NASA’s lack of a fully integrated financial management  system has also hurt the agency’s ability to collect, maintain, and report  the full cost of its projects and programs. Unlike NASA’s previous efforts to modernize its financial management  system, IFMP does not rely on a single contractor. Reliability of IFMP’s Current Life-Cycle Cost Estimate Is Uncertain Owing to a Lack of Disciplined Processes

The reliability of the current life-cycle cost estimate—which has fluctuated  since the initial estimate and is 14 percent greater than the previous  estimate established in February 2002—is uncertain because disciplined  cost-estimating processes required by NASA and recognized as best  practices were not used in preparing the estimate. Specifically, IFMP’s  life-cycle cost estimate did not include the full cost likely to be incurred  during the life of the program. In cases where work  breakdowns were used to prepare the estimate, the agency did not always  provide a clear audit trail. However, until  NASA uses more disciplined processes such as breakdowns of work in  preparing the program’s cost estimate, the reliability of the life-cycle cost  estimate will be uncertain and the program will have difficulty with  controlling costs. For example, the life-cycle cost estimate does not  include the following:  the cost to operate and maintain the system beyond 2010;  the cost of retiring the system;    enterprise travel costs, which are provided monthly by the NASA centers;  and  the cost of nonleased NASA facilities for housing IFMP. Program Schedule May Be Optimistic

Although NASA guidance requires sufficient program schedule margins  to manage risks, efforts to complete the integrated system as quickly as  possible might have resulted in a schedule that is too compressed to  accommodate program challenges, such as personnel shortages and  uncertainties about software’s availability. E-Government initiatives are already affecting  NASA’s planning for the payroll, procurement, and travel modules in  the integrated system. Processes Insufficient to Ensure Adequate Funding Set Aside for Contingencies

In addition to the uncertain reliability of IFMP’s life-cycle cost estimates  and optimistic schedules, NASA cannot ensure that the funding set aside  for program contingencies is sufficient because the program did not  consistently perform in-depth analyses of the potential cost impact of risks  and unknowns specific to IFMP, as required by NASA guidance. Moreover,  the program did not quantify the cost impact of identified risks, link its  risks to funding reserves, or consistently set aside cost contingencies for  these risks. The Budget Formulation module has already experienced shortfalls in  its reserves, and project officials expressed concerns that the module’s  functionality may have to be reduced. We  found that the program established funding reserves on the basis of  reserve levels set by other high-risk NASA programs, rather than on IFMP- specific risks as required by NASA guidance. Scope and Methodology

To assess the reliability of NASA’s methodology for preparing the  current cost estimate for IFMP, we reviewed program and project-level  documentation to obtain an understanding of NASA’s current cost  estimate and its major components and the methodology used to develop  the estimate.
Why GAO Did This Study

The National Aeronautics and Space Administration (NASA) has struggled to implement a fully integrated financial management system. The lack of such a system has affected the agency's ability to control program costs, raising concerns about the management of its most costly programs, including the space shuttle program and the International Space Station. In April 2000 NASA initiated the Integrated Financial Management Program (IFMP)--its third effort to improve the agencywide management of its resources. Implementation is expected by fiscal year 2006 with an estimated life-cycle cost of nearly $1 billion. This report (1) assesses NASA's methodology for preparing the current life-cycle cost estimate for implementing IFMP, (2) determines whether NASA's current schedule is reasonable, and (3) evaluates NASA's processes for ensuring adequate cost contingencies.

What GAO Found

The uncertain reliability of cost estimates, optimistic schedules, and insufficient processes for ensuring adequate funding reserves have put NASA's latest financial management modernization effort at risk. Over the past several years, IFMP's life-cycle cost estimates have fluctuated, and NASA's current estimate is 14 percent greater than the previous estimate. The reliability of these estimates is uncertain because disciplined costestimating processes required by NASA and recognized as best practices were not used in preparing them. For example, IFMP's current life-cycle cost estimate did not include the full cost likely to be incurred during the life of the program, including certain operations costs and costs to retire the system. In addition, NASA did not consistently use breakdowns of work in preparing the cost estimate, as recommended by NASA guidance. In cases where work breakdowns were used, the agency did not always show the connection between the work breakdown estimates and the official program cost estimate. This has been a weakness since the inception. Although more than half of the IFMP modules have been implemented--including the Core Financial module, which is considered the backbone of IFMP--the system may not be fully implemented by the end of fiscal year 2006 as planned. Efforts to complete the integrated system as quickly as possible might have resulted in schedule margins that are insufficient to manage program challenges--such as personnel shortages, uncertainties about software availability, and Office of Management and Budget (OMB) initiatives to implement electronic systems for agency business processes governmentwide. These OMB initiatives have put IFMP in a reactive mode and are already affecting planning for the payroll, procurement, and travel components of the integrated system, which could result in additional schedule delays and cost growth. Finally, reserve funding for IFMP contingencies may be insufficient, which is particularly problematic, given the program's unreliable cost estimates and optimistic schedule. One module--Budget Formulation--is already experiencing potential shortfalls in its reserves, and project officials expressed concerns that the module's functionality may have to be reduced. Yet the program continues to establish funding reserves based on reserve levels set by other high-risk NASA programs, such as NASA's space flight program--not on analyses of the potential cost impact of risks and unknowns specific to IFMP, as required by NASA guidance. Moreover, the program did not quantify the cost impact of high-criticality risks--also required by NASA--or link its risks to funding reserves to help IFMP develop realistic budget estimates.