The ATC system is composed of an array of largely ground-based subsystems, including radars; automated data-processing, navigation, and communications equipment; and ATC facilities. These subsystems work together to support all phases of flight for aircraft operating in U.S. airspace. The ATC system also includes the FAA employees who manage, operate, and maintain ATC equipment and facilities. In 1995, based on the premise that FAA would be better able to manage the ATC modernization if it were not constrained by federal personnel and acquisition laws, Congress passed legislation that exempted FAA from most federal personnel and acquisition laws and regulations. In December 2000, President Clinton signed an executive order and a few months later Congress passed supporting legislation that, together, provided FAA with the authority to create ATO as a PBO to control and improve FAA’s management of the modernization effort. In February 2004, FAA reorganized, transferring 36,000 employees (most of who worked in air traffic services and research and acquisitions) to ATO. (See fig. 1.) In late 2003, recognizing that the current approach to managing air transportation is becoming increasingly inefficient and operationally obsolete, Congress created JPDO to plan NGATS, a system intended to accommodate what is expected to be three times more air traffic by 2025 than there is today. JPDO’s scope is broader than traditional ATC modernization in that it is “airport curb to airport curb,” encompassing such issues as security screening and environmental concerns. Additionally, JPDO’s approach will require unprecedented collaboration and consensus among many stakeholders—federal and nonfederal—about necessary system capabilities, equipment, procedures, and regulations. Each of JPDO’s partner agencies will play a role in creating NGATS. For example, the Department of Defense has deployed “network centric” systems, originally developed for the battlefield, that are being considered as a framework to provide all users of the national airspace system—FAA and the Departments of Defense and Homeland Security—with a common view of that system. To incorporate the expertise and views of nonfederal stakeholders, the NGATS Institute was created by an agreement between the National Center for Advanced Technologies and FAA. JPDO began its initial operations in early 2004. A Senior Policy Committee, chaired by the Secretary of Transportation and including senior representatives from each of the participating departments and agencies, provides oversight to JPDO. JPDO is located within FAA and reports to the FAA Administrator and to the Chief Operating Officer within ATO. (See figure 2.) ATO has implemented organizational and business process changes to improve management of the ATC modernization program. ATO has taken several steps to increase its scrutiny of its acquisition decisions and has met its acquisition performance goal for the second consecutive year. ATO has identified cost savings opportunities through consolidation of administrative activities and outsourcing. However, ATO faces several challenges, including sustaining and institutionalizing ATO’s progress toward operating effectively as a performance-based organization, hiring and training thousands of air traffic controllers, ensuring stakeholder involvement in major system acquisitions, and keeping acquisitions on schedule and within budget. In our past work, we noted that FAA’s acquisitions workforce operated in an environment where accountability was not well defined or enforced and vertical lines of authority impaired productivity, communication, and decision-making across the organization. Our recent studies have shown that ATO is taking steps to break down those vertical lines of authority and organizational “stovepipes.” ATO has become a flatter organization, with fewer management layers. Additionally, the Chief Operating Officer (COO), who heads ATO, is holding ATO’s vice presidents collectively accountable for the organization’s success, in addition to their areas of specific responsibility. The COO conducts daily meetings with the managers of ATO’s departments to review operations. According to the COO, these meetings have provided a more holistic perspective on the organization since, formally, some managers were only focused on and responsible for their own departments. ATO is also in the early stages of involving the line staff in the efforts aimed at increasing organizational effectiveness and efficiency. For example, ATO surveyed the workforce to determine the extent to which employees and managers believe the organization exhibits managerial accountability, customer focus, and transformational leadership. The first survey established a baseline against which ATO plans to measure progress through future annual surveys. By analyzing the results, ATO expects to determine the underlying assumptions that drive employee behavior and decide where to target efforts for change. According to an ATO official, such a root-cause level of analysis has never been done before in FAA. FAA is also undertaking an initiative that includes creating a training framework and measures for the effectiveness of that training. These initiatives mirror effective human capital practices that we have identified in previous reports. In addition to organizational efforts, ATO is moving forward with an improvement to its business processes with the development of a cost accounting system, which will eventually be implemented throughout FAA to improve its financial management. Ultimately, ATO plans to routinely incorporate the cost information generated by the cost accounting system into its investment decision-making. When implemented, this cost accounting system will address a long-standing GAO concern that FAA has not had the needed cost accounting practices in place to effectively manage software-intensive investments, which characterize many of the agency’s major ATC system acquisitions. This type of information can be used to improve future cost estimates for these acquisitions. In another change to its business processes, FAA has stated that its management will provide additional information to decision makers to better illustrate the rationale behind its budget requests. This information is helpful to decision makers when budget constraints do not allow all system acquisitions to be fully funded at their planned and approved levels, leaving FAA to decide which programs to fund and which to cut, according to its priorities. Those that are cut may fall behind schedule, requiring FAA to continue operating and maintaining the older equipment and possibly delaying the realization of benefits from the new system. To address this issue, we recommended that FAA identify and annually report on programs that have had funding deferred, reduced, or eliminated, and the impact of those decisions on ATC modernization. Such information would make clear how constrained budgets will affect modernization of the national airspace system and how FAA is working to live within its means. In its formal written response to our recommendation, FAA stated its intent to better inform Congress in the future by providing information in its capital investment plan, submitted to Congress annually with the President’s Budget, that will identify changes from the preceding year. We have not yet verified whether FAA’s action fully responds to our recommendation. ATO has taken several steps to increase its scrutiny of its acquisition decisions, both with initial investment decisions and as part of acquisition oversight. Since 2004, the ATO executive council has been reviewing the mission need and readiness for decisions for all proposed investments. Furthermore, to ensure executive-level oversight of all key decisions, FAA plans to incorporate key decision points in a knowledge-based product development process by June 2006, as we have recommended; however, we have not yet independently assessed the sufficiency of this change. FAA has also issued guidance on how to develop and use investment pricing, including guidelines for disclosing the levels of uncertainty and imprecision that are inherent in cost estimates for major ATC systems. To improve its understanding of system requirements, FAA has developed a software acquisition process improvement model. When a system’s requirements are not fully understood at the start of an acquisition, requirements must often be redefined or unplanned work performed, which takes time and can be costly. In addition, unplanned work may occur when the agency misjudges the extent to which a commercial-off- the-shelf or nondevelopmental item, such as one procured by another agency, will meet the agency’s needs. To address these issues, FAA has developed and applied a process improvement model that assesses the maturity of FAA’s software and systems capabilities. As we reported, this approach has resulted in enhanced productivity, higher quality, greater ability to predict schedules and resources, better morale, and improved communication and teamwork. However, FAA did not mandate the use of the model throughout the organization. In response to our recommendation that FAA institutionalize the model’s use throughout the organization, FAA has begun developing a requirement that acquisition projects have process improvement activities in place before seeking approval from FAA’s investment review board. With regard to acquisition investment oversight, ATO has increased the use of an earned value approach to program oversight. In fiscal year 2000, only 4 programs used an earned value approach, compared to 19 major active programs in fiscal year 2006. Going forward, all new acquisitions will use an earned value approach. ATO has also conducted business case reviews for facilities and equipment- and operations-funded programs. Based on these reviews, ATO terminated funding for three projects. One was cancelled because the prototype lacked demonstrable benefits, another due to a poor business case, and the third due to weaknesses in its business case as well as schedule and performance issues. Additionally, FAA has implemented, or is in the process of implementing, a number of recommendations that we have made to improve acquisition investment management. For example, FAA is now considering all information technology investments as a complete portfolio. In 2004, we pointed out that FAA was not evaluating projects beyond the first 2 years of service to ensure alignment with organizational goals. Consequently, the agency could not ensure that projects with a longer service history (which at the time totaled about $1.3 billion per year) were still aligned with FAA’s strategic plans and business goals and objectives. We recommended that FAA include these projects in its investment portfolio management for review. In response to this and other recommendations we have made, FAA is making revisions to its Acquisition Management System. FAA has modified its Acquisition Management Policy to require periodic monitoring of in-service systems to collect and analyze performance data to use as the basis for sustained deployment.