EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON, D.C. 20503

THE DIRECTOR

June 28, 2010 

M-10-26 

MEMORANDUM FOR HEADS OF EXECUTIVE DEPARTMENTS AND AGENCIES

FROM: Peter R. Orszag

 Director

 

SUBJECT: Immediate Review of Financial Systems IT Projects

Federal Information Technology (IT) projects too often cost more than they should, take longer 

than necessary to deploy, and deliver solutions that do not meet our business needs. Although 

these problems exist across our IT portfolio, financial systems modernization projects in 

particular have consistently underperformed in terms of cost, schedule, and performance. 

To address these problems, the White House Chief of Staff and I today signed a Memorandum 

launching an IT project management reform effort. As part of this effort, OMB is concurrently 

issuing this guidance that requires all CFO Act agencies to immediately halt the issuance of new 

task orders or new procurements for all financial system projects1

• Sets forth guiding principles for the acquisition and project management of new 

financial systems; 

 pending review and approval 

from OMB. This guidance also: 

• Specifies the procedures for an immediate review and evaluation of current financial 

system modernization projects; and 

• Clarifies and updates OMB policies on financial management shared services, 

financial system standards, and financial software testing and certification. 

Overview

Financial system modernizations projects in the Federal government have become too large and 

complex. By setting the scope of projects to achieve broad-based business transformations rather 

than focusing on essential business needs, Federal agencies are experiencing substantial cost 

overruns and lengthy delays in planned deployments. Compounding this problem, projects 

persistently fall short of planned functionality and efficiencies once deployed. 

There are two basic factors causing these results. First, the large-scale modernization efforts 

undertaken by Federal agencies are leading to complex project management requirements that 

 

1

 The focus of this effort is on core financial systems as defined in OMB Circular A-127. However, when an 

agency deploys a financial system modernization project in conjunction with other business systems, those non-core 

financial systems will also fall under the purview of this Memorandum and the review process described herein.
are difficult to manage. Second, by the time the resulting lengthy projects are finished, they are 

technologically obsolete and/or no longer meet agency needs. 

In response to these problems, this guidance initiates a re-examination of these expensive and 

lengthy investments in financial modernization solutions in favor of shorter-term, lower-cost, 

and easier-to-manage solutions. By dividing projects into smaller segments that deliver the most 

critical functionality more quickly, Federal agencies will achieve greater functionality sooner, 

better align projects to their organizations capacity to manage change, and reduce risk and cost. 

This guidance also delineates related policy changes that will reduce project complexity by 

encouraging shared services where cost effective, initiating a performance-based approach for 

compliance with financial system requirements, and streamlining the process for certifying 

financial management software. 

Guiding Principles

When seeking to deploy a financial modernization project, agencies should follow certain 

principles and adopt best practices that have been proven to reduce project risk and increase 

success rates. OMB reviews of financial projects will be based on these principles and practices. 

They include:

• Split projects into smaller, simpler segments with clear deliverables. Project segments 

should generally take no longer than 90 -120 days to achieve specific project milestones. 

Although all specific milestones may not deliver functionality, all such milestones must 

support the delivery of well defined functionality. The overall length of a development2

• Focus on most critical business needs first. Historic practice in Federal IT system projects 

has been to attempt to address a wide range of needs at once through expansive process 

reengineering projects. The complexity involved in this approach has added substantially to 

costs, significantly increased risks and delayed implementation of all functionality, including 

the most critical needs. One of the benefits of the segmented approach outlined above is that 

it allows prioritization of needs and functionality. The most critical functionality can be 

delivered first while functions of lesser importance can be considered for subsequent 

delivery. Among other benefits, this process has been proven to cause a healthy reevaluation 

or reconsideration of secondary functions after critical functions are in place and being used. 

Therefore, revised projects plans should prioritize the most critical financial functions. 

project should not exceed 24 months. Historically, Federal government IT projects have 

involved expansive, long-term projects that attempt to change almost every aspect of a 

business system at once. These projects have taken years, sometimes a decade, and have 

failed at alarming rates. The best practice in IT project design now focuses on the 

development of an overall, high-level system architecture with specific development projects 

working on tight timetables with clear deliverables that provide interim functionality. This 

approach simplifies planning, development, project management and oversight, and training. 

It reduces risk and allows changes in technology to be incorporated into later phases at lower

costs. 

 

2 This includes the planning and development, as well as the implementation phases of the project. The focus is on 

modernization projects and software upgrades, not on-going operations and maintenance costs.
• Ongoing, transparent project oversight. One of the major causes of IT system failure is 

insufficient oversight by senior management. Often in the Federal government, senior 

agency managers do not adequately monitor projects on an ongoing basis once they are 

underway. Proven best practices in this area include identifying up-front a series of 

milestones, warning flags, and stop points over the course of the segment lifecycle which, if 

deemed necessary, can cause the project to be suspended and returned to planning. 

Additionally, clear deliverables should be monitored closely and any delays in deliverables 

should automatically result in a more in-depth review of a project. Finally, mechanisms for 

review of project status by senior management should be built into a project plan. Revised 

agency projects plans should integrate these best practices into their oversight processes.

OMB Review Process

1. Projects Subject to Review. Effective immediately, for all CFO Act agencies3, all financial 

system modernization projects with $20 million or more in planned spending on development 

or modernization expenses shall be halted pending an agency re-evaluation and a subsequent 

review by OMB4

Agencies that have previously completed modernization projects must refrain from moving 

into additional rounds of planning and development until OMB has approved a revised 

implementation plan for those projects consistent with this guidance. Lastly, OMB may 

review systems that have completed implementation when a failure occurs (e.g., the system 

fails in performing basic functions). 

 as noted below. In addition, as a part of this review, projects identified as 

high-risk by OMB should require more frequent assessment to include review of task orders 

or activities. Review of projects nearing completion may be abbreviated and will include 

consideration of the costs and benefits of implementing the policy within the project.

2. Financial Systems Advisory Board. As of this date, OMB is establishing the Financial 

Systems Advisory Board (Board) under the Chief Financial Officer (CFO) Council. The 

Board will include CFOs and CIOs from major agencies and have available experts from 

various communities, including acquisition and e-government. Its function will be to make 

recommendations to OMB, as requested, on projects being reviewed under this 

memorandum. Agencies with longstanding expertise in IT project management may also be 

asked to participate more extensively and directly with OMB in the overall review process.

3. Agency Project Plans. Within 60 days of this order, agencies will provide revised project 

plans for all projects covered herein to OMB for review. Such plans, as described in 

Attachment A, shall clearly outline the project’s strategy for reducing costs, shortening the 

project timeline, and reducing risks. Criteria for review will be the Guiding Principles 

described earlier in this Memorandum. 

 

3

 For purposes of this memorandum, the Intelligence Community agencies are included. 4

 OMB review is a coordinated review led by the Office of Federal Financial Management that also includes staff 

from OMB’s Resource Management Offices and the E-gov Office.
4. Project Review. OMB will review revised project plans within 60 days of submission. This 

review may include presentation of plans to the Board for its evaluation and 

recommendations, but OMB will make the final decision regarding approval of a revised 

project plan. Many agencies have already begun working on revised project plans. 

Attachment B includes an initial schedule of review dates for these projects.

5. Funds Execution and Link to Project Reviews. Beginning in the first quarter of FY 2011, to 

align with this guidance, financial system investments subject to this guidance will be 

apportioned consistent with a segmented approach. Where the apportionment process is 

employed, funding shall be controlled under Category B on a quarterly basis. As such, 

contracts shall reflect the overall implementation phase of 18 to 24 months, with task orders 

written to reflect 90 to 120-day deliverables. Task orders shall be funded consistent with the 

apportionment – after OMB review throughout the development, modernization, and 

execution phases. For projects that OMB has not designated as high-risk or that have a 

proven track record of achieving specific milestones within well-defined segments, OMB 

may employ flexibility regarding funds control. 

Throughout the fiscal year, OMB shall assess whether or not an investment should receive 

funding for the next segment. If approved, OMB will apportion funding for the next segment 

under Category B. If approval is not granted, OMB will work with the affected agency to 

redirect funding pursuant to existing Congressional reprogramming requirements. An 

agency’s failure to complete a segment as planned may be a basis for canceling the 

remaining investment. Additionally, inconsistent, incomplete, or inaccurate data or 

documentation may be justification for redirecting funding. 

6. Future Reviews. Subsequent to initial project reviews and approval of revised plans, 

OMB will review project status, and as necessary will re-engage the Board, on a quarterly 

basis through FY 2012. These reviews will be used, among other things, to inform the 

appropriations process for FY 2011 and OMB’s review of budget proposals for FY 2012. 

Funding for projects subject to the apportionment process under this guidance will continue 

to be apportioned on a quarterly basis through Category B allocations. Projects must

continue to meet 90 to 120-day milestones in order for OMB to release project funding for 

additional segments. For projects that have a proven track record of achieving specific 

milestones within well-defined segments, OMB may employ flexibility regarding funds 

control. 

• Shared Services. OMB supports shared service arrangements when cost effective, but will 

no longer mandate them in all cases for financial management systems.

Shared Services, Financial System Standards, and Financial Software Testing and

Certification

5

 

5 OMB’s previous policy on financial management shared services was captured under the Financial Management 

Line of Business (FMLOB) initiative. Under FMLOB, Federal agencies were required to either serve as a shared 

service provider or leverage a shared service provider when modernizing a financial system. 

 Past attempts to 

mandate use of financial management shared services yielded inconsistent results, as medium 
and large agencies encountered the same types of costs and risks with a shared service 

provider as they did when modernizing “in house.” These risks, along with early reluctance 

by Federal agencies to fully leverage the shared service model, led agencies to pursue shared 

service arrangements for low impact areas in terms of operational efficiency, such as 

common hosting, and to defer higher impact areas, such as common transaction processing. 

OMB expects the requirements to re-scope agency modernization projects contained in this 

guidance will enable greater adoption of shared service arrangements with lower risk and 

greater cost impacts. Further, financial management shared service efforts will now focus on 

the higher impact area of transaction processing. OMB, Department of the Treasury, and the 

CFO Council will identify the development of common automated solutions for transaction 

processing. The Office of Financial Innovation and Transformation, which has been recently 

established within Treasury’s Fiscal Service, will pilot these solutions. The first priorities 

will be to develop initial operating capabilities for vendor invoicing and intergovernmental 

transactions. Existing shared service relationships will remain unchanged, but agencies that 

are being cross-serviced can re-evaluate whether the current and future relationship remains 

cost-effective. 

• Financial System Standards. Current “Core Financial System” requirements6 remain in 

effect and Federal agencies have an ongoing responsibility to comply with them. OMB will 

soon issue a revision to OMB Circular A-127, Financial Management Systems, which will 

update existing requirements and include new guidance on how agencies and auditors will 

assess compliance with these requirements. Specifically, OMB will initiate a performancebased approach to assessing compliance that will assist in the overall objective to reduce the 

cost, risk, and complexity of financial system modernizations. The objective of this approach 

will be to provide additional flexibility for Federal agencies to initiate smaller scale financial 

modernizations as long as relevant financial management outcomes (e.g., clean audits, proper 

controls, timely reporting) are maintained.

• Software Certification. The Financial Systems Integration Office (FSIO)7

 previously 

required a formal test procedure of financial software as part of a certification program that 

confirmed the products contained the functionality required by issued system standard 

requirements. This process was established at a time when problems with software 

functionality posed a significant risk to system performance. Over time, this risk has 

diminished. 

In addition, the FSIO software certification process was lengthy and resource intensive, 

delaying the procurement process for software by 18 months and creating significant costs 

for the software vendor that were passed back to the taxpayer. This process was terminated 

by OMB in March 2010 because it did not align well with our objectives to deploy newer, 

 

6 See http://www.fsio.gov/fsio/fsiodata/docs_systemrequirements.shtml. 

7 The Financial System Integration Office (FSIO), previously referred to as the Joint Financial Managers 

Improvement Program (JFMIP) office, was an organization within the General Services Administration (GSA) 

whose mission included the development and implementation of a testing protocol applied to financial software to 

ensure such software met minimum functionality requirements. 
cost-effective technologies more timely. In addition, the certification program still resulted 

in products that did not have some required functionality, despite the testing.

Therefore, OMB is reforming the certification process by shifting the accountability for 

software performance to the vendor through self-certification. To the extent software 

functionality does not perform in accordance with vendor certification, the Federal agency 

will hold the vendor accountable in the same manner in which other contractual obligations 

are enforced, such as through the imposing of liquidated damages, requiring repair or 

replacement, or terminating the contract. If the contractor is found to have made any 

materially false or fraudulent statements or representations, it may be subject to penalties 

under the False Statement Act. This should make contractors clearly accountable for 

delivering what they promise. 

OMB will, as appropriate, revisit this policy on an annual basis to determine the potential 

need for refinement. Additional details related to this change to the testing process will be 

provided in an upcoming revision to OMB CircularA-127, scheduled to be issued this 

summer, as well as the OMB Audit Bulletin. 

We look forward to working with you as we implement the steps outlined in this guidance to 

achieve our mutual goals. If you have any questions regarding this memorandum, please contact 

Debra Bond, Deputy Controller of the Office of Federal Financial Management/OMB.

Attachments: 

A. Template for Submissions 

B. Initial Review Schedule
Attachment A

1 

Financial System Template

Instructions

The components to include in the systems review package for each of the Department’s financial management 

IT systems follows. If you have questions regarding the template, please submit them to the Financial 

Management Community page in MAX [

 Please provide a systems review package, which should not exceed 20 pages, and a current project 

plan to the Office of Management and Budget (OMB) and the Financial Systems Advisory Board (FSAB) one 

calendar week prior to the scheduled system review outlined in Attachment B. The systems review package and 

the project plan will be discussed during the 50 minute review session, of which 15 minutes will be provided to 

the agency or component being reviewed and the remaining 35 minutes will be for questions from the FSAB. 

https://max.omb.gov/community/x/KIJlHg]. Agencies are 

encouraged to leverage the Exhibit 300 required by OMB Circular A-11 as applicable. Future Exhibit 

300 submissions should be consistent with the information presented in this systems review package.

Project Name: Provide the name of the project and system being modernized. If the name has changed or there 

are multiple component names, please list each.

Executive Summary

Agency: Provide the name of the agency implementing the project. If the project is being implemented in 

multiple bureaus or components, please list each. For shared service providers, please list the impacted 

Departments and bureaus/programs.

System Status: Fill out the below chart and self-assess each status item.

SYSTEM STATUS

Status Item Current Status* Prior Status* Summary

Overall Project Status Yellow Red Include a brief overall summary 

for the project

Cost Yellow Red Include a description of any 

variance in cost (costs to date 

against projects costs; also total 

estimated costs)

Schedule Red Green Include a description of any 

variance in Schedule for the 

lifecycle of the project

Performance (Scope) Yellow Red Include a description of any 

changes in Performance

Project Risk Green Yellow Include a description of any 

changes in the project risk(s)

Note: the Prior Status will be blank for the first review.
Attachment A

2 

Chart Key: Red = missed defined milestones during the 90-120 day segment (e.g., cost, schedule, scope) 

Yellow = risks identified that could place the project in jeopardy (e.g., cost, schedule, scope) . 

 Green = on track to meet deliverables; no project slippage

 Blue = task completed 

* Agencies are encouraged to use the formula based/ variance approach as defined within the OMB Office of 

E-gov’s IT Dashboard. [ http://itdashboard.gov/?q=content/faq-agencies].

Type of Project: Provide a description of what type of project is being reviewed (new initiative, major 

enhancement/upgrade, or ongoing initiative-e.g., steady state). In addition, please describe what lifecycle phase 

the project is currently in (pre-acquisition/planning, full acquisition/implementation, deployed/operations and 

maintenance, or mixed life cycle).

Section 1

Project Description: Provide a description of the project objectives, including what functionality is being 

obtained, interfaces required internally or by external stakeholders. In addition please provide number of users, 

number of locations and description of the locations (e.g. national, localized, international), and a description of 

the type of users and who is impacted by the system.

Business Needs/Solution: Provide a description of what critical business needs are being addressed and the need 

or problem driving the proposed project, including the timeframe the critical business needs must be addressed. 

Please include detailed contingency plans that outline budgetary and performance impact. Describe how the 

project is consistent with the agency’s mission and/or strategic plan. Also, please highlight “in-scope” and “outof-scope” changes/issues. In addition, please describe the alternatives that were evaluated when choosing the 

solution.

Benefits: Provide a description of the outcomes of the project that would resolve the business need or problem. 

Provide a description of direct benefits anticipated from the project. Specify the measurable improvement of the 

project and the implications of not doing the project. Please relate these descriptions to the overall mission of 

the Department.

Technology Solution: Provide a description of the technology solution being obtained and the flexibility of that 

solution (e.g. is it open or closed, does it leverage cloud technology, is it proprietary). 

Management Structure: Provide a description of the management structure of the project including, the name 

and contact information for the project manager and the number of staff working on the project. In addition, 

provide the grades, job series, and office locations of the staff. If staff only work less than 100 percent of their 

time on the project, please delineate full or partial FTE ratio. Lastly, include a list of the contractors working on 

the project with their classification and billable rate.

Section 2

Project Oversight: Provide a description of the project oversight including the date(s) of internal project 

review(s), highlights from the review(s) and a description of the body reviewing the project (e.g. Department 

Investment Review Board). In addition, provide the names and titles of the project sponsor(s), how often senior 

leaders are briefed on the project, and the level of senior leader involvement in the project.
Attachment A

3 

Communication Plan: Provide a description of the communication plan including the identification of all 

stakeholders, how the agency will communicate critical information on the project to the stakeholders, and how 

frequently the agency will communicate with each stakeholders. 

Training Plan. Provide a detailed description of the agency training plan for all users (e.g., financial 

management personnel, program personnel, field and headquarter personnel). 

Project Risk: Provide a description of the identified risks associated with acquiring and implementing this 

project and explain how the risks will be mitigated. Provide a description of risk associated with the project, 

such as legacy data cleanup, human resource constraints, and change management needs. Agencies should 

reflect the probability of occurrence as well as the magnitude of impact of these potential risks. In addition, 

provide planned risk mitigation steps that would be performed to limit identified project risk and alternatives 

considered (e.g. in-house development versus outsourcing). 

Section 3

Emerging Issues (applicable if in implementation or deployed phase): List any issues identified that were not 

anticipated during the planning phase, the impact to the project, and required actions.

Organizational Change Management: Provide a description of the training needs identified for stakeholders 

associated with this project and the plan for providing the training, including timelines.

Cost: Provide a cost estimate for the project, including all funding for the project regardless of source and 

spanning all years of the project. Estimates should be separated by initial planning, acquisition (development), 

and annual (recurring) operation and maintenance costs (including FTE costs). Provide original estimated cost 

of the project, revised estimated cost of the project, and a brief description of any increased or decreased cost 

projections from the original estimate. In addition, include the amount of actual cost incurred.

Section 4

Initial Budget Current Budget Variance to Initial Budget Available Funding to 

Date

Actual Costs to 

Date

Schedule: Summarize the strategy that will be used to implement the outcomes of the project, identify the key 

pieces of development, and the high-level milestones and dates. Provide an overview of the overall timeline of 

the project with deliverables identified in 90-120 day segments. Provide the following high-level information 

on the project timeline.

Initial Schedule (in 

Months) 

Current Schedule (in 

Months) 

Variance to Initial 

Schedule 

Actual Schedule to date (in 

Months) 
Attachment A

4 

Performance: Provide a description of any major scope changes that has occurred, including the impact the 

change had on the schedule and budget. Provide the following high-level information on the projects 

deliverables. Provide a narrative describing the change control process and the number and costs associated 

with approved changes. 

Number of Initial 

Deliverables

Number of Current 

Deliverables

Number of 

Scope Changes 

Actual Deliverables 

provided to date

Narrative on Change 

Control Process 

Segments: For each segment of the project (e.g., 90-120 day timeframes) being presented for review, identify 

the estimated cost, timeframe and deliverable(s). For each deliverable being presented, describe the criteria that 

must be met in order for the deliverable to be considered acceptable. 

Estimated Cost Timeframe (90-120 days) Deliverable

Segment 1

Segment 2

Segment 3
Attachment B 

1 

Financial System Review Schedule

Please see the below draft review schedule of agency financial systems to the Financial Systems 

Advisory Board. The schedule is also posted on the Financial Management Community page in MAX

and agencies may post conflicts or requests for changes through that site at

https://max.omb.gov/community/x/KIJlHg. Please note that the system review package is due to the 

Board a calendar week prior to the review session. 

1st Review: July 9, 2010 Departments of Homeland Security, Energy, and Veterans Affairs

2nd Review: July 16, 2010 Departments of Interior, Commerce, and Housing and Urban 

Development 

3rd Review: July 23, 2010 Departments of Justice and Health and Human Services*, and the 

Environmental Protection Agency 

4th Review: July 30, 2010 Department of the Treasury*

5th Review: August 6, 2010 Department of Transportation, General Services Administration, and the 

Office of Personnel Management

6th Review: August 13, 2010 U.S. Department of Agriculture, National Science Foundation, Small 

Business Administration, and the Nuclear Regulatory Commission 

7th Review: August 20, 2010 Departments of Education and Labor, and the Social Security 

Administration

8th Review: August 27, 2010 Department of State, US AID, and NASA 

* Note this includes departmental and component financial systems.