We assessed MDA’s progress made during fiscal year 2003 toward its Block 2004 program goals by reviewing the progress of individual BMDS elements, because MDA program goals are ultimately derived from element-level efforts. We selected seven elements for our review on the basis of congressional interest and because they account for about 70 to 75 percent of the cumulative research and development funds MDA budgeted for fiscal years 2002 through 2009. We compared each element’s actual cost, completed activities, demonstrated performance, and test results with their internal fiscal year 2003 cost, schedule, performance, and testing goals. To assess progress toward program schedule goals, we examined, for each element, prime contractor Cost Performance Reports, the Defense Contract Management Agency’s analyses of these reports, System Element Reviews, and other agency documents to determine whether key activities scheduled for the fiscal year were accomplished as planned. We also developed a data collection instrument to gather additional, detailed information on completed program activities, including tests, design reviews, prime contracts, and estimates of element performance. Because MDA allocates a large percentage of its budget to fund prime contractors that develop system elements, and because MDA’s cost goal did not apply to fiscal year 2003 expenditures, we limited our review of cost- related matters to assessments of prime contractor cost performance. To make these assessments, we applied earned value analysis techniques to data captured in contractor Cost Performance Reports. We compared the cost of work completed with the budgeted costs for scheduled work for the fiscal year 2003 period. Results were presented in graphical form to determine fiscal year 2003 trends. We also used data from the reports to project the likely costs at the completion of prime contracts through established earned value formulas. We also analyzed data related to system effectiveness provided by MDA, focusing on the Ground-based Midcourse Defense and Aegis Ballistic Missile Defense elements—the weapon components of the Block 2004 defensive capability. We supplemented this information by holding discussions with, and attending overview briefings presented by, various program office officials. Furthermore, we interviewed officials within DOD’s office of the Director, Operational Test and Evaluation, to learn more about the adequacy of element test programs and the operational capability demonstrated by them to date. As we reviewed documents and held discussions with agency officials, we looked for evidence of key cost, schedule, and technical risks. We identified key risks as those for which we found evidence of problems or significant uncertainties that could negatively affect MDA’s ability to develop, demonstrate, and field a militarily useful capability within schedule and cost estimates. During our review, we observed shortcomings in how MDA defines its goals that could make oversight by external decision makers more difficult. To pursue this matter, we examined how MDA reported its goals by reviewing MDA budget submission statements that were submitted for fiscal years 2004 and 2005. In addition, to gain insight into the formulation of the goals, we held numerous discussions with MDA officials and reviewed acquisition documents such as MDA’s Integrated Master Plan, Integrated Program Plan, and System Integration Strategy. Our work was primarily performed at MDA headquarters, Arlington, Virginia; Aegis Ballistic Missile Defense Program Office, Arlington, Virginia; Airborne Laser Program Office, Albuquerque, New Mexico; Command, Control, Battle Management, and Communications Program Office, Arlington, Virginia; Ground-based Midcourse Defense Program Office, Arlington, Virginia; Kinetic Energy Interceptors Program Office, Arlington, Virginia; Space Tracking and Surveillance System Program Office, Los Angeles, California; and the Theater High Altitude Area Defense Project Office, Huntsville, Alabama. We also visited the office of the Director, Operational Test and Evaluation, Arlington, Virginia. We conducted our review from June 2003 through April 2004 in accordance with generally accepted government auditing standards. MDA has the mission to develop and field a Ballistic Missile Defense System capable of defeating ballistic missiles of all ranges in all phases of flight. In particular, the system is intended to defend the U.S. homeland against intercontinental ballistic missile (ICBM) attacks and to protect deployed U.S. armed forces, which are operating in or near hostile territories, against short- and medium-range ballistic missiles. Additionally, the BMDS is to evolve into a system that is capable of defending friends and allies of the United States. Figure 1 depicts the three phases of a missile’s flight during which the BMDS is designed to engage it. Much of the operational capability of the Block 2004 BMDS results from capabilities developed in legacy programs. These include the GMD, Aegis BMD, and Patriot elements. Existing space-based sensors would also be available, including Defense Support Program satellites, for the early warning of missile launches. The Block 2004 BMDS can be viewed as a collection of semi-autonomous missile defense systems interconnected and coordinated through the Command, Control, Battle Management, and Communications (C2BMC) element. Functional pieces of system elements, such as radars or interceptors, are referred to as “components.” Block 2004 program goals involve developmental activities of five MDA elements: Aegis BMD, ABL, C2BMC, GMD, and Theater High Altitude Area Defense (THAAD). As indicated above, three of these five elements— GMD, Aegis BMD, and C2BMC—comprise the Block 2004 defensive capability that is currently being fielded. MDA is also funding the development of two other elements—Space Tracking and Surveillance System (STSS) and Kinetic Energy Interceptors (KEI)—but these elements are part of future blocks of the MDA missile defense program. Table 1 provides a brief description of these seven elements. More complete descriptions of these elements are provided in the appendixes of this report. During Block 2006, MDA will focus on fielding additional hardware and enhancing the performance of the BMDS. For example, MDA plans to field additional GMD interceptors at Fort Greely, add new radars that can be deployed overseas, and incorporate enhanced battle management capabilities into the C2BMC element. For Blocks 2008 and 2010, MDA plans to augment the Block 2006 capability with boost phase capabilities being developed in the ABL and KEI programs. Additionally, MDA plans to field the THAAD element for protecting deployed U.S. forces against short- and medium-range ballistic missiles. According to MDA officials, the integrated BMDS offers more than simply the deployment of individual, autonomous elements. A synergy results from information sharing and enhanced command and control, yielding a layered defense with multiple shot opportunities. This preserves interceptor inventory and increases the opportunities to engage ballistic missiles. MDA developed overarching goals for the development and fielding of the Block 2004 BMDS. The goals describe the composition of Block 2004; provide the costs and schedule associated with its development, testing, and fielding; and summarize its performance capabilities. As part of MDA’s Statement of Goals, MDA also identified and scheduled a number of events that must be completed by individual program elements in 2004 and 2005 if the goals are to be achieved. At the core of MDA’s Block 2004 program goals is the continued development and testing of ABL, Aegis BMD, C2BMC, GMD, and THAAD. These goals are referred to as “Block 2004 Development Goals” and identify the developmental areas MDA is funding during the Block 2004 time frame, that is, during calendar years 2004 and 2005. MDA also established a complementary set of goals—referred to as Block 2004 “Operational Alert Configuration” Goals—in response to the President’s December 2002 direction to begin fielding a ballistic missile defense capability. These fielding goals build directly upon the development goals and identify the operational missile defense capability that MDA expects to deliver by the end of December 2005. The Block 2004 cost goal covers budgeted costs for development and fielding during calendar years 2004-2005. When MDA submitted its fiscal year 2004 budget in February 2003, MDA declared that its Block 2004 cost goal was $6.24 billion. However, MDA recently revised its Block 2004 cost goal with the submission of its fiscal year 2005 budget in February 2004. The revision reflects updated developmental costs and an update to the additional costs associated with the initial fielding. MDA’s Block 2004 cost goal is now $7.36 billion. The missile defense capability of Block 2004 is primarily one for defending the United States against long-range ballistic missile attacks. As summarized in table 2, it is built around the GMD element, augmented by Aegis BMD radars, and integrated by the C2BMC element. The Block 2004 BMDS also contains the Patriot PAC-3 element for point defense of deployed U.S. armed forces against short- and medium-range ballistic missiles. Because MDA no longer has funding or management responsibility over Patriot, an assessment of progress made by the Army in fiscal year 2003 toward delivering the listed capability was not addressed in this review. Patriot-specific goals are, therefore, not listed in the table. In this section, we summarize our assessment of MDA’s progress in fiscal year 2003 toward achieving Block 2004 program goals. Key risks associated with developing and fielding system elements are summarized, as well. Detailed evaluations of element progress and risks are given in the appendixes of this report. MDA identified a number of events that must be completed to meet Block 2004 program goals. These activities, which are part of MDA’s program goals, are ultimately derived from element-level efforts and, in general, have completion dates in calendar years 2004 or 2005 to coincide with the start of defensive operations. Progress made toward achieving Block 2004 goals, relative to these defining events, is summarized in tables 3 through 6. MDA reports that performance indicators associated with Block 2004 elements are generally on track for meeting expectations. This methodology leads MDA to predict with confidence that the September 2004 defensive capability will provide full coverage of the United States against limited attacks from Northeast Asia.