Siobhan Tack BCF, C&NE Department Chair Defense Acquisition University, Capital & Northeast Campus

1. EPMC Funds Management Updates And Planning, Programming, Budgeting and Execution Siobhan Tack BCF, C&NE Department Chair Defense Acquisition University, Capital & Northeast Campus (703) 805-4449 (DSN 655) E-mail: siobhan.tack@dau.mil

2. 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

3. Lesson Overview • 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 DoD 7000.14-R FMR

4. 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

5. Defense Acquisition Board Assistant Secretary (FM) Reconciliation Program Office MDAP Cost Review Process Cost Analysis Improvement Group ICE OIPT + Svc Cost Position ICE ACAT ID Svc Cost Position (ACAT ID) Service Acquisition Decision Panel Svc Cost Position (ACAT IC) ACAT IC ASARC N/MC PDM AF IPT POE CCA Discretionary Sufficiency Review Sensitivity Analysis CPIPT ACAT IC Service Cost Agency POE CARD

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

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

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

9. Major Appropriation Categories OBLIGATION PERIOD APPN CAT SCOPE OF WORK EFFORT FUNDINGPOLICY 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 3 Years [ 5 for SCN ] PROC [SCN] Full Inv O&M Replenishment Spares, Civilian Salaries, Minor Const < $750K, Travel, AIS Equip & SW < $250K, SW Dev/Mod/Purch/Lease Annual 1 Year 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

10. Service AppropriationsNumerical Codes Appropriation Army Navy USMC Air Force RDT&E 2040 1319 3600 Procurement Aircraft 2031 1506 3010 Missiles 2032 3020 Weapons 1507 W & TCV 2033 SCN 1611 Ammunition 2034 1508 3011 USMC 1109 Other 2035 1810 3080 MILPERS 2010 1453 1105 3500 O & M 2020 1804 1106 3400 MILCON 2050 1205 3300

11. Incremental Funding Policy • Research, Development, Test & Evaluation • Annual budget request will be limited to budget authority necessary to cover all costs expectedto be incurredduring that fiscal year. • Incremental Funding Policy provides flexibility to the government in the uncertain environment of RDT&E RDT&E

12. Full Funding Policy • Procurement and Military Construction • Annual budget request must cover thetotal costto deliver a given quantity of complete, militarily usableend 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 Usable End Items MILCON

13. DEFER TO LATER FISCAL YEARS 12 MONTHS FROM 1ST DELIVERY (FUNDED DELIVERY PERIOD) 5 5 5 5 LOT 2 PRODUCTION LEAD TIME 12 MONTHS FROM 1ST DELIVERY 8 10 LOT 3 PRODUCTION LEAD TIME Funded Delivery Period FY1 FY 2 FY 3 FY 4 FY 5 FUNDED DELIVERY SCHEDULE CONTRACT AWARD 2 2 3 3 5 5 5 5 8 10 LOT 1 PRODUCTION LEAD TIME

14. 108th Congress HOUSE SENATE 100 MEMBERS 435 MEMBERS - 51 REPUBLICANS - 229 REPUBLICANS - 48 DEMOCRATS - • 205 DEMOCRATS • 1 Independent - 1 INDEPENDENT Few with military experience www.house.gov www.senate.gov

15. 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 AuthorizationBill HASC HRNGSMARK-UP FLOOR FLOOR HOUSE AUTHORIZATIONS Conf ^ SENATE SASC HRNGSMARK-UP FLOOR FLOOR HAC HRNGSMARK-UP FLOOR FLOOR HOUSE Appropriations Bill Conf APPROPRIATIONS SENATE SAC HRNGSMARK-UP FLOOR FLOOR ^

16. New Starts • What is it? • 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

17. New Starts • Rules of Engagement: • DD 1415-1 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)

18. 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)

19. * 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% FY 04 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”

20. Greater 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% FY 03 Below Threshold Reprogramming MAX DECREASE MAX INCREASE APPRN LEVEL OF CONTROL OBL AVAIL Greater 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, Subject: Below Threshold Reprogramming Authority Policy, 15 May 2003 (valid for FY03 and FY04)

21. 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.

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

23. 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 Impact Statements (AKA Reclamas)

24. 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 No Nos

25. 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 Reclama Must Haves

26. PPBE Planning, Programming, Budgeting and Execution

27. Decision Support Systems Planning, Programming, Budgeting, & Execution (PPBE) Planning, Programming & Budgeting System QDR Acquisition Management System Requirements Generation System Joint Capabilities Integration & Development System New DoDD 5000.1 DoDI 5000.2

28. 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

29. 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

30. 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 BY 1= FY 06 BY 2= FY 07 BY 2+1= FY 08...

31. 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

32. President National Security Council CIA/DIA/JCS/OSD Planning Phase JAN 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

33. 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

34. 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 Jun/July Summer Review

35. DEPSECDEF Direction forFY 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)

36. 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

37. 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

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

39. Four Years in the Biennial CycleCorresponding 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 05-09(FY 09-13) Off-year SPG/JPG as required (at discretion of SECDEF) Limited Changes to Baseline Program Year 4:FY 06-11(FY 10-15) Fiscal Guidance Issued On-year SPG/JPG (refining alignment of strategy and programs) POM/BES Submissions

40. 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?

41. OSD Balanced/Coherent/Consistent Budget 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?

42. OSD Balanced/Coherent/Consistent Budget 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?

43. OSD Balanced/Coherent/Consistent Budget 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

44. How to Survive • 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 • Focus on Advance Questions • Limit attendance at Hearing • Follow-up Hearing Questions • Appeals - Address Specific PBD Rationale • Recognize that outside “macro” issues will impact • acquisition programs

45. Good PPBE Websites OSD Program Analysis & Evaluation (PA&E) • http://www.pae.osd.mil/ Air Force Programmers • http://www.xp.hq.af.mil/XPP/Panels/xppe_library.htm Navy Programmers • http://www.hq.navy.mil/cno/n8/n80/ (requires password) Army Programmers • http://www.paed.army.mil/ Army Staff Orientation Brief (includes Army Budget brief) • http://www.hqda.army.mil/stafforientation/homepage.htm FM Knowledge Management • http://center.dau.mil/Topical_Sessions_templates/FM_Main/template.htm

46. 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 2nd Yr Enactment Execution 3rd Yr FY04 FY04 FY04 and prior Program/Budgeting 2nd Execution Planning Enactment FY05 FY05-09 FY05 FY05 and prior FY 05-09 PCP FY 05-05 BCP FY06 Program/Budgeting Enactment Exec Planning FY06+ FY 06-11 SPG/JPG FY 06-11 POM FY06 FY 06-11 BES FY07 Plan? Program/Budgeting FY 07-11 FY 07-11 PCP FY 07-11 BCP SPG/JPG – Strategic Planning Guidance PCP – Program Change Proposal BCP – Budget Change Proposal Joint Programming Guidance

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

48. BACKUP SLIDES

49. Advance ProcurementLong Lead Items • 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

50. 2 2 3 3 Advance Procurement (Example) FY0 FY 1 FY 2 FY 3 FY 4 LOT 1 10 Tanks Full Funding of $400 M $400M Less Advance Procurement: + $50M -$50M = Budget Request System: Budget Request Adv Proc (AP): $ 350 M $ 50 M