, research and development, and social programs, leading to long-term economic and social benefits.
- Enhanced global competitiveness: By addressing deep-seated issues, U.S. industries would become more efficient, innovative, and competitive on a global scale, leading to increased exports, a more balanced trade situation, and stronger international relationships.
- Improved income distribution: The savings could be used to address income inequality through targeted policies, such as better access to education and training, increased minimum wages, or social safety net enhancements, leading to a more equitable society.
- Environmental benefits: Solving recurring problems could lead to more sustainable business practices across industries, reducing waste, conserving resources, and decreasing the negative environmental impacts associated with inefficient operations.
- Improved public services: The savings could be allocated to improve public services, such as healthcare, education, and transportation, which would, in turn, improve the overall quality of life for citizens.
- Reduced public debt: The 3 trillion USD in savings could help reduce the national debt, which would lower the burden on future generations, and create more fiscal space for addressing other national priorities.
- Enhanced social cohesion: By addressing deep-seated organizational and cultural factors, the United States could create a more inclusive and equitable society, promoting social cohesion and reducing the potential for social unrest.
Overall, saving 3 trillion USD per year (or just a fraction of that amount) by solving recurring problems caused by deep-seated latent organizational, programmatic and cultural factors would have widespread positive effects on the U.S. economy, environment, and society.
We may never know the actual cost of recurring fraud, waste, abuse, warranty cases, poor quality software, and cost overruns in the United States. But we can take steps to lower those exorbitant costs. However, to eliminate the sources of those recurring costs will take unprecedented courage and political will. In practical terms, it will take a global commitment to develop the skills and knowledge to conduct the in-depth investigations, analyses and assessments that will shed light on these monumental problems and their deepest-seated causes. Skills that allow us to solve our most complex and even wicked human-centric problems in modern sociotechnical work environments. But these skills are not generally being taught by mainstream academia.
We at BlueDragon are motivated by the examples of waste, fraud, abuse and cost overruns listed above. Teaching the skills and knowledge needed to solve complex and wicked problems is precisely why the team at BlueDragon is so energized: because armed with these skills, organizations in all industries can solve problems and save billions and even trillions of dollars. Our integrated and holistic problem-solving system is the most advanced system in the world for solving human-centric problems in modern sociotechnical work environments. It is backed by science and our Learning Management System can handle 10,000 students per month.
What would happen if we could train a small percentage of workers in every industry to truly solve problems and prevent their recurrence? We’re going to try to find out.
About the Author:
Rob De La Espriella, BD3, is a former nuclear submarine officer, a regulator with the US Nuclear Regulatory Commission, and a senior manager at commercial nuclear power plants. Since 2007, he has been a Senior Policy Advisor for the Department of Energy and their contractors. In 2023, Rob was accepted into the Forbes Business Council, contributing articles and commentary to help businesses reach their full potential. Rob is also a leading expert in solving complex human-centric problems in modern, socio-technical work environments, and has re-defined how organizations solve problems with the BlueDragon Integrated Problem-solving System (IPS).
For more information on the most advanced system for solving complex, human-centric problems in modern sociotechnical work environments, visit us at www.bluedragon1-ips.com.