Cost Estimates in the U.S. Intelligence Community Consequences of the FY 2004 Intelligence Authoriza

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• Cost Estimates in the U.S. Intelligence Community
  Consequences of the FY 2004 Intelligence
  Authorization Act
• Keith Cooperman Laura Guffey
• Northrop Grumman I.T. / TASC
• 15036 Conference Center Drive
• Chantilly, VA 20151
• Keith.Cooperman_at_ngc.com
• Laura.Guffey_at_ngc.com
• 2004 Annual SCEA Conference
• June 16, 2004
• Los Angeles, CA

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The Heart of The Matter

• Intelligence Authorization Act for Fiscal Year
  (FY) 2004 states
• ...the magnitude of growth in the costs of
  acquisition of many major systems indicates a
  systemic bias within the intelligence community
  to underestimate the costs of such acquisition,
  particularly in the preliminary stages of
  development and production.
• Independent cost estimates prepared by
  independent offices, have historically
  represented a more accurate projection of the
  costs of acquisition of major systems.
• The Director of Central Intelligence shall, in
  consultation with the head of each element of the
  intelligence community concerned, prepare an
  independent cost estimate of the full life-cycle
  cost ... of each major system to be acquired by
  the intelligence community.

Source Intelligence Authorization Act for FY
2004, Section 312, (a)(2), (a)(3), (b)(1)
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Disclaimers

• U.S. Intelligence Community (IC) has been
  receiving greater scrutiny on the costs,
  benefits, risks, and schedules of its programs
• IC members budget figures (historical, present
  and future) are classified
• National security is a valid reason for secrecy,
  however, that has somewhat shielded the IC from
  the same degree of public and media scrutiny as
  DoD and other government agencies
• The content of this presentation is based on
• FY 2004 Intelligence Authorization Act, Section
  312
• National Security Act of 1947 (as amended)
• Direct interviews with Congressional Staff and
  members of the IC with a role in cost estimating,
  analysis and budgeting (non-attribution),
  conducted at the unclassified level
• Defense Acquisition University (DAU), DoD
  Business Transformation briefing
• DIA DIRMO, GDIP 101 briefing, 14Mar03
• Personal cost estimating and analysis experience
  in the IC and DoD
• The analysis and recommendations contained herein
  are solely the opinions of the authors and does
  not necessarily represent the position of
  Northrop Grumman I.T. / TASC or its affiliates

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Why?

• High Profile Programs with Dramatic Cost Overruns
• Future Imagery Architecture (FIA)
• Next Generation Imagery Satellites operated by
  the National Reconnaissance Office (NRO)
• Media Attention (Newsweek Cover Story on FIA)
• Program still pre-IOC
• Cost issues part of larger technical problems
• Congressional Frustration
• On the Horizon
• Other programs across the Intelligence Community
  that have high levels of Congressional interest,
  as well as big price tags
• End of the 9/11 Goldrush?
• Recent reliance on supplemental funding for new
  initiatives in support of Afghanistan, Iraq
• New requirements OM tails bigger shortfalls

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Introduction to Cost in the IC (National Agencies)
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What the Org Chart doesnt say

• Role of organizations responsible for cost
  estimating and analysis differs among the major
  IC agencies
• Some sit within the acquisition chain or main
  acquisition organization
• Others are responsible to an agency
  comptroller/financial manager
• Some have multiple cost groups (agency level,
  office level, program level)
• Others have no single focal point for cost
  estimating and analysis
• Cost groups are a mix of government and
  contractor staff
• Cost groups do not necessarily control the
  budgeting process
• Cost estimates are often AN input, not THE input,
  to building budgets
• Similar situation elsewhere in DoD and the
  Federal Government

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Where the Money Comes from

• Intelligence Agencies receive funds from both IC
  and DoD sources
• National Intelligence
• National Foreign Intelligence Program (NFIP)
• Support multiple government agencies across
  executive branch
• OMB sets top-line, DCI gives guidance, IC CAIG
  has cost oversight
• Defense-Wide Intelligence
• Joint Military Intelligence Program (JMIP)
• Support multiple defense organizations
• OMB sets top-line, SECDEF gives guidance, DoD
  CAIG has cost oversight
• Tactical Intelligence
• Tactical Intelligence Related Activities
  (TIARA)
• Service specific functions
• OMB sets top-line, SECDEF gives guidance, DoD
  CAIG has cost oversight
• Traditionally, DoD has had a more robust
  cost-oversight capability (DoD CAIG), born of
  similar legislation (Title X, Section 2434)

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Implementation

• Compliance
• Future programs - RDTE and procurement over
  500M
• Existing programs - Future RDTE and procurement
  over 500M
• Thresholds do not include OM
• Joint DoD/IC systems are included
• Budgets must reflect funding requirements
  identified in the ICE
• ICE must quantify risk
• ICE requirement in FY 2005
• IC CAIG seeking to increase staff
• IC CAIG will perform Independent Cost Assessments
  (ICAs) rather than ICEs on programs complying
  with Title X, Section 2434
• Agencies define a program
• ICEs must be reported to Congress before contract
  activity
• ICE requirements in FY 2006 and beyond
• ICEs must be reported in Congressional Budget
  Justification Briefing (CBJB)
• IC CAIG will perform ICEs on programs it deems
  necessary
• IC CAIG may submit ICEs to Congress even when
  500M threshold is not met if it feels necessary

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What the Law doesnt say

• What group under the DCI will be primarily
  responsible?
• CMS has decided that the IC CAIG will take the
  lead
• Who will actually perform and create the ICEs?
• IC CAIG Staff
• Agency cost groups
• Government staff / contractors
• What defines independent?
• Relationship to acquisition chain
• Soft pressure
• What happens if the Executive Branch doesnt
  submit a budget that is supported by an ICE?
• A Constitutional question
• President has the authority to submit budgets,
  but Congress has power of the purse

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What does Congress really want?

• No more big surprises
• Cant afford (politically or financially) large
  programs with unexpected, major overruns
• Impact is felt across the IC
• Cost growth may be inevitable (but arguably
  predictable), along with technical challenges,
  but desire is to avoid having programs that have
  issues of such a magnitude
• Budgets that reflect the true total cost of
  ownership of major systems
• Ability to conduct effective, long-range
  intelligence programming
• One aspect of better general management of the IC
• An end to annual hat-in-hand exercise where
  agencies come to the Hill seeking supplementals /
  overguidance
• Agencies will always have more requirements than
  resources, but better budgeting and planning are
  prerequisites to close the gap
• Little desire for direct confrontation with
  Executive Branch
• But Congress may have to use the
  power-of-the-purse if push comes to shove

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Who should create the ICEs?
Bottom-Line Neither IC CAIG nor Agency Groups
can do it alone. Only practical option over the
next few years is for IC CAIG to act in an
oversight role over agency estimates for programs
that meet statutory requirements. IC CAIG should
perform its own estimates on selected
high-profile or high-risk programs.
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Try but Fail ICE Pitfall

• Problem
• ICEs often have schedule slips and risk built
  into them
• ICE estimate curves are often longer and taller
  than contractors
• Meeting schedule
• ICE costs ramp up at later date because schedule
  delays are built into the model
• Programs need funds earlier if they want to try
  and meet the schedule

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DoD Acquisition Process Flow
Source DoD Business Transformation Briefing,
DAU, dod5000.dau.mil
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ICE Process Flow
Agency
IC CAIG
K E Y
DoD CAIG
Joint IC / DoD CAIG
Congress
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The Law of Unintended Consequences

• Cost Estimators / Analysts
• Demand gt Supply
• Clearance Bottleneck
• Higher salaries, more job-changers, rush to
  find ways to get timely TS/SCI clearances
• Greater reliance on Contractors
• More flexible workforce
• Some work can be done at unclassified level
• Must ensure that analysis isnt compromised by
  desire to keep the client happy
• DoD CAIG, however, has been reluctant to have
  contractors perform ICEs on DoD programs

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Recommendations Agency Level

• Primary agency cost groups must not be part of
  the acquisition chain
• Independence of cost estimates will be in
  question
• If sufficient safeguards are in place to ensure
  independence (e.g., reporting to the Milestone
  Decision Authority), having cost groups within an
  agencys acquisition organization should be
  acceptable
• Establishment of an Agency level cost group, if
  none already exists
• Agency cost group directors should be at GS-15 or
  SES level
• ICEs must be formally integrated into the budget
  creation process

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Recommendations IC Level

• Establishment of IC cost estimating standards,
  preferably led by IC CAIG
• Work Breakdown Structures (WBS), Basis of
  Estimates (BOE), acceptable methodologies, etc,
  that should leverage industry best practices and
  DoD CAIG standards
• Process to resolve differences in methodology for
  incorporating schedule risk to prevent lack of
  sufficient up-front funding
• IC technical and reporting requirements are
  sufficiently distinct from DoD that a common IC
  cost framework is required, particularly in light
  of new statute
• IC CAIG should leverage agency capabilities as a
  force multiplier, acting as an independent
  steward of the process
• Independent Cost Assessments (ICA) of agency
  ICEs is the only realistic way of meeting both
  the letter and spirit of the Law
• Creation of a DCI Directive (DCID) on process for
  creation of ICEs and standard procedure for
  incorporation into Agency budgeting process

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Recommendations Federal Level

• Congress should hold firm on demand that IC
  budgets reflect ICEs
• Goal is to adhere to spirit of fully funding
  programs and accurate reporting to Congress
• Agencies and DDCI/CM should detail consequences
  when Congress or President leverage requirements
  without additional funding
• Full life-cycle implications of new requirements
  need to be clear
• Temporary surge support (Afghanistan, Iraq)
  always seems to leave behind a long OM tail

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Recommendations Contractor Community

• Need to hire more cost analysts/estimators is
  clear, however
• Time needed to train junior analysts
• Time money needed to get clearances
• Time needed to get analysts familiar with IC
  programs and processes
• Blur the lines between cost and budget world
• Cost estimates dont run programs, budgets do
• Cost estimators arent political by nature, but
  need to do a better job ensuring that budgets are
  based on solid analysis
• Contractors can be independent advocates, or
  program boosters
• Formal Non-Disclosure Agreements (NDA) and
  Organizational Conflict of Interest (OCI)
  programs are important
• Informal Senior contractor management needs to
  stand behind their analysts work to ensure
  integrity
• Contractors work best when they tell their
  customers what they need to hear, rather than
  what they want to hear

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• Questions ?
• Thank You

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Authors

• Keith W. Cooperman
• 703-961-3431, Keith.Cooperman_at_ngc.com
• Senior Cost Analyst for Northrop Grumman I.T. /
  TASC in Chantilly, VA. Currently part of the
  National Geospatial Intelligence Agencys (NGA)
  Enterprise Engineering (EE) Cost Estimating
  Budget Analysis (CEBA) team. Prior to joining
  TASC, developed cost estimates and business case
  analyses for IC and DoD clients with Booz Allen
  Hamilton in McLean, VA. SCEA Certified Cost
  Estimator / Analyst
• Joined the CIAs National Photographic
  Interpretation Center (NPIC) in 1996, serving for
  four years as an imagery intelligence analyst
  specializing in economic and industrial analysis,
  including a tour as the NIMA Liaison to the U.S.
  Department of Commerce. In 1995, interned at the
  White House for the National Economic Council
• M.A. (1996) and B.A. (1995) in International
  Relations from The Johns Hopkins University in
  Washington, DC, Bologna, Italy, and Baltimore,
  MD, with concentrations in International
  Economics, European Studies and American Foreign
  Policy
• Laura Guffey
• 703-961-3440, Laura.Guffey_at_ngc.com
• Intermediate Cost Analyst for Northrop Grumman
  I.T. / TASC in Chantilly, VA. Currently working
  with NGA and the National Reconnaissance Office
  (NRO) to develop cost estimates and business case
  analyses. Prior to joining TASC, performed data
  collection analysis, independent cost estimates
  (ICEs), and cost model development for the NRO
  Cost Group (NCG)
• B.S. (2002) in Biomedical Engineering and
  Biological Engineering from North Carolina State
  University