FUNDS MANAGEMENT UPDATES

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

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

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

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

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

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

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

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. 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. HAC/SAC Subcommittees (109th) • 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 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

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

13. OSD/Service Goals • Handouts provided in class

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

15. Resource Allocation Process CY04 CY05 CY06 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 FY04 FY04 and prior 2nd Yr FY05 Enactment Execution 3rd Yr FY05 FY05 and prior PB FY06 Program/Budgeting 2nd Execution Planning Enactment FY06-11 SPG/JPG FY06 FY06 and prior FY 06-11 POM PB FY 06-07 BES FY07 Program/Budgeting Enactment Exec Planning FY07 & prior FY 07-11 SPG/JPG FY 07-11 FOL/CP FY07 PB FY08 Program/Budgeting Planning FY 08-13 POM FY 08-13 SPG/JPG FY 08-09 BES SPG – Strategic Planning Guidance JPG – Joint Programming Guidance POM – Program Objective Memorandum BES – Budget Estimate Submission CP – Change Proposal FOL – Fact-of-Life Changes

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

17. PPBE

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. 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. 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. Four Years in the Biennial CycleCorresponding to Four-Year Presidential Terms 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

22. President National Security Council CIA/DIA/JCS/OSD Planning Phase SEP DEC MAR APR/MAY 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 1st year of a new administration NSS CPR SECDEF JCS COCOMs SERVICES JPD NMS SPG JPG JCS, OSD, COCOMs, SVC HQs, ETC. Strategy also reflected in QDR (2nd year of new administration)

23. Concurrent Program/Budget Review NOV JAN/FEB AUG OCT DEC 3-Star Group 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 OSD/ OMB 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) OSD/ OMB Adv Ques/ Hearings BES PB MBI PBDs Updates FYDP Updates FYDP Services / PEO / PM Answer / Reclama

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

26. OSD Completes Services/Agencies CP Review OSD FOL Decisions PDM(s) & PBDs Issued Off-Year Process 2005 (FY 07-11) 30 SEP OCT-DEC 1 AUG 15 AUG 6 SEP 20 DEC JAN-FEB FOL Notification Memo to USD(C) & Dir, PA&E Svcs/Agencies Accepted FOLs Entered into OSD Data Base OSD Staff Review SLRG Review of CPs Electronic OSD-Required R/P Forms Due Services & Agencies Pres Bud Budget Lock Services/Agencies CPs Due to OSD 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

27. BACKUP SLIDES

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. Obligation Plan What · Spending Plan · Monthly Prediction · All Available Years · Required for Each Program Element / Line Item How · Anticipated Obligation Rate · Don’t Show Preponderance of : ·· 1st Quarter Awards ·· 4th Quarter Awards Why · Supports Budget Enactment · Analyze for Budget Execution · If Not On Plan... (Maybe Not A Firm Requirement) · Best Prediction for Future Performance Who · Prepared by PMO · Coordinated with PCO · Reviewed by Comptroller Each Budget Update 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. Obligation Plan

31. Execution 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.

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. Working Capital Funds • 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

34. 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

35. DBOF to Working Capital Funds • 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

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

37. 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

38. 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

39. Working Capital Funds & Functions Air Force Working Capital Fund Depot Maintenance Information Services Supply Management Transportation USTRANSCOM Defense - Wide Working Capital Fund Defense Printing DAPS Distribution Depots DLA Financial Operations DFAS Information Services DFAS, DISA, DLA Reutilization & Marketing DLA Supply Management DLA Defense Commissary Agency Working Capital Fund Commissary Operations

40. R & D Cost DISPOSAL CE PDRR EMD PRODUCTION, DEPLOYMENT and OPERATIONAL SUPPORT Life Cycle Cost Categories Program Cost % SystemO&S Yrs Ships 30 Aircraft 20 Missiles 20 Tracked 20 Vehicles • Includes: Operations and Support Costs Disposal Cost Investment Cost