1. 1 FUNDS MANAGEMENT UPDATES EPMC Roberta Tomasini DSMC-SPME Bldg 226, Rm 203 (703) 805-3764 e-mail: roberta.tomasini@dau.mil

2. 2 Topics FM Scope FM Updates Time Now - FM Perspective Responding to Higher Hqtrs

3. Life Cycle Cost ICE Fiscal Environment Cost Analysis Estimate Annual Funding Incremental Funding MFP JPG BES PBD Funding Policies Planning, Programming, Budgeting and Execution President’s Budget Commitment Reprogramming Budget Authority Obligation Expenditure Outlay Budget Execution Congressional Enactment Force Structure Modernization Operational Capability Readiness Sustainability POE CCA SAC SASC SBC HAC HASC HBC From Requirement to Capability Operational Concept AoA Functional Area Analysis Feedback CAIV MBIs Full Funding (Exceptions) FYDP SPG POM PDM Acquisition Program Baseline Budget Resolution Authorization & Appropriation Laws Capability Docs

4. 4 FM Updates Overview Cost Analysis: Cost Terms, Affordability, Breaches, Most Probable Cost Funding Policies: Buy-to-Budget PPBE: MID 913, OSD Budget Analysts (Separate Session After Lunch) Congressional Enactment: Appn Subcommittees Budget Execution: “Taxes”, OSD/Service Goals, Reprogramming Rules

5. 5 Life Cycle Cost Life Cycle Cost Terms RDT & E Development Costs of Prime Equipment & Support Items PROCUREMENT Initial Spares MILCON Facilities Operations & Support O&M, MILPERS PROCUREMENT Prime Equipment PROCUREMENT Support Items Development Cost Flyaway Cost Weapon System Cost Procurement Cost Program Acquisition Cost A B C D E F Disposal O&M & others G

6. 6 Affordability Service Shares? Service Splits? Budget Shares?

7. 7 MDAP Breach Parameters NOTE: There are also performance breaches which are not included in this chart

8. 8 SecDef Certification of Breaches 4 Parts to Certification: 1.Program is in the national interest and it must be had for national security 2.There is no other alternative 3.Costs are under control 4.Management is in place to keep costs under control

9. 9 Most Probable Cost (MPC) AKA Most Likely Cost OSD( C ) expects it to be at 50% chance of overrunning or underrunning The Fin Mgt Reg (DoD 7000.14R) says you should budget to MPC

10. 10 Buy-to-Budget for Acquisition of End Items US Code Title 10, Section 2308 –Can buy more end items than specified in the Appropriations Act, if 4 conditions are met: Requirement exists and is expected to remain unchanged NO additional funding needed Funding needed doesn’t exceed what’s in law The amount appropriated is sufficient for the end item to be fully funded –Noncompetitive acquisitions are limited to increases of not more than 10% of the quantity approved in the J&A Congressional defense committees must be notified NLT 30 days after the date of the decision Source: DoD 7000.14-R, Vol 2A, Chapter 1, Para 010204

11. 11 HAC/SAC Subcommittees (109 th ) SAC Subcommittees (12) Agriculture/Rural Dev/Related Agencies Defense Energy & Water Dev State, Foreign Ops & Related Programs Homeland Security Interior & Related Agencies Labor/HHS/Education & Related Agencies Transportation/Treasury/Judiciary/HUD Military Construction & VA Commerce/Justice/Science Legislative Branch District of Columbia HAC Subcommittees (10) Agriculture/Rural Dev/FDA/Related Agencies Defense Energy & Water Dev/Related Agencies Foreign Ops/Export Financing/Related Programs Homeland Security Interior/Environment/Related Agencies Labor/HHS/Education/Related Agencies Transportation/Treasury/HUD/Judiciary/DC Military Quality of Life/VA/Related Agencies Science/State/Justice/Commerce/Related Agencies

12. 12 APPORTIONMENT PROCESS: “Taxes” MAJCOM/PEO Comptroller Congress OMB OSD Comptroller Service Comptroller $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Appropriation Apportionment Allocation Sub-Allocation Allotment PMO Program Management Office Impoundment Rescission Deferral Investment -- Full amount Expense -- Qtrly Concurrent Budget Resolution Authorization Appropriation (Budget Authority) Continuing Resolution Withhold Administrative Technical Withhold Taxes -- SBIR Contingencies

13. 13 OSD/Service Goals Handouts provided in class

14. 14 Below Threshold Reprogramming RDT & E PROGRAM ELEMENT 2 YEARS LINE ITEM 3 YEARS ( 5 YEARS SCN) BUDGET ACTIVITY 1 YEAR 5 YEARS PROJECT PROC MILPERS MILCON O & M BUDGET ACTIVITY SOME BA 1 SUB-ACTIVITY LIMITATIONS ON DECREASES (OPERATING FORCES) Reference Source: DoD 7000.14R, 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” $10 M * Lesser of $10 M or 20% $20 M * Lesser of $20 M or 20% $15 M No Limit, unless specified $10 M No Congressional restriction Lesser of $2 M or 25% No Congressional restriction APPRN MAX INCREASE MAX DECREASE LEVEL OF CONTROLOBL AVAIL

15. 15 FY05 DJJFMAMJASONJJFMAMJASONDJJFMAMJASOND FY04 Execution FY04 and prior FY05 Program/Budgeting Execution FY06 FY07 Planning CY04CY05CY06 EnactmentExecution FY05 and prior Enactment FY07 Planning 2nd Yr 2nd Enactment FY08 3rd Yr FY06 and prior FY 07-11 SPG/JPGFY 07-11 FOL/CP Exec FY07 & prior Planning Program/Budgeting SPG – Strategic Planning Guidance JPG – Joint Programming Guidance POM – Program Objective Memorandum BES – Budget Estimate Submission CP – Change Proposal FOL – Fact-of-Life Changes FY06-11 SPG/JPG Resource Allocation Process FY 08-13 SPG/JPG FY 06-11 POM FY 06-07 BES FY 08-13 POM FY 08-09 BES PB

16. 16 Responding to Higher Headquarters Proposed Budget Execution Cut: Caselette Caselette provided in class

17. 17 PPBE

18. 18 Management Initiative Decision (MID) 913 (May 2003) Major Initiatives: Quadrennial Defense Review (QDR) shifted from the first to the second year of a new administration Move to a two-year cycle Off-year Strategic Planning Guidance (SPG)/Joint Programming Guidance (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

19. 19 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

20. 20 PPBE Phases Planning –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

21. 21 Year 1 (Review and Refinement): Early National Security Strategy (NSS) Off-year SPG/JPG as required (at discretion of SECDEF) Limited Changes to Baseline Program Year 2 (Formalize the Agenda): 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 (Execution of Guidance): Off-year SPG/JPG as required (at discretion of SECDEF) Limited Changes to Baseline Program Year 4 (Ensuring the Legacy): Fiscal Guidance Issued On-year SPG/JPG (refining alignment of strategy and programs) POM/BES Submissions Four Years in the Biennial Cycle Corresponding to Four-Year Presidential Terms

22. 22 JPG President National Security Council CIA/DIA/JCS/OSD JCS COCOMs SERVICES NMS JPD NSS CPR SPG APR/MAY JCS, OSD, COCOMs, SVC HQs, ETC. SEPDECMAR SECDEF 1st Year2nd Year 1 st year of a new administration Planning Phase 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 Strategy also reflected in QDR (2 nd year of new administration) Notes SPG replaces Draft Defense Planning Guidance (DPG) JPG replaces DPG

23. 23 PBDs PDM Services PEO/PM, SVC HQs COCOMs BES PB MBI Adv Ques/ Hearings AUG JAN/FEB OCT Issue Resolution SECDEF SLRG POM OSD/ OMB CPA DEC NOV Services / PEO / PM Answer / Reclama JCS 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 Concurrent Program/Budget Review Updates FYDP Updates FYDP 3-Star Group Notes 3-Star Group replaces Program Review Group (PRG) SLRG replaces Defense Resources Board (DRB)

24. 24 FY 07–11 Program/Budget Process Overview Procedural changes for FY 07-11 may not be institutionalized USD(C) & Dir, PA&E co-leads for process OSD emphasis is keeping biennial budget process & minimizing off-year changes; FY 06 Pres Bud is baseline Fact-of-Life (FOL) changes for FY07 allow Services/Agencies to “fix” FY 07 due to PBD 753 & other defined issues; programmatic decisions will NOT be revisited Out-years impacted by PBD 753 should be deferred, to the extent possible, to the FY 08– 13 cycle Services/Agencies will prepare Change Proposals (CPs) to implement very limited, defined adjustments OSD will prepare CPs required to implement BRAC/QDR decisions Senior Leadership Review Group (SLRG) will meet periodically to review/decide issues Services/Agencies not to propose offsets to National Intelligence Program (NIP) for non- NIPs

25. 25 FY 07–11 Program/Budget Schedule May 31Military Departments’ composite rates due Aug 1FOL budget estimate notification memos due Aug 15OSD disposition of FOL changes Sep 6Service/Agency CPs due; accepted & other OSD-directed documentation due electronically Sep 23Hardcopy data submission complete Sep 28Detailed budget justification material due Sep 30OSD completes review of Service/Agency CPs (accept/reject) Oct-NovBRAC/QDR review & related OSD-generated CPs Dec 20Program & Budget review complete Jan DoD budget submitted to OMB

26. 26 Off-Year Process 2005 (FY 07-11) OCT-DEC 15 AUG 30 SEP 6 SEP20 DEC1 AUG Services & Agencies FOL Notification Memo to USD(C) & Dir, PA&E OSD FOL Decisions Services/Agencies CPs Due to OSD OSD Completes Services/Agencies CP Review Electronic OSD-Required R/P Forms Due PDM(s) & PBDs Issued SLRG Review of CPs JAN-FEB FOL - Fact -of- Life CP - Change Proposal SLRG - Senior Leadership Review Group QDR - Quadrennial Defense Review BRAC - Base Realignment & Closure PDM - Program Decision Memorandum PBD - Program Budget Decision R-Forms - Research & Development Forms P-Forms - Procurement Forms OSD – Prepared BRAC/QDR CPs Submitted OSD Staff Review Svcs/Agencies Accepted FOLs Entered into OSD Data Base Budget Lock Pres Bud

27. 27 BACKUP SLIDES

28. 28 Responding to Higher HQ Don’t –Say program is unexecutable with a 1% cut –Give long impact statements that say nothing –Not respond Do –Discuss scope not done relative to user’s needs –Provide user’s priority on work not done –Address impact to program’s change in risk and/or major program milestones –Be prepared for 5%, 10%, 25%, and 50% proposed cuts

29. 29 Obligation Plan What · Spending Plan · Monthly Prediction · All Available Years · Required for Each Program Element / Line Item Who · Prepared by PMO · Coordinated with PCO · Reviewed by Comptroller Each Budget Update Why · Supports Budget Enactment · Analyze for Budget Execution · If Not On Plan... (Maybe Not A Firm Requirement) · Best Prediction for Future Performance How · Anticipated Obligation Rate · Don’t Show Preponderance of : ·· 1st Quarter Awards ·· 4th Quarter Awards Deviation · Variances: Planned vs Actual · PMO Written Explanation · Each Month More Vulnerable: ·· Potential Billpayer ·· Report Card/Predict Trends Decisions · Basis for BES & Pres Budget · Basis for Appropriation · Impacts on Program Reviews · Impacts on Billpayer Exercises

30. 30 Obligation Plan

31. 31 Execution Laws 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. 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” Bona Fide Need Rule: – Requires funds to be used only for needs or services in the year of the appropriations obligation period.

32. 32 CONTRACT FUNDS STATUS REPORT ( DD Fm 1586) Formerly required by DoD 5000.2-R to obtain funding data on contracts over six months in duration Purpose of CFSR is to assist Components in: Updating and forecasting contract fund requirements; Planning and decision making on funding changes; Developing fund requirements and budget estimates in support of approved programs; Determining funds in excess of contract needs and available for deobligation Obtaining rough estimates for termination costs No specific dollar threshold specified but generally applicable to non- firm fixed priced contracts in excess of $ 1.2 Million (in FY 96 constant dollars) As an exception, applicable to unpriced portions of firm fixed price contracts estimated to be in excess of 20 % of initial contract value

33. 33 Contract Funds Status Report

34. 34 DEFINITION: Revolving funds or Working Capital Funds are used to finance operations from the time that specific work is begun until payment is received from the customer STATUTORY BASIS: Title 10, U.S. Code (Section 2208), the SECDEF may direct establishment of working capital funds within DoD PURPOSES: – Finance inventories of such supplies as SECDEF may designate –Provide working capital for industrial-type activities and commercial-type activities that provide common services within or among military departments and DoD agencies Working Capital Funds

35. 35 Defense Business Operations Fund (DBOF) Congress established DBOF as a revolving fund in 1991 DBOF was initially created to consolidate nine stock and industrial funds Reasons: - Improvements in business practices - Full cost visibility - Stabilized rates - Application of standard policies across business functions

36. 36 FY 1997 Defense Authorization Act directed DoD to conduct comprehensive study of DBOF and present study findings and proposed improvement plan to Congress for approval. DoD initiated some of the needed changes, creating these working capital funds: –Army Working Capital Fund –Navy Working Capital Fund –Air Force Working Capital Fund –Defense-Wide Working Capital Fund –Defense Commissary Agency Working Capital Fund DBOF to Working Capital Funds

37. 37 Working Capital Funds Congress Customer $$ Payment Revolving Fund Business Area $$ Financing Goods or Services Provided Order Annual Appropriation “One-time” Corpus

38. 38 How Do Working Capital Funds Work? Individual Business Areas operate as a business with “break even” budgets Stabilized rates and prices established to cover full cost of operating and overhead costs –Rates remain unchanged in year of execution –Rates adjusted in following year to account for any shortfalls or profits

39. 39 Working Capital Funds & Functions Army Working Capital Fund Depot Maintenance Information Services Ordnance Supply Management Navy Working Capital Fund Base Support Depot Maintenance - Aircraft Depot Maintenance - Marine Corps Depot Maintenance - Ships Information Services Ordnance Research and Development Supply Management Transportation

40. 40 Working Capital Funds & Functions Air Force Working Capital Fund Depot Maintenance Information Services Supply Management TransportationUSTRANSCOM Defense - Wide Working Capital Fund Defense PrintingDAPS Distribution DepotsDLA Financial OperationsDFAS Information ServicesDFAS, DISA, DLA Reutilization & MarketingDLA Supply ManagementDLA Defense Commissary Agency Working Capital Fund Commissary Operations

41. 41 Life Cycle Cost Categories Program Cost % PRODUCTION, DEPLOYMENT and OPERATIONAL SUPPORT CEPDRREMD Disposal Cost DISPOSAL Operations and Support Costs Investment Cost R & D Cost Includes: System O&S Yrs Ships 30 Aircraft 20 Missiles 20 Tracked 20 Vehicles