DON’s primary mission is to organize, train, maintain, and equip combat- ready naval forces capable of winning the global war on terrorism and any other armed conflict, deterring aggression by would-be foes, preserving freedom of the seas, and promoting peace and security. To support this mission, DON performs a variety of interrelated and interdependent business functions (e.g., acquisition and financial management), relying heavily on IT systems. In fiscal year 2008, DON’s budget for business systems and associated infrastructure was about $2.7 billion, of which $2.2 billion was allocated to operations and maintenance of existing systems and the remaining $500 million to systems in development and modernization. Of the approximately 3,000 business systems that DOD reports in its current inventory, DON accounts for 904, or about 30 percent, of the total. Navy ERP is one such system investment. In July 2003, the Assistant Secretary of the Navy for Research, Development, and Acquisition established Navy ERP to “converge” four separate pilot programs that were under way at four separate Navy commands. This program is to leverage a commercial, off-the-shelf software known as an enterprise resource planning product. Such products consist of multiple, integrated functional modules that perform a variety of business-related tasks, such as acquisition and financial management. Table 1 provides a brief description and status of each of the pilots. According to DOD, Navy ERP is to address the Navy’s long-standing problems related to financial transparency and asset visibility. Specifically, the program is intended to standardize the Navy’s acquisition, financial, program management, maintenance, plant and wholesale supply, and workforce management business processes across its dispersed organizational components. When the program is fully implemented, it is to support over 86,000 users. Navy ERP is being developed in a series of increments using the Systems Applications and Products (SAP) commercial software package, augmented as needed by customized software. SAP consists of multiple, integrated functional modules that perform a variety of business related tasks, such as finance and acquisition. The first increment, called Template 1, is currently the only funded portion of the program and consists of three releases: 1.0 Financial and Acquisition, 1.1 Wholesale and Retail Supply, and 1.2 Intermediate-Level Maintenance. Release 1.0 is the largest of the three releases in terms of the functional requirements being addressed. Specifically, it is to provide about 56 percent of Template 1 requirements. See table 2 for a description of these releases. DON estimates the life cycle cost for the program’s first increment to be about $2.4 billion, including about $1 billion for acquisition, and $1.4 billion for operations and maintenance. The life cycle cost of the entire program has not yet been determined because future increments have not been defined. The program office reported that approximately $400 million was spent from fiscal year 2004 through fiscal year 2007 on the first increment. For fiscal year 2008, about $200 million is planned to be spent. To manage the acquisition and deployment of Navy ERP, DON established a program management office within the Program Executive Office for Executive Information Systems. The program office manages the program’s scope and funding and is responsible for ensuring that the program meets its objectives. To accomplish this, the program office is responsible for key program management areas, such as architectural alignment, economic justification, earned value management, requirements management, and risk management. In addition, various DOD and DON organizations share program oversight and review activities. A listing of key entities and their roles and responsibilities is in table 3. The first increment of Navy ERP is currently in the production and deployment phase of the defense acquisition system. The system consists of five key program life cycle phases and three related milestone decision points. These five phases and related milestones, along with a summary of key program activities completed during or planned for each phase, are as follows: 1. Concept Refinement: The purpose of this phase is to refine the initial system solution (concept) and create a strategy for acquiring the solution. This phase began in July 2003, at which time DON began to converge the four pilot programs into Navy ERP and developed its first cost estimate in September 2003. This phase of the program was combined with the next phase, thus creating a combined Milestone A/B decision point. 2. Technology Development: The purpose of this phase is to determine the appropriate set of technologies to be integrated into the investment solution by iteratively assessing the viability of the various technologies while simultaneously refining user requirements. During the combined Concept Refinement and Technology Development phase, the program office prepared a concept of operations and operational requirements document; performed an analysis of alternatives, business case analysis, and economic analysis; and established its first Acquisition Program Baseline. It also selected SAP as the commercial off-the-shelf ERP software. The combined phase was completed in August 2004, when the MDA approved Milestone A/B to allow the program to move to the next phase. 3. System Development and Demonstration: The purpose of this phase is to develop a system and demonstrate through developer testing that the system can function in its target environment. This phase was completed in September 2007, when Release 1.0 passed development testing and its deployment to NAVAIR began. This was 17 months later than the program’s original schedule set in August 2004 but on time according to the revised schedule set in December 2006. In September 2004, the program office awarded a $176 million system integration contract to BearingPoint for full system design, development, and delivery using SAP’s off-the-shelf product and related customized software. In January 2006, the program office (1) reduced the contractor’s scope of work from development and integration of the first increment to only development of the first release and (2) assumed responsibility and accountability for overall system integration. According to the program office, reasons for this change included the need to change the development plan to reflect improvements in the latest SAP product released and the lack of authority by the contractor to adjudicate and reconcile differences among the various Navy user organizations (i.e., Navy commands). In December 2006, the program office revised its Acquisition Program Baseline to reflect an increase of about $461 million in the life cycle cost estimate due, in part, to restructuring the program (e.g., changing the order of the releases, changing the role of system integrator from contractor to the program office) and resolving problems related to, among other things, converting data from legacy systems to run on Navy ERP and establishing interfaces between legacy systems and Navy ERP. In addition, the program office awarded a $151 million contract for Release 1.1 and 1.2 configuration and development to IBM in June 2007. In September 2007, prior to entering the next phase, the program revised its Acquisition Program Baseline again to reflect a $9 million decrease in the life cycle cost estimate and a 5-month increase in its program schedule. Soon after, the MDA approved Milestone C to move to the next phase. 4. Production and Deployment: The purpose of this phase is to achieve an operational capability that satisfies the mission needs, as verified through independent operational test and evaluation, and to implement the system at all applicable locations. This phase began in September 2007, focusing first on achieving initial operational capability (IOC) of Release 1.0 at NAVAIR by May 2008. This date is 22 months later than the baseline established for Milestone A/B in August 2004, and 4 months later than the new baseline established in September 2007. According to program documentation, these delays were due, in part, to challenges experienced at NAVAIR in converting data from legacy systems to run on the new system and implementing new business procedures associated with the system. In light of the delays at NAVAIR in achieving IOC, the deployment schedules for the other commands were also revised. Specifically, Release 1.0 is still to be deployed at NAVSUP on October 2008, but Release 1.0 deployment at SPAWAR is now scheduled 18 months later than planned (October 2009), and deployment at NAVSEA general fund and Navy Working Capital Fund is now scheduled to be 12 months later than planned (October 2010 and 2011, respectively). Because of the Release 1.0 delays, Release 1.1 is now planned for deployment at NAVSUP 7 months later than planned (February 2010). Release 1.2 is still scheduled to be released at Regional Maintenance Centers in October 2010. The program office is currently in the process of again re-baselining the program, and DON plans to address any cost overruns through reprogramming of fiscal year 2008 DON funds. It estimates that this phase will be completed with full operational capability (FOC) by August 2013 (26 months later than the baseline established in 2004, and 5 months later than the re-baseline established in September 2007). 5. Operations and Support: The purpose of this phase is to operationally sustain the system in the most cost-effective manner over its life cycle. In this phase, the program plans to provide centralized support to its users across all system commands. Each deployment site is expected to perform complementary support functions, such as data maintenance. Overall, Increment 1 was originally planned to reach FOC in fiscal year 2011, and its estimated life cycle cost was about $1.87 billion. The estimate was later baselined in August 2004 at about $2.0 billion. In December 2006 and again in September 2007, the program was re- baselined. FOC is now planned for fiscal year 2013, and the estimated life cycle cost is about $2.4 billion (31 percent increase over the original estimate). Key activities for each phase are depicted in figure 1, changes in the deployment schedule are depicted in figure 2, and cost estimates are depicted in figure 3.