Cost Estimates in the U.S. Intelligence Community Consequences of the FY 2004 Intelligence Authorization Act Keith Coop

1. 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@ngc.com Laura.Guffey@ngc.com 2004 Annual SCEA Conference June 16, 2004 Los Angeles, CA Please note the following guidelines/restrictions: Only the Northrop Grumman IT logo should appear on the title slide If the presentation is a joint presentation with another individual or company � special consideration will be given for representation of their logo No photos other than those currently on the title slide are authorized Photos can be used within the contents of the presentation but not on the title slide Presenter contact information should be added as the final slide of the presentation and can include contact information, email address, etc Do not add additional information, text, photos, logos, or other to the title slide An explanation of the current photos are as follows: Main Theme � When America Needs Trusted IT Solutions � We�re There Photo 1: C4ISR photo representing �Control the information, control the battle. Our advanced C4ISR solutions give America�s warfighters the advantage on today�s battlefields Photo 2: Child with crayon � Trust Matters � Assuring the security of our nation, bettering the lives of our citizens. Photo 3: Emergency Workers-When disaster strikes, our CAD/911 systems help first responders react with greater speed and confidence. Photo 4 � B2 � We are part of a large company, Northrop Grumman Corporation � Defining the Future IMPORTANT: If presenting to International Audience - Please contact Kristin Solarczyk, Sector Communications for replacement template. DO NOT USE THIS TEMPLATE Please note the following guidelines/restrictions: Only the Northrop Grumman IT logo should appear on the title slide If the presentation is a joint presentation with another individual or company � special consideration will be given for representation of their logo No photos other than those currently on the title slide are authorized Photos can be used within the contents of the presentation but not on the title slide Presenter contact information should be added as the final slide of the presentation and can include contact information, email address, etc Do not add additional information, text, photos, logos, or other to the title slide An explanation of the current photos are as follows: Main Theme � When America Needs Trusted IT Solutions � We�re There Photo 1: C4ISR photo representing �Control the information, control the battle. Our advanced C4ISR solutions give America�s warfighters the advantage on today�s battlefields Photo 2: Child with crayon � Trust Matters � Assuring the security of our nation, bettering the lives of our citizens. Photo 3: Emergency Workers-When disaster strikes, our CAD/911 systems help first responders react with greater speed and confidence. Photo 4 � B2 � We are part of a large company, Northrop Grumman Corporation � Defining the Future IMPORTANT: If presenting to International Audience - Please contact Kristin Solarczyk, Sector Communications for replacement template. DO NOT USE THIS TEMPLATE

2. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 2 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.� The Heart of The Matter

3. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 3 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

4. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 4 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 + O&M tails = bigger shortfalls

5. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 5 Introduction to Cost in the IC (National Agencies)

6. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 6 What the Org Chart doesn�t 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

7. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 7 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)

8. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 8 Implementation Compliance Future programs - RDT&E and procurement over $500M Existing programs - Future RDT&E and procurement over $500M Thresholds do not include O&M 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

9. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 9 What the Law doesn�t 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 ICE�s? IC CAIG Staff Agency cost groups Government staff / contractors What defines �independent�? Relationship to acquisition chain �Soft� pressure What happens if the Executive Branch doesn�t 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

10. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 10 What does Congress really want? No more big surprises Can�t 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

11. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 11 Who should create the ICE�s?

12. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 12 �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

13. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 13 DoD Acquisition Process Flow

14. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 14 ICE Process Flow

15. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 15 The Law of Unintended Consequences Cost Estimators / Analysts Demand > 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 isn�t compromised by desire to �keep the client happy� DoD CAIG, however, has been reluctant to have contractors perform ICEs on DoD programs

16. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 16 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 agency�s 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

17. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 17 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 ICE�s 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

18. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 18 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 O&M tail

19. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 19 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 don�t run programs, budgets do Cost estimators aren�t 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

20. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 20 Questions ? Thank You

21. Cost Estimates in the U.S. Intelligence Community: Consequences of the FY04 Intelligence Authorization Act 21 Authors Keith W. Cooperman 703-961-3431, Keith.Cooperman@ngc.com Senior Cost Analyst for Northrop Grumman I.T. / TASC in Chantilly, VA. Currently part of the National Geospatial Intelligence Agency�s (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 CIA�s 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@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