The mission of FAA, an agency within the Department of Transportation, is to promote the safe, orderly, and expeditious flow of air traffic in the U.S. airspace system, commonly referred to as the National Airspace System. To maintain its ability to effectively carry out this mission, address an aging infrastructure, and meet an increasing demand for air transportation, in 1981, FAA embarked on a multibillion-dollar effort to modernize its aging ATC system. Under this modernization program, FAA has acquired and deployed new technologies and systems—and continues to do so today. Looking to the future, FAA is now beginning to fund components of NextGen, a transformation to a new system that is expected to use satellite-based technologies and state-of-the-art procedures to handle increasing air traffic volume through 2025, while further improving safety and security. FAA relies extensively on IT to carry out its mission—both in terms of its operational air traffic responsibilities and its administrative activities. The agency depends on the adequacy and reliability of the nation’s ATC system, which includes a vast network of radars, navigation and communications equipment, and information processing systems located at air traffic facilities across the country. Through its ATC system, FAA provides services such as controlling takeoffs and landings, and managing the flow of traffic between airports. For example, the Integrated Terminal Weather System integrates local weather data to allow the maximum use of airport runways. The Wide Area Augmentation System is used to provide vertically guided system approaches via Global Positioning System satellites and its own satellites to aircraft at thousands of airports and airstrips where there is currently no vertically guided landing capability, thereby improving safety and reducing pilot workload. FAA also relies on IT to carry out its mission-support and administrative operations. For example, FAA uses IT to support accident and incident investigations, security inspections, and personnel and payroll functions. With an IT budget of $2.1 billion for fiscal year 2008, FAA accounts for about 83 percent of the Department of Transportation’s IT budget. For fiscal years 2007 through 2011, FAA plans to acquire more than $14 billion in new systems to continue operating the nation’s current ATC system, while simultaneously transitioning to NextGen. This transition involves acquiring numerous systems to support precision satellite navigation; digital, networked communications; integrated weather information; layered, adaptive security; and more. A cost-effective and timely transition to NextGen depends in large part on FAA’s ability to keep these acquisitions within budget and on schedule. Historically, however, FAA has had chronic difficulties in meeting budget, schedule, and performance targets for acquisitions aimed at modernizing the National Airspace System. For example, in June 2005, we reported that 13 of 16 selected major ATC system acquisitions experienced cost, schedule, or performance shortfalls when assessed against their original milestones. These 13 system acquisitions experienced cost increases ranging from $1.1 million to about $1.5 billion; schedule extensions ranging from 1 to 13 years; and performance shortfalls, including safety problems. In 1995, we designated FAA’s modernization of its ATC system as a high- risk initiative because of the size, cost, and complexity of the program as well as difficulties in meeting cost, schedule, and performance goals on the individual projects that make up the modernization. Since then, in our High-Risk Series updates, we have reported on FAA’s efforts to address the underlying weaknesses that put it on the high-risk list. These include FAA’s efforts to institutionalize key processes for acquiring and developing software systems, develop and enforce its enterprise architecture, improve its cost accounting and estimating practices, improve its ability to effectively manage IT investments, and develop an organizational culture that supports sound acquisitions. To the agency’s credit, FAA has taken a number of steps over the years to better manage its ATC modernization program. Because of FAA’s contention that its modernization efforts were hindered by federal acquisition regulations, in November 1995 Congress enacted legislation that exempted the agency from most federal acquisition laws and regulations. The legislation directed FAA to develop and implement a new acquisition management system that would address the unique needs of the agency. In April 1996, FAA implemented an acquisition management system that provided acquisition policy and guidance for selecting and controlling FAA’s investments through all phases of the acquisition life cycle. This guidance was intended to reduce the time and cost needed for fielding new products and services by introducing (1) a new investment management system that spans the entire life cycle of an acquisition, (2) a new procurement system that provides flexibility in selecting and managing contractors, and (3) organizational and human capital reforms that support the new investment and procurement systems. More recently, in February 2004, FAA created the performance-based Air Traffic Organization to control and improve FAA’s investments and operations and to better provide safe, secure, and cost-effective air traffic services now and into the future. This change combined the groups responsible for developing and acquiring systems with those that operate them into a single organization. The Air Traffic Organization is led by FAA’s Chief Operating Officer. Pulling together essential cost, schedule, and technical information in a meaningful, coherent fashion is a challenge for most programs. Without meaningful and coherent cost and schedule information, program managers can have a distorted view of a program’s status and risks. To address this issue, in the 1960s, the Department of Defense developed the EVM technique, which goes beyond simply comparing budgeted costs with actual costs. This technique measures the value of work accomplished in a given period and compares it with the planned value of work scheduled for that period and with the actual cost of work accomplished. Differences in these values are measured in both cost and schedule variances. Cost variances compare the earned value of the completed work with the actual cost of the work performed. For example, if a contractor completed $5 million worth of work and the work actually cost $6.7 million, there would be a -$1.7 million cost variance. Schedule variances are also measured in dollars, but they compare the earned value of the work completed with the value of work that was expected to be completed. For example, if a contractor completed $5 million worth of work at the end of the month but was budgeted to complete $10 million worth of work, there would be a -$5 million schedule variance. Positive variances indicate that activities are costing less or are completed ahead of schedule. Negative variances indicate activities are costing more or are falling behind schedule. These cost and schedule variances can then be used in estimating the cost and time needed to complete the program. Without knowing the planned cost of completed work and work in progress (i.e., the earned value), it is difficult to determine a program’s true status. Earned value provides information that is necessary for understanding the health of a program; it provides an objective view of program status. As a result, EVM can alert program managers to potential problems sooner than expenditures alone can, thereby reducing the chance and magnitude of cost overruns and schedule delays. Moreover, EVM directly supports the institutionalization of key processes for acquiring and developing systems and the ability to effectively manage investments—areas that are often found to be inadequate on the basis of our assessments of major IT investments. Because of the importance of ensuring quality earned value data, in May 1998, the American National Standards Institute (ANSI) and the Electronic Industries Alliance (EIA) jointly established a national standard for EVM systems. This standard, commonly called the ANSI standard, consists of 32 guidelines to instruct programs on how to establish a sound EVM system, ensure that the data coming from the system are reliable, and use the earned value data to manage the program. See appendix II for an overview of this standard. In August 2005, OMB issued guidance outlining steps that agencies must take for all major and high-risk development projects to better ensure improved execution and performance and to promote more effective oversight through the implementation of EVM. Specifically, this guidance directs agencies to (1) develop comprehensive policies to ensure that agencies are using EVM to plan and manage development activities for major IT investments; (2) include a provision and clause in major acquisition contracts or agency in-house project charters directing the use of an EVM system compliant with the ANSI standard; (3) provide documentation demonstrating that the contractor’s or agency’s in-house EVM system complies with the national standard; (4) conduct periodic surveillance reviews; and (5) conduct integrated baseline reviews on individual programs to finalize the cost, schedule, and performance goals. Building on OMB’s requirements, in July 2007, we issued a draft guide on best practices for estimating and managing program costs. This guide highlights the policies and practices adopted by leading organizations to implement an effective EVM program. Specifically, in the guide, we identify the need for organizational policies that establish clear criteria for which programs are required to use EVM, compliance with the ANSI standard, a standard product-oriented structure for defining work products, integrated baseline reviews, specialized training, criteria and conditions for rebaselining programs, and an ongoing surveillance function. In addition, we identify key practices that individual programs can use to ensure that they establish a sound EVM system, that the earned value data are reliable, and that the data are used to support decision making. OMB refers to this guide as a key reference manual for agencies in its 2006 Capital Programming Guide. Two FAA executives—the Acquisition Executive and the Chief Information Officer—are jointly responsible for implementing EVM and ensuring its consistent application across the agency’s IT acquisitions. The Acquisition Executive’s responsibilities include developing EVM policy and guidance, certifying contractors’ conformance with the ANSI standard, advising and assisting programs with integrated baseline reviews, approving programs’ plans for continued surveillance of contractors’ EVM systems, and managing the EVM training program and curriculum.