United States Government Accountability Office

For Release on Delivery

Expected at 

10 a.m. EDT on Thursday, 

April 21, 2005 

GAO Testimony

Before the Committee on Government Reform, 

House of Representatives 

GAO-05-571T 

INFORMATION 

TECHNOLOGY 

OMB Can More 

Effectively Use Its 

Investment Reviews 

Statement of David A. Powner, 

Director, Information Technology 

Management Issues 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-571T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David Powner 

at (202) 512-9286 or pownerd@gao.gov. 

Highlights of GAO-05-571T, a testimony 

before the Committee on Government 

Reform, House of Representatives 

April 21, 2005

INFORMATION TECHNOLOGY 

OMB Can More Effectively Use Its 

Management Reviews 

For the fiscal year 2005 budget, OMB developed processes and criteria for 

including investments on its Management Watch List. In doing so, it 

identified opportunities to strengthen investments and promote 

improvements in IT management. However, it did not develop a single, 

aggregate list identifying the projects and their weaknesses. Instead, OMB 

officials told GAO that to identify projects with weaknesses, individual 

analysts used scoring criteria that the office established for evaluating the 

justifications for funding that federal agencies submit for major projects. 

These analysts, each of whom is typically responsible for several federal 

agencies, were then responsible for maintaining information on these 

projects. To derive the total number of projects on the list for fiscal year 

2005, the office polled its individual analysts and compiled the result. 

However, OMB officials told GAO that because they did not see such an 

activity as necessary, they did not compile a single list. Accordingly, OMB 

has not fully exploited the opportunity to use its watch list as a tool for 

analyzing IT investments on a governmentwide basis. 

OMB asked agencies to take corrective actions to address weaknesses 

associated with projects on the Management Watch List, but it did not 

develop a structured, consistent process for deciding how to monitor agency 

corrective actions. According to OMB officials, decisions on monitoring of 

progress were typically made by the staff with responsibility for reviewing 

individual agency budget submissions, depending on the staff’s insights into 

agency operations and objectives. Because it did not consistently require or 

monitor agency follow-up activities, OMB did not know whether the project 

risks that it identified through its Management Watch List were being 

managed effectively, potentially leaving resources at risk of being committed 

to poorly planned and managed projects. In addition, because it did not 

consistently monitor the follow-up performed on projects on the 

Management Watch List, OMB could not readily tell GAO which of the 621 

projects received follow-up attention. 

To help enable OMB to take advantage of the potential benefits of using the 

Management Watch List as a tool for analyzing and following up on 

investments, GAO’s report included recommendations that OMB develop a 

single, aggregate Management Watch List and that it develop and use criteria 

for prioritizing and monitoring the projects on the list. GAO also 

recommended that the office use the prioritized list for reporting to the 

Congress as part of its statutory reporting responsibilities. In commenting on 

a draft of this report, OMB did not agree that the aggregated 

governmentwide list recommended by GAO is necessary for adequate 

oversight and management. However, GAO continues to believe that an 

aggregated Management Watch List would contribute to OMB’s ability to 

analyze IT investments governmentwide and track progress in addressing 

deficiencies. 

Federal spending on information 

technology (IT) is over $60 billion 

this year and is expected to 

continue to rise. Accordingly, it is 

essential that federal IT 

investments are managed 

efficiently. Of the 1,200 major IT 

projects in the President’s Budget 

for Fiscal Year 2005, OMB stated 

that it had placed about half—621 

projects, representing about $22 

billion—on a Management Watch 

List to focus attention on missioncritical IT investments that need 

management improvements. 

GAO was asked to testify on the 

findings and recommendations 

made in a report that it recently 

completed (GAO-05-276), which 

describes and assesses OMB’s 

processes for (1) placing projects 

on its Management Watch List and 

(2) following up on corrective 

actions established for projects on 

the list. 
Page 1 GAO-05-571T 

Mr. Chairman and Members of the Committee: 

Thank you for the opportunity to participate in the Committee’s 

hearing on processes that the Office of Management and Budget 

(OMB) has developed as part of its efforts to identify and follow up 

on information technology (IT) projects that need management 

improvements. 

As you know, the President’s Budget for Fiscal Year 2005 requested 

over $60 billion to fund IT, and that figure is expected to rise 

throughout the rest of the decade. OMB stated that of the nearly 

1,200 major IT projects in the fiscal year 2005 budget, it had placed 

about half—621 projects, representing about $22 billion—on its 

Management Watch List. For fiscal year 2006, 342 of 1,087 IT 

projects (representing about $15 billion) were placed on the watch 

list. 

At your request, we performed a review of OMB’s processes for 

(1) placing projects on its Management Watch List and (2) following 

up on corrective actions established for projects on the list. Today I 

am summarizing the findings and recommendations of that report, 

which is being released today.1

 

Results in Brief 

For the fiscal year 2005 budget, OMB developed processes and 

criteria for including IT projects (investments) on its Management 

Watch List. In doing so, it identified opportunities to strengthen 

investments and promote improvements in IT management. 

However, OMB did not develop a single, aggregate list identifying 

the projects and their weaknesses. Instead, according to OMB 

officials, individual OMB analysts assigned scores to the 

justifications for funding (known as exhibit 300s) that are submitted 

by federal agencies. (These scores were based on criteria 

 1

 GAO, Information Technology: OMB Can Make More Effective Use of Its Investment 

Reviews, GAO-05-276 (Washington, D.C.: Apr. 15, 2005). 
Page 2 GAO-05-571T 

established in the office’s Circular A-11.) OMB delegated individual 

analysts on its staff, each of whom is typically assigned 

responsibility for several federal agencies, with maintaining, for 

their respective agencies, information for the IT projects included 

on the list. To derive the total number of projects on the list that 

OMB reported (621 for fiscal year 2005), OMB polled its individual 

analysts and compiled the numbers. According to OMB officials, 

they did not construct a single list of projects meeting their watch 

list criteria because they did not see such an activity as necessary 

for performing OMB’s predominant mission: to assist in overseeing 

the preparation of the federal budget and to supervise agency 

budget administration. Thus, OMB did not exploit the opportunity to 

use the list as a tool for analyzing IT investments on a 

governmentwide basis, limiting its ability to identify and report on 

the full set of IT investments requiring corrective actions. 

OMB asked agencies to take corrective actions to address 

weaknesses associated with projects on the Management Watch 

List, but it did not develop a structured, consistent process for 

deciding how to follow up on these actions. According to OMB 

officials, decisions on follow-up and monitoring of specific projects 

were typically made by the OMB staff with responsibility for 

reviewing individual agency budget submissions, depending on the 

staff’s insights into agency operations and objectives. Because it did 

not consistently monitor the follow-up performed, OMB could not 

tell us which of the 621 projects identified on the fiscal year 2005 list 

received follow-up attention, and it did not know whether the 

specific project risks that it identified through its Management 

Watch List were being managed effectively. This approach could 

leave resources at risk of being committed to poorly planned and 

managed projects. Thus, OMB was not using its Management Watch 

List as a tool for improving IT investments on a governmentwide 

basis and focusing attention where it was most needed. 

To enable OMB to take advantage of the potential benefits of using 

the Management Watch List as a tool for analyzing and following up 

on IT investments, we recommended in our report that OMB 

develop a single, aggregate Management Watch List, and that it 

develop and use criteria for prioritizing and monitoring the projects 

on the list. We also recommended that the office use the prioritized 
Page 3 GAO-05-571T 

list for reporting to the Congress as part of its statutory reporting 

responsibilities. In commenting on a draft of this report, OMB did 

not agree that the aggregated governmentwide list recommended by 

GAO is necessary for adequate oversight and management. 

However, GAO continues to believe that an aggregated Management 

Watch List would contribute to OMB’s ability to analyze IT 

investments governmentwide and track progress in addressing 

deficiencies. 

Background 

The President’s Budget for Fiscal Year 2005 identified 

approximately $60 billion for IT projects. In that budget, OMB stated 

that, of approximately 1,200 major IT projects, about half—621 

projects, representing about $22 billion—were on a Management 

Watch List. In testimony in March 2004,2

 OMB officials explained 

that the fiscal year 2005 budget process required agencies to 

successfully correct project weaknesses and business case 

deficiencies of projects on the Management Watch List; otherwise, 

OMB would limit agencies’ spending on new starts and other 

developmental activities. 

In the most recent budget, that for fiscal year 2006, OMB continued 

its use of a Management Watch List. This budget includes 1,087 IT 

projects, totaling about $65 billion. Of this total, 342 projects, 

representing about $15 billion, are on the Management Watch List. 

The budget also stated that projects on the Management Watch List 

had to address performance, security, or other related issues before 

funding would be obligated in fiscal year 2006. 

 2

On March 3, 2004, OMB’s Deputy Director for Management and its Administrator for 

Electronic Government and Information Technology testified at a hearing conducted by the 

Subcommittee on Technology, Information Policy, Intergovernmental Relations and the 

Census, Committee on Government Reform, House of Representatives. The hearing topic 

was “Federal Information Technology Investment Management, Strategic Planning, and 

Performance Measurement: $60 Billion Reasons Why.” 
Page 4 GAO-05-571T 

According to OMB officials, the office identifies projects for the 

Management Watch List through their evaluation of justifications for 

funding that agencies submit for major IT projects as part of the 

budget development process. This evaluation is carried out as part 

of OMB’s predominant mission: to assist the President in overseeing 

the preparation of the federal budget and to supervise budget 

administration in executive branch agencies. OMB is also 

responsible for evaluating the effectiveness of agency programs, 

policies, and procedures; assessing competing funding demands 

among agencies; and setting funding priorities. Finally, OMB is 

responsible for overseeing and coordinating the administration’s 

policies regarding procurement, financial management, information, 

and regulations. In each of these three areas of responsibility, 

OMB’s role is to help improve administrative management, to 

develop better performance measures and coordinating 

mechanisms, and to reduce unnecessary burden on the public. 

To drive improvement in the implementation and management of IT 

projects, the Congress enacted the Clinger-Cohen Act in 1996, which 

expanded the responsibilities of the agencies and OMB under the 

Paperwork Reduction Act.3

 Under the act, agencies are required to 

engage in capital planning and performance- and results-based 

management. OMB is required to establish processes to analyze, 

track, and evaluate the risks and results of major capital 

investments in information systems made by executive agencies. 

OMB is also required to report to the Congress on the net program 

performance benefits achieved as a result of major capital 

investments in information systems that are made by executive 

agencies.4

In response to the Clinger-Cohen Act and other statutes, OMB 

developed section 300 of Circular A-11. This section provides policy 

for planning, budgeting, acquisition, and management of federal 

capital assets and instructs agencies on budget justification and 

 3

44 U.S.C. § 3504(a)(1)(B)(vi) (OMB); 44 U.S.C. § 3506(h)(5) (agencies). 

4

These requirements are specifically described in the Clinger-Cohen Act, 40 U.S.C. § 

11302(c). 
Page 5 GAO-05-571T 

reporting requirements for major IT investments.5 Section 300 

defines the budget exhibit 300 as a document that agencies submit 

to OMB to justify resource requests for major IT investments. This 

reporting mechanism (part of the budget formulation and review 

process) is intended to enable an agency to demonstrate to its own 

management, as well as to OMB, that it has employed the disciplines 

of good project management; developed a strong business case for 

the investment; and met other Administration priorities in defining 

the cost, schedule, and performance goals proposed for the 

investment. The exhibit 300 includes information that is intended, 

among other things, to help OMB and the agencies identify and 

correct poorly planned or performing investments (i.e., investments 

that are behind schedule, over budget, or not delivering expected 

results) and real or potential systemic weaknesses in federal 

information resource management (e.g., project manager 

qualifications). 

According to OMB’s description of its processes, agencies’ exhibit 

300 business cases are reviewed by OMB analysts from its four 

statutory offices—the Offices of E-Government and Information 

Technology (e-Gov), Information and Regulatory Affairs (OIRA), 

Federal Financial Management, and Federal Procurement Policy—

and its Resource Management Offices (RMO). Within OIRA, each of 

about 12 analysts is responsible for overseeing IT projects for a 

specific agency or (more commonly) several agencies. According to 

OMB officials, the OIRA and e-Gov analysts, along with RMO 

program examiners, evaluate and score agency exhibit 300 business 

cases as part of the development of the President’s Budget. The 

results of this review are provided to agencies through what is 

called the “passback” process. That is, OMB passes the requests 

back to agencies with its evaluation, which identifies any areas 

requiring remediation. 

 5

OMB Circular A-11 defines a major IT investment as an investment that requires special 

management attention because of its importance to an agency’s mission or because it is an 

integral part of the agency’s enterprise architecture, has significant program or policy 

implications, has high executive visibility, or is defined as major by the agency’s capital 

planning and investment control process. 
Page 6 GAO-05-571T 

The integrity of this review process presupposes that the exhibit 

300s are accurate. In response to a request from this committee, we 

are currently reviewing the quality of the information that underlies 

exhibit 300s at several agencies. We will be reporting on this work in 

the fall of this year. 

OMB Established Processes and Criteria for Identifying Weak 

Projects, but It Did Not Use an Aggregate List to Perform Its 

Analysis or Oversight 

According to OMB officials, including the Deputy Administrator of 

OIRA and the Chief of the Information Technology and Policy 

Branch, OMB staff identified projects for the Management Watch 

List through their evaluation of the exhibit 300s that agencies submit 

for major IT projects as part of the budget development process. 

The OMB officials added that the scoring of agency exhibit 300s is 

based on guidance in OMB Circular A-116 that is intended to ensure 

that agency planning and management of capital assets are 

consistent with OMB policy and guidance. 

As described in Circular A-11, the scoring of a business case 

consists of individual scoring for 10 categories, as well as a total 

composite score of all the categories. (Examples of these 10 

categories are performance goals, security and privacy, 

performance-based management system—including the earned 

value management system7

—and support of the President’s 

Management Agenda.) According to Circular A-11, scores range 

from 1 to 5, with 5 indicating investments whose business cases 

provided the best justification and 1 the least. 

 6

These scoring criteria are presented in Office of Management and Budget Circular A-11, 

Part 7, Planning, Budgeting, Acquisition, and Management of Capital Assets (July 2004). 

7

Earned value management is a project management tool that integrates the investment 

scope of work with schedule and cost elements for investment planning and control. This 

method compares the value of work accomplished during a given period with that of the 

work expected in the period. Differences in expectations are measured in both cost and 

schedule variances. 
Page 7 GAO-05-571T 

OMB officials said that, for fiscal year 2005, an IT project was placed 

on the Management Watch List if its exhibit 300 business case 

received a total composite score of 3 or less, or if it received a score 

of 3 or less in the areas of performance goals, performance-based 

management systems, or security and privacy, even if its overall 

score was a 4 or 5. OMB reported that agencies with weaknesses in 

these three areas were to submit remediation plans addressing the 

weaknesses. 

According to OMB management, individual analysts were 

responsible for evaluating projects and determining which projects 

met the criteria to be on the Management Watch List for their 

assigned agencies. To derive the total number of projects on the list 

that were reported for fiscal year 2005, OMB polled the individual 

analysts and compiled the numbers. 

OMB officials said that they did not aggregate these projects into a 

single list describing projects and their weaknesses, because they 

did not see such an activity as necessary in performing OMB’s 

predominant mission. Further, OMB officials stated that the limited 

number of analysts involved enabled them to explore 

governmentwide issues using ad hoc queries and to develop 

approaches to address systemic problems without the use of an 

aggregate list. They pointed at successes in improving IT 

management, such as better compliance with security requirements, 

as examples of the effectiveness of their current approach. 

Nevertheless, OMB has not fully exploited the opportunity to use its 

Management Watch List as a tool for analyzing IT investments on a 

governmentwide basis. According to the Clinger-Cohen Act, OMB is 

required to establish processes to analyze, track, and evaluate the 

risks and results of major IT capital investments made by executive 

agencies, which aggregation of the Management Watch List would 

facilitate. Without aggregation, OMB’s ability to conduct 

governmentwide analysis is limited, since no governmentwide 

dataset exists—only a set of subordinate datasets in the hands of 

individual analysts. In addition, each time an up-to-date report is 

required, OMB must query all its analysts to assemble an aggregate 

response; thus, the office cannot efficiently identify, analyze, and 

report on the full set of IT investments requiring corrective actions. 
Page 8 GAO-05-571T 

OMB’s Monitoring of Projects Was Inconsistent, and Agency Followup Activities Were Not Tracked Centrally 

OMB asked agencies to take corrective actions to address 

weaknesses associated with projects on the Management Watch 

List, but it did not develop a structured, consistent process or 

criteria for deciding how to follow up on these actions. Instead, 

OMB officials, including the Deputy Administrator of OIRA and the 

Chief of the Information Technology and Policy Branch, said that

the decision on whether and how to follow up on a specific project 

was typically made jointly between the OIRA analyst and the RMO 

program examiner who had responsibility for the individual agency, 

and that follow-up on specific projects was driven by a number of 

factors, only one of which was inclusion on the Management Watch 

List. According to these officials, those Management Watch List 

projects that did receive specific follow-up attention received 

feedback through the passback process, through targeted evaluation 

of remediation plans designed to address weaknesses, and through 

the apportioning of funds so that the use of budgeted dollars was 

conditional on appropriate remediation plans being in place.8 

These officials also said that follow-up of some Management Watch 

List projects was done through quarterly e-Gov Scorecards; these 

are reports that use a red/yellow/green scoring system to illustrate 

the results of OMB’s evaluation of the agencies’ implementation of 

e-government criteria in the President’s Management Agenda. OMB 

determines the scores in quarterly reviews, in which it evaluates 

agency progress toward agreed-upon goals along several 

dimensions. The e-gov scores are part of the input to the quarterly 

reporting on the President’s Management Agenda. 

OMB officials also stated that those Management Watch List 

projects that did receive follow-up attention were not tracked 

centrally, but only by the individual OMB analysts. Accordingly, 

OMB could not readily tell us which of the 621 watch list projects 

 8

The authority for apportioning funds is specifically described in the Clinger-Cohen Act, 40 

U.S.C. § 11303(b)(5)(B)(ii). 
Page 9 GAO-05-571T 

for fiscal year 2005 were followed up on, nor could it use the list to 

describe the relationship between its follow-up activities and the 

changes in the numbers of projects on the watch list between fiscal 

year 2005 (621 projects) and fiscal year 2006 (342 projects). 

OMB does not have specific criteria for prioritizing follow-up on 

Management Watch List projects. Without specific criteria, OMB 

staff may be agreeing to commit resources to follow up on projects 

that did not represent OMB’s top priorities from a governmentwide 

perspective. For example, inconsistent attention to OMB priorities, 

such as earned value management, could undermine the objectives 

that OMB set in these areas. In addition, major projects with 

significant management deficiencies may have continued to absorb 

critical agency resources. 

In order for OMB management to have assurance that IT program 

deficiencies are addressed, it is critical that corrective actions 

associated with Management Watch List projects be monitored. 

Such monitoring is instrumental in ensuring that agencies address 

and resolve weaknesses found in exhibit 300s, which may indicate 

underlying weaknesses in project planning or management. 

Tracking agency follow-up activities is essential to enabling OMB to 

determine progress on both specific projects and governmentwide 

trends. Without tracking specific follow-up activities, OMB could 

not readily ascertain whether the risks that it identified through its 

Management Watch List were being managed effectively; if they 

were not, funds were potentially being spent on poorly planned and 

managed projects. 

In summary, OMB’s scoring of agency IT budget submissions and 

identification of weaknesses has resulted in opportunities to 

strengthen investments. However, the office has not taken the next 

step—to develop a single, aggregate list identifying the projects and 

their weaknesses—and it has not developed a structured, consistent 

process for deciding how to follow up on corrective actions. OMB’s 

approach does not fully exploit the insights developed through the 

scoring process, and it may leave unattended weak projects 

consuming significant budget dollars. Developing an aggregated list 
Page 10 GAO-05-571T 

would help OMB to realize more fully the potential benefits of using 

the Management Watch List as a tool for monitoring and analyzing 

IT investments governmentwide. Accordingly, in our report we 

recommended that the Director of OMB take the following four 

actions: 

● Develop a central list of projects and their deficiencies. 

● Use the list as the basis for selecting projects for follow-up and for 

tracking follow-up activities; 

● to guide follow-up, develop specific criteria for prioritizing the IT 

projects included on the list, taking into consideration such 

factors as the relative potential financial and program benefits of 

these IT projects, as well as potential risks. 

● Analyze the prioritized list to develop governmentwide and agency 

assessments of the progress and risks of IT investments, identifying 

opportunities for continued improvement. 

● Report to the Congress on progress made in addressing risks of 

major IT investments and management areas needing attention. 

In commenting on a draft of this report, OMB’s Administrator of the 

Office of E-Government and Information Technology expressed 

appreciation for our review of OMB’s use of its Management Watch 

List. However, the Administrator disagreed with our assessment that 

an aggregated governmentwide list is necessary to perform adequate 

oversight and management, and that OMB does not know whether 

risks are being addressed. Nonetheless, based on OMB’s inability to 

easily report which of the 621 investments on the Management 

Watch List remained deficient or how much of the $22 billion cited 

in the President’s Budget remained at risk, we continue to believe 

that an aggregate list would facilitate OMB’s ability to track 

progress. 

Mr. Chairman, that concludes my testimony. I would be pleased to 

answer any questions that you and the other Members of the 

Committee may have. 
Page 11 GAO-05-571T 

Contact and Acknowledgements 

For further information, please contact David A. Powner at (202) 

512-9286 or Lester Diamond at (202) 512-7957. We can also be 

reached by e-mail at pownerd@gao.gov or diamondl@gao.gov. Key 

contributors to this testimony were William G. Barrick, Barbara 

Collier, Lester Diamond, and Sandra Kerr. 

 (310487) 
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