1.  Cost Management is critically important to the PBL because:

-   We expect to have to trigger the SN CRAC beginning on October
    1, 2003. You can count on the "cost spotlight" shining on us
    intensely for the next several years.

-   The more successful we are in managing (actual spending & forecasts
    of spending )our costs, the smaller the SN CRAC rate increase will
    have to be, and the greater our credibility.

-   Post FY 2006 costs look higher than expected -- we must manage our
    costs during this rate period in order to optimize our financial
    health for the next rate period.

2.  Therefore, PBL managers and employees alike must manage spending
    very closely:

-   I am asking each PBL manager to come in at or under his or her
    organization's cost limit (ceiling).

-   In the past, PBL was able to under-run its cost limits. Now, our
    spending limits are much tighter, leaving significantly less
    flexibility or budget "room".

-   The challenge is to spend no more than your cost limits and
    continuously look for ways to reduce spending everywhere possible.

3.  Accountability for successfully managing our costs:

-   Spending -- both actuals and projected -- will be tracked and
    reported in order to test whether we are living up to our
    commitments. I will be reviewing PBL spending limit-to-actual
    results regularly, using standard BES reports. These reports will be
    tied to the ones managers should be using to monitor you
    organization's spending limit-to-actual results.

-   Our financial systems must be able to provide you with reliable cost
    information so you can more closely track your spending. I expect
    you to put in significant time in working with the PBL Finance Group
    (PMF) and the BES system and reports. I want your feedback on the
    system where you need improvements. In the meantime, I am asking the
    PBL Finance Group (PMF), to work with you and our BES financial
    system so that BES can respond with the information you need.

-   Accountability for success will be evaluated through each manager's
    performance contract (and subsequent amendments, if any).

4.  I acknowledge that we will have to be adaptable to changing
    circumstances:

-   While we will set spending limits based on a set of current
    expectations about how the future will unfold, we may need to spend
    more than planned in some areas in order to achieve our core
    mission.

-   Should a core mission spending adjustment be necessary (BFTE,
    contract dollars, etc.), we will reprioritize our activities and
    spend less and/or use the PBL Contingency Fund (see Cost Management
    Requirements & Accountabilities).

-   The process I'd like followed for addressing core mission spending
    adjustments is:

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-   The manager raises the possible need for core mission spending
    adjustment with their respective Tier II VP.

-   The manager then consults with the PBL Finance Group (PMF) to verify
    spending limits-to-actuals, remaining target amount, and additional
    dollars needed.

-   The proposed core mission spending adjustment is submitted by the
    respective Tier II VP to the PBL VP Management Team, who will decide
    re-priorities and/or cuts.

-   The PBL Tier II VP will involve the PBL Finance Group so it can
    track changes and make needed accounting system modifications.