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1
FUNDS MANAGEMENT UPDATES
EPMC
Roberta Tomasini
DSMC-SPME
Bldg 226, Rm 203
(703) 805-3764
e-mail: [email protected]
2
Topics
• FM Scope
• FM Updates
• Time Now - FM Perspective
• Responding to Higher Hqtrs
Life CycleCost
ICE
FiscalEnvironment
CostAnalysis
Estimate
AnnualFunding
IncrementalFunding
MFP JPG BES PBDFunding Policies
Planning, Programming,Budgeting and Execution
President’sBudget
Commitment Reprogramming
Budget Authority Obligation Expenditure Outlay
BudgetExecution
Congressional Enactment
Force StructureModernizationOperational CapabilityReadinessSustainability
POE
CCA
SAC SASC SBC HAC HASC HBC
From Requirement to Capability
OperationalConcept
AoA
FunctionalArea
Analysis
Feedback
CAIV MBIs
FullFunding
(Exceptions)
FYDP SPG POM PDM
Acquisition Program Baseline
BudgetResolution
Authorization
& Appropriation Laws
Capability Docs
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
LifeCycleCost
Life Cycle Cost Terms
RDT & E Development Costs of Prime Equipment & Support Items
PROCUREMENTInitial Spares
MILCON Facilities Operations &
Support• O&M, MILPERS
PROCUREMENT PrimeEquipment
PROCUREMENT SupportItems
DevelopmentCost
FlyawayCost
Weapon System Cost
ProcurementCost
ProgramAcquisition
Cost
AA
BB CC DD
EE
FF
Disposal• O&M & others
GG
6
Affordability
• Service Shares?
• Service Splits?
• Budget Shares?
7
MDAP Breach Parameters
SAR APB Unit Cost Rpt (UCR)
Schedule Milestones 6 Month Slip From 6 Month Slip From N/APrevious SAR APB Objective
Cost 15% Program Acquisition 15% PAUC Growth 15% PAUC Cost Unit Cost (PAUC) 15% APUC Growth GrowthGrowth RDT&E Growth
Procurement Growth 15% Avg Procurement15% Avg Procurement MilCon or O&M Growth Unit Cost GrowthUnit Cost Growth(APUC)
Reports Required Quarterly SAR Program Deviation Rpt Quarterly/Exception DAES(PM notifies MDA) Component notifies Congress (>=15%)
SecDef Certification (>=25%)
NOTE: There are also performance breaches which are not included in this chart
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
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)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
APPORTIONMENT PROCESS: “Taxes”
MAJCOM/PEOComptroller
Congress
OMB
OSD Comptroller
Service Comptroller
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Appropriation
Apportionment
Allocation
Sub-Allocation
Allotment
PMOProgramManagementOffice
Impoundment Rescission Deferral
Investment -- Full amountExpense -- Qtrly
Concurrent Budget Resolution Authorization Appropriation (Budget Authority)
Continuing Resolution
Withhold Administrative Technical
Withhold Taxes -- SBIR Contingencies
13
OSD/Service Goals
• Handouts provided in class
14
Below Threshold Reprogramming
RDT & E PROGRAM ELEMENT 2 YEARS
LINE ITEM3 YEARS
( 5 YEARS SCN)
BUDGET ACTIVITY
1 YEAR
1 YEAR
5 YEARSPROJECT
PROC
MILPERS
MILCON
O & MBUDGET 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 MNo Limit, unless specified
$10 MNo
Congressional restriction
Lesser of$2 M or
25%
NoCongressional
restriction
APPRN MAX INCREASE
MAX DECREASE LEVEL OF CONTROL OBL AVAIL
15
FY05
DJJ F M A M J A S O NJJ F M A M J A S O N D JJ F M A M J A S O N D
FY04 Execution
FY04 and prior
FY05
Program/Budgeting Execution
FY06
FY06
FY07 Planning
CY04 CY05 CY06
Enactment Execution
FY05 and prior
Enactment
FY07
Planning
2nd Yr
2nd Yr
2nd
Enactment
FY08
3rd Yr
3rd Yr
FY06 and prior
FY 07-11 SPG/JPG FY 07-11 FOL/CP
Exec
FY07 & prior
Planning
Program/Budgeting
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
FY06-11SPG/JPG
Resource Allocation Process
FY 08-13 SPG/JPG
FY 06-11 POMFY 06-07 BES
FY 08-13 POMFY 08-09 BES
PB
PB
PB
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 913Changes 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
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 administrationFiscal Guidance IssuedOn-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 IssuedOn-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
JPG
PresidentNational Security CouncilCIA/DIA/JCS/OSD
JCSCOCOMsSERVICES
NMS JPD
NSS
CPR
SPG
APR/MAY
JCS, OSD,COCOMs,SVC HQs,ETC.
SEP DEC MAR
SECDEF
1st Year 2nd Year
1st year of a new administration
Planning Phase
COCOM – Combatant CommanderCPR – Chairman’s Pgm RecommendationJPD – Joint Planning DocumentJPG – Joint Programming GuidanceNSS – National Security StrategyNMS – National Military StrategyQDR – Quadrennial Defense ReviewSPG – Strategic Planning Guidance
Strategyalso reflected in QDR
(2nd year of new administration)
Notes• SPG replaces Draft Defense Planning Guidance (DPG)• JPG replaces DPG
23
PBDs
PDM
ServicesPEO/PM,SVC HQsCOCOMs
BESPBMBI
Adv Ques/Hearings
AUG JAN/FEBOCT
Issue Resolution
SECDEFSLRG
POM
OSD/OMB
CPA
DECNOV
Services / PEO / PM Answer / Reclama
JCS
OSD/OMB
BES – Budget Estimate SubmissionCOCOM – Combatant CommanderCPA – Chairman’s Pgm AssessmentMBI – Major Budget IssuesPB – President’s BudgetPBD – Program Budget DecisionPDM – Program Decision MemoPOM – Program Objectives MemoSLRG – Senior Leadership Review Group
Concurrent Program/Budget Review
UpdatesFYDP
UpdatesFYDP
3-Star Group
Notes• 3-Star Group replaces Program Review Group (PRG)• SLRG replaces Defense Resources Board (DRB)
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 of Service/Agency CPs (accept/reject)
• Oct-NovBRAC/QDR review & related OSD-generated CPs• Dec 20 Program & Budget review complete• Jan DoD budget submitted to OMB
26
Off-Year Process 2005 (FY 07-11)
OCT-DEC15 AUG 30 SEP6 SEP 20 DEC1 AUG
Services&
Agencies
FOL NotificationMemo to
USD(C) &Dir, PA&E
OSD FOLDecisions
Services/AgenciesCPs Dueto OSD
OSD Completes
Services/AgenciesCP Review
Electronic OSD-RequiredR/P Forms Due
PDM(s) & PBDsIssued
SLRG Review of
CPs
JAN-FEB
FOL - Fact -of- LifeCP - Change ProposalSLRG - Senior Leadership Review GroupQDR - Quadrennial Defense ReviewBRAC - Base Realignment & ClosurePDM - Program Decision MemorandumPBD - Program Budget DecisionR-Forms - Research & Development FormsP-Forms - Procurement Forms
OSD – PreparedBRAC/QDR
CPs Submitted
OSD Staff Review
Svcs/Agencies Accepted FOLs
Entered into OSD Data Base
Budget Lock
Pres Bud
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 PlanWhat
· 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
FY 99 RDT&E OBLIGATION/EXPENDITUREA/0 Jun 99 $M (TY)
Obligations Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug SepPlan Mth 5 5 5 25 2 2 16 15 10 5 5 5Plan Cum 5 10 15 40 42 44 60 75 85 90 95 100Actual Cum 3 4 5 6 8 12 32 34 35Variance Cum 2 6 10 34 34 32 28 41 50Var Cum % 40% 60% 67% 85% 81% 73% 47% 55% 59%
ExpendituresPlan Mth 1 1 3 5 5 5 5 5 5 5 10 5Plan Cum 1 2 5 10 15 20 25 30 35 40 50 55Actual Cum 1 1 1 3 3 3 4 25 25Variance Cum 0 1 4 7 12 17 21 5 10Var Cum % 0% 50% 80% 70% 80% 85% 84% 17% 29%
Obligation Plan
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
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
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
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
• 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
Working Capital Funds
Congress
Customer
$$Payment
RevolvingFund
BusinessArea
$$Financing
Goods orServicesProvided
Order
Annual Appropriation
“One-time” Corpus
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
Working Capital Funds & Functions
Army Working Capital FundDepot MaintenanceInformation ServicesOrdnanceSupply Management
Navy Working Capital FundBase SupportDepot Maintenance - AircraftDepot Maintenance - Marine CorpsDepot Maintenance - ShipsInformation ServicesOrdnanceResearch and DevelopmentSupply ManagementTransportation
40
Working Capital Funds & Functions
Air Force Working Capital FundDepot MaintenanceInformation ServicesSupply Management
Transportation USTRANSCOM
Defense - Wide Working Capital FundDefense Printing DAPSDistribution Depots DLAFinancial Operations DFASInformation Services DFAS, DISA, DLAReutilization & Marketing DLASupply Management DLA
Defense Commissary Agency Working Capital Fund Commissary Operations
41
Life Cycle Cost CategoriesProgram
Cost %
PRODUCTION, DEPLOYMENT and OPERATIONAL
SUPPORT
CE PDRR EMD
Disposal Cost
DISPOSAL
Operations and Support
Costs
InvestmentCostR & D
Cost
Includes:
System O&S YrsShips 30
Aircraft 20
Missiles 20
Tracked 20 Vehicles