The Department of the Treasury’s Earned Value Management Guide  provides guidance for implementing EVM on major IRS projects. We  recommended that if IRS updated the cost estimate, it should follow best  practices from our cost guide. IRDM’s 2011 Cost Estimate Does Not Meet Best Practices for Reliability and Does Not Fully Support the Program’s Budget

		IRDM’s Fiscal Year 2012 and Projected Budget Requests Are Not Supported by a Reliable Cost Estimate

According to best practices established by our cost guide, a cost estimate   We  should be comprehensive, well documented, accurate, and credible.assessed the 2011 cost estimate against cost estimation best practices  because IRS told us the estimate was used to support its budget requests  for fiscal year 2012 and beyond. The estimate minimally meets best practices for a well documented cost  estimate, as shown in figure 2. The cost estimate documentation says that  the labor cost justification was captured in the resource loaded project  schedules, but we found that these schedules only justified about 6 out  of the 86 requested full-time equivalent (FTE) staff for IRDM. In addition, IRS did not perform a  sensitivity analysis. IRS officials said current IRS policy  does not require projects to routinely re-estimate project cost. EPO officials said  they did not work with the IRDM team to maintain an updated SCBE  because the team did not seek their assistance. Using a cost estimate that lacks sufficient rigor—such as a preliminary  cost estimate, instead of an SCBE—could lead to budget requests that do  not accurately reflect program funding needs. Unreliable EVM Data Raise Additional Concerns about IRDM Cost Estimate

IRS provided EVM data in the 2011 IRDM cost estimate to justify its  budget requests, but we found that the program’s EVM data are not  reliable in any of the areas we reviewed. Because IRDM’s 2011 cost estimate is based on unreliable EVM data, it  does not provide adequate support for IRDM’s budget requests. Until IRS  addresses deficiencies in its EVM data, it cannot provide reliable cost  estimate updates for IRDM. Using qualified staff, conduct surveillance on the EVM system. Conclusions

The 2011 IRDM cost estimate does not fully meet best practices for a  reliable estimate. Improve the reliability of IRDM’s EVM data, specifically: address WBS issues by developing an EVM baseline for IRDM  that reflects the same WBS as the detailed schedule and IRDM  cost estimate; address sequencing issues and enable the development of a time- phased budget baseline by creating a single integrated master  schedule for IRDM that is properly sequenced and resource- loaded so that effective and meaningful EVM data can be  obtained to better manage the program;  conduct an independent baseline validation for the IRDM EVM  baseline; and  conduct independent surveillance of EVM systems to ensure that  data are reliable. IRS agreed with one of our four recommendations,  partially agreed with another, and disagreed with two. While IRS’s comment letter did not address the recommendation, the  Director of Risk Management in MITS’s Strategy and Planning Office told  us the agency agrees with the recommendation to require certain IT  project managers to consult with EPO about updating cost estimates,  documenting decisions not to update cost estimates, and placing data  from updated cost estimates in a repository. To assess the extent to which IRS’s practices for capturing IRDM’s actual  costs and comparing them to estimated costs, or EVM, generate reliable  performance data, we compared the EVM data for IRDM and IRS’s  process for maintaining the data to the high-level EVM data reliability  tasks outlined in our cost guide. Appendix II: Assessment of MITS’s Current IRDM Cost Estimate

The following table outlines our assessment of the extent to which the  Internal Revenue Service’s (IRS) 2011 Information Reporting and  Document Matching (IRDM) program cost estimate meets best practices,  depicted in figures 1-4.
Why GAO Did This Study

The Internal Revenue Service (IRS) began developing the Information Reporting and Document Matching (IRDM) program in fiscal year 2009 to enhance IRSs ability to automatically compare different sources of tax information and thus improve its capacity to identify and address taxpayer noncompliance. GAOs May 2011 report recommended that IRS follow best practices from the GAOs Cost Estimating and Assessment Guide if IRS updated the cost estimate for building IRDM systems. IRS provided a new cost estimate for IRDM in August 2011. In this report, GAO assessed the extent to which (1) the IRDM funding request is supported by a reliable cost estimate and, if not reliably supported, why not; and (2) IRSs practices for capturing data on IRDMs actual costs and comparing them to estimated costsknown as earned value management (EVM)generate reliable performance data. GAO compared IRSs 2011 IRDM cost estimate to criteria in GAOs cost guide and analyzed IRDMs earned value management data.

What GAO Found

The 2011 Information Reporting and Document Matching (IRDM) cost estimate, used to justify the programs projected budgets of $115 million for fiscal years 2012 through 2016, generally does not meet best practices for reliability. The cost estimate did not fully meet any of the four best practices for a reliable cost estimate.
For example, the cost estimate minimally meets best practices for a well documented estimate because the Internal Revenue Service (IRS) did not provide detailed support for staff resources, and the cost estimate documentation only justified about 6 out of the 86 requested full time equivalent staff for IRDM, among other things. If documentation does not provide source data or cannotexplain the calculations underlying the cost elements, the estimates credibility may suffer. Although IRS has an independent office of cost estimators that can develop and update cost estimates using cost modeling software that generally follows GAOs best practices, this office did not develop the 2011 IRDM cost estimate. IRS policy does not require project teams to work with the office to update cost estimates. Additionally, IRSs cost estimation guidance for project managers is inconsistent regarding how cost estimates should be related to a budget, an inconsistency that could lead to budget requests that do not accurately estimate program funding needs.
The IRDM programs earned value management (EVM) data did not meet data reliability criteria in the areas GAO reviewed. For example, the IRDM project schedule was not properly sequencedmeaning activities were not properly linked in the order in which they are to be carried out. In addition, surveillance was not conducted on IRDMs EVM system, as required by the Office of Management and Budget and the Department of the Treasury. Surveillance involves having qualified staff review an EVM system. Because IRDMs 2011 cost estimate is based on unreliable EVM data, it does not provide adequate support for IRDMs budget requests. Until IRS addresses deficiencies in the EVM data, it cannot provide a reliable cost estimate for IRDM.

What GAO Recommends

GAO recommends that IRS ensure that IRDM has a reliable cost estimate, require certain project teams to work with its Estimation Program Office, improve cost estimation guidance, and improve the reliability of IRDMs EVM data. IRS agreed with one, partially agreed with one, and disagreed with two of GAOs recommendations. GAO generally disagrees with IRSs concerns, and still believes the recommendations have merit.