## FEDERAL AVIATION ADM INISTRAT I ON



# Costing Methodology Report

Fiscal Year 2013

Prepared by Office of Financial Operationsii 

# T ABLE OF 

# C ONTENTS

Executive Summary

................................ ................................ ................................ ................................ ............................... iii Purpose and Scope of Report

................................ ................................ ................................ ................................ ........ iii CAS Methodology Used

................................ ................................ ................................ ................................ .................... iii 1 Introduction

................................ ................................ ................................ ................................ ................................ ..... 5
1.1 CAS Design Objectives

................................ ................................ ................................ ................................ ........ 5
1.2 CAS Design

................................ ................................ ................................ ................................ .............................. 6 1.3 Costing Te rminology

................................ ................................ ................................ ................................ ........... 7 1.4 Methods for Assigning Costs

................................ ................................ ................................ ........................... 8
2 Air Traffic Organization

................................ ................................ ................................ ................................ ............. 10
2.1 ATO Cost Targets/Services

................................ ................................ ................................ ............................ 10
2.2 ATO Cost Model

................................ ................................ ................................ ................................ ................... 11 2.3 ATO Cost Assignments

................................ ................................ ................................ ................................ ..... 14
2.4 ATO Multiple Service Assignments

................................ ................................ ................................ ............. 26 3 Aviation Safety

................................ ................................ ................................ ................................ .............................. 28 3.1 AVS Cost Targets/Services

................................ ................................ ................................ ............................. 28 3.2 AVS Cost Model

................................ ................................ ................................ ................................ ................... 28 3.3 AVS Cost Assignments

................................ ................................ ................................ ................................ ...... 29
4 Ai rports

................................ ................................ ................................ ................................ ................................ ............ 34
4.1 ARP Cost Targets/Services

................................ ................................ ................................ ............................. 34 4.2 ARP Cost Model

................................ ................................ ................................ ................................ ................... 34 4.3 ARP Cost Assignments

................................ ................................ ................................ ................................ ..... 35 5 FA A Corporate Overhead Assignments

................................ ................................ ................................ .............. 38 5.1 FAA Headquarters Overhead

................................ ................................ ................................ ......................... 38 5.2 FAA Regional Overhead

................................ ................................ ................................ ................................ ... 39 6 Statement of Net Cost

................................ ................................ ................................ ................................ ................. 40 6.1 Major Program Assignments

................................ ................................ ................................ ......................... 40 6.2 Strategic Goal Assignments

................................ ................................ ................................ ............................ 40 Appendix A: Acronym List

................................ ................................ ................................ ................................ ................ 41 Appendix B: CAS Report Templates

................................ ................................ ................................ .............................. 43 ATO Cost of Service Report

................................ ................................ ................................ ................................ ........... 43 AVS Services Summary Report

................................ ................................ ................................ ................................ .... 44 ARP Cost Type Report

................................ ................................ ................................ ................................ ..................... 44iii



# E XECUTIVE 

# S UMMARY

P URPOSE AND 

## S COPE OF 

## R EPORT This report is intended for internal managerial accounting personnel and external users for the purpose of understanding (1) how the Federal Aviation Administration’s (FAA) Cost Accounting System (CAS) captures costs, and (2) how costs are assigned to the services provided by the Air Traffic Organization (ATO), Aviation Safety (AVS), and Airports (ARP). This document describes the configuration for data processing for Fiscal Year 2013.



## CAS M ETHODOLOGY 

## U SED Before discussing the methodology used to identify the cost of projects and services, one must understand the role a cost accounting system plays in a large organization like the FAA. A managerial cost accounting system is especially important for assessing operating performance from a financial perspect ive. A managerial cost accounting system should help its users:

• Determine the costs of specific services, projects, activities, etc. and the composition of, and changes in, those costs;

• Determine the efforts and accomplishments associated with projects an d delivery of services and their changes over time and in relation to costs; and

• Measure the efficiency and effectiveness of the organization’s management of services, projects, assets, etc.
Effective cost accounting and cost management is supported by und erlying processes and systems that generate data and information used to assign costs to projects and services, thus achieving the objectives described above. FAA collected and assigned costs to services using the following guiding principles:

• To the greatest extent possible, associate labor costs directly with specific services to reduce the amount of costs that need to be allocated among multiple services;

• Base overhead and general and administrative allocations on a non

- econometric, cost accounting approach using best available data;

• Place costs into logical groupings that reflect distinct services provided to groups of users;

• Comply with Federal Accounting Standards Advisory Board (FASAB) Standards, and with relevant elements of the Chief Financial Officers Act and Office of Management and Budget guidelines for cost accounting.
There are essentially three main areas within which the above guidelines can be applied to the overall costing methodology used for the FAA’s CAS:

1. Source Data

– Identifying th e source systems for the appropriate cost and statistical data to be incorporated into the CAS. 2. Cost Targets

– Identifying the cost objects or services to be costed. 3. Cost Assignments

– Determining how the costs, from the source systems, will be assigned to the identified services.



### S OURCE 

### D ATA The costing methodology uses actual costs incurred, derived from several source systems to determine the total cost of each project and service. Labor and non

- labor costs are provided byiv

FAA’s financial system. Other data, including statistical information used to facilitate allocations, is provided by numerous other operational systems.



### C OST 

### T ARGETS Each major FAA Line of Business (LOB) defined the products and services provided to its users. These services represen t cost targets, used to measure costs for managerial cost accounting
purposes.



### C OST 

### A SSIGNMENTS The cost assignments in this report are described based on how the costs are reported on the LOB’s managerial cost reports.
Costs are assigned to projects, whic h is the mechanism used to capture cost objects (e.g., a service). Costs are attributed to projects, which are then attributed to services. This attribution of costs is done using several methods, all recognized by the Federal Accounting Standards Adviso ry Board (FASAB).
In addition, adherence to the guidance previously described resulted in assignments based on rational application of business rules that allocate costs to all services that benefit without regard to its effect on users.
The costing method ology used in this report is not expected to remain static. Rather, it continues to evolve as better operational and financial information becomes available and as FAA management gains more experience with the cost and performance information provided by the CAS.Page 5 of 44



# 1 I NTRODUCTION This report is intended for internal managerial accounting personnel and external users for the purpose of understanding (1) how the Federal Aviation Administration’s (FAA) Cost Accounting System (CAS) captures costs, and (2) how costs are assigned to the services provided by the Air Traffic Organization (ATO), Aviation Safety (AVS), and Airports (ARP). This document describes the configuration for data processing for Fiscal Year 2013.

This section provides a basic overview of the design objectives of the cost accounting system and its components, and defines a common framework for discussing the costing methodology used by the Federal Aviation Administration (FAA).



## 1.1 CAS D ESIGN 

## O BJECTIVES The Federal Aviation Reauthorization Act of 1996, enacted in October 1 996, directed the FAA to develop a cost accounting system. The Act also called for the FAA to adopt “overflight” fees for aircraft flights that fly in U.S.

- controlled airspace, but neither take

- off from, nor land in, the United
S t ates.

To satisfy this statute, and to also develop a system capable of improving financial and operational performance, several general requirements were added, and collectively these remain as guiding principles for the cost accounting system design. They include:

• Use best av ailable data to provide a transparent, full cost of services provided to aviation

users;

• Measure and control the cost of resources consumed and output produced;

• Support management decisions and plans based on reliable cost information;

• Direct and control o perations, processes, and projects;

• Measure and benchmark the performance of organizations and management in financial
terms;

• To the greatest extent possible, associate labor costs directly with specific services to reduce the amount of costs that need to be allocated among multiple services;

• Place costs into homogeneous pools reflecting distinct services provided to groups of users; and

• Comply with Federal Accounting Standards Advisory Board (FASAB) Standards, and with relevant elements of the Chief Financ ial Officer’s Act and Office of Management and Budget guidelines for cost accounting.

In addition, CAS receives its data from various information systems which affects the design of the cost accounting system. These systems include the following:

 FAA Fina ncial Systems

- these sources include existing FAA systems and procedures that govern the collection, formatting, and processing of financial data that is interfaced into the CAS; andPage 6 of 44

 FAA Operational Systems

- these sources include existing operational sys tems and procedures that determine the collection, formatting, and processing of operational (statistical) data that is interfaced into the CAS.

FAA considered these policies and procedures during the detailed design phase of the CAS implementation. Consi deration of these policies ensures that the CAS design is sufficiently flexible to meet the information capability and reporting requirements defined by internal users and external entities for financial and cost accounting systems.



## 1.2 CAS D ESIGN The costing methodology uses actual costs incurred, derived from several source systems to determine the total cost of each project and service. Labor and non

- labor costs are provided by FAA’s financial system. Other data, including statistical information used to f acilitate allocations, is provided by numerous other operational systems.



### 1.2.1 F

INANCIAL 

### A CCOUNTING 

### S YSTEM DELPHI is the core accounting and financial reporting system of the Department of Transportation and each of its constituent agencies, including FAA. DEL PHI maintains general ledger balances, provides accounts payable and receivable, and other appropriation fund accounting capabilities.

FASAB No. 4 discusses cost accounting as it relates to financial (proprietary) accounting and budgetary accounting. DELP HI performs financial and budgetary accounting while CAS performs cost accounting. While FASAB recognizes a relationship between cost accounting and budgetary accounting, they do not state a requirement to include budgetary transactions in the cost

accoun ting system. Therefore, only those transactions from DELPHI relevant to cost accounting are included in the CAS (e.g., revenues, expenses, gains, and losses).



### 1.2.2 C OST 

### A CCOUNTING 

### S YSTEM 

### (CAS) There are essentially three major components of the CAS. These com ponents are described below and depicted in Figure 1

.

1. Current FAA Information Systems. These include the information systems that will provide financial and statisti cal data to the CAS. These systems contain different levels of detail that will be required to meet the reporting and internal control requirements of the CAS.
2. Front End Control System. The Front End Control System (FECS) performs accounting
maintenance and includes the procedures and software programs that control the loading of data from current FAA information systems into the CAS.
3. PeopleSoft Projects Application. PeopleSoft Projects (public sector version) is a commercial, off

- the

- shelf software app lication. This software product maintains the financial, statistical, and control data residing in the database, performs cost assignments, provides reporting capabilities, and provides application security.Page 7 of 44 Figure 1


## 1.3 C OSTING 

## T ER MINOLOGY There are several sources of guidance that provide common definitions of terms and concepts for use in determining the cost of government services as well as alternative acceptable methods for assigning costs within a cost management system like t he CAS.

The primary source is the Federal Accounting Standards Advisory Board (FASAB), which issues Statements of Federal Financial Accounting Standards (SFFAS) and concept statements. Each of these standards has varying relevance to the CAS. Most of the se standards have a substantial impact on the accounting procedures and systems, which provide data to the CAS. SFFAS Number 4 (typically referred to as FASAB No. 4) and its related amendments set forth broad standards for managerial cost accounting, whic h need to be incorporated in the design of cost accounting systems. FAA considered these standards and used them as the basis for the design of the cost accounting system.

The information contained in this report relies on consistent and uniform terminolo gy for concepts, practices, and techniques. The following terms, some of which are defined by FASAB, provide a common framework to achieve this goal:Page 8 of 44

Term & Definition Example

Direct Cost

– The cost of resources that can be specifically identified with an output. (FASAB No. 4)  Cost of an air traffic controller’s salary

Indirect Cost

– The cost of resources that are jointly or commonly used to produce two or more types of outputs but are not specifically identifiable with any of the outputs. (FASAB No. 4)  Cost of the FAA Administrator’s salary

 Cost of a human resources specialist’s salary

Project

– For the purposes of the CAS, a project is a collective set of distinct activities that, whe n performed, represent a discrete product or service, an ongoing process step, or engineering project. Whatever the representation, projects serve as the primary “cost objects” in the CAS. Projects are used to capture the cost of:

 Developing a new radar system

 Maintaining a navigational device

 Preparing the agency’s budget

Cost Assignment

– A process that identifies costs with activities, outputs, or other cost objects. In a broad sense, costs can be assigned to processes, activities, organizational divisions, products, and services. There are three methods of cost assignment: (a) direct ly tracing costs wherever economically feasible, (b) cause

- and

effect, and (c) allocating costs on a reasonable and consistent basis. (FASAB No. 4)  Spreading the cost of the FAA Administrator’s Office to all FAA services provided to users

 Spreading the cos t of a line of business executive management team to the services that line of business provides to users

 Associating an engineering project with a particular service

Cost Pool

– A collection of homogeneous costs that are to be assigned to cost objects.  All costs incurred by the FAA Administrator’s Office; includes the cost of salaries, supplies, or any other cost incurred by the Administrator. Basis

– A measure that is used to distribute a pool of costs to pre

- defined cost objects. This measure can be financial or statistical in nature.  The cost of flight inspection can be allocated to each facility based on the number of hours flown to inspect each facility.
Cost Object

– An activity output, or item whose cost is to be measured. In a broad sense, a cost object can be an organizational division, a function, task, product, service,
or a customer. (FASAB No. 4)  The engineering department’s overhead costs are assigned to engineering projects, which are the cost objects.

Figure 2


## 1.4 M ETHODS FOR 

## A SSIGNING 

## C OSTS As previously stated, FASAB provides guidance as to acceptable cost accounting practices, particularly cost assignments. FAA uses each of the three types of cost assignment methods described by FASAB. Each method is describe d below with examples of its application. Please note, the examples provided are used to understand the different types of cost assignments and may not apply to FAA.

 Direct Tracing . The assignment of costs to a chosen cost object.

- Example 1 : An emplo yee completes a time sheet indicating the hours worked on a particular project (cost object). The payroll system uses this information to calculate the cost of that project based on that employee’s paid salary. This information is then provided as an inp ut to the cost accounting system.Page 9 of 44

- Example 2 : An employee takes a business trip in support of a specific project. On the employee’s expense report he or she charges the cost of the trip to the specific project code assigned to the project.

 Cause and Eff

ect . A distribution of costs where the basis serves as an indicator as to changes in costs.

- Example 1 : Distributing building lease costs to operating organizations using square footage occupied as the basis.

- Example 2 : Distributing training costs to c ost objects using attendance as the basis.

 Allocation . The assignment of costs to multiple cost objects on a reasonable and consistent basis.

- Example 1 : Distributing the human resources department’s costs to the operating organizations using headcount as the basis.

- Example 2 : Distributing overhead costs to cost objects using labor cost as the basis.

The method of cost assignment is chosen based on cos t

- benefit and data source availability. The FAA selected assignments by considering the cost to implement a specific method relative to the expected benefits of alternative assignment methods.Page 10 of 4 4



# 2 A IR 

# T RAFFIC 

# O RGANIZATION The Air Traffic Organization (ATO) is an FAA line of business whose primary responsibility is to move air traffic safely and efficiently. ATO consists of controllers, technicians, engineers, and support personnel whose daily efforts keep the commercial and private aviation and the military aircraft moving through the National Airspace System (NAS).

There are two major functions within ATO that participate in the delivery of ATO services. These functions are described below:

 Air Traffic Control (ATC)

- This function involves managing the s afe and efficient flow of air traffic through U.S. controlled airspace. This is accomplished by a workforce of air traffic controllers, flight service specialists, and managers and staff working at air traffic control facilities located throughout the Uni ted States.

 Technical Operations (Tech Ops)

– This function ensures the safe and efficient flow of air traffic through U.S. controlled airspace by installing, maintaining, and flight inspecting facilities. This is accomplished by a workforce of system spe cialists, flight inspection crews, engineering and project management personnel, managers and staff.



## 2.1 ATO C OST 

## T ARGETS 

## /S ERVICES To organize the source data and provide effective cost information based on that data, a cost accounting system must have activi ty outputs, or cost objects, to measure the costs. The ATO line of business (LOB) defined four broad services, which represent cost objects for managerial cost accounting purposes. These services are defined as follows:

 Enroute

- Air traffic control serv ices provided to aircraft operating primarily on instrument flight rules flight plans in controlled airspace between their departure and destination terminal areas. Enroute services are provided at service delivery points (SDPs), referred to
as Air Route Traffic Control Centers (ARTCCs), and Combined Enroute Radar Approach Control (CERAP) facilities.

 Oceanic

- Air traffic control services provided to aircraft operating within international airspace where oceanic separation minima and procedures per Interna tional Civil Aviation Organization (ICAO) standards are applied. Oceanic services are provided at SDPs, referred to as ARTCCs and CERAP facilities.

 Terminal

- Air traffic control services provided to aircraft arriving and departing airport facilities unde r Instrument Flight Rules or Visual Flight Rules. Terminal services are provided at SDPs referred to as Terminal Radar Approach Control (TRACON), Radar Approach Control (RAPCON), Airport Traffic Control Tower (ATCT) or CERAP facilities.

 Flight Services

- Services provided to users of the National Airspace System (NAS), including pilot briefings, search and rescue coordination, aviation weather information, and other flight advisory services. Flight Services are provided at SDPs referred to as Automated Fl ight Service Stations (AFSS).Page 11 of 44



## 2.2 ATO C OST 

## M ODEL The ATO cost model describes how costs are assigned at different levels of the Air Traffic Organization (ATO) using a hierarchical tree structure. The different levels in which costs are assigned are used as i ntermediate “roll

- up” points that serve only to meet management reporting needs. The levels in the hierarchical structure include Project, Category, Capability, and Service. Generally, as an activity occurs, the costs of that activity are assigned to a s pecific project, referred to as the Project level in the cost model. Each project rolls up to a broader level referred to as the Category level, which then rolls up to the Capability level. Finally, the Capability is rolled up to the final cost object, t he Service.

The following example shows how the cost model is used. The Tech Ops organization maintains a special type of long

- range radar system, used to support only the Enroute service, with sites located around the country. The cost of maintenance te chnicians’ salaries who maintain those systems are collected in a project established in the CAS for only that type of long

- range radar. This is the “Project” level. The cost of this project can then be aggregated to a level called “Category” which, in

t his case, is called the Long Range Radar category where the costs of other types of long range radar systems are added. These costs can then be aggregated again to another level called “Capability” which, in this case is the Surveillance capability, where the costs of other systems performing a surveillance function are added. Finally, the costs can be aggregated yet again to the ”Service” level where all costs incurred in support of a specific service, in this case the Enroute service, are combined to pr ovide the total cost. Each level has unique elements within this shared hierarchy. Figure 3 depicts a conceptual view of the hierarchical structure just described.Page 12 of 44 Figure 3
Services provided to external users are delivered from a facility managing contact with the customer. This facility is called a Service Delivery Point (SDP) and is associated with the Service that is being delivered. Figure 4 depicts a conceptual view of the relationship between the service and the SDP. To the extent practical, all costs associated with the structure depicted in Figure 3 are also identified with the SDP where service is provided to the user.Page 13 of 44 Figure 4
Some project costs cannot be associated with an SDP and therefo re, are assigned at the service level. The Direct User Access Terminal Service (DUATS) is an example of a cost that cannot be associated with an SDP. This contractual service provides direct access to weather briefing, flight planning, and flight plan fi ling information to allow pilots to obtain a self

- briefing and file a flight plan prior to flying. There are thousands of inquiries to the system at multiple SDPs each day and it is impractical to collect this much data for cost accounting purposes.

When a particular cost element could not be associated with a project or SDP, it was assigned at the “service” level (or final cost object level) of the hierarchy. For each cost element discussed in this document, it is indicated whether it was assigned at th e project, SDP, or service level.Page 14 of 44



## 2.3 ATO C OST 

## A SSIGNMENTS This section of the report discusses the methods of assigning ATO costs allowed by FASAB No. 4 and how the FAA employs those methods in the ATO cost model. Included is a detailed discussion of each major cost assignment performed in the model. The discussion covers the cost pool to be assigned, the method of assignment, the target of the assignment, and the basis used.

The discussion of the ATO assignments is organized based on how costs are reporte d on ATO’s Cost of Service report. See Appendix B for an example of this report. Costs are organized in the Cost of Service report according to the level in which the costs are controlled. Costs are controlled at the facility, service unit, ATO, or FAA level. See Figure 5 for an organizational view of these different levels of control.

Figure 5Page 15 of 44



### 2.3.1 L EVEL 

### 1

– F

ACILITY 

### A SSIGNMENTS The following assignments are for costs that are controlled by a field facility. Examples of these facilities include ARTCC, ATCT, AFSS, TRACON, etc. Each facility is assigned an SDP and the SDP is associated with the service that is being delivered.



### 2.3.1.1 Air Traffic Control Direct Labor
Air Traffic Control direct la bor costs include the compensation and benefits of personnel directly associated with providing ATC services. These services are typically provided by Air Traffic Controllers and first level supervisors.

The cost of ATC direct labor is directly traced to projects, SDPs, and services using the actual labor hours recorded to direct ATC projects by the personnel at each facility.



### 2.3.1.2 Air Traffic Control Indirect Labor Air Traffic Control indirect labor costs include the compensation and benefits of personnel tha t perform work common to many ATC activities (e.g., budgeting, human resources, leave, etc.).

The cost of ATC indirect labor is directly traced to projects, SDPs, and services using the actual labor hours recorded to indirect ATC projects by the personnel at each facility. Normally indirect costs are allocated to direct cost. However, because these costs are charged to a unique organizational identifier (cost center) and, in the case of ATC cost centers, they are related to a single service and SDP, we ar e able to directly trace these indirect costs.



### 2.3.1.3 Air Traffic Control Direct Non

- Labor
Non

- labor includes costs such as supplies and travel expenses. The ATC direct non

- labor costs are the types of costs that are directly associated with a specific ATC activity.

The cost of ATC direct non

- labor is directly traced to projects, SDPs, and services using the actual cost incurred by the personnel at each facility.



### 2.3.1.4 Air Traffic Control Indirect Non

- Labor
Non

- labor includes costs such as supplies and travel expe nses. The ATC indirect non

- labor costs are the types of costs that are common to many ATC activities (e.g., office supplies).

The cost of ATC indirect non

- labor is directly traced to projects, SDPs, and services using the actual cost incurred by the pers onnel at each facility. Normally indirect costs are allocated to direct cost. However, because these costs are charged to a unique organizational identifier (cost center) and, in the case of ATC cost centers, they are related to a single service and SDP, we are able to directly trace these indirect costs.



### 2.3.1.5 Air Traffic Control Academy Training The FAA Academy, located in Oklahoma City, is a large training facility that provides agency

- wide resident training services. The cost of ATC training at the FAA Aca demy includes the costs for course development and delivery, and the associated ATC employee travel and per diem costs.Page 16 of 44

A fixed percentage allocation is performed in the CAS to assign these training costs attributable to the ATC organization to services.

T he fixed percentages used to assign the cost to each service were determined based on historic values from a system which provided detailed travel and course information.



### 2.3.1.6 Air Traffic Control Contract Training In addition to training at the FAA Academy, on

- site training is provided under contract at select locations because of the specialized needs of controllers.

A pro rata allocation is performed in the CAS to assign these training costs attributable to the ATC organization to projects, SDPs, and services

. The portion of the cost that is assigned to each project, SDP, and service is determined based on the actual amount of training hours invoiced by the training contractor at each facility.



### 2.3.1.7 Tech Ops Direct Labor Tech Ops direct labor cost includes the comp ensation and benefits of personnel that are directly associated with providing operations and maintenance (O&M) of electronics and equipment used in direct support of the NAS.

The cost of Tech Ops direct labor is directly traced to SDPs and services using the actual labor hours recorded to direct Tech Ops projects by the personnel at each facility.



### 2.3.1.8 Tech Ops Direct Non

- Labor Tech Ops direct non

- labor cost includes costs such as guard services, ground services, and transportation that are directly associated with the NAS facilities and equipment (F&E) used for
ATC.

The cost of Tech Ops direct non

- labor is directly traced to SDPs and services using the actual cost incurred by the personnel at each facility.



### 2.3.1.9 Tech Ops District Office Indirect Tech Ops District Of

fices (DO) are responsible for the operations and maintenance of facilities and equipment to support ATC services. The Tech Ops DO indirect cost includes both indirect labor and

non

- labor costs that are common to many Tech Ops DO activities.

A pro rata al location is performed in the CAS to assign the DO indirect costs to direct Tech Ops projects and SDPs.

The portion of the cost that is assigned to each project and SDP is determined based on the percentage of total costs that are directly traced to each Te ch Ops DO project and SDP.



### 2.3.1.10 Tech Ops Academy Training The FAA Academy, located in Oklahoma City, is a large training facility that provides agency

- wide resident training services. The cost of Tech Ops training at the FAA Academy includes the costs for

cour se development and delivery, and the associated Tech Ops employee travel and per diem costs.Page 17 of 44

A fixed percentage allocation is performed in the CAS to assign the training costs attributable to the Tech Ops organization to services.

The fixed percentages used to assign the cost to each service were determined based on historic values from a system which provided detailed travel and course information.



### 2.3.1.11 Telecommunications Telecommunications cost is associated with telecommunications equipment and connectivity for NAS systems and equipment used to provide ATO services. It is important to point out that this assignment only addresses the cost of leased telecommunications lines. Owned lines are considered part of the real property assets to which th ey are attached and are capitalized and depreciated accordingly.

A pro rata allocation is performed in the CAS to assign telecommunications costs to projects related to facilities and/or SDPs that are connected via leased lines. Each leased line is mapped to either one or two project and SDP combinations which represent the connection points.

The portion of the costs that is assigned to each project and/or SDP is determined based on the cost of the leased lines per facility. An FAA system tracks and manag es the cost of each leased line for the facilities it services and provides that information to the CAS.

In addition to the telecommunications cost described above, the Oceanic service uses unique communications services provided by Aeronautical Radio, Inc . (ARINC).

All ARINC telecommunications cost are assigned to the Oceanic service based on a fixed percentage.



### 2.3.1.12 Telecommunications Support Telecommunications support cost is associated with telecommunications equipment and connectivity for NAS systems and equipment used to provide ATO services, but cannot be directly assigned to a service. The cost of telecommunications to provide administrative support is a typical example of this cost because it is common to multiple services.

A pro rata allocation is pe rformed in the CAS to assign telecommunications support costs to projects, SDPs, and services.

The portion of the costs that is assigned to each project, SDP, and service is determined based on the cost of leased lines per facility. An FAA system tracks a nd manages the cost of each leased line for the facilities it services and provides that information to the CAS.



### 2.3.1.13 Flight Inspection Services Flight inspection cost includes both labor and non

- labor costs to support the flight inspection function for NAS rel ated equipment and procedures. This function inspects surveillance, navigational, landing, and automation equipment by flying within the range of the equipment to ensure that it is functioning properly. To perform this function, the FAA maintains a fleet of specialized aircraft as well as specially trained pilots and maintenance technicians.Page 18 of 44

A pro rata allocation is performed in the CAS to assign flight inspection costs to projects, SDPs, and
services.

The portion of the cost that is assigned to each pro ject, SDP, and service is determined based on the hours flown for inspection per facility. An FAA system tracks and manages flight inspection activity by facilities inspected and hours flown and provides that information to the CAS.



### 2.3.1.14 Logistics The FAA Logi stics Center is a large depot that is responsible for maintaining stocks and stores of spare parts for issuance to the field, performing facility refurbishment services, and providing on

site repair services. These costs incurred for the provision of ATC services are the majority of the logistics costs. In addition to the ATC related costs, the Logistics Center also supports the Regional Offices and other LOBs as a source of office supplies and other support equipment.

A pro rata allocation is performed i n the CAS to assign the portion of costs from the Logistics Center incurred in support of ATO. The ATO portion of the costs is identified by the payment ATO makes to the Logistics Center to fund their operations and comparing that to the Logistics Center’ s total funding. The costs are assigned to projects, SDPs, and services.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the value of spare parts issued to each facility as reported by FAA. An FAA syste m tracks and manages the value of the equipment that the Logistics Center issues to each facility in the field and provides that information to the CAS.



### 2.3.1.15 Utilities The FAA’s utility costs are significant due to its running of safety critical equipment 24 h ours a day with full back

- up power sources. Utility costs include electricity, gas, water, etc.

Utility costs are directly traced to projects, SDPs, and services using the actual amount of utility cost incurred at each facility.



### 2.3.2 L EVEL 

### 2

- S ERVICE 

### U NIT 

### A S SIGNMENTS Management control for the following costs exists at the service unit level (e.g., Enroute & Oceanic, Terminal, Tech Ops, and System Operations). Therefore, these costs are grouped together for reporting purposes.



### 2.3.2.1 ATC and Tech Ops Workers’ Comp ensation Workers Compensation (WC) is managed and administered by the Department of Labor (DOL). FAA’s total WC liability is made up of actual benefits paid to employees (referred to as an accrued liability), as well as an actuarial estimate reflecting fu ture liabilities. The actuarial WC Liability amount includes estimates for death, disability, medical, and miscellaneous costs for compensation

cases.
A pro rata allocation is performed in the CAS to assign WC costs attributable to ATO to projects, SDPs, and services. The portion of WC cost that is assigned to each project, SDP, and service isPage 19 of 44

determined based on a quarterly statement provided by DOL for workers’ compensation benefits paid for employees during each chargeback fiscal year, under 5 U.S.C; 47.



### 2.3.2.2 Direct Field Support Each ATO capability (e.g., communication, infrastructure, surveillance, etc.) provides support for the activities with which it is associated. Although the project that provides this support is directly associated with the activit ies in the capability, it cannot be traced to a specific SDP. Using the radar example, the surveillance capability provides support by fixing a problem with a particular type of radar. However, this type of radar equipment may be used at multiple SDPs, w hich means the support project cannot be traced to a single SDP.

Therefore, a pro rata allocation is performed in the CAS to assign the direct field support costs to SDPs and services.

For each capability, the portion of the cost that is assigned to each SDP and service is determined based on the total cost of projects for that capability that are already assigned to SDPs and services.



### 2.3.2.3 Contract Weather In order to provide timely and accurate weather information to controllers and pilots, weather personnel are on

- site at each ARTCC. These individuals, working under contract, interpret weather readings and forecasts.

An allocation is performed in the CAS to assign these costs to projects, all Enroute ARTCC SDPs, and the Enroute service.

The cost is assign ed evenly to each SDP.



### 2.3.2.4 Contract Weather Observations Certain ATCTs and TRACONs provide approach control services to smaller airports within their airspace. In order to accomplish this safely and to augment automated weather observation systems, contract weather observers, who report weather observations to the ATCT or TRACON, are located at these remote airports.

A pro rata allocation is performed in the CAS to assign these costs to projects, the SDPs that receive the contract weather observation servic es, and services.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the amount each SDP is invoiced.



### 2.3.2.5 Contract Tower Among all the terminal facilities, contract controllers rather than FAA employees staff a number of the smaller towers. These are referred to as contract towers. The contract towers are treated the same as any other Terminal facility in that they are assigned to an SDP.

A pro rata allocation is performed in the CAS to assign the contract tow er costs to projects and SDPs providing Terminal services under contract.Page 20 of 44

The portion of the cost that is assigned to each project, SDP, and service is determined based on the contract amount for each SDP.



### 2.3.2.6 Contract Flight Service Contract flight service c ost is the cost associated with air traffic control services provided under contract for flight service stations (AFSS) within the continental United States.

All contract flight service costs are assigned to the Flight Services (FSS) service. The cost i s assigned and remains at the service level because these costs are not tracked by SDP.



### 2.3.2.7 Direct User Access Terminal Service Direct User Access Terminal Service (DUATS) is a contract service associated with providing direct access to weather briefing, flig ht planning, and flight plan filing information to allow pilots to obtain a self

- briefing and file a flight plan prior to flying.

All DUATS costs are assigned to the Flight Services (FSS) service. The cost is assigned and remains at the service level beca use these costs are not tracked by SDP.



### 2.3.2.8 F&E Expenses The FAA’s Facilities and Equipment (F&E) account provides funds necessary to establish, replace, relocate, or improve air navigation facilities and equipment, as well as other aviation systems,

across t he nation’s airspace. F&E Expenses are the investments in facilities and equipment that do not meet the requirements for capitalization and therefore expensed and charged to the accounting period in which the costs were incurred. The FAA Financial Manual describes the capitalization policy.

Several cost assignments are used to assign F&E expenses.

First, costs are directly traced to the project and service using project information found on the financial transaction.

If costs cannot be directly traced to a service, then projects are grouped by Capability and a pro rata allocation is performed in the CAS to assign the costs to services. The portion of the cost that is assigned to each project and service is determined based on the percentage of that capabil ity’s total cost that is directly traced to each service.

Finally, certain costs cannot be directly traced nor associated with a capability. These costs include Leases, Technical Services Support Contracts (TSSC), NAS Infrastructure Support (Engineering
S ervices) Contracts (NISC), and Other Miscellaneous Projects. F&E Program Support Leases are allocated pro rata to SDPs and services based on annual rent and facility information from the lease agreements. In all other cases, a fixed percentage allocation is performed in the CAS to assign the projects to the appropriate services. The fixed percentages used to assign the cost to each service were determined based on a year

- end analysis of the actual costs traced to each service.Page 21 of 44



### 2.3.2.9 Depreciation & Capital Leases Depreciation is defined as the proportionate amount of an asset’s acquisition cost expensed over its estimated useful life and assigned to the period during which it is in use. Depreciable assets include Personal Property (e.g., aircraft, equipment , furniture, etc.), Real Property (e.g., buildings, ATC towers, etc.), and Capital Leases. Capital leases are agreements for the rights to use property or equipment for a specified period of time and must meet specific criteria to be considered capitalize d. The FAA Financial Manual describes the criteria and procedures related to capitalization and depreciation of assets.

Depreciation costs, which include the cost of capital leases, are directly traced to projects, SDPs, and services using the asset iden tifier information on the accounting transaction.

If depreciation costs cannot be directly traced to a project, SDP, and service, a pro rata allocation is performed in the CAS to assign the costs to projects, and services.

The portion of the cost that is a ssigned to each project and service is determined based on depreciation costs that are directly traced to a project and service.



### 2.3.3 L EVEL 

### 3

- ATO A SSIGNMENTS The following assignments are for costs that are controllable by the ATO line of business.



### 2.3.3.1 ATC System Command Center The Air Traffic Control System Command Center (ATCSCC) is part of a multipurpose facility that houses specialized systems that enable the FAA to better manage the flow of air traffic throughout the NAS. It provides traffic management and a dvisory services to air traffic control facilities. It has a dedicated controller workforce along with a full complement of operational, administrative, technical support and management personnel.

A pro rata allocation is performed in the CAS to assign th e ATCSCC costs to projects, SDPs, and
services.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the number of traffic management coordinators (TMCs) residing at each SDP.



### 2.3.3.2 Operations Control Centers (Atlan tic, Mid

- States, Pacific) The National Operations Control Center (NOCC) is part of a multipurpose facility that houses specialized systems that enable FAA to better manage NAS services. Specifically, the NOCC provides centralized reporting of facility out age information for the entire NAS. It has a dedicated maintenance technician staff along with a full complement of operational, administrative, and management personnel. In addition, the NOCC has three “satellite” control centers: the Atlantic Operatio nal Control Center (AOCC), the Mid

- States Operation Control Center (MOCC), and the Pacific Operations Control Center (POCC).

A pro rata allocation is performed in the CAS to assign the NOCC costs to its satellite organizations: the AOCC, MOCC, and POCC.Page 22 of 44

Th e portion of the cost that is assigned to each satellite OCC is determined based on the total personnel compensation and benefits cost for each organization.

After the NOCC costs are allocated to the satellite OCCs, a pro rata allocation is performed in the CAS for each OCC to assign the “loaded” costs of the OCC to projects, SDPs within the service areas that the OCC supports, and services.

The portion of the OCCs cost that is assigned to each project, SDP, and service is determined based on the number o f equipment sites assigned to each SDP.

Figure 6



### 2.3.3.3 National Network Control Center The National Network Control Center (NNCC) is a major data network management system that enables the sharing of flight and other data between the ATC facilities. There are two NNCC “hubs,” one in Atlanta and the other in Salt Lake City. Limited NNCC

- related equipment can also be found at other ATC facilities. The NNCC cost includes labor and non

- labor costs of personnel ope rating the NNCC facilities as well as telecommunications costs for NAS systems in support of the NNCC facilities.

A pro rata allocation is performed in the CAS to assign the NNCC costs to the NNCC project, selected SDPs with Traffic Management Unit (TMU) presence, and services. An SDP with TMU presence is one that has personnel on

- site dedicated to providing traffic management.

The portion of the cost that is assigned to each SDP and service is determined based on the number of handles per SDP. A handle is defined as a single aircraft departing, arriving, or transiting an ATC facility’s airspace.



### 2.3.3.4 Charting The Tech Ops organization is responsible for developing, producing, and distributing aeronautical charts and maps, and approach procedures. Since the public consumes these maps and charts, thisPage 23 of 44

organization is reimbursed for much of its costs. Charting c osts only include the costs of these products that are for the FAA’s direct benefit.

A pro rata allocation is performed in the CAS to assign the charting costs to a project, SDPs, and the Enroute and Terminal services.

The portion of the cost that is ass igned to each SDP and service is determined based on the percentage of ATC personnel compensation and benefits.



### 2.3.3.5 Service Area Indirect ATO is made up of different types of Service Units

– Staff Office Service Units and ATC/Tech Ops related Service Units. Each of the ATC/Tech Ops related Service Units has a regional component referred to as a Service Area. Each Service Area provides oversight and support for the services provided by the three regions within the respective Service Area. The cost to provid e support to the regions is considered overhead, or indirect, because it benefits multiple SDPs and services.

A pro rata allocation is performed in the CAS to assign each Service Area’s indirect costs to the direct projects, SDPs, and services that they su pport.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the percentage of total direct cost that is assigned to each project, SDP, and service for that Service
Area.



### 2.3.3.6 Service Unit Indirect
As described abov e, ATO is made up of different types of Service Units

– Staff Office Service Units and ATC/Tech Ops related Service Units. The Service Unit indirect cost includes only the indirect costs associated with ATO’s ATC/Tech Ops related Service Units. The ATC r elated Service Units provide a specific service (e.g., Enroute & Oceanic, Terminal, System Operations, and Technical Operations) directly to the users. Each of ATO’s ATC/Tech Ops related Service Units contains a Headquarters component. The majority of th e Service Unit’s Headquarters cost is considered overhead, or an indirect cost, because it is incurred to support the Service Unit.

A pro rata allocation is performed in the CAS to assign each Service Unit’s Headquarters’ indirect costs to the direct proje cts, SDPs, and services that they support.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the percentage of total direct cost that is assigned to each project, SDP, and service for that Service Unit.



### 2.3.3.7 ATO Indirect As described above, ATO is made up of different types of Service Units. The ATO indirect cost includes only the indirect costs associated with ATO’s Staff Office Service Units. The Staff Office Service Units perform overhead related activities that provide support for ATO’s ATC/Tech Ops related Service Units. These ATO Staff Office Service Units include the Chief Operating Officer, information technology, management services, safety and technical training, joint planning and development, progra m management, and mission support services, The activities provided byPage 24 of 44

ATO’s Staff Office Service Units are considered indirect cost because they are common to the ATC related Service Units.

A pro rata allocation is performed in the CAS to assign each S ervice Unit’s indirect costs to the projects, SDPs, and services that they support.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the percentage of total direct cost that is assigned to each project, SDP, and service for that Service Unit.



### 2.3.4 L EVEL 

### 4

- FAA A SSIGNMENTS The following sections refer to ATO’s portion of cost that are controlled outside of ATO including corporate FAA overhead and organizational costs from other LOBs that benefit ATO.



### 2.3.4.1 FAA Indirec t FAA Indirect costs include FAA headquarters and regional overhead. A portion of these costs are assigned to the direct projects and services within each LOB, including ATO. The FAA overhead assignments are described below in section 5

- FAA Corporate O verhead Assignments.



### 2.3.4.2 Medical Air traffic controllers receive regular medical exams as well as drug and alcohol tests. An organization within the FAA’s Office of Aviation Medicine (AAM), which resides within the Aviation Safety (AVS) line of business, fun ds, conducts, and manages these exams and tests.

A pro rata allocation is performed in the CAS to assign the medical cost to projects, SDPs, and ATO
services.

The portion of the cost that is assigned to each project, SDP, and ATO service is determined base d on the percentage of personnel compensation and benefits attributed to each SDP.



### 2.3.4.3 Loss on Disposition of Asset FAA enters various transactions in order to dispose of assets such as sale, exchange, disposal, or retirement which may result in financial lo sses.
A fixed percentage allocation is performed in the CAS to assign losses to ATO services.

The fixed percentages used to assign the cost to each ATO service were determined based on a
year

- end analysis of the actual costs traced to each service.



### 2.3.4.4 Employe e Benefits Liability FAA enters various transactions in order to recognize the appropriate level of unfunded liabilities for post

- retirement benefits, ATC sick leave, accrued leave liability, and Federal Employees Compensation Act (FECA) costs.



### 2.3.4.4.1 Unfunded Benefit Liability The FAA recognizes the full cost of pensions and other retirement benefits during an employee’s active years of service through a combination of costs financed by the FAA’s appropriations and imputed costs. Office of Personnel Management (OPM) actuaries determine pension cost factors byPage 25 of 44

calculating the value of pension benefits expected to be paid in the future and communicate these factors to the FAA. The difference between the costs paid by the FAA during the year and the full cost of p ensions and other retirement benefits using the OPM’s costs factors is the imputed (unfunded) cost. The OPM also provides information regarding the full cost of health and life insurance benefits.

The portion of unfunded benefit costs for air traffic con trollers is directly traced to service and SDP based on the air traffic facility each employee is assigned.

However, technicians may be responsible for maintaining multiple types of equipment at multiple facilities. Therefore, a pro rata allocation is per formed in the CAS to assign the portion of unfunded benefit costs for technicians to projects, SDPs, and services.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the technicians’ direct labor.



### 2.3.4.4.2 Unfunded Liability for ATC Sick Leave Under the terms of various bargaining unit agreements, employees have the option to receive a lump sum payment for a percentage of their accumulated sick leave as of their effective retirement date. The estimated unfunded liab ility is determined based on sick leave balances.

A pro rata allocation is performed in the CAS to assign ATO’s portion of sick leave to projects, SDPs, and services.

The portion of cost for ATC sick leave that is assigned to each project, SDP, and servi ce is determined based on the percentage of ATC service units’ personnel compensation and benefits costs attributable to each service.



### 2.3.4.4.3 Accrued Leave Liability
Annual leave is accrued as it is earned and the accrual is reduced as leave is taken. The accr ued annual leave account is adjusted bi

- weekly to reflect the latest pay rates and unused hours of leave. Funding is obtained from future financing sources to the extent that current or prior year appropriations are not available to fund annual and other types of vested leave earned but not taken. Increases or decreases in the accrued liability result in an expense.

A pro rata allocation is performed in the CAS to assign the unfunded leave accrual to projects, SDPs, and services.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the percentage of ATO personnel compensation and benefits.



### 2.3.4.4.4 Actuarial Liability for Federal Employees Compensation Act (FECA) The Federal Employees Compensation Act is administered by the Department of Labor (DOL) Office of Workers’ Compensation Programs and provides monetary compensation for Federal employees who are injured in the performance of duty. FAA accrues a liability for FECA compensation payments.Page 26 of 44

A pro rata allocation is performed in the CAS to assign FECA costs attributable to ATO to projects, SDPs, and services.

The portion of FECA cost that is assigned to each project, SDP, and service is determined based on a quarterly statement provided by DOL for workers’ compens ation benefits paid for employees during each chargeback fiscal year, under 5 U.S.C; 47.



### 2.3.4.5 Environmental and Legal Liability 2.3.4.5.1 Unfunded Liability for Environmental Remediation FAA accrues a liability for the environmental remediation of known contaminated sit es and the estimated environmental cost to decommission assets presently in service.

A fixed percentage allocation is performed in the CAS to assign the environmental remediation projects to services.

The fixed percentages used to assign the cost to each s ervice were determined based on a year

- end analysis of the actual costs traced to each service.



### 2.3.4.5.2 Unfunded Liability for Legal Claims The FAA accrues a liability for asserted and pending legal claims reasonably possible of loss.

A fixed percentage allocation is performed in the CAS to assign the legal claims liability cost to each
service.

The fixed percentages used to assign the cost to each service were determined based on a year

- end analysis of the actual costs traced to each service.



## 2.4 ATO M ULTIPLE 

## S ERVICE 

## A SSIGNMENTS Most costs are assigned to an SDP, which is the facility managing contact with the customer and is associated with the service being provided. However, some SDPs provide multiple services. As a result, special assignments are necessary to app ropriately assign the cost of these particular SDPs to each of the services it provides.

The following Enroute facilities also provide Oceanic service: New York, Oakland, Houston, Anchorage, and San Juan. Personnel and equipment are shared at these spec ific SDPs to provide both Enroute and Oceanic services.

A fixed percentage allocation is performed in the CAS to assign a portion of the ATC and Tech Ops costs at each of the shared facilities to the Oceanic service.

The portion of Tech Ops cost that is assigned to the Oceanic service for each shared facility is determined based on the ratio of Oceanic “sectors” to total “sectors” at each of the shared ARTCCs. A sector is a region of airspace assigned to a single controller. The San Juan SDP is unique i n that all of its shared costs are allocated using this basis (i.e., not only the Tech Ops costs).

The portion of ATC cost that is assigned to the Oceanic service for each shared facility (except for San Juan) is determined based on Oceanic on

- position tim e as a percentage of the total on

- positionPage 27 of 44

time. At shared facilities where the timekeeping system allows tracking of on

- position time at dedicated Oceanic positions (e.g., New York and Oakland), the actual percentages are used. At shared facilities wher e there are no dedicated Oceanic positions, the percentages were determined using a statistically valid analysis on a sample of historical sign

- in, sign

- out time records logged by controllers in the normal course of performing their duties.Page 28 of 44



# 3 A VIATION 

# S AFE TY Aviation Safety (AVS) is an FAA line of business responsible for the certification, production approval, and continued airworthiness of aircraft as well as the certification of pilots, mechanics, and others in safety

- related positions. In addition, Av iation Safety develops regulations and certificates all U.S. civil aviation operational and maintenance enterprises.



## 3.1 AVS C OST 

## T ARGETS 

## /S ERVICES To organize the source data and provide effective cost information based on that data, a cost accounting system must have activity outputs, or cost objects, to measure the costs. The Aviation Safety Organization (AVS) line of business (LOB) defined eight broad services, which represent cost objects for managerial cost accounting purposes. These services are defin ed as follows:

• Aerospace Medicine

– Medical programs and services provided to the aviation community including aerospace medical research, occupational health, and medical support services.

• Airworthiness Certification

- Certification that the design, produ ction quality, and airworthiness of aeronautical products, parts and appliances are deemed to meet established aviation safety standards.

• Designee

– AVS services provided by a designee. A Designee is a representative of the FAA Administrator authorized by law to examine, test, and/or make inspections necessary to issue airman or aircraft certificates. However, a designee is not considered an employee of the U.S. Government, and is not federally protected for the work performed or the decisions made as a d esignee.

• Registration

– Development, maintenance, and operation of national programs for the registration of United States civil aircraft and certification of airmen.

• Surveillance

– Inspection of the physical, chemical, visual, functional attributes or characteristics of a product, person, facility, or operation to determine that a person, an item or a certain segment of an operation meets standards that are required for certificat ion or approval by the FAA.

• Standards

- Creation and amendment, as necessary, of the rules and regulations that provide the safety standards for people, organizations, and equipment operating in the U.S. civil aviation system through policy development, an alysis, and rulemaking.

• Air Operator/Agency Certification

– Certification of air operators and/or air agencies that is deemed to meet established aviation safety standards.

• Other Services

– Other services provided by AVS including aviation research, and ov ersight of the unmanned aerial system, and unapproved parts.

Each of these broad services is made up of a series of projects representing additional levels of detail used to enhance AVS’ cost management capability. These projects are organized into a hier archy (tree) that allows for intermediate reporting points.



## 3.2 AVS C OST 

## M ODEL The cost model describes how costs are assigned for the Aviation Safety line of business. The levels in the structure include Project and Service. Generally, as an activity occurs , the costs of thatPage 29 of 44

activity are assigned to a specific project, referred to as the Project level in the cost model. Each project is associated with one of the broad services that AVS provides. The Service is the final cost object.

For example, consider the following activities: developing and issuing airworthiness directives, developing and issuing Federal Aviation Regulations, and training the workforce who develop and issue standards. The cost of each of these activities is assigned to a specific proj ect. All of the projects in this example fall under the Standards service.

Figure 7


## 3.3 AVS C OST 

## A SSIGNMENTS This section of the report discusses the methods of assigning costs allowed by FASAB No. 4 and how the FAA employs those methods in the cost model. Included is a detailed discussion of each major cost assignment performed in the model. The discussion covers the cost pool to be assigned, the method of assignment, the target of the assignment, and the b asis used.

The discussion of the AVS assignments is organized based on how costs are reported on the AVS
Service s Summary report. See Appendix B for an example of this report

.


### 3.3.1 AVS D IRECT 

### L ABOR AVS direct labor costs include the compensation and benefits o f personnel directly associated with providing AVS services.

The cost of AVS direct labor is directly traced to projects using the actual labor hours recorded to direct AVS projects by AVS personnel.



### 3.3.2 AVS D IRECT 

### N ON



### - L ABOR
Non

- labor includes costs such as supplies and travel expenses. The AVS direct non

- labor costs are the types of costs that are directly associated with a specific AVS activity.

The cost of AVS direct non

- labor is directly traced to projects using the actual cost incurred by AVS personnel.Page 30 of 44



### 3.3.3 AVS A LLOCATIONS Certain costs cannot be directly traced to a service. Allocation steps were designed to assign these types of costs to the services they support in order to capture the full cost of each AVS service. The sections below describe AVS’ allo cated costs.



### 3.3.3.1 FAA Corporate Overhead FAA corporate overhead costs include FAA headquarters and regional overhead. A portion of these costs are assigned to the direct projects and services within each LOB, including AVS. The FAA overhead assignments are de scribed below in section 5

- FAA Corporate Overhead Assignments.

In addition, AVS leases several office buildings which are centrally managed by Regions and Center Operations.

A fixed basis allocation is performed in the CAS to assign the AVS leases cost to an AVS headquarters organization. The cost will then be included in the AVS headquarters overhead.



### 3.3.3.2 AVS Headquarters Overhead AVS headquarters consists of offices that provide supporting activities that are common to the services provided by AVS. Typic al examples of these indirect costs include general and administrative costs, budgeting, human resources, etc. This cost pool also includes the imputed cost for post

- retirement benefits for employees in AVS headquarters offices, whereas this cost is
repor ted separately by some LOBs.

A pro rata allocation is performed in the CAS to assign overhead cost associated with headquarters to direct projects.

The portion of the cost that is assigned to each project is determined based on the total cost that is direc tly assigned to each project.



### 3.3.3.3 AVS Regional Overhead AVS is organized into geographical regions and each region has several field offices. The regional overhead consists of indirect costs that are incurred as the result of providing supporting activities

t hat are common to the field offices in that region. Typical examples of these indirect costs include general and administrative costs. This cost pool also includes the imputed cost for post

- retirement benefits for employees in AVS regional offices, where as this cost is reported separately by some
LOBs.

A pro rata allocation is performed in the CAS for each region to assign overhead cost associated with that regional office to direct projects.

The portion of the cost that is assigned to each project is determined based on the total cost that is directly assigned to each project within that particular region.



### 3.3.3.4 AVS Field Overhead Field facilities are generally the offices in which direct services are provided. However, these offices still may incur indirec t costs which are not directly related to the service being provided.Page 31 of 44

Typical examples of these indirect costs include general and administrative costs, office space, supplies, etc. This cost pool also includes the imputed cost for post

- retirement benefi ts for employees in AVS field offices, whereas this cost is reported separately by some LOBs.

A pro rata allocation is performed in the CAS for each field office described above to assign overhead cost associated with that field office to direct projects.

The portion of the cost that is assigned to each project is determined based on the total cost that is directly assigned to each project within that particular field office.

AVS field overhead allocations were created for the following AVS field offices: Flight Standards District Offices (FSDO), International Field Offices (IFO), Aircraft Evaluation Groups (AEG), and Certificate Management Offices (CMO). The indirect costs associated with other AVS field offices such as Medical Field Offices (MFO), Manufa cturing Inspection District Offices (MIDO), Aircraft Certification Offices (ACO), etc. are not allocated at this level of detail; rather, the indirect costs are included in the regional overhead allocations for their respective region.



### 3.3.3.5 AVS Workers’ Compen sation Workers Compensation (WC) is managed and administered by the Department of Labor (DOL). FAA’s total WC liability is made up of actual benefits paid to employees (referred to as an accrued liability), as well as an actuarial estimate reflecting futu re liabilities. The actuarial WC Liability amount includes estimates for death, disability, medical, and miscellaneous costs for compensation

cases.
A pro rata allocation is performed in the CAS to assign WC costs associated with the AVS organization to the employee’s detailed organization and a single indirect project. The cost will then be pooled in the respective overhead step based on the detailed organization.

The portion of the cost that is assigned to each detailed organization is determined base d on a quarterly statement provided by DOL for workers’ compensation benefits paid for employees during each chargeback fiscal year, under 5 U.S.C; 47.



### 3.3.3.6 AVS Leave Employees who are absent from work record their time to a leave project in lieu of a standard labor project. At FAA, leave is costed when it is taken rather than when it is earned. Therefore, leave cost cannot be associated with direct projects.

A pro rata allocation is performed in the CAS to assign the cost of leave to direct projects.

The por tion of the cost that is assigned to each project is determined based on the total cost of personnel compensation and benefits that is directly assigned to each project.



### 3.3.3.7 AVS Academy Training The FAA Academy, located in Oklahoma City, is a large training fa cility that provides agency

- wide resident training services. The cost of training at the FAA Academy includes the costs for course development and delivery, and the associated AVS employees’ travel and per diem costs.Page 32 of 44

A pro rata allocation is performed in the CAS to assign the training costs attributable to AVS to direct projects within AVS.

The portion of the Academy training cost that is assigned to each project is based on the total direct cost of training activities incurred by the organization. Org anizations within AVS also develop and provide localized training for employees due to the specialized nature of their work. The cost of the localized training is directly assigned to projects in that organization and therefore used as the basis to assign the Academy training cost.



### 3.3.3.8 AVS Technical Training In addition to the Academy training, organizations within AVS also develop and provide localized training for employees due to the specialized nature of their work. In most cases, specialized training is provided to train employees who work on a specific project and therefore, the training cost is directly assigned to that project. However, in some instances, technical training is common to multiple projects, making it an indirect cost.

A pro rata alloc ation is performed in the CAS to assign the indirect technical training costs to direct projects.

The portion of the indirect technical training cost that is assigned to each project is based on the total direct cost of training activities incurred by the organization.



### 3.3.3.9 AVS Special Projects In addition to the allocations described above, AVS also defined a few special cost assignments. These allocations are designed to assign the cost of specific projects to the direct projects that benefit from the cost.



### 3.3.3.9.1 Special Projects to Aerospace Medicine AVS identified specific Research, Engineering, & Development (RE&D) indirect projects that support the Aerospace Medicine service.

A pro rata allocation is performed in the CAS to assign the cost described above to direct projects within the Aerospace Medicine service. Otherwise, the cost would be pooled as overhead and spread across all of AVS’ services.

The portion of this cost that is assigned to each project is based on the total direct costs charged to projects in the Aerospace Medicine service.



### 3.3.3.9.2 Special Projects to Designees The hierarchy of projects that make up the Designee service is organized based on the AVS organization associated with the project. In addition, the Designee service includes a spec ial oversight project that supports the designee projects associated with Flight Standards (AFS).

A pro rata allocation is performed in the CAS to assign the cost of the special oversight project to the direct projects owned by AFS, within the Designee ser vice.Page 33 of 44

The portion of this cost that is assigned to each project is based on the total direct costs charged to those projects owned by AFS, within the Designee service.

This special allocation is performed so that the full costs of the designee projects ass ociated with AFS can be captured.



### 3.3.3.9.3 Special Projects to Flight Standards The FLSASAM project is a direct project, within the Other Services service, that is used to provide support for the automated staffing allocation model. AVS identified that this projec t specifically benefits Flight Standards (AFS).

A pro rata allocation is performed in the CAS to assign the cost of the project described above to the direct projects attributable to AFS.

The portion of this cost that is assigned to each project is based o n the total direct costs charged to those projects by AFS.

This special allocation is performed so that the cost of the FLSASAM project is assigned to the organization and its projects that benefit.Page 34 of 44



# 4 A IRPORTS The Airports (ARP) organization is an FAA line of business which provides leadership in planning and developing a safe and efficient national airport system, taking into account economics, environmental compatibility, local proprietary rights, and safeguarding the public investment.



## 4.1 ARP C OST 

## T ARGETS 

## / S ERVICES To organize the source data and provide effective cost information based on that data, a cost accounting system must have activity outputs, or cost objects, to measure the costs. ARP defined several services, which represent cost objects for mana gerial cost accounting purposes. These services are defined as follows:

• Airspace Determination

– Conducting aeronautical studies associated with the construction or alteration of airports and the evaluation of obstructions near airports.

• Airport Safety Ce rtification

– Certifying that airports meet established operational and safety standards. Two services were defined in order to differentiate between the Part 139 and Non

- Part 139 certifications.

• Compliance

– Assisting airport owners to meet their contra ctual obligations assumed when they accepted Federal grant funds or the transfer of Federal property for airport purposes. This also includes monitoring and investigating airports for compliance with these obligations as well as other applicable Federal l aws.

• Development Planning

– Providing guidance on airport planning issues and developing techniques, methods, and procedures for use in airport planning.

• Environmental

– Evaluating environmental impacts of Airport Improvement Program (AIP) projects and det ermining reasonable alternatives to comply with the National Environmental Policy Act of 1969 (NEPA).

• Passenger Facility Charge (PFC) Implementation

– Providing oversight and guidance for the collection and use of the Passenger Facility Charge (PFC), a fee collected for every enplaned passenger at commercial airports controlled by public agencies.

• Airport Improvement Program (AIP) Implementation

– Providing oversight and guidance for grants for the planning and development of public

- use airports that are
i ncluded in the National Plan of Integrated Airport Systems (NPIAS). Two services were defined in order to differentiate between primary and non

- primary airports.

• Standards Development

– Developing and issuing standards for airport design, construction, ma intenance, operations, safety, and grant compliance.

• Airport Noise

– Evaluating and measuring noise at airports and surrounding areas and determining exposure of individuals to noise that result from the operations of an airport.



## 4.2 ARP C OST 

## M ODEL The cost model describes how costs are assigned for the Airports line of business. The levels in the structure include Project and Service. Generally, as an activity occurs, the costs of that activity are assigned to a specific project, referred to as th e Project level in the cost model. Each project is associated with one of the services that ARP provides. For ARP, the model is relatively simplePage 35 of 44

because there is generally a one to one relationship between project and service

- the project represents th e service being provided. The Service is the final cost object.



## 4.3 ARP C OST 

## A SSIGNMENTS This section of the report discusses the methods of assigning ARP costs. Included is a detailed discussion of the cost assignment, including the cost pool to be assigned , the method of assignment, the target of the assignment, and the basis used.

The discussion of the ARP assignments is organized based on how costs are reported on ARP’s Cost Type report. See Appendix B for an example of this report.



### 4.3.1 ARP D IRECT 

### L ABOR
AR P direct labor costs include the compensation and benefits of personnel directly associated with providing ARP services.

The cost of ARP direct labor is directly traced to projects using the actual labor hours recorded to direct ARP projects by ARP perso nnel.



### 4.3.2 ARP D IRECT 

### N ON



### - L ABOR
Non

- labor includes costs such as supplies and travel expenses. The ARP direct non

- labor costs are the types of costs that are directly associated with a specific ARP activity.

The cost of ARP direct non

- labor is directly traced to projects using the actual cost incurred by ARP personnel.



### 4.3.3 ARP A LLOCATIONS Certain costs cannot be directly traced to a service. Allocation steps were designed to assign these types of costs to the services they support in order to capture the full cost of each ARP service. The sections below describe ARP’s allocated costs.



### 4.3.3.1 ARP Leave Employees whom are absent from work record their time to a leave project in lieu of a standard labor project. At FAA, leave is costed when it is taken rather than when it is earned. Therefore, leave cost cannot be associated with direct projects.

A pro rata allocation is performed in the CAS to assign the cost of leave to direct projects.

The portion of the cost that is assigned to each project is determined based on the t otal cost of personnel compensation and benefits that is directly assigned to each project.



### 4.3.3.2 ARP Academy Training The FAA Academy, located in Oklahoma City, is a large training facility that provides agency

- wide resident training services. The cost of trai ning at the FAA Academy includes the costs for course development and delivery, and the associated ARP employees’ travel and per diem costs.Page 36 of 44

A pro rata allocation is performed in the CAS to assign the training costs attributable to ARP to direct projects within ARP.

The portion of the Academy training cost that is assigned to each project is based on the total cost of training activities incurred by the organization. Organizations within ARP also develop and provide localized training for employees due t o the specialized nature of their work. The cost of the localized training is directly assigned to projects in that organization and therefore used to assign the Academy training cost.



### 4.3.3.3 ARP Workers’ Compensation Workers Compensation (WC) is managed and adm inistered by the Department of Labor (DOL). FAA’s total WC liability is made up of actual benefits paid to employees (referred to as an accrued liability), as well as an actuarial estimate reflecting future liabilities. The actuarial WC Liability

amount includes estimates for death, disability, medical, and miscellaneous costs for compensation

cases.
A pro rata allocation is performed in the CAS to assign WC costs associated with the ARP organization to the employee’s detailed organization and a single in direct project. The cost will then be pooled in the respective overhead step based on the detailed organization.

The portion of the cost that is assigned to each detailed organization is determined based on a quarterly statement provided by DOL for workers’ compensation benefits paid for employees during each chargeback fiscal year, under 5 U.S.C; 47.



### 4.3.3.4 ARP Headquarters Overhead ARP headquarters consists of offices that provide supporting activities that are common to the services provided by ARP. Typ ical examples of these indirect costs include general and administrative costs, budgeting, human resources, etc. This cost pool also includes the imputed cost for post

- retirement benefits for employees in ARP headquarters offices, whereas this cost is
rep orted separately by some LOBs.

A pro rata allocation is performed in the CAS to assign overhead cost associated with headquarters offices to direct projects.

The portion of the cost that is assigned to each project is determined based on the total cost tha t is directly assigned to each project.



### 4.3.3.5 ARP Regional Overhead ARP is organized into geographical regions and most of these regions have field offices. The regional overhead consists of indirect costs that are incurred as the result of providing supporting activities that are common to the offices in that region. Typical examples of these indirect costs include general and administrative costs. This cost pool also includes the imputed cost for post

retirement benefits for employees in ARP regional offices , whereas this cost is reported separately by some LOBs.Page 37 of 44

A pro rata allocation is performed in the CAS for each region to assign overhead cost associated with that regional office to direct projects.

The portion of the cost that is assigned to each project is determined based on the total cost that is directly assigned to each project within that particular region.



### 4.3.3.6 ARP Field Overhead The ARP field offices consist of Airport District Offices (ADO). The overhead cost at these field facilities consist of indi rect cost incurred which are not directly related to the service being provided. Typical examples of these indirect costs include general and administrative costs, miscellaneous supplies, etc. This cost pool also includes the imputed cost for post

- retire ment benefits for employees in ARP field offices, whereas this cost is reported separately by some LOBs.

A pro rata allocation is performed in the CAS for each field office to assign overhead cost associated with that field office to direct projects.

The p ortion of the cost that is assigned to each project is determined based on the total cost that is directly assigned to each project within that particular field office.



### 4.3.3.7 FAA Corporate Overhead FAA corporate overhead costs include FAA headquarters and region al overhead. A portion of these costs are assigned to the direct projects and services within each LOB, including ARP. The FAA overhead assignments are described below in section 5

- FAA Corporate Overhead Assignments.Page 38 of 44



# 5 FAA C ORPORATE 

# O VERHEAD 

# A SSIGNMENT S This section of the report discusses the methods of assigning FAA corporate overhead costs. Included is a detailed discussion of the cost assignment, including the cost pool to be assigned, the method of assignment, the target of the assignment, and the basis used.



## 5.1 FAA H EADQUARTERS 

## O VERHEAD The FAA is organized such that a majority of its general and administrative (G&A) services are provided by centralized organizations, referred to as FAA staff offices. FAA headquarters overhead costs represent the in direct cost of FAA general and administrative services provided to the lines of business by personnel residing at FAA headquarters and the Aeronautical Center (AMC).



### 5.1.1 FAA S TAFF 

### O FFICES FAA staff offices provide financial services; acquisition and business s ervices; government, public and industry affairs; legal and policy services; as well as executive leadership. Note, other staff offices such as human resources and NextGen are described separately because a different basis is used to assign these costs.

A pro rata allocations is performed in the CAS to assign the FAA headquarters indirect costs to projects, service delivery points (SDPs), and services within each LOB and selected organizations within AMC. Note that not all LOBs track costs at a service an d/or SDP level. In this case, costs are assigned at the project level.

The portion of the cost of the Administrator’s Office (AOA) and other Assistant Administrator’s Offices assigned to projects, SDPs, and services within each LOB is determined based on the percentage of total cost.



### 5.1.2 H UMAN 

### R ESOURCES 

### M ANAGEMENT The Office of Human Resources Management provides support related to employment, compensation and benefits, learning and development, human capital planning, labor and employee relations, workplace environment, etc.

A pro rata allocations is performed in the CAS to assign the human resources indirect costs to projects, service delivery points (SDPs), and services within each LOB and selected organizations within AMC. Note that not all LOBs track cos ts at a service and/or SDP level. In this case, costs are assigned at the project level.

The portion of the human resources cost assigned to projects, SDPs, and services within each LOB is determined based on the percentage of personnel compensation and benefits cost.



### 5.1.3 N EXT 

### G EN The NextGen Office provides leadership in planning and developing the Next Generation Air Transportation System. This office coordinates NextGen initiatives, programs and policy development across the FAA. The William J. Hughes Tec hnical Center, located in Atlantic City, NJ, supports the NextGen office and serves as the national scientific test base for the FAA. The Technical Center focuses on research and development.Page 39 of 44

A pro rata allocation is performed in the CAS to assign the Nex tGen indirect cost to NextGen direct projects, SDPs, and services.

The portion of cost that is assigned to each project is determined based on the total cost that is directly assigned to each project.



### 5.1.4 A ERONAUTICAL 

### C ENTER The Mike Monroney Aeronautical Cent er in Oklahoma City, OK, provides logistics, enterprise business services, software design, training, course design, and acquisition services.

A pro rata allocation is performed to assign the AMC indirect costs to projects, SDPs, and services within each L OB, residing in the Aeronautical Center. Note that not all LOBs track costs at a service and/or SDP level. In this case, costs are assigned at the project level.

The portion of the AMC cost assigned to each LOB is based on the percentage of total cost as signed to each LOB.



## 5.2 FAA R EGIONAL 

## O VERHEAD As mentioned above, the FAA is organized such that a majority of its general and administrative (G&A) services are provided by centralized organizations. FAA regional overhead costs represent the indirect cost o f FAA general and administrative services provided to the lines of business by personnel residing at FAA regional headquarters offices.

A pro rata allocation is performed in the CAS to assign the FAA regional overhead costs to projects, SDPs, and service s for LOBs with a regional component

– ATO, AVS, ARP, and ASH. Note that AST and AMC do not receive an allocation because these organizations do not have a regional component. Also, note that not all LOBs track costs at a service and/or SDP level. In th is case, costs are assigned at the project level.

The portion of the cost that is assigned to each project, SDP, and service is determined based on the total regional cost that is directly assigned to each project, SDP, and service.Page 40 of 44



# 6 S TATEMENT OF 

# N ET 

# C OST In addition to managerial reporting, CAS generates a Statement of Net Cost consistent with the requirements in OMB Circular A

- 136, Financial Reporting Requirements. The Statement of Net Cost displays FAA’s net cost of operations, as a whole, by the major programs related to the major goal(s) and output(s) described in the FAA's strategic and performance plans, required by the Government Performance and Results Act (GPRA).



## 6.1 M AJOR 

## P ROGRAM 

## A SSIGNMENTS The major program assignments described in the previous se ctions of this document are also used to generate the Statement of Net Cost.



## 6.2 S TRATEGIC 

## G OAL 

## A SSIGNMENTS Each project is assigned to a strategic goal, or a percentage split between multiple strategic goals, determined by the program/project owner when a pr oject is established. Therefore, project revenues and expenses are directly traced to strategic goals. If a strategic goal cannot be determined it is classified as undefined.

A fixed percentage allocation is performed in the CAS to assign project revenue s and expenses to strategic goals.

The fixed percentages used to assign the revenues and expenses to strategic goals are based on the percentages defined when the project was established.

Then, a pro rata allocation is performed in the CAS for each major program to assign the revenues and expenses for undefined projects to strategic goals.

The portion of the revenues and expenses that are assigned to each strategic goal is determined based on the revenues and expenses that are directly assigned to strategi c goals by each major
program.Page 41 of 44



# A PPENDIX 

# A: A CRONYM 

# L IST Below is a list of acronyms used throughout this document.

AAM Office of Aviation Medicine

ACO Aircraft Certification Office

ADO Airports District Office

AEG Aircraft Evaluation Groups

AFS Flight Standards Service

AFSS Automated Flight Service Station

AIP Airport Improvement Program

AMC Mike Monroney Aeronautical Center

AOA Office of the Administrator

AOCC Atlantic Operations Control Center

ARC Assistant Administrator for Regions and Center Operations

ARINC Aeronautical Radio, Inc.

ARP Associate Administrator for Airports

ARTCC Air Route Traffic Control Center

ASH Assistant Administrator for Security and Hazmat

AST Associate Administrator for Commercial Space Transportation

ATC Air Traffic Control

ATCSCC Air Traffic Control System Command Center

ATCT Airport Traffic Control Tower

ATO Air Traffic Organization

AVS Associate Administrator for Aviation Safety

CAS Cost Accounting System

CERAP Combined Enroute Radar Approach Control

CMO Certificate Management Office

DOL Department of Labor

DUATS Direct User Access Terminal Service

ENR Enroute Service

F&E Facilities and Equipment

FAA Federal Aviation Administration

FASAB Federal Accounting Standards Advisory Board

FECA Federal Employees Compensation Act

FECS Front

- End Control System

FSDO Flight Standards District OfficePage 42 of 44

FSS Flight Services Service

G&A General & Administrative Expense

GPRA Government Performance and Results Act

ICAO International Civil Aviation Organization

IFO International Field Office

LDR Labor Distribution Reporting

LOB Line of Business

MFO Medical Field Office

MIDO Manufacturing Inspection District Office

MOCC Mid

- States Operations Control Center

NAS National Airspace System

NISC NAS Infrastructure Support Contract (Engineering Services Contract)

NNCC National Network Control Center

NOCC National Operational Control Center

NPIAS National Plan of Integrated Airport Systems

O&M Operations & Maintenance

OCC Operational Control Center

OCN Oceanic Service

PFC Passenger Facility Charge

POCC Pacific Operations Control Center

RAPCON Radar Approach Control

RE&D Research, Engineering, & Development

SDP Service Delivery Point

SFFAS Statement of Federal Financial Accounting Standards
Tech Ops Technical Operations

TMC Traffic Management Coordinator

TMU Traffic Management Unit

TRACON Terminal Radar Approach Control

TSSC Technical Services Support Contract

WC Workers CompensationPage 43 of 44



# A PPENDIX 

# B: CAS R EPORT 

# T EMPLATES

ATO C OST OF 

## S ERVICE 

## R EPORTPage 44 of 44



## AVS S ERVICES 

## S UMMARY 

## R EPORT



## ARP C OST 

## T YPE 

## R EPORT