Report to the Committee on Commerce, 

Science, and Transportation, 

U.S. Senate, and the Committee on 

Science, House of Representatives 

United States General Accounting Office 

GAO 

November 2003 BUSINESS 

MODERNIZATION 

Disciplined Processes 

Needed to Better 

Manage NASA’s 

Integrated Financial 

Management Program 

GAO-04-118 
The uncertain reliability of cost estimates, optimistic schedules, and 

insufficient processes for ensuring adequate funding reserves have put 

NASA’s latest financial management modernization effort at risk. Over the 

past several years, IFMP’s life-cycle cost estimates have fluctuated, and 

NASA’s current estimate is 14 percent greater than the previous estimate. 

The reliability of these estimates is uncertain because disciplined costestimating processes required by NASA and recognized as best practices 

were not used in preparing them. For example, IFMP’s current life-cycle cost 

estimate did not include the full cost likely to be incurred during the life of 

the program, including certain operations costs and costs to retire the 

system. In addition, NASA did not consistently use breakdowns of work in 

preparing the cost estimate, as recommended by NASA guidance. In cases 

where work breakdowns were used, the agency did not always show the 

connection between the work breakdown estimates and the official program 

cost estimate. This has been a weakness since the inception. 

Although more than half of the IFMP modules have been implemented—

including the Core Financial module, which is considered the backbone of 

IFMP—the system may not be fully implemented by the end of fiscal year 

2006 as planned. Efforts to complete the integrated system as quickly as 

possible might have resulted in schedule margins that are insufficient to 

manage program challenges—such as personnel shortages, uncertainties 

about software availability, and Office of Management and Budget (OMB) 

initiatives to implement electronic systems for agency business processes 

governmentwide. These OMB initiatives have put IFMP in a reactive mode 

and are already affecting planning for the payroll, procurement, and travel 

components of the integrated system, which could result in additional 

schedule delays and cost growth. 

Finally, reserve funding for IFMP contingencies may be insufficient, which 

is particularly problematic, given the program’s unreliable cost estimates 

and optimistic schedule. One module—Budget Formulation—is already 

experiencing potential shortfalls in its reserves, and project officials 

expressed concerns that the module’s functionality may have to be reduced. 

Yet the program continues to establish funding reserves based on reserve 

levels set by other high-risk NASA programs, such as NASA’s space flight 

program—not on analyses of the potential cost impact of risks and 

unknowns specific to IFMP, as required by NASA guidance. Moreover, the 

program did not quantify the cost impact of high-criticality risks—also 

required by NASA—or link its risks to funding reserves to help IFMP develop 

realistic budget estimates. 

The National Aeronautics and 

Space Administration (NASA) has 

struggled to implement a fully 

integrated financial management 

system. The lack of such a system 

has affected the agency’s ability to 

control program costs, raising 

concerns about the management of 

its most costly programs, including 

the space shuttle program and the 

International Space Station. 

In April 2000 NASA initiated the 

Integrated Financial Management 

Program (IFMP)—its third effort to 

improve the agencywide 

management of its resources. 

Implementation is expected by 

fiscal year 2006 with an estimated 

life-cycle cost of nearly $1 billion. 

This report (1) assesses NASA’s 

methodology for preparing the 

current life-cycle cost estimate for 

implementing IFMP, (2) determines 

whether NASA’s current schedule 

is reasonable, and (3) evaluates 

NASA’s processes for ensuring 

adequate cost contingencies. 

GAO is recommending that IFMP 

follow best practices and NASA 

guidance in preparing and updating 

the life-cycle cost estimate and 

establish additional processes that 

would enable the agency to more 

accurately estimate program cost 

and predict the impact of possible 

undesired events. NASA concurred 

with GAO’s recommendations for 

corrective action. 

www.gao.gov/cgi-bin/getrpt?GAO-04-118.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Allen Li at 

(202) 512-4841 or lia@gao.gov. 

Highlights of GAO-04-118, a report to 

the Senate Committee on Commerce, 

Science, and Transportation, and the 

House Committee on Science 

November 2003 

BUSINESS MODERNIZATION 

Disciplined Processes Needed to Better 

Manage NASA’s Integrated Financial 

Management Program 
Page i GAO-04-118 Business Modernization 

Letter 1

Results in Brief 2

Background 5

Reliability of IFMP’s Current Life-Cycle Cost Estimate Is Uncertain 

Owing to a Lack of Disciplined Processes 7

Program Schedule May Be Optimistic 11

Processes Insufficient to Ensure Adequate Funding Set Aside 

for Contingencies 13

Conclusion 16

Recommendations for Executive Action 16

Agency Comments and Our Evaluation 17

Scope and Methodology 18

Appendix I Comments from the National Aeronautics and 

Space Administration 20 

Appendix II GAO Contact and Staff Acknowledgments 23 

Tables 

Table 1: IFMP’s System Modules and Their Status 6

Table 2: IFMP’s Cost Estimates for Life Cycle 9

Table 3: IFMP’s and NSSC’s Share of Life-Cycle Costs in the May 

2003 Budget for Fiscal Years 1999-2010 9

Figure 

Figure 1: IFMP’s Life-Cycle Cost Estimate Trend 8

Contents 
Page ii GAO-04-118 Business Modernization 

Abbreviations 

GAO General Accounting Office 

IFMP Integrated Financial Management Program 

NASA National Aeronautics and Space Administration 

NSSC NASA Shared Services Center 

OMB Office of Management and Budget 

SAP System Applications and Products 

SEI Software Engineering Institute 

WBS Work Breakdown Structure 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-04-118 Business Modernization 

November 21, 2003 

The Honorable John McCain 

Chairman 

The Honorable Ernest F. Hollings 

Ranking Minority Member 

Committee on Commerce, Science, 

 and Transportation 

United States Senate 

The Honorable Sherwood L. Boehlert 

Chairman 

The Honorable Ralph M. Hall 

Ranking Minority Member 

Committee on Science 

House of Representatives 

About 90 percent of the National Aeronautics and Space Administration’s 

(NASA) annual budget is spent on contractors. Yet since 1990 we have 

identified NASA’s contract management as a high-risk area—in part, 

because the agency has failed to implement a modern, fully integrated 

financial management system. As we reported in January 2003, the lack of 

such a system has hampered NASA’s ability to oversee contracts; control 

program costs; and ensure an effective human capital management 

strategy, raising serious concerns about NASA’s management of its largest 

and most costly programs, including the space shuttle program and the 

International Space Station.1

In April 2000 NASA initiated its third and most recent effort to implement 

a modernized financial management system: the Integrated Financial 

Management Program (IFMP).2

 Through IFMP, NASA plans to employ 

multiple software applications to improve the agencywide management of 

its financial, physical, and human resources. NASA expects to complete 

IFMP’s implementation in fiscal year 2006 with an estimated life-cycle cost 

 1

See U.S. General Accounting Office, Major Management Challenges and Program 

Risks: National Aeronautics and Space Administration, GAO-03-114 (Washington, D.C.: 

January 2003). 

2

NASA abandoned two earlier efforts after spending about $180 million over 12 years. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-04-118 Business Modernization 

totaling nearly $1 billion, including operations and maintenance costs. 

However, several of the system’s modules remain to be developed, and the 

program faces significant challenges in completing them as planned. Given 

its previous failures, NASA is under tremendous pressure to ensure that 

IFMP is implemented quickly and can achieve its goals. 

In April 2003 we issued an interim report on IFMP,3

 which found that 

NASA was not following key best practices for acquiring and 

implementing IFMP. As agreed, we continued our review in three areas: 

(1) whether NASA is acquiring and implementing IFMP in the context of 

an enterprise architecture, (2) the extent to which the Core Financial 

module will address NASA’s external reporting requirements, and 

(3) NASA’s life-cycle cost estimate and schedule for IFMP. We are 

responding to the first two issues in separate reports.4

 This report 

addresses the third issue—IFMP’s life-cycle cost estimate and schedule. 

Specifically, you asked that we (1) assess the reliability of NASA’s 

methodology for preparing the current cost estimate for implementing 

IFMP, (2) determine whether NASA’s current schedule is reasonable in 

terms of progress to date and available resources, and (3) evaluate NASA’s 

processes for ensuring the adequacy of reserve funding for contingencies 

to mitigate the potential impact of identified program risks and unknowns. 

In addition, we have summarized our findings on the three areas 

previously cited in a separate report.5

The uncertain reliability of cost estimates, optimistic schedules, and 

insufficient processes for ensuring the adequacy of funding reserves have 

put NASA’s latest financial management modernization effort at risk of 

schedule delays and cost growth. The reliability of the current estimate—

which is 14 percent greater than the previous estimate established in 

 3

See U.S. General Accounting Office, Business Modernization: Improvements Needed 

in Management of NASA’s Integrated Financial Management Program, GAO-03-507

(Washington, D.C.: Apr. 30, 2003). 

4

See U.S. General Accounting Office, Business Modernization: NASA’s Integrated 

Financial Management Program Does Not Fully Address Agency’s External Reporting 

Issues, GAO-04-151 (Washington, D.C.: Nov. 21, 2003). Also, see U.S. General Accounting 

Office, Information Technology: Architecture Needed to Guide NASA’s Financial 

Management Modernization, GAO-04-43 (Washington, D.C.: Nov. 21, 2003). 

5

See U.S. General Accounting Office, Business Modernization: NASA Challenges in 

Managing Its Integrated Financial Management Program, GAO-04-255 (Washington, 

D.C.: Nov. 21, 2003). 

Results in Brief 
Page 3 GAO-04-118 Business Modernization 

February 2002—is uncertain because disciplined cost-estimating processes 

required by NASA and recognized as best practices were not used in 

preparing the estimate. Specifically, IFMP’s life-cycle cost6

 estimate did 

not include the full cost of all resources likely to be incurred during the 

life of the program. In addition, NASA did not consistently use 

breakdowns of the work to be performed in preparing the cost estimate, as 

recommended by NASA guidance. Without using the work breakdowns to 

prepare the cost estimate, NASA cannot ensure that all costs are 

accounted for. In cases where work breakdowns were used, the agency 

did not always provide a clear audit trail between the work breakdown 

estimates and the program’s life-cycle cost estimate. 

IFMP is scheduled for completion at the end of fiscal year 2006. However, 

efforts to complete the integrated system as quickly as possible might 

have resulted in schedule margins that are insufficient to manage program 

challenges—such as personnel shortages and uncertainties about 

software’s availability. In addition, Office of Management and Budget 

(OMB) initiatives to implement electronic systems for agency business 

processes---which are expected to improve agency operations 

governmentwide—are affecting planning for the payroll, procurement, and 

travel modules of the integrated system, which could result in additional 

schedule delays and cost growth. 

Finally, reserve funding for IFMP contingencies may be insufficient—

which is particularly problematic, given the uncertain reliability of cost 

estimates and optimistic schedule for the program—because the program 

did not consistently perform in-depth analyses of the potential cost impact 

of risks and unknowns specific to IFMP, as required by NASA’s guidance. 

Instead, the program established funding reserves on the basis of reserve 

levels set by other high-risk NASA programs. Moreover, the program 

did not quantify the cost impact of identified risks or link its risks to 

funding reserves. 

To help decision makers better assess all costs associated with operating 

and implementing IFMP, we are recommending that the program use 

current processes dictated by best practices and NASA guidance for 

preparing and updating the life-cycle cost estimate as well as establish 

 6

Life-cycle cost is the total of the direct, indirect, recurring, nonrecurring, and other 

related expenses incurred or estimated to be incurred in the design, development, 

verification, production, operation, maintenance, support, and retirement of a system 

over its planned life. 
Page 4 GAO-04-118 Business Modernization 

additional disciplined processes to better ensure that the agency more 

accurately estimate program cost, predict the impact of possible undesired 

events, and plan accordingly. 

In written comments on a draft of this report, NASA’s Deputy 

Administrator concurred with our recommendations for corrective action 

but noted that all IFMP projects completed to date stayed within budget, 

were completed ahead of schedule, and delivered the committed scope. 

We do not agree that this is the case for the Core Financial module, which 

NASA describes as the “backbone” of the program. When NASA 

announced the implementation of the Core Financial module at all of its 

centers, only about two-thirds of the financial events needed for day-today financial operations and external reporting had been implemented. In 

addition, we found that NASA deferred the implementation of other key 

Core Financial module capabilities and created new problems in recording 

certain financial transactions.7

 Thus, full functionality of the system has 

been deferred, increasing the risk of additional costs and potentially 

affecting the implementation of future modules. NASA’s detailed 

comments also noted that the program used a business case methodology 

and professional cost estimators to perform cost and risk assessments. As 

discussed in this report, the audit trail from these assessments to the 

program’s cost estimates required by NASA guidance and best practices is 

not clear. NASA’s detailed comments are included as appendix I. 

 7

See GAO-04-151. 
Page 5 GAO-04-118 Business Modernization 

For more than a decade, we have reported that the lack of a modern 

integrated financial management system to produce accurate and reliable 

information has hampered NASA’s ability to oversee contracts and 

develop good cost estimates for NASA’s programs. In 1990 NASA’s lack of 

effective systems and processes for overseeing contractor’s activities 

prompted us to identify NASA’s contract management as a high-risk area. 

In July 2002 we reported that the accuracy of NASA’s $5 billion cost 

growth estimate for the International Space Station was questionable and 

that the agency might have difficulty preparing a reliable life-cycle cost 

estimate because a modern integrated financial management system 

was not available to track and maintain the data needed for estimating and 

controlling costs. 8

 NASA’s lack of a fully integrated financial management 

system has also hurt the agency’s ability to collect, maintain, and report 

the full cost of its projects and programs. For example, in March 2002 we 

testified that NASA was unable to provide us with detailed support for the 

amounts that it reported to the Congress as obligated against space station 

and related shuttle program cost limits as required by the National 

Aeronautics and Space Administration Authorization Act of 2000.9

IFMP is designed as an integrated system to replace the separate 

and incompatible financial management systems used by NASA’s 

10 centers.10 According to the IFMP Program Director, the new system 

will provide better decision data, consistent information across centers, 

and improved functionality. 

Unlike NASA’s previous efforts to modernize its financial management 

system, IFMP does not rely on a single contractor. NASA selected System 

Applications and Products (SAP) to provide its “best of suite” software11

 8

See U.S. General Accounting Office, Space Station: Actions Under Way to Manage Cost, 

but Significant Challenges Remain, GAO-02-735 (Washington, D.C.: July 17, 2002). 

9

See U.S. General Accounting Office, National Aeronautics and Space Administration: 

Leadership and Systems Needed to Effect Financial Management Improvements, 

GAO-02-551T (Washington, D.C.: Mar. 20, 2002). 

10NASA is composed of headquarters offices; nine centers located around the country; and 

the Jet Propulsion Laboratory, which is operated by the California Institute of Technology. 

For the purpose of this report, we treat the Jet Propulsion Laboratory as a center. 

11When acquiring and implementing commercial hardware and software solutions, 

organizations can generally pursue one of two basic approaches: An organization can opt 

for a single package of already integrated software components, which is referred to as the 

“best of suite” approach, or it can opt for different software components from different 

vendors, which is referred to as the “best of breed” approach. “Best of suite” components 

are easier and less costly to integrate. 

Background 
Page 6 GAO-04-118 Business Modernization 

and contracted for implementation services under a separate contract. 

NASA has also broken the project into modules that will be implemented 

individually—instead of all at once—on the basis of the availability of 

proven commercial-off-the-shelf software products. IFMP initially 

segmented implementation into 14 modules but has since reorganized the 

program into 9. Some of these modules may be further broken out and 

others added, depending on the scope of OMB’s e-Government initiatives12

and other considerations. Table 1 describes the modules that currently 

comprise the system and their status. 

Table 1: IFMP’s System Modules and Their Status 

Module Description NASA-reported status 

Position Description 

Management 

Web-based tool that enables the generation and classification of job 

descriptions and automatic generation of associated documents. 

Implemented September 

2002. 

Resume Management Web-based application that allows applicants to apply for jobs online. Implemented November 2001. 

Erasmus Web-based system providing financial performance information on NASA’s 

programs and projects in a standardized format. 

Implemented November 2002. 

Travel Management Comprehensive system to streamline and unify the NASA employee travel 

system and to improve traveler and vendor reimbursement. 

Implemented April 2003. 

Core Financial Accounting and financial reporting system that serves as the “backbone” to 

the integrated system. 

Implemented June 2003. 

Budget Formulation Web-based tool to formulate project, program, institutional, enterprise, and 

agency-level budget requirements. 

Planned completion of 

February 2004. 

Integrated Asset 

Management 

System to manage NASA’s physical assets through functions such as 

physical inventory and financial reporting. 

To begin in late 2003. 

Contract Administration Comprehensive tool to support procurement, receiving, invoicing, and 

payment of materials for NASA. 

To begin in late 2004. 

Human Resources 

Management 

System allowing managers to fill positions with staff that possess the 

appropriate skill sets and career goals. 

To begin in late 2004. 

Source: NASA. 

When NASA announced in June 2003 that the Core Financial module had 

been implemented at all of its centers, only about two-thirds of the 

financial events needed for day-to-day financial operations and external 

reporting had been implemented. In addition, we found that NASA 

deferred implementation of other key core financial module capabilities 

 12OMB’s Electronic Government—or “e-Government”—initiatives advocate the use of 

Internet-based technologies governmentwide for agency business processes, such as 

payroll, travel management, and recruiting. The goal of these initiatives is to eliminate 

redundant systems and improve the government’s quality of customer service. 
Page 7 GAO-04-118 Business Modernization 

and created new problems in recording certain financial transactions.13

Thus, full functionality of the system has been deferred, increasing the risk 

of additional costs and potentially affecting the implementation of future 

modules. 

As we reported in April 2003, NASA is not following key best practices for 

acquiring and implementing IFMP. For example, NASA has not analyzed 

the interdependencies between selected and proposed IFMP components, 

and it does not have a methodology for doing so. By acquiring IFMP 

components without first understanding system component relationships, 

NASA has increased its risk of implementing a system that will not 

optimize mission performance and will cost more and take longer to 

implement than necessary. In addition, in implementing the Core Financial 

module, NASA faces risks in the areas of user needs and requirements 

management because the agency did not consider the information needs 

of key system users and is relying on a requirements management process 

that does not require the documentation of detailed system requirements 

prior to system implementation and testing. 

The reliability of the current life-cycle cost estimate—which has fluctuated 

since the initial estimate and is 14 percent greater than the previous 

estimate established in February 2002—is uncertain because disciplined 

cost-estimating processes required by NASA and recognized as best 

practices were not used in preparing the estimate. Specifically, IFMP’s 

life-cycle cost estimate did not include the full cost likely to be incurred 

during the life of the program. In addition, breakdowns of work to 

be performed—or Work Breakdown Structure (WBS)14—were not 

consistently used in preparing the cost estimate. In cases where work 

breakdowns were used to prepare the estimate, the agency did not always 

provide a clear audit trail. NASA has made some improvements in the 

program’s financial management, such as hiring personnel to provide 

oversight and consistency for the cost-estimating process. However, until 

NASA uses more disciplined processes such as breakdowns of work in 

preparing the program’s cost estimate, the reliability of the life-cycle cost 

estimate will be uncertain and the program will have difficulty with 

controlling costs. 

 13See GAO-04-151. 

14A WBS is a method of organizing a program into logical subdivisions at lower and lower 

levels of detail. 

Reliability of IFMP’s 

Current Life-Cycle 

Cost Estimate Is 

Uncertain Owing to a 

Lack of 

Disciplined Processes 
Page 8 GAO-04-118 Business Modernization 

Since the program began, cost estimates for IFMP’s 10-year life cycle—

fiscal years 2001 through 2010—have fluctuated and increased overall, as 

shown in figure 1. 

Figure 1: IFMP’s Life-Cycle Cost Estimate Trend

NASA’s current IFMP life-cycle cost estimate totals $982.7 million—an 

increase of $121.8 million, or 14 percent, over the previous IFMP life-cycle 

cost estimate. The estimate comprises IFMP direct program costs, NASA’s 

enterprise support,15 and civil service salaries/benefits. (See table 2.) 

 15NASA is organized into six strategic enterprises that function as primary business areas 

for implementing NASA’s mission. Each enterprise draws on the capabilities of several 

NASA centers, while each center contributes to multiple enterprises. For example, the 

Space Flight Enterprise has oversight over NASA’s human space flight program and 

exercises management authority over the Johnson Space Center, Kennedy Space Center, 

Marshall Space Flight Center, and Stennis Space Center. 

IFMP’s Life-Cycle 

Cost Estimates Show 

Overall Increase 
Page 9 GAO-04-118 Business Modernization 

Table 2: IFMP’s Cost Estimates for Life Cycle 

Dollars in millions of then-year dollars 

IFMP’s estimate component Feb. 2002 estimate May 2003 estimate Change in dollars Percent change 

Direct program $644.8 $635.3 $(9.5) (1.5) 

Enterprise support 164.8 189.4 24.6 15.0 

Civil Service salaries/benefits 51.3 158.0 106.7 208.0 

Total life-cycle cost $860.9 $982.7 $121.8 14.1 

Sources: NASA (data); GAO (analysis). 

Although direct program costs decreased by $9.5 million, these costs 

were shifted to the enterprise support component of the estimate with 

the program’s decision to fund only 1 year’s worth of operations and 

maintenance, rather than 2 years’ worth from the direct program budget. 

In addition, NASA anticipates that operations costs for fiscal years 2007 

through 2010—estimated at $137.8 million—will be funded by the NASA 

Shared Services Center (NSSC), a planned initiative to consolidate various 

agency services such as purchasing and human resources. (See table 3.) As 

a result, the fiscal year 2004 budget for the IFMP direct program portion of 

implementing the system is $497.5 million. 

Table 3: IFMP’s and NSSC’s Share of Life-Cycle Costs in the May 2003 Budget for Fiscal Years 1999-2010 

IFMP estimate component 

Development and implementation 

(IFMP’s share, FY 1999-2006) 

Operations and maintenance 

(NSSC’s share, FY 2007-2010) Total 

Direct program $497.5 $137.8 $635.3 

Enterprise support 133.2 56.2 189.4 

Civil Service salaries/benefits 125.3 32.7a 158.0 

Total life-cycle cost $756.0 $226.7 $982.7 

Source: NASA. 

a

This number is not final and is still being reviewed by NASA. 

In March 2003 an independent cost estimate team concluded that there is 

an 85 percent confidence level that the direct program portion can be 

successfully completed with the available funding of $497.5 million. 

However, the direct program portion represents only about half of the 

total life-cycle cost estimate. In addition, the team’s conclusion was 

contingent on two optimistic assumptions: that there would be no 

schedule disruptions and no increase in requirements. 
Page 10 GAO-04-118 Business Modernization 

Reflecting OMB guidance16 and the best practices of government and 

industry leaders, NASA requires that life-cycle cost estimates be prepared 

on a full-cost basis, that estimates be summarized according to the current 

breakdown of work to be performed, and that major changes be tracked to 

the life-cycle cost. OMB guidance calls for a disciplined budget process to 

ensure that performance goals are met with the least risk and the lowest 

life-cycle cost, which includes direct and indirect costs, operations and 

maintenance, and disposal. The Software Engineering Institute (SEI)17

echoes the need for reliable cost-estimating processes in managing 

software implementations—identifying tasks to be estimated, mapping the 

estimates to the breakdown of work to be performed, and having a clear 

audit trail are among SEI’s requisites for producing reliable cost estimates. 

Despite NASA requirements and OMB and SEI guidance, IFMP did not 

prepare a full life-cycle cost estimate—that is, all direct and indirect costs 

for planning, procurement, operations and maintenance, and disposal 

were not included. For example, the life-cycle cost estimate does not 

include the following: 

• the cost to operate and maintain the system beyond 2010;18

• the cost of retiring the system; 

• enterprise travel costs, which are provided monthly by the NASA centers; 

and 

• the cost of nonleased NASA facilities for housing IFMP. 

In addition, IFMP did not prepare WBS estimates for active modules—that 

is, those currently being implemented. According to NASA guidance, 

breaking down work into smaller units helps facilitate cost estimating 

and project and contract management, and helps ensure that relevant 

costs are not omitted. The guidance also states that the WBS should 

encompass both in-house and contractor efforts. According to the IFMP 

Deputy Program Director, WBS estimates are not prepared for active 

modules because information such as contract task orders can be used to 

 16Planning, Budgeting, Acquisition, and Management of Capital Assets, OMB Circular 

A-11, Part 7 (June 2002). 

17SEI is a government-funded research organization that is widely considered an authority 

on software implementations. 

18NASA assumed a 10-year life cycle beginning in fiscal year 2001, but the actual retirement 

date for the system is unknown, according to the Deputy Program Director. 

Disciplined Processes 

Required by NASA Were 

Not Used in Preparing 

IFMP’s Cost Estimates 
Page 11 GAO-04-118 Business Modernization 

prepare the cost estimates. However, there is not one overriding contract 

where each module is considered a deliverable at a fixed price. Rather, 

numerous contracts at both the project and center level for a module’s 

implementation—many of which can be awarded for a level of effort at 

agreed-upon fixed rates at various phases in the implementation. Without 

a WBS estimate for the project as a whole, NASA cannot ensure that all 

relevant contractor costs are included in the cost estimate. In addition, 

using contract task orders to prepare the cost estimate would not ensure 

that government in-house costs are included in the life-cycle cost estimate. 

Finally, for modules in the planning phase, the program utilized NASA’s 

subject matter experts and professional cost estimators to prepare 

business case analyses. However, although these analyses contained WBS 

cost estimates, the audit trail from the WBS estimate to the program’s lifecycle cost estimate was not always clear. Without a clear audit trail, it is 

difficult to determine whether the differences between the detailed 

WBS estimates and the official program cost estimate are appropriate. 

The lack of a clear audit trail has been a weakness since the inception of 

the program. For example, IFMP was unable to provide us with traceable 

support for its baseline cost estimate for direct program costs. 

NASA has made some improvements that should help the program prepare 

better cost estimates. In May 2002 the NASA Administrator appointed an 

executive to provide leadership and accountability in the direction and 

operation of the system. The NASA headquarters program office also 

hired a business manager to oversee and provide consistency for the 

cost-estimating process and provide an analyst to review enterprise 

support costs. 

Although NASA guidance requires sufficient program schedule margins 

to manage risks, efforts to complete the integrated system as quickly as 

possible might have resulted in a schedule that is too compressed to 

accommodate program challenges, such as personnel shortages and 

uncertainties about software’s availability. If the program schedule margin 

is too compressed, the program could incur additional risks, including 

added cost growth as well as failure to meet IFMP’s schedule objectives. 

OMB’s e-Government initiatives—which aim to streamline agency 

business processes and eliminate redundant systems governmentwide—

could also provide challenges for NASA’s IFMP planning. As a result, the 

program schedule may be optimistic. 

Program Schedule 

May Be Optimistic 
Page 12 GAO-04-118 Business Modernization 

While implementing the Core Financial module (see table 1), IFMP has 

faced human resource challenges, and the program continues to face these 

challenges with other modules. For example, personnel shortages at 

Marshall Space Flight Center for several months affected the Core 

Financial project and other projects. In this case, a schedule slip was 

avoided, but during fiscal year 2002, the shortages resulted in nearly 

$400,000 for extra hours worked by center employees. Human resource 

challenges are also affecting the Budget Formulation module. The 

simultaneous implementation of this module with the Core Financial 

module—an action advised against by a contractor conducting a 

lessons-learned study—placed heavy demand on already scarce resources 

and added complexity to the program. As a result the schedule for 

implementing the Budget Formulation module has already slipped. 

Sometimes, relying more on contractor personnel can alleviate 

shortfalls in civil service personnel, but a recent Budget Formulation 

project status report indicated that the implementation contractor might 

also have difficulties acquiring and/or retaining qualified personnel. The 

implementation schedules for the remaining modules overlap, putting the 

program at further risk of schedule slippages. 

Uncertainty regarding software availability also puts the program at risk 

for completing the integrated system on schedule. For example, complete 

software solutions and requirements for IFMP’s Contract Administration 

module have not yet been determined. Although contract-documentgeneration software is available and tailored to meet the unique interface 

and reporting requirements of the federal government,19 the “best of suite” 

software solution—SAP—does not currently meet these requirements. 

NASA faces the same challenge with IFMP’s Human Resources 

Management module. NASA’s monthly status reports show that the 

program is working with SAP to develop a software solution for the 

Human Resources Management module that will meet federal government 

requirements, but the outcome is uncertain. In addition, the program could 

adopt an e-Government solution for its Human Resources Management 

module rather than the SAP solution. 

 19For example, according to the current business case analysis, NASA’s documentgeneration system would have to meet several federal requirements, including providing 

the General Services Administration’s Federal Procurement Data System and the National 

Science Foundation’s Federal Assistance Awards Data System with data, along with 

reports to the Department of Labor and the Small Business Administration. 
Page 13 GAO-04-118 Business Modernization 

Inserting e-Government solutions into IFMP planning—which calls 

for using “best of suite” software—could create more difficult interface 

development and a less-integrated system, thus interrupting the program’s 

cost and schedule. E-Government initiatives are already affecting 

NASA’s planning for the payroll, procurement, and travel modules in 

the integrated system. For example, the payroll function, which was 

once part of the Human Resources Management module, will likely 

become a separate module under e-Government. Similarly, the Contract 

Administration module has been split into two components: one for 

procurement document generation, for which software is available 

although requirements are not finalized, and one for the remainder of 

NASA’s Contract Administration requirements, for which requirements 

and software are currently unknown. Furthermore, e-Travel could replace 

the Travel Management module, which has already been implemented. 

According to the program’s fiscal year 2002 Independent Annual Review, 

e-Government initiatives are forcing the program into a reactionary mode, 

thus increasing risk to the program’s success. The review specifically 

noted that (1) the benefits of a fully integrated system could be lost under 

e-Government, (2) the scope of IFMP and timing of future projects’ 

implementation have become uncertain, and (3) cost increases and 

schedule slippage to accommodate directives may occur. 

In addition to the uncertain reliability of IFMP’s life-cycle cost estimates 

and optimistic schedules, NASA cannot ensure that the funding set aside 

for program contingencies is sufficient because the program did not 

consistently perform in-depth analyses of the potential cost impact of risks 

and unknowns specific to IFMP, as required by NASA guidance. Moreover, 

the program did not quantify the cost impact of identified risks, link its 

risks to funding reserves, or consistently set aside cost contingencies for 

these risks. 

NASA guidance stipulates that programs incorporate financial reserves, 

schedule margins, and technical performance margins to provide the 

flexibility needed to manage risks. According to the guidance, financial 

reserves are to be established and maintained commensurate with 

programmatic, technical, cost, and schedule risks. In other words, cost 

contingencies should be tailored to the specific risks associated with a 

Processes Insufficient 

to Ensure Adequate 

Funding Set Aside 

for Contingencies 

In-Depth Analysis Not 

Performed in Establishing 

Cost Contingencies 
Page 14 GAO-04-118 Business Modernization 

particular program or project. In addition, NASA guidance suggests that 

tools such as Probabilistic Risk Assessment20 can help in analyzing risk. 

Although NASA’s business case analyses include a risk assessment and 

recommended reserve levels, we found no evidence that these 

recommended levels were used in establishing the actual reserve levels for 

the IFMP module projects. Regardless, the actual levels established did not 

match the recommended levels in the business case analyses in most 

cases. We found that reserves for some IFMP modules—both in the 

planning and active phase—were based not on IFMP-specific risks but on 

reserve levels for other high-risk NASA programs. For example, for a 

number of IFMP modules, reserves were set at levels used for spacecraft 

implementations—typically about 30 percent—because industry 

experience showed that large cost overruns in system implementations 

such as IFMP are common. Yet it is unclear whether this reserve margin 

is adequate for IFMP because the effect of IFMP-specific risks and 

assumptions—such as uncertainties relating to software, schedule, and 

OMB’s e-Government initiatives—were not analyzed. In addition, some 

of the enterprises supporting the module projects described their method 

of establishing funding reserves as a combination of rules of thumb 

and guesswork. 

The Budget Formulation module has already experienced shortfalls in 

its reserves, and project officials expressed concerns that the module’s 

functionality may have to be reduced. As of April 2003, the module 

had expended its baseline reserves, which were established at about 

20 percent on the basis of the level of risk for space flight missions—not 

on the risks specific to the module. Although the project was able to bring 

its budget back into balance by obtaining an agreement with SAP to limit 

overtime pay to time in excess of 50 hours per week, its remaining 

reserves total only $83,000 to cover all contingencies—including those that 

could require changes to the Budget Formulation module. 

 20Probabilistic risk assessment is a method of systematically examining complex 

technical systems to measure both the likelihood that an undesired event will occur 

and the consequences that will result. 
Page 15 GAO-04-118 Business Modernization 

NASA requires programs to quantify the cost impact of high-criticality 

risks21 and to determine to what extent reserves may be exhausted, 

should the risks become reality. According to SEI, estimating the potential 

cost and schedule impact for all identified risks is an element of good 

estimating practice. Quantifying the cost impact of identified risks and 

clearly and consistently linking the risk database to funding reserves helps 

programs develop realistic budget estimates. 

While IFMP identifies program risks, analyzes their severity, and plans 

mitigation actions, the program typically does not prepare a cost impact 

analysis for identified risks nor does it consistently link identified risks to 

funding reserves to ensure that funds are available, should the risk occur. 

For example, in February 2003, the Travel Management Project found that 

some components of the Travel Management module might not satisfy 

individual centers, be funded, or be technically feasible. However, the 

cost impact of this risk, as well as others, was not quantified. Similarly, 

in June 2003, the Budget Formulation module did not quantify the 

cost impact of a number of identified risks.22 Without estimating the 

potential cost impact of these risks, NASA cannot determine whether 

it has sufficient reserves to cover the risks—which is particularly 

problematic for Budget Formulation, since virtually no reserves remain 

for this module. 

Furthermore, in its July 2003 monthly status report, the IFMP headquarters 

office identified three high-criticality risks that could have a cost impact 

on the overall program; however, no liens23 were set aside against reserves 

for these risks: 

• Reductions to out-year budgets could affect the implementation of future 

integrated modules or the ongoing evolution of existing modules. 

 21Risk criticality is a function of the likelihood that an event will occur and the severity 

of the consequences if the event does occur. The criticality of each risk will be identified 

as low, medium, or high. Risks with high criticality are also known as primary risks and 

typically have a high likelihood of occurrence and a high magnitude of impact. 

22A mitigation plan for the Budget Formulation module indicated that the project was in the 

process of assessing the potential cost impact of four of its six high-criticality risks, which 

the project manager confirmed. 

23A lien is a potential cost to a project, direct or indirect, which may or may not come to 

fruition, for which a portion of funding reserves is set aside. 

Cost Impact of 

Identified Risks Not 

Quantified or Linked to 

Cost Contingencies 
Page 16 GAO-04-118 Business Modernization 

• An e-Government solution may be adopted for human resources 

management rather than the IFMP solution, resulting in more difficult 

interface development and a less-than-integrated solution. 

• E-Government initiatives and policy decisions could disrupt IFMP 

modules, resulting in delays or additional resource impacts. 

An independent cost estimate team identified and quantified the impact of 

two IFMP program risks, indicating that the cost and schedule impact of a 

risk on a program or project can be sizeable. First, the team identified a 

high-probability risk that NASA’s “full cost requirement”—in which all 

direct and indirect agency costs, including civil service personnel costs, 

are tied to individual programs and projects—could affect the Budget 

Formulation module.24 The team estimated this risk at $2 million to 

$3 million, with a potential schedule slip of 3 to 6 months. The Budget 

Formulation Project is currently trying to determine what impact it may 

have. The second risk identified by the independent cost review team—

that the Core Financial module may be transitioned to operations 

before all integration points are addressed—could be more costly. 

The team estimated this risk at $10.5 million to $20 million, also with a 

potential 3- to 6-month schedule slip. However, the team considered this 

risk as having a low probability of occurrence. 

NASA is at a critical juncture and faces major challenges in improving 

contract management and controlling costs. These challenges seriously 

affect the agency’s ability to effectively manage its largest and most 

costly programs. A modern integrated financial management system, as 

envisioned in IFMP, is critical to ensuring that NASA has accurate and 

reliable information to successfully meet these challenges. NASA has 

made some improvements during the past year, such as hiring personnel 

to provide the cost-estimating process with oversight and consistency. 

However, if IFMP continues to ignore disciplined processes in estimating 

program costs and impacts, it is unlikely that the program will meet 

its goals. 

To ensure that IFMP’s life-cycle cost estimate conforms to NASA guidance 

and best practices, we recommend that the NASA Administrator direct 

IFMP to do the following: 

 24NASA was to implement its full cost initiative October 1, 2003. 

Conclusion 

Recommendations for 

Executive Action 
Page 17 GAO-04-118 Business Modernization 

• Prepare cost estimates by the current Work Breakdown Structure for the 

remaining modules. 

• Provide a clear audit trail between detailed WBS estimates and the 

program’s cost estimate for the remaining modules. 

• Prepare a full life-cycle cost estimate for the entire IFMP that meets 

NASA’s life-cycle cost and full cost guidance. 

To ensure that contingencies are funded in accordance with NASA 

guidance and best practices, we recommend that the NASA Administrator 

direct IFMP to do the following: 

• Utilize a systematic, logical, and comprehensive tool, such as Probabilistic 

Risk Assessment, in establishing the level of financial reserves for the 

remaining module projects and tailor the analysis to risks specific to IFMP. 

• Quantify the cost impact of at least all risks with a high likelihood of 

occurrence and a high magnitude of impact to facilitate the continuing 

analysis necessary to maintain adequate reserve levels. 

• Establish a clear link between the program’s risk database and financial 

reserves. 

Although NASA concurred with our recommendations for corrective 

action, NASA indicated that its current processes are adequate for (1) 

preparing WBS cost estimates, (2) estimating life-cycle costs, and (3) 

establishing reserves on the basis of IFMP-specific risks. The agency cited 

its business case analyses as the methodology through which it is 

accomplishing these tasks. 

We disagree that NASA’s current processes are adequate, and our 

recommendations are aimed at improving these processes. As discussed in 

this report, while NASA prepares WBS cost estimates for IFMP modules in 

the planning phases by using business case analyses, it does not prepare 

WBS cost estimates for active modules. And although IFMP indicates that 

preparing cost estimates by using contract task orders is an appropriate 

methodology, this approach will not ensure that all relevant costs, 

including both contractor and government in-house costs, are included in 

the life-cycle cost estimate. Regarding contract costs, there is not one 

overriding contract where each module is considered a deliverable at a 

fixed price. Rather, there are numerous contracts at both the project and 

center level for implementing modules—many of which can be awarded 

for a level of effort at agreed-upon fixed rates at various phases in the 

implementation. Without a WBS estimate for the project as a whole, NASA 

cannot ensure that all relevant contractor costs are included in the cost 

Agency Comments 

and Our Evaluation 
Page 18 GAO-04-118 Business Modernization 

estimate. In addition, using contract task orders to prepare the cost 

estimate would not ensure that government in-house costs are included in 

the life-cycle cost estimate. 

According to NASA, IFMP will improve its business case analyses by 

providing better estimates of operational costs through the expected life of 

the module, retirement costs, and other full life-cycle costs. However, as 

discussed in this report, an audit trail is needed between the detailed 

estimates contained in the business case analyses and the program’s lifecycle cost estimate to ensure that these improvements are reflected in the 

program’s official cost estimate. 

Finally, as discussed in this report, although NASA’s business case 

analyses include recommended reserve levels, we found no evidence that 

these recommended levels were used in establishing the actual reserve 

levels for the IFMP module projects. Regardless, the actual levels 

established did not match the recommended levels in most cases. We 

found that the program established funding reserves on the basis of 

reserve levels set by other high-risk NASA programs, rather than on IFMPspecific risks as required by NASA guidance. 

To assess the reliability of NASA’s methodology for preparing the 

current cost estimate for IFMP, we reviewed program and project-level 

documentation to obtain an understanding of NASA’s current cost 

estimate and its major components and the methodology used to develop 

the estimate. We also interviewed program and project officials to clarify 

our understanding of the cost estimate and how NASA derived it. In 

addition, we compared the program’s cost-estimating methodology with 

SEI best practices, OMB requirements, and NASA’s own procedures and 

guidance. Finally, we reviewed internal and independent analyses of the 

cost estimate. We did not attempt to validate NASA’s estimate; rather, we 

reviewed NASA’s processes for preparing its estimate. 

To determine whether NASA’s current schedule is reasonable in terms 

of progress to date and available resources, we reviewed the program’s 

schedule objectives and NASA’s policies for managing program and 

project schedules. We monitored the schedule and risks to the schedule 

through our review of the program’s monthly status reports and internal 

NASA briefings. We interviewed program and project officials to ascertain 

NASA’s progress against the schedule. 

Scope and 

Methodology 
Page 19 GAO-04-118 Business Modernization 

To evaluate NASA’s processes for ensuring the adequacy of cost 

contingencies to mitigate the potential impact of identified program risks 

and unknowns, we reviewed governmentwide and NASA policies and 

SEI best practices for managing risk and establishing cost contingencies. 

We also interviewed program officials at NASA headquarters and project 

managers to obtain an understanding of how reserve levels were 

established and maintained for the program. We then compared IFMP’s 

processes for ensuring adequate cost contingencies with processes 

dictated by OMB and NASA guidance and by best practices. 

To accomplish our work, we visited NASA headquarters, Washington, 

D.C.; Marshall Space Flight Center, Alabama; and Goddard Space 

Flight Center, Maryland. We also contacted officials at Glenn Research 

Center, Ohio. 

We performed our review from April through September 2003 in 

accordance with generally accepted government auditing standards. 

As agreed with your offices, unless you announce its contents earlier, 

we will not distribute this report further until 30 days from its date. At 

that time, we will send copies to interested congressional committees; 

the NASA Administrator; and the Director, Office of Management and 

Budget. We will make copies available to others upon request. In addition, 

the report will be available at no charge on the GAO Web site 

at http://www.gao.gov. 

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-4841 or lia@gao.gov. Key contributors to this 

report are acknowledged in appendix I. 

Allen Li 

Director 

Acquisition and Sourcing Management 
Appendix I: Comments from the National Aeronautics and Space Administration 

Page 20 GAO-04-118 Business Modernization 

Appendix I: Comments from the National 

Aeronautics and Space Administration 
Appendix I: Comments from the National Aeronautics and Space Administration 

Page 21 GAO-04-118 Business Modernization 
Appendix I: Comments from the National Aeronautics and Space Administration 

Page 22 GAO-04-118 Business Modernization 
Appendix II: GAO Contact and Staff Acknowledgments 

Page 23 GAO-04-118 Business Modernization 

Allen Li (202) 512-3600 

Staff making key contributions to this report were Jerry Herley, Erin 

Schoening, LaTonya Miller, and Karen Sloan. 

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Acknowledgments 

(120244) 
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