EPMC Funds Management Updates And Planning, Programming,

EPMC Funds Management Updates And Planning, Programming,
Budgeting and Execution Siobhan Tack BCF, C&NE Department Chair Defense Acquisition University, Capital & Northeast Campus (703) (DSN 655) Review of Previous Lesson: - Congress Staff Support Officer Committees - Budget Enactment Process (3 Steps) Concurrent Budget Resolution (HBC and SBC) Authorization Bill (HNSC and SASC) Appropriations Bill (HAC and SAC) - Appeals - Continuing Resolution

The Budget Process #1 Identify the Requirement #2
Develop A Cost Estimate #3 Apply Appropriations and Funding Policies #4 Budget using PPBE #5 Congress Appropriates through the Enactment Process #6 Get to Work during the Execution Process

Lesson Overview DoD 7000.14-R FMR
Cost Estimating Process Breaches Appropriation Categories Funding Policies - Incremental Funding - Full Funding Congress New Starts Reprogramming Rules Execution Laws PPBE Building Blocks Planning Programming Budgeting Execution Review These are the topics we will cover in this lesson. Track to LOs. WCF is for info only - we won’t be covering it in class and we’ll cover only half of the Escalation charts, so don’t panic All info is contained in the DoD R, the Fin Mgmt Reg Refs: AR , Navcompt Vol 7, AFR 65 series TRANS: So let’s start out with Appropriation Categories DoD R FMR

Cost Estimates and Players
Program Office Program Office Estimate (POE) Cost Analysis Requirements Description (CARD) Service Cost Agencies Component Cost Analysis (CCA) OSD Cost Analysis Improvement Group (CAIG) Independent Cost Estimate (ICE) Budget to the ICE

MDAP Cost Review Process
Cost Analysis Improvement Group Defense Acquisition Board ICE OIPT + Svc Cost Position ICE ACAT ID Svc Cost Position (ACAT ID) Service Acquisition Decision Panel Assistant Secretary (FM) Reconciliation Svc Cost Position (ACAT IC) ACAT IC ASARC N/MC PDM AF IPT This slide depicts a notional flow of cost estimates in the review process for ACAT I programs. ACAT ID estimates may or may not flow to the Service panel. Generally speaking, the OIPT is likely to have some of the same players as the Service panel, so such a review may not be necessary. However, the CAE may require it if there are any thorny issues that might be best resolved prior to the OIPT review. Note that reconciliation occurs in the Army and Air Force via the Army Cost Review Board and the AF CAIG, respectively. The Navy does not formally reconcile CCA and POE into a service cost position. POE is assumed correct unless it varies more than 10% from NCCA estimate; NCCA identifies disconnects and makes case for which is better estimate. TRANSITION: Now that we’ve discussed the players and products in the cost review process, let’s talk about the actual derivation of the cost estimates themselves. POE CCA Discretionary Sufficiency Review Sensitivity Analysis CPIPT ACAT IC Program Office Service Cost Agency POE CARD

MAIS Cost Review Process
Review Cost Analysis POE + CCA (ACAT IAM) IT OIPT PA&E Analysts ITAB ACAT IAM Service Acquisition Decision Panel (ACAT IAC) POE + CCA (ACAT IAM) Assistant Secretary (FM) Reconciliation POE + CCA ACAT IAC (ACAT IAC) CIO POE CCA Program Office Service Cost Agency POE Economic Analysis CCA

Breach Parameters PAUC = Program Acquisition Unit Cost
APUC = Average Procurement Unit Cost

Nunn - McCurdy Title 10 US Code, Section 2433
PAUC or PUC increases of 15% “reportable” to Congress PAUC or PUC increases of 25% require Sec Def certification to Congress: Essential to National Defense No alternatives New estimates are reasonable Management structure is adequate

Major Appropriation Categories
APPN CAT OBLIGATION PERIOD SCOPE OF WORK EFFORT FUNDING POLICY RDT & E RDT&E Activities & Exp, AIS Equip & SW, R&D Facilities, Minor Const Incremental 2 Years Inv/Exp Production Labor/HW, Initial Spares, AIS Equip & SW, non-centrally managed items >= $250K PROC [SCN] Full 3 Years [ 5 for SCN ] Inv O&M Replenishment Spares, Civilian Salaries, Minor Const < $750K, Travel, AIS Equip & SW < $250K, SW Dev/Mod/Purch/Lease Annual 1 Year An appropriation is “provision of legal authority by an act of the Congress that permits Federal Agencies to incur obligations and to make payments out of the Treasury for specified purposes.” -- provides Budget Authority. Category: Type of funding or “color of money” -- aggregation of all similar appropriations of a specific type (e.g. all RDT&E for all Components and Defense Agencies) Account: Category plus Component. About 60 approp accts for Defense. RDT&E: all costs assoc w/ RDT&E (expense & investment); end items, minor constr; civ pay (Navy uses WCF for civ pay at RDT&E facilities) 2 Years [CE, PDRR, EMD] Procurement: all costs assoc w/ procuring end items intended for operational use >$100K (labor, mat’ls, overhead, init spares) 3 Years; SCN: 5 Years because building ships is like large construction project [PRODUCTION] LRIP: recent law change - R&D only for test-unique items; otherwise Procurement. O&M: O&S of fielded systems (replen spares, fuel, civ pay, travel, constr <$500K, procure >$100K unit cost) 1 Year [O&S, Disposal] ASK: O&M and O&S the same? MILPERS: uniformed pers (pay, allow, PCS, contribs to retirement trust fund) 1 Year MILCON: all costs assoc w/ construction projs >$500K 5 Years PMs don’t directly manage MILPERS & MILCON Funding policies can be thought of as tied to the criteria of EXPENSE and INVESTMENT Expenses are costs incurred to operate and maintain the organization, such as personal services, supplies and utilities. [Track Expenditures] Investments are costs that result in the acquisition of, or an addition to, end items. These costs benefit future periods and generally are of a long-term character such as real property and personal property. (from DoD R B & C) [Track Obs] Expense/Investment Matching Thus we have three general classifications of the appropriations categories, and therefore, three funding policies. TRANS: Let’s look at them. Exp MILPERS Military Pay & Allowances, PCS Moves, Retired Pay Accrual Annual 1 Year Exp MILCON Major Construction Projects >$750K Full 5 Years Inv AIS=Automated Information Systems, SW=Software, HW=Hardware RDT&E=Research, Development, Test & Evaluation, PROC=Procurement, O&M=Operations and Maintenance MILPERS=Military Personnel, MILCON=Military Construction

Service Appropriations Numerical Codes
Appropriation Army Navy USMC Air Force RDT&E Procurement Aircraft Missiles Weapons 1507 W & TCV 2033 SCN 1611 Ammunition USMC Other MILPERS O & M MILCON

Incremental Funding Policy
1422 Incremental Funding Policy Research, Development, Test & Evaluation Annual budget request will be limited to budget authority necessary to cover all costs expected to be incurred during that fiscal year. Incremental Funding Policy provides flexibility to the government in the uncertain environment of RDT&E TRANS: Our next funding policy applies to RDT&E funds ASK: How many work with RDT&E funds? Congressional intent behind this policy is that programs should budget annually only for the amount of work scheduled and expected to be performed in a particular fiscal year. What we’re asking is “how much will the contractor bill for in the first year?” Ex: Ongoing ktr, Ctr incurs cost at $1M/mo, how much should you budget for in the next FY? $12M Two-year life of appropriation provides flexibility in case of legal, technical, admin delays (e.g., test delays, funding delays, etc.) Also limits govt liability since these tend to be the highest risk programs. Doesn’t tie up funds, gives flexibility in case R&D effort is not successful or more fruitful opportunities arise. 55% (3 mo DFAS lag & 2-3 mo lag in getting funds) The major differences from the annual funding policy are: You may budget for more than 12 months effort in certain cases: (1) Contractor-performed R&D expected to be completed within 18 mos (task not logically divisible, unfeasible to limit contract length to shorter period, or no takers if not fully funded) (2) Educational institution research may be funded for up to 36 months initially Some carryover funding is possible (max 3 months into next FY) - need DEPT head approval on case-by-case basis. “period to be financed for major weapon systems may extend up to 3 months beyond FY for which funds are requested.” RDT&E

MILCON Procurement Full Funding Policy
1435 Full Funding Policy Procurement and Military Construction Annual budget request must cover the total cost to deliver a given quantity of complete, militarily usable end items in a 12 month funded delivery period. Governing Concepts - Usable End Items - No piecemeal procurement of systems is permitted. - Funded Delivery Period - 12 month period starting with delivery of first item. Procurement TRANS: Looked at annual & incremental; last policy is full funding policy for inv appns Procurement & MILCON The two major points to keep in mind about this policy: Usable end items -- can’t buy turrets one year, treads the next year, then tank bodies Funded Delivery Period -- can’t fund a production lot consisting of more items than contractor can deliver in 12 month period (MAX) following first item delivery. Generally budget for 8-10 months worth for first lot because of uncertainty What do you do if you discover that lot delivery stretches beyond the 12 month FDP? Reduce number of items in lot so it fits in FDP or Delay first delivery so last item delivery occurs within 12 months of first Wilson Bridge The reason for full funding started with a ship purchase in the 1950’s when the Navy requested and Congress provided budget authority to build a ship. However, the amount requested and provided was sufficient to build only half the ship and the Navy later asked for more funds to finish it. Although Congress provided the extra funds, it was upset because the funds already appropriated and used would have been wasted if the extra funds had not been provided, therefore, the legislators’ hands were effectively tied. After this incident, Congress instituted the full funding rule. TRANS: Let’s take a closer look at the funded delivery period Usable End Items MILCON

Funded Delivery Period
FY FY FY FY FY 5 FUNDED DELIVERY SCHEDULE CONTRACT AWARD LOT 1 12 MONTHS FROM 1ST DELIVERY (FUNDED DELIVERY PERIOD) DEFER TO LATER FISCAL YEARS PRODUCTION LEAD TIME PRODUCTION LEAD TIME 12 MONTHS FROM 1ST DELIVERY LOT 2 Single lot buy of 48 end items in FY1, to be delivered according the schedule shown for Lot 1 Tell students that triangles represent contract award, blocks show quarterly deliveries. Point out CA, quarterly delivery quantities, production lead time ASK: What’s wrong with this layout? Will it be approved? DESIRED RESPONSE: No, because it violates the funded delivery period. All of the items being purchased in this lot are not being delivered within a 12-month period following the delivery of the first item. Show students how initial proposal would be restructured to comply with funded delivery period concept by breaking up the single lot into three lots, each containing no more items than can be delivered within 12 months of the first delivered item in that lot. ASK: Does it matter that the items being procured in FY1 are not being delivered within 12 months of the contract award date? DESIRED RESPONSE: No. The only thing that matters from the perspective of the funded delivery period is that all the items in a lot are to be delivered within 12 months of the first item delivery. The first delivery date will depend on the production lead-time for the item. There is no limitation on the length of this production lead-time, although it must be reasonable for the particular item being produced. TRANS: Let’s focus on Lot 1 and see how we would budget for it 8 10 PRODUCTION LEAD TIME LOT 3

Few with military experience
108th Congress HOUSE SENATE 435 MEMBERS 100 MEMBERS - 51 REPUBLICANS - 229 REPUBLICANS - 48 DEMOCRATS - 205 DEMOCRATS 1 Independent - 1 INDEPENDENT Moakley Few with military experience

Congressional Enactment Timetable
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT 1 15 15 10 30 PRES BUDGET “TARGET” FISCAL YEAR CBO REPORT COMMITTEE INPUTS HRNGS Marks FLOOR HOUSE Budget Resolution BUDGET RESOLUTION Conf ^ SENATE HRNGS Marks FLOOR Authorization Bill HASC HRNGS MARK-UP FLOOR FLOOR HOUSE AUTHORIZATIONS Conf SENATE SASC HRNGS MARK-UP FLOOR FLOOR ^ HOUSE HAC HRNGS MARK-UP FLOOR FLOOR Appropriations Bill APPROPRIATIONS Conf SENATE SAC HRNGS MARK-UP FLOOR FLOOR ^

New Starts What is it? How do you determine a new start?
Any new program, project, modification, sub-project, task that you haven’t told Congress about How do you determine a new start? Budget submission R-Forms and P-Forms Why should you care? Congress mad at Air Force about this Congress now watching other services Appn Law says you won’t get paid, if you don’t follow the rules

New Starts Rules of Engagement:
DD Prior Approval Reprogramming Action required for: Any new RDT&E program, project or sub project estimated to cost $10M or more in three years. Any new Procurement program, subprogram or modification estimated to cost $20M or more within the first 3 years. Exceptions are safety programs and safety modifications costing less than $20M. Programs under this dollar threshold must do a letter notification to Congress in advance of initiating. No New Starts under a Continuing Resolution (CR)

Reprogramming Actions
Process of redirecting funds for purposes other than those contemplated at the time of appropriation. Reprogramming rules are based on agreements between DoD and Congress. DoD informs Congress of all Reprogramming actions via a semi-annual report. Must go through OMB( 10 days) for this administration Types of “Reprogramming” actions: Congressional Prior Approval Internal DoD Reprogramming Prior Notification to Congress Below Threshold (BTR) Any movement of funds between appropriations or between legal sub-divisions requires legislative transfer authority (i.e., prior approval)

FY 04 Below Threshold Reprogramming
MAX INCREASE MAX DECREASE APPRN LEVEL OF CONTROL OBL AVAIL * Lesser of $10 M or 20% $10 M PROGRAM ELEMENT RDT & E 2 YEARS $20 M * Lesser of $20 M or 20% 3 YEARS ( 5 YEARS SCN) LINE ITEM PROC $15 M No Limit, unless specified BUDGET ACTIVITY SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES (OPERATING FORCES) O & M 1 YEAR $10 M No Congressional restriction BTR actions are approved by individual services. Service Comptrollers can reprogram these amounts without prior approval of SECDEF or Congress. These thresholds apply only within Appropriation accts and within the same FY Delegated to different levels in each Service Must identify source as well as bill Go thru thresholds MILCON has its own appropriation bill (and its own rules in the FMR) Before we wrap up our discussion of reprogramming: Omnibus Reprogramming -- an annual integrated prior-approval package from DoD components (prioritized.) Not all sources or increases are approved. Acq-related reprogrammings (bills and sources) grouped ASK: RDTE $8M between projects w/i same PE? ACAT I buy more end items? Obligation Availability: Remember that when we talk about reprogrammings, we’re only talking about those two available years (now 99 & 00). 01 on the Hill. Moving money in the FYDP (02 & out) is called Zero Based Transfer (ZBT) TRANSITION: What happens to funds that are no longer available for obligation (98 & prior)? To answer that we have to revisit appropriation life. MILPERS BUDGET ACTIVITY 1 YEAR Lesser of $2 M or 25% No Congressional restriction MILCON PROJECT 5 YEARS Reference Source: DoD R, Vol 3, Ch 6, dated Aug 2000 RDT&E & Proc thresholds increased from $4M & $10M to $10M & $20M per USD (C) Memo, 15 May 03 (valid for FY03 and FY04) * MAX DECREASE for FY04 changed to “LESSER of threshold amt or 20% of appropriation amt” per USD (C) Memo, 4 Nov 03 -- For FY03 and prior, MAX DECREASE is “GREATER of threshold amt or 20% of appropriation amt”

FY 03 Below Threshold Reprogramming
MAX INCREASE MAX DECREASE APPRN LEVEL OF CONTROL OBL AVAIL Greater of $10 M or 20% $10 M PROGRAM ELEMENT RDT & E 2 YEARS $20 M Greater of $20 M or 20% 3 YEARS ( 5 YEARS SCN) LINE ITEM PROC $15 M No Limit, unless specified BUDGET ACTIVITY SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES (OPERATING FORCES) O & M 1 YEAR BTR actions are approved by individual services. Service Comptrollers can reprogram these amounts without prior approval of SECDEF or Congress. These thresholds apply only within Appropriation accts and within the same FY Delegated to different levels in each Service Must identify source as well as bill Go thru thresholds MILCON has its own appropriation bill (and its own rules in the FMR) Before we wrap up our discussion of reprogramming: Omnibus Reprogramming -- an annual integrated prior-approval package from DoD components (prioritized.) Not all sources or increases are approved. Acq-related reprogrammings (bills and sources) grouped ASK: RDTE $8M between projects w/i same PE? ACAT I buy more end items? Obligation Availability: Remember that when we talk about reprogrammings, we’re only talking about those two available years (now 99 & 00). 01 on the Hill. Moving money in the FYDP (02 & out) is called Zero Based Transfer (ZBT) TRANSITION: What happens to funds that are no longer available for obligation (98 & prior)? To answer that we have to revisit appropriation life. $10 M No Congressional restriction MILPERS BUDGET ACTIVITY 1 YEAR Lesser of $2 M or 25% No Congressional restriction MILCON PROJECT 5 YEARS Reference Source: DoD R, Vol 3, Ch 6, dated Aug 2000 RDT&E & Proc thresholds increased from $4M & $10M to $10M & $20M per USD (C) Memo, Subject: Below Threshold Reprogramming Authority Policy, 15 May 2003 (valid for FY03 and FY04)

Fiscal Laws Misappropriation Act [Title 31, U.S. Code, Sec 1301]
Requires funds to be used only for the purposes and programs for which the appropriation was made. AKA “The Purpose Statute” Anti-Deficiency Act [Title 31, U.S. Code, Sec 1341 & 1517 ] Prohibits making or authorizing an obligation in excess of the amount available. Forbids obligation to pay money from the US Treasury in advance of an appropriation. Requires agency to fix responsibility for violations of the Act. Bona Fide Need Rule Requires funds to be used only for needs or services in the year of the appropriations obligation period. The Misappropriation Act requires that funds be used only for the programs and purposes for which the appropriation is made. Examples: Multiple sidewalks to build an airfield because no MILCON appropriated Product Improvement interpretation of improving system performance The Anti-Deficiency Act prohibits authorizing an appropriation in excess of the amount available in an appropriation, or in advance of an appropriation. Examples: Any action resulting in overobligation or overexpenditure (including clerical errors), signing contract in advance of appropriation Do an exercise here - Good & Plenty, Jack & the Beanstalk (?) TRANSITION: Sometimes, programs require more funds than they asked for or were appropriated. This can happen for many reasons, including changed requirements, revised cost estimates, etc. If the Misappropriation Act prevents us from using funds for other than their named purposes and programs, how do we deal with the program’s funding problem? Reprogramming authority provided by Congress is the answer.

Execution - OSD Goals By End of First Year of Funds Availability RDT&E
Obligations 80% Expenditures 55% Focus: Expenditures Procurement Focus: Obligations

Impact Statements (AKA Reclamas)
When to Reclama? Anytime there is a query on reducing program funds Why answer? A non answer = ambivalence = funding cut (maybe more than one) Who prepares the answer? Program Office best knows the impacts Sys Coord best equipped to shape language of response Well written responses from the Program Office results in fewer re-writes up the chain “Quick and Dirty” Reclama Using Burn Rate Using actual data from CPR/CFSR/CSSR, show that the current level of performance will not be maintained if funds are reduced

Reclama No Nos No response - Program seen as easy target
“#1 Program in the Navy!” If it were, it probably would not be targeted for a cut Failure to know the audience Claiming unexecutability If cut is small, no one will believe it If cut is large, chance of cancellation grows Making statements not supported by facts Overly optimistic EACs not supported by Earned Value data Poorly performing contractors will not dramatically improve Chicken Little The sky will not fall if your program has a little cut Whining - Especially when lengthy Blaming DFAS – Everyone uses DFAS, everyone has same problem

Reclama Must Haves Respond only to the question
Be brief, just the facts,– no time for fluff Use non-technical language Spell out acronyms Operational Impact Ensure User agrees with your version of operational impacts Must be believable Small cut to a large program will not cause a large problem “Loss of funds will delay operational ability to <perform a task, counter a threat> for <x number of> months/years” “Warfighter will lose xyz capability” “User’s #1 ECP for this system this fiscal year” Must be backed up by User that it really is their #1 ECP for the system

Planning, Programming, Budgeting and Execution
PPBE Planning, Programming, Budgeting and Execution

Decision Support Systems
Planning, Programming, Budgeting, & Execution (PPBE) Planning, Programming & Budgeting System QDR Requirements Generation System Acquisition Management System DoD has three Decision-making Support Systems, all have been updated this year AMS, how we acquire weapon systems, new 5000 direction recently signed RGS, warfighter determines what is needed, moving from requirements to capabilities-based PPBS, resource allocation – providing warfighter with best mix of forces, equipment and support attainable under fiscal constraints, changed to PPBE by MID 913 New emphasis on using performance metrics to focus on output, return on investment RGS/JCIDS and AMS are event-driven; PPBE is calendar-driven, backing off from the PB Joint Capabilities Integration & Development System New DoDD DoDI

PPBE Phases Planning Programming Budgeting
Assess capabilities / review threat Develop guidance Programming Turn guidance into achievable, affordable packages Six-year program (Future Years Defense Program) Budgeting Test for efficient funds execution Scrub budget years Prepare defensible budget Execution Review (concurrent with program/budget review) Develop performance metrics Assess actual output against planned performance Adjust resources to achieve desired performance goals Brief Overview of PPBE phases Still have same three phases: planning, programming and budgeting. The difference is that we now have a review of program execution/program performance concurrent with the program and budget review Planning: QDR 2001 shifted the basis of defense planning from a "threat-based" model that dominated thinking in the past to a "capabilities-based" model • Capabilities-based model: – Focuses on how an adversary might fight rather than specifically who the adversary might be or where a war might occur. – Recognizes that it is not enough to plan for large conventional wars in distant theaters. Instead, the United States must identify the capabilities required to deter and defeat adversaries who will rely on surprise, deception, and asymmetric warfare to achieve their objectives. Defense Planning Guidance (DPG): Marching Orders for next phase Programming: Components develop Program based on guidance OSD & Joint Staff review for priority, affordability Info captured in the FYDP Budgeting: Components develop budget submissions OSD(C) reviews budget inputs, with emphasis on funds execution Ultimate aim, to submit a defensible President’s Budget thru OMB to Congress Execution Review Overlays both Program Review and Budget Review processes In past emphasis on input, “how much to spend on each program”; now emphasis is on output, “what are we getting for our money?” Using performance metrics to examine program execution TRANSITION: Let’s compare the old PPBS to the new PPBE…

Future Years Defense Program (FYDP)
Computer database maintained by D,PA&E Approved force structure and resources in SECDEF Defense Program Contains PY, CY, BY1, BY2 + 4 Out-Years + 3 additional years for force structure only Updated two times per PPBE Cycle: Program/Budget Review – August / September President’s Budget – January / February

Future Years Defense Program
FY14 FY13 FY12 FY 06-11 FY 11 FY 10 FY09 FY08 FY 07 Force Structure Only FY06 Out Years Budget Years Contains : Prior Year, Current Year First two years in the POM considered Budget Years 1 & 2 Next four years of the POM are looked at as Out Years, and then the final three are for Force Structure Only BY 1= FY 06 BY 2= FY 07 BY 2+1= FY 08...

Management Initiative Decision (MID) 913
Major Initiatives: Quadrennial Defense Review (QDR) shifted to the second year of a new administration Move to a two-year cycle Off-year SPG/JPG is optional (at the discretion of SECDEF); will not introduce major changes in off-year Off-year review focus on execution and performance Create a single standardized programming and budgeting system for data collection and management Resulted in MID 913 (draft 25 Mar 04; final 22 May 04) QDR drives whole process – informs DPG DPG studies address long-term, strategic issues USD(P) & PA&E must provide funding/manpower implications of studies to DEPSECDEF before DPG publication Program/Budget reviews address short-term issues (FYDP)

1st year of a new administration
Planning Phase JAN SEP DEC MAR APR/MAY President National Security Council CIA/DIA/JCS/OSD 1st Year 2nd Year Notes SPG replaces Draft Defense Planning Guidance (DPG) JPG replaces DPG COCOM – Combatant Commander CPR – Chairman’s Pgm Recommendation JPD – Joint Planning Document JPG – Joint Programming Guidance NSS – National Security Strategy NMS – National Military Strategy QDR – Quadrennial Defense Review SPG – Strategic Planning Guidance NSS 1st year of a new administration CPR SECDEF 2003 House Auth Rpt (HASC) directed DoD to prepare NMS biennially (even-yr) starting 15 Feb 2004 What does the planning phase look like in an off-yr when there’s no DPG? Graphic description: Titled Planning Phase. Boxes represent actors; ovals represent documents. Box in top left labeled “President, National Security Council, CIA/DIA/JCS/OSD”. Arrow from this box points down to oval labeled “National Security Strategy (NSS)”. Note next to NSS oval reads “1st year of a new administration”. Arrow from NSS oval points down to box labeled “JCS, Combatant Commands (COCOMs), Services”. Arrow from this box points to the right to oval labeled “National Military Strategy (NMS)”. Note below NMS oval reads “Strategy also reflected in Quadrennial Defense Review (QDR) (2nd year of new administration)”. Arrow from NMS oval points right to oval labeled “Joint Planning Document (JPD)”. Arrow from JPD oval points right to oval labeled “Strategic Planning Guidance (SPG)”. Arrow from this oval points right to box labeled “JCS, OSD, COCOMs, Service Headquarters, etc.” Arrow from this box points right to oval labeled “Joint Programming Guidance (JPG).” Another arrow from the JPD oval points up and to the right to an oval labeled “Chairman’s Program Recommendations (CPR)”. Arrow from CPR oval points right to box labeled “SECDEF”. Arrow from SECDEF box points down to JPG oval. Timeline across top of graphic shows (left to right) JPD occurring in Sep of 1st year; SPG late Nov/early Dec of 1st year; CPR in Mar of 2nd year, and JPG in Apr/May of second year. Per 31 Oct 03 SECEF Memorandum, Subject: Initiation of a Joint Capabilities Development Process Strategic Planning Guidance (SPG) is a “single, fiscally-informed document that will replace the policy/strategy sections of the Defense Planning Guidance (DPG). The SPG may include programmatic guidance on a few issues of paramount importance.” Joint Programming Guidance (JPG) is “fiscally constrained” and “will record the decisions reached in the enhanced planning process.” “The JPG will replace the DPG and will include a demonstration that the totality of the programmatic guidance provided in the SPG and JPG is fiscally executable.” JCS COCOMs SERVICES NMS JPD SPG JPG JCS, OSD, COCOMs, SVC HQs, ETC. Strategy also reflected in QDR

MID 913 Changes to Program/Budget/Execution Review:
Transition to a true biennial process Incorporate metrics and cost models Focus on outputs: what are we getting for our money? Over time, metrics will become the analytical underpinning to ascertain whether the appropriate allocation of resources exists

Concurrent Program/Budget Review
AUG OCT NOV DEC JAN/FEB 3-Star Group OSD/ OMB BES – Budget Estimate Submission COCOM – Combatant Commander CPA – Chairman’s Pgm Assessment MBI – Major Budget Issues PB – President’s Budget PBD – Program Budget Decision PDM – Program Decision Memo POM – Program Objectives Memo SLRG – Senior Leadership Review Group Issue Resolution POM SECDEF SLRG PDM CPA JCS Services PEO/PM, SVC HQs COCOMs Notes 3-Star Group replaces Program Review Group (PRG) SLRG replaces Defense Resources Board (DRB) Graphic description: Titled Concurrent Program/Budget Review. Box on left labeled “Services, PEO/PM, Svc HQs, COCOMs”. Two arrows animate, one up and to the right to oval labeled “Program Objectives Memorandum (POM)” and one down and to the right to oval labeled “Budget Estimate Submission (BES)”. Two arrows animate from POM oval, one up and to right to oval labeled “Issue Resolution” with overlapping box labeled “OSD/OMB”; the second arrow goes down and to the right to oval labeled “Chairman’s Program Assessment (CPA)” with overlapping box labeled “JCS”. One arrow animates up and right from the Issue Resolution oval to an oval labeled “3-Star Group.” One arrow animates right from the CPA oval to the box labeled “SECDEF/Senior Leadership Review Group (SLRG).” Two arrows animate from the 3-Star Group oval. One animates down and right to the oval labeled “Program Decision Memorandum (PDM)”. The second (a dashed arrow) animates downward to the SECDEF/Senior Leadership Review Group (SLRG) box. One arrow animates right from the SECDEF/Senior Leadership Review Group (SLRG) box to the Program Decision Memorandum (PDM) box. Next, arrow animates right from BES oval to two offset overlapping long ovals labeled “Advance Questions/Hearings” and “Program Budget Decisions (PBDs)”. A box labeled “OSD/OMB” overlaps the Advanced Questions oval. A note labeled “Services/PEO/PM answer/reclama” has arrows pointing to both the Advanced Questions oval and the PBDs oval. An arrow animates down from the PDM oval to the PBDs oval. An arrow from the PBDs oval animates right to an oval labeled “Major Budget Issues (MBI)”. A final arrow animates right from MBI oval to oval labeled “President’s Budget (PB)”. Two boxes labeled “Updates FYDP” appear under the BES and PB ovals. A timeline across the top of the graphic indicates POM/BES submittal in August, PDM release in November, MBIs in December and PB submittal in Jan/Feb. New to the process: The 3-Star Group will generally be the approval authority for PDMs resulting from the “OSD/OMB“ “Issue Resolution” process. (Formerly, PDMs were approved by the SECDEF/DRB). On an exception basis, the 3-Star Group may refer some issues to the SECDEF/SLRG for resolution and subsequent PDM approval. See notes on next chart for makeup of the 3-Star Group OSD/ OMB Adv Ques/ Hearings BES PBDs MBI PB Updates FYDP Updates FYDP Services / PEO / PM Answer / Reclama Jun/July Summer Review

DEPSECDEF Direction for FY 2005 - 2009 Submission
No DPG-05 Components comply with DPG-04 and PDM direction No FY05-09 Program Objective Memorandum (POM) or Budget Estimate Submission (BES) submittal to OSD Components instead submit Program Change Proposals (PCPs) or Budget Change Proposals (BCPs) Both BCPs and PCPs will be cost neutral (offsets required) PCPs resolved thru Program Decision Memorandums (PDMs) BCPs resolved thru Program Budget Decisions (PBDs) Does this mean no planning phase in the off-year??

Program Change Proposals (PCPs)
Identify areas to take additional risk (offsets) Limited to items that exceed $250 million across FYDP Threshold at individual programmatic issue level PCPs may accommodate smaller issues if serious programmatic problem If less than $250 million, may submit as BCP if budget year is affected Must comply with PDM decisions Combatant Commanders may submit up to six prioritized PCPs regardless of dollar value

Budget Change Proposals (BCPs)
Generally limited to fact-of-life changes: Cost increases Schedule delays Management reform savings Workload changes Funding execution experience Congressional action May involve FYDP years if total cost is less than $250 million and budget year is affected Backed up with appropriate budget exhibits Offsets required

Off-Year Program/Budget Review
AUG OCT NOV DEC JAN/FEB 3-Star Group OSD/ OMB BCP – Budget Change Proposal COCOM – Combatant Commander CPA – Chairman’s Pgm Assessment MBI – Major Budget Issues PB – President’s Budget PBD – Program Budget Decision PCP – Program Change Proposal PDM – Program Decision Memo SLRG – Senior Leadership Review Group Accepted PCP Resolution PCPs SECDEF SLRG PDM CPA JCS Services PEO/PM, SVC HQs COCOMs Notes 3-Star Group replaces Program Review Group (PRG) SLRG replaces Defense Resources Board (DRB) Graphic description: Titled Off-Year Program/Budget Review. Graphic identical to previous page with the following exceptions to reflect off-year changes. Instead of POM and BES, ovals are labeled “Program Change Proposals (PCPs)” and “Budget Change Proposals (BCPs)”. PCPs are still submitted in August, but BCPs are submitted separately in October, shortening the time for Adv Ques/Hearings and PBDs (shown with shorter ovals). Issue Resolution oval is now labeled “Accepted PCP Resolution”. 3-Star Group Membership Director, Program Analysis and Evaluation Principal Deputy, Program Analysis and Evaluation Army Deputy Chief of Staff, G-8 Deputy Chief of Naval Operations (Resources, Warfare Requirements, and Assessments) Air Force Deputy Chief of Staff (Plans and Programs) Marine Corps Deputy Commandant, Programs and Resources Joint Staff Director for Force Structure, Resources, and Assessment (J-8) Principal Deputy Under Secretary of Defense (Comptroller) Principal Deputy Under Secretary of Defense (Acquisition, Technology, and Logistics) Principal Deputy Under Secretary of Defense (Policy) Principal Deputy Under Secretary of Defense (Intelligence) Assistant Secretary of Defense for Networks and Information Integration Director, Operational Test and Evaluation Others invited as necessary, such as: Director, Defense Research and Engineering; Directors of Defense Agencies OSD/ OMB Adv Ques/ Hearings BCPs PBDs MBI PB Updates FYDP Services / PEO / PM Answer / Reclama

Four Years in the Biennial Cycle Corresponding to Four-Year Presidential Terms
Year 1: FY 07-11 Early National Security Strategy (NSS) Off-year SPG/JPG as required (at discretion of SECDEF) Limited Changes to Baseline Program Year 2: FY 08-13 Quadrennial Defense Review (QDR) – Aligned with PB submission in second year of an administration Fiscal Guidance Issued On-year SPG/JPG (implementing QDR) POM/BES Submissions **Year 3: FY (FY 09-13) Year 4: FY (FY 10-15) On-year SPG/JPG (refining alignment of strategy and programs)

OSD Budget Review Balance Requirements to Available Resources Topline
Readiness vs Modernization Address Administration / DoD Priorities National Programs SPG/JPG Compliance Programming Decisions (PDM) QDR Congressional earmarks Force Structure Reductions During an OSD Budget Review, these are things that get looked at: Assuring that you meet Priorities of Administration & DoD - Bottoms-Up Review - Concern with National Programs Application of Acquisition Initiatives: - Defense Reinvestment - Support of Industrial Base - CAIV

OSD Balanced/Coherent/Consistent Budget
Program Phasing 1. Contract award date-executable? - 4th quarter award? doable? - testing schedule on track? - Approvals-reviews/MS? 2. Deliveries - actuals vs planned (P-21) - funded delivery schedule: actuals, backlogs - impact of delays 3. R&D/Production relationship - Concurrency: degree? - MS status - testing complete? - LRIP: how funded, type of contract, risk? -Production ramp executable? reasonable? 4. Production Schedule - reasonable - 12 month delivery period - lead times? Same or different each yr?

Program Pricing 1. Does it make sense to by this item at the requested quantity? - P-21: economic production rate - IOC date? - Mod installation schedule? 2. What other systems does it interface with? - Funding adjustment may affect another program 3. Budget to most likely cost!!! - Contracts: type?, current budget status? - Termination Liability 4. Unit Cost audit trail - P-5: learning curve-justify, compare to similar system - last negotiated unit cost? 5. Escalation-current indices used 6. Does everything add? Consistent from one exhibit to another? 7. Production rate changes - overhead rate changes? - basis for cost estimate - contract savings? 8. ECP/ECO estimated -similar to other programs? 9. Metrics -What did we get for bucks spent-ROI?

Budget Policy 1. Color of Money-correct? Soo, tasks, clearly defined. 2. Current obligation/expenditures day of hearing 3. R&D- - Incrementally funded? - 12 month effort? (look at expenditures-tells the story) - forward financing?-unobligated balance, prior history - prior yr funding availability/expenditures 4. Procurement - Full funding policy - Funded delivery schedule 5. Fully funded across FYDP? - Compare to independent cost estimate 6. Management Reserve? - Why? - Degree of technical risk? - Compare to like program 7. Growth in effort from one year to next-unusual?

Budget Execution Current status-obligation/expenditures - R&D: 80% ob, 55% expended -Expenditures better indicator than obligations - Procurement: % Obs/Exp depends on type of Weapon System - focus on obligations 2. Past performance - indicator of future performance What did you say last year? - Look at old exhibits several years back

How to Survive Prepare for hearing Focus on Advance Questions
Acquaint yourself with key OSD staff Prepare for hearing Focus on Advance Questions Conduct an internal budget review Ensure your submission answers all their questions Understand Issues:Budget policy, programmatic Hearing Limit attendance at Hearing Follow-up Hearing Questions Appeals - Address Specific PBD Rationale Recognize that outside “macro” issues will impact acquisition programs How to survive: Get to know OSD staff Be Prepared Answer questions completely, but do not give them more than they ask for or try to BS them. At Hearings, focus on questions. Limit attendance to those who need to be there, with one spokesman. Follow-up on hearing questions During appeals - address the rationale in the PBD Recognize that outside issues with impact your program

Good PPBE Websites OSD Program Analysis & Evaluation (PA&E)
Air Force Programmers Navy Programmers (requires password) Army Programmers Army Staff Orientation Brief (includes Army Budget brief) FM Knowledge Management

Resource Allocation Process
CY03 CY04 CY05 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Execution 2nd Yr 3rd Yr FY03 FY03 and prior Enactment Execution 2nd Yr 3rd Yr FY04 FY04 FY04 and prior FY05 Planning Program/Budgeting Enactment Execution 2nd FY05-09 FY PCP FY05 FY05 and prior FY BCP FY06 Planning Program/Budgeting Enactment Exec FY SPG/JPG FY POM FY06 FY06+ FY BES FY07 FY 07-11 Plan? Program/Budgeting FY PCP FY BCP SPG/JPG – Strategic Planning Guidance PCP – Program Change Proposal BCP – Budget Change Proposal Joint Programming Guidance

Questions or Comments??? I don’t have a clue I have a question
I think I know this “stuff”

BACKUP SLIDES

Advance Procurement Long Lead Items
BREAK 1505 Finances Long Lead (Recurring) Components To protect production schedule To maintain a critical skill in the workforce Exception to Full Funding Policy Contained in Acquisition Strategy Approved in Milestone Decision Separate initial contract Generally, Budget Authority requested / granted one Fiscal Year in advance of the related end item contract Shown as a separate line item on the budget request TRANS: There are two exceptions to the full funding policy; the first is Adv Procurement Advance procurement can be described as “fenced” funds to procure certain components, material, or effort in advance of the end item buy to prevent costly delays or disruptions of the production process. The two primary purposes of Advance Procurement are to (1) maintain the production schedule by ensuring long-lead parts are available in time for incorporation into the production process, and (2) to maintain critical skills that would otherwise be lost between EMD and full rate production (I.e., learning curve effects). [Pyrotechnics experts] Must budget at least for Termination Liability associated with long-lead items ASK: Why is advance procurement an exception to full funding? DESIRED RESPONSE: Advance procurement does not deliver useable end items – just component items (i.e., the long lead items) that are supposed to be fully integrated into the primary system. Because it’s an exception, must be approved as part of the Acq Strategy TRANS: Let’s see how Advance Procurement affects the program budget. Note: Out-of-Production Parts (OPP) or Diminishing Manufacturing Parts can be Adv Proc (e.g. F-22 buy out of OPP for first 5 lots - did cost-benefit analysis, greased it thru AF, OSD, Congress)

Advance Procurement (Example)
FY FY 1 FY 2 FY FY 4 LOT 1 10 Tanks Full Funding of $400 M $400M Less Advance Procurement: + $50M - $50M = This exercise demonstrates application of the Full Funding policy. Tell students that triangle represents contract award, blocks show quarterly deliveries. Work on overhead slide with students. Solution is on next slide. Budget Request System: Budget Request Adv Proc (AP): $ 350 M $ 50 M

Multiyear Procurement (MYP)
Under a multiyear contract, government agrees to buy multiple years’ requirements (usually up to 5 years) of usable end items without exercising contract options Annual procurement contracts may have a base year plus one or more option years exercised at government’s discretion (no penalty/cost for not exercising option) Full MYP contract amount not funded in year of contract award. Congress provides annual appropriations for each year covered by contract.

Multiyear Procurement (cont.)
Reasons to use MYP: Reduce program cost growth Provides assurance to Contractor of future years procurement Facilitates economic order quantities (EOQ) Encourages Contractor investment in productivity improvements Provide program stability Government liable for large payment (decreasing over time) for early cancellation of contract (cancellation ceiling) Reluctance to cancel MYP contract once it is in place Problem with MYP: Reduces Service/OSD/Congressional flexibility Exception to Full Funding Policy Due to EOQ buys

Multi-Year Procurement (cont.)
FY FY FY FY FY FY FY7 Units $M $2, $5, $5, $5, $3,900 TRANS: The funding policies we’ve covered apply to all programs, new and ongoing. But when we modify systems that are already fielded, there are additional rules to be aware of. Budgeted the same way as Full Funding

Major Force Program 6 - RDT&E
CAT# 01 02 03 04 05 06 #FYDP (CAPS) ACTIVITY Basic Research*/ RESEARCH# Appl Research/ EXPLOR DEVEL Adv Tech Devel/ ADV DEVEL Adv Comp Dev & Prototypes/ DEM / VAL Sys Dev & Demo/ ENGR DEVEL RDTE Mgmt Spt/ MGMT & SPT Operational Systems Devel BA* BA-1 BA-2 BA-3 BA-4 BA-5 BA-6 BA-7 *FMR (Title Case) PURPOSE EXPAND KNOWLEDGE/ STUDIES / EXPERIMENTS DEVELOP & EVALUATE TECHNICAL FEASIBILITY PROOF OF CONCEPT/ MODELS SPECIFIC WEAPON SYSTEM ENGR & MFG DEVEL/ INTEGRATION/DEMO TEST RANGES / CIVILIAN RANGES IMPROVE PERFORMANCE OF PRODUCTION SYSTEM (R&M) WHO UNIV / LABS UNIV / LABS / CONTRACTOR LABS / FIELD / LABS / CONTRACTORS / FIELD ACTIVITY TEST RANGES CONTRACTOR/ FUND MANAGED RDT & E COMMANDS / SERVICES PMO HEADQUARTERS PMO (FUNDING IS NOT ALWAYS RDT&E, THE MFP IS NOT 6, R & D) Note: FMR BA titles consistent with Summer 2002 DoD R Financial Management Regulation (FMR) update

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