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FUNDS MANAGEMENT UPDATES

EPMC

Roberta Tomasini

DSMC-SPME

Bldg 226, Rm 203

(703) 805-3764

e-mail: roberta.tomasini@dau.mil

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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

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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

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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

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Affordability

• Service Shares?

• Service Splits?

• Budget Shares?

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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

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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

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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

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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

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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

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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

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OSD/Service Goals

• Handouts provided in class

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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

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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

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Responding to Higher HeadquartersProposed Budget Execution Cut: Caselette

Caselette provided in class

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PPBE

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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

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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

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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

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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

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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

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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)

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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

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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

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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

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BACKUP SLIDES

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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

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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

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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

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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.

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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

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• 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

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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

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• 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

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Working Capital Funds

Congress

Customer

$$Payment

RevolvingFund

BusinessArea

$$Financing

Goods orServicesProvided

Order

Annual Appropriation

“One-time” Corpus

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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

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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

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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

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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