Air Traffic Control:

Improved Cost Information Needed to Make Billion Dollar Modernization Investment Decisions

AIMD-97-20: Published: Jan 22, 1997. Publicly Released: Jan 22, 1997.

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GAO reviewed the reliability of the cost information critical to capital investment decisionmaking on air traffic control (ATC) projects, focusing on the Federal Aviation Administration's (FAA) processes for estimating what projects will cost and the related accounting for actual project costs.

GAO found that: (1) FAA's ATC modernization program's cost estimating processes do not satisfy recognized estimating requisites, and its cost accounting practices do not provide for proper accumulation of actual project costs; (2) the result is an absence of reliable project cost and financial information that the Congress has legislatively specified and that leading public-sector and private-sector organizations point to as essential to making fully informed investment decisions among competing ATC projects; (3) without this information, the likelihood of poor ATC investment decisions is increased, not only when a project is initiated but also throughout its life cycle; (4) with respect to cost estimating, FAA fails to meet five of the six process requisites that the Software Engineering Institute (SEI) says should be institutionally entrenched and consistently used for information technology projects; (5) in the absence of such institutional policies to guide ATC project cost estimating, FAA has adopted a cost estimating process that allows each ATC project to approach cost estimating in whatever manner its estimators choose; (6) the result is inconsistency in the rigor and discipline with which ATC project cost estimates are derived, which in turn means estimates of varying degrees of reliability; (7) when comparing the approaches that six ATC projects used to derive their current official life cycle cost estimates to SEI's project-specific criteria, GAO found that two were too poorly documented to permit any comparative analysis, while none of the remaining four satisfied all of the criteria SEI associates with highly credible estimates; (8) compounding these estimating process weaknesses is FAA's practice of presenting cost estimates as precise, point estimates; (9) by doing so, FAA fails to disclose the estimates' inherent uncertainty and risks, thus further limiting the estimates' decisionmaking value and credibility; (10) with respect to cost accounting, FAA is not accumulating all ATC project costs, and FAA does not have a cost accounting system for capturing and reporting the full cost of its ATC projects; (11) instead, FAA decisionmakers use accounting and financial management systems that omit relevant project costs, such as those associated with FAA project management; and (12) the result is that FAA cannot reliably measure the ATC projects' actual cost performance against established baselines, and cannot reliably use information relating to actual cost experiences to improve future cost estimating efforts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FAA has instituted cost estimating processes which include a means for dealing with externally imposed cost and schedule constraints. FAA officials explained that this is handled through the use of cost models, which allow cost estimators to factor in such constraints.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include processes for dealing with externally imposed cost or schedule constraints in order to ensure the integrity of the estimating process.

    Agency Affected: Department of Transportation

  2. Status: Closed - Implemented

    Comments: FAA has instituted cost estimating processes including guidance on calibrating cost models to reflect past performance.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include cost models calibrated and tuned to reflect demonstrated accomplishments on past projects.

    Agency Affected: Department of Transportation

  3. Status: Closed - Implemented

    Comments: FAA has instituted cost estimating processes that call for the use of standard cost estimating tools. These tools provide a structured approaches for estimating software size and software reuse.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include structured approaches for estimating software size and the amount and complexity of existing software that can be reused.

    Agency Affected: Department of Transportation

  4. Status: Closed - Implemented

    Comments: FAA agreed with this recommendation and has instituted cost estimating processes that include audit trails which record and explain cost model inputs.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include audit trails that record and explain all values used as cost model inputs.

    Agency Affected: Department of Transportation

  5. Status: Closed - Implemented

    Comments: FAA agreed to implement the recommendation and has initiated data collection and feedback practices that foster capturing and correctly interpreting data from work performed. Specifically, the agency has implemented lessons learned meetings after a system's implementation and is using earned value management and the Simplified Information Reporting Evaluation System, (SPIRE) database to track and analyze variances in estimated costs and schedules. However, because FAA does not yet capture actual costs, this information cannot yet be effectively fed back into the cost estimating process.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include data collection and feedback processes that foster capturing and correctly interpreting data from work performed.

    Agency Affected: Department of Transportation

  6. Status: Closed - Implemented

    Comments: FAA is encouraging product teams to disclose the inherent uncertainty and range of imprecision when briefing executive oversight agencies and the Congress on individual projects' costs. However, this information is not required.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to immediately begin disclosing the inherent uncertainty and range of imprecision in all ATC projects' official cost estimates presented to executive oversight agencies or the Congress.

    Agency Affected: Department of Transportation

  7. Status: Closed - Not Implemented

    Comments: While FAA concurred with this recommendation, the agency did not report to the Secretary of Transportation and FAA's authorizing and appropriation committees on progress being made on these recommendations as part of the agency's fiscal year 1999 budget submission.

    Recommendation: The Secretary of Transportation should direct the Administrator, FAA, to report to the Secretary and FAA's authorizing and appropriation committees on progress being made on these recommendations as part of the agency's fiscal year (FY) 1999 budget submission.

    Agency Affected: Department of Transportation

  8. Status: Closed - Implemented

    Comments: FAA concurred with the recommendation and has undertaken a major initiative to develop a system in compliance with financial standards. To date, FAA has made substantial progress in developing its cost accounting system, and has implemented a portion of the system. However, FAA still has much work to do to implement a full cost accounting capability.

    Recommendation: In light of FAA's weaknesses in accounting for and reporting ATC project costs, the Secretary of Transportation should direct the FAA Administrator to acquire or develop and implement a managerial cost accounting capability that will satisfy the requirements of SFFAS 4, Managerial Cost Accounting Concepts and Standards for the Federal Government. This system capability should provide the cost accounting and financial management information needed by FAA management and those who make investment decisions. Such information should include full life cycle costs, which include the costs of resources consumed by a project that directly or indirectly contribute to the output and the costs of identifiable supporting services provided by other organizations within the reporting entity.

    Agency Affected: Department of Transportation

  9. Status: Closed - Implemented

    Comments: FAA has established a corporate history database, which includes information on projects' estimated costs and schedules, revisions to these estimates, and relevant contextual information. However, the corporate history data base does not include data on actual costs.

    Recommendation: The Secretary of Transportation should direct the FAA Administrator to institutionalize defined processes for estimating ATC projects' costs. At a minimum, these processes should include a corporate memory (or historical database), which includes cost and schedule estimates, revisions, reasons for revision, actuals, and relevant contextual information.

    Agency Affected: Department of Transportation

  10. Status: Closed - Not Implemented

    Comments: FAA states that its lack of a cost accounting capability is not a material weakness.

    Recommendation: The Secretary of Transportation should report FAA's lack of a cost accounting capability for its ATC modernization as a material internal control weakness in the Department's fiscal year 1996 Federal Managers' Financial Integrity Act report and in subsequent annual FMFIA reports until the problem is corrected.

    Agency Affected: Department of Transportation

 

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