Life Cycle Cost Composition $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$ Life Cycle Cost Program Acquisition Cost Development Cost RDT & E RDT & E Development Costs of Development Costs of PME & Support Items MILCON Operations & PME & Support Items MILCON Operations & Systems Engineering Facilities Support Systems Engineering Facilities Support Program Management O&M, MILPERS Program Management • O&M, MILPERS Test & Evaluation Test & Evaluation Procurement Cost Weapon System Cost Disposal Flyaway Cost Disposal O&M (or others • O&M (or others as appropriate) PROCUREMENT as appropriate) PROCUREMENT PROCUREMENT PROCUREMENT Prime PROCUREMENT PROCUREMENT Prime Support Items Initial Spares Equipment Support Items Initial Spares Equipment

Cost Estimating Requirements ACAT IC & ID ACAT IA POE Program initiation & all subsequent Program initiation & all subsequent milestones, including FRP DR milestones - Includes Economic Analysis CARD Required same as ICE or CCA Required same as CCA - Draft 180 days prior to OIPT/milestone - Draft 180 days prior to OIPT/milestone - Final 45 days prior to OIPT/milestone - Final 45 days prior to OIPT/milestone CCA Usually serves as ICE for ACAT IC programs Program initiation & whenever - Prepared by component cost agency (AFCAA, Economic Analysis is required DASA-CE, NCCA) - Program initiation & all subsequent milestones including FRP DR - Prepared at MDA discretion for other programs ICE Required by law for all MDAP programs * - Prepared by OSD CAIG for ACAT ID and ACAT IC at discretion of USD (AT&L) *ICE statutory requirement (Title 10, US Code, Sec 2434) Source: DoDI 5000.2 As of: Jul 07 CARD: Basically must be prepared any time an independent estimate (ICE or CCA) is to be done POE: Every ACAT I and IA program must have a life cycle cost estimate at each milestone. This is inferred from DoD 5000.2R. Note that ACAT IA estimates are to include estimates of benefits as well as costs (to determine ROI). CCA: These requirements are taken from DoD 5000.2R. Note that a CCA serves as the ICE for an ACAT IC program when CAIG does not perform ICE. Why no CCA MSB for ACAT IA pgms? Majority of costs are in development ICE: Title 10, USC Sec 2434 requires ICE at MS II and III for MDAPs; DoD 5000.2R requires ICE at MS A, B, C. CAIG will do ICE for all ACAT ID programs and those ACAT IC programs requested by USD (A&T). Note that ACAT IA programs are not subject to Title 10 requirement because they are not weapon systems (MDAPs). TRANS: Now let’s take a look at the review process for these estimates ACAT II & ACAT III: POE (and CCA at MDA discretion) at program initiation and all subsequent milestones Acronym Legend AFCAA = Air Force Cost Analysis Agency CAIG = Cost Analysis Improvement Group CARD = Cost Analysis Requirements Description CCA = Component Cost Analysis DASA-CE = Dep Asst Sec of Army (Cost & Economics) FRP DR = Full Rate Production Decision Review ICE = Independent Cost Estimate MDA = Milestone Decision Authority MDAP = Major Defense Acquisition Program NCCA = Naval Center for Cost Analysis OIPT = Overarching Integrated Product Team POE = Program Office Estimate USD(AT&L) = Under Secretary of Defense (Acquisition, Technology, & Logistics)

Program Cost and Schedule Breach Parameters Applicable to Major Defense Acquisition Programs (MDAPs) SAR Unit Cost Report (UCR) APB (Title 10, US Code, Sec 2432) (Title 10, US Code, Sec 2433) (Nunn-McCurdy) (Title 10, US Code, Sec 2435) Schedule Milestones 6 Month Slip From Slip beyond threshold date * Default threshold = objective plus 6 mon; MDA discretion N/A Previous SAR 15%/30% PAUC Growth Cost 15/30% PAUC Growth 15/30% PAUC Growth 15%/30% APUC Growth (Current/Original) (Current/Original) (Current/Original) * RDT&E Growth 15/30% APUC Growth 15/30% APUC Growth * Procurement Growth (Current/Original) (Current/Original) * MilCon or O&M Growth * 10% default; MDA discretion Reports Required Quarterly SAR Quarterly/Exception DAES Program Deviation Rpt If Breach Occurs Service notifies Congress(>15/30%) (PM notifies MDA) SecDef Certification (>25/50%) ACAT II & III: 15%/30% PAUC/APUC APB breach parameters are N/A; actual breach parameters at MDA discretion Critical Cost Growth (APB/SAR/UCR) PAUC or APUC increases of 25% of current baseline or 50% of original baseline requires Sec Def certification to Congress: -- Essential to National Defense -- No alternatives -- Cost are under control -- Management is in place to keep costs under control Legend : APUC = Average Procurement Unit Cost APB = Acquisition Program Baseline PAUC = Program Acquisition Unit Cost SAR = Selected Acquisition Report DAES = Defense Acquisition Executive Summary Significant Cost Growth (APB/SAR/UCR) PAUC or APUC increases of 15% of current baseline or 30% of original baseline is “reportable” to Congress

1st year of a new administration (2nd year of new administration) PPBE - Planning Phase SEP DEC MAR APR/MAY President National Security Council CIA/DIA/JCS/OSD 1st Year 2nd Year Notes SPG replaces Draft Defense Planning Guidance (DPG) JPG replaces DPG COCOM – Combatant Commander CPR – Chairman’s Pgm Recommendation JCS – Joint Chiefs of Staff JPD – Joint Planning Document JPG – Joint Programming Guidance NSS – National Security Strategy NMS – National Military Strategy QDR – Quadrennial Defense Review SPG – Strategic Planning Guidance NSS 1st year of a new administration CPR SECDEF 2003 House Auth Rpt (HASC) directed DoD to prepare NMS biennially (even-yr) starting 15 Feb 2004 What does the planning phase look like in an off-yr when there’s no DPG? Graphic description: Titled Planning Phase. Boxes represent actors; ovals represent documents. Box in top left labeled “President, National Security Council, CIA/DIA/JCS/OSD”. Arrow from this box points down to oval labeled “National Security Strategy (NSS)”. Note next to NSS oval reads “1st year of a new administration”. Arrow from NSS oval points down to box labeled “JCS, Combatant Commands (COCOMs), Services”. Arrow from this box points to the right to oval labeled “National Military Strategy (NMS)”. Note below NMS oval reads “Strategy also reflected in Quadrennial Defense Review (QDR)”. Arrow from NMS oval points right to oval labeled “Joint Planning Document (JPD)”. Arrow from JPD oval points right to oval labeled “Draft Defense Planning Guidance (DPG)”. Arrow from this oval points right to box labeled “JCS, OSD, COCOMs, Service Headquarters, etc.” Arrow from this box points right to oval labeled “DPG.” Another arrow from the JPD oval points up and to the right to an oval labeled “Chairman’s Program Recommendations (CPR)”. Arrow from CPR oval points right to box labeled “SECDEF”. Arrow from SECDEF box points down to DPG oval. Timeline across top of graphic shows (left to right) JPD occurring in Sep of 1st year; Draft DPG in Feb of 2nd year; CPR in Mar, and DPG in Apr/May. JCS COCOMs SERVICES NMS JPD SPG JPG JCS, OSD, COCOMs, SVC HQs, ETC. Strategy also reflected in QDR (2nd year of new administration)

PPBE - Concurrent Program/Budget Review AUG OCT NOV DEC JAN/FEB 3-Star Group BES – Budget Estimate Submission COCOM – Combatant Commander CPA – Chairman’s Pgm Assessment DAWG – Deputy’s Advisory Working Group MBI – Major Budget Issues PB – President’s Budget PBD – Program Budget Decision PDM – Program Decision Memo POM – Program Objectives Memo SLRG – Senior Leadership Review Group OSD/ OMB Issue Resolution POM SECDEF SLRG&DAWG PDM CPA JCS Services PEO/PM, SVC HQs COCOMs Notes 3-Star Group replaces Program Review Group (PRG) SLRG replaces Defense Resources Board (DRB) Graphic description: Titled Concurrent Program/Budget Review. Box on left labeled “Services, PEO/PM, Svc HQs, COCOMs”. Two arrows animate, one up and to the right to oval labeled “Program Objectives Memorandum (POM)” and one down and to the right to oval labeled “Budget Estimate Submission (BES)”. Two arrows animate from POM oval, one up and to right to oval labeled “Issue Resolution” with overlapping box labeled “OSD/OMB”; the second arrow goes down and to the right to oval labeled “Chairman’s Program Assessment (CPA)” with overlapping box labeled “JCS”. Arrows animate right from CPA and Issue Resolution ovals meet at box labeled “SECDEF/Defense Resources Board (DRB)”; arrow from this box animates right to oval labeled “Program Decision Memorandum (PDM)”. Next, arrow animates right from BES oval to two offset overlapping long ovals labeled “Advance Questions/Hearings” and “Program Budget Decisions (PBDs)”. A box labeled “OSD/OMB” overlaps the Advanced Questions oval. A note labeled “Services/PEO/PM answer/reclama” has arrows pointing to both the Advanced Questions oval and the PBDs oval. An arrow animates down from the PDM oval to the PBDs oval. An arrow from the PBDs oval animates right to an oval labeled “Major Budget Issues (MBI)”. A final arrow animates right from MBI oval to oval labeled “President’s Budget (PB)”. Two boxes labeled “Updates FYDP” appear under the BES and PB ovals. A timeline across the top of the graphic indicates POM/BES submittal in August, PDM release in November, MBIs in December and PB submittal in Jan/Feb. OSD/ OMB Adv Ques/ Hearings BES PBDs MBI PB Updates FYDP Updates FYDP Services / PEO / PM Answer / Reclama

PPBE – Off-Year Program/Budget Review FY09-13 (Aug 07 – Feb 08) No POM submissions Focus priority on FY09 Program of record remains FY08 PB Minimize programmatic changes Change Proposal (CP) is vehicle to request changes to program of record No FYDP update until FY09 PB Complete BES submission provided to OUSD (C) must incorporate all baseline changes Program/Budget Review Process 3-Star Group oversees CP review DAWG considers major issues and advises SECDEF Budget issues reviewed & coordinated through PBD process SECDEF makes final resource decisions Approved changes & decisions documented in PDMs & PBDs This is the schedule we have for the FY 07-11 Off-Year cycle; they are all Key dates However, note that: Fact-of-Life information is due 1 August with OSD decisions being made by 15 August Service and Agency Change Proposals are due 6 September, along with electronic submissions of OSD-accepted Fact-of Life justification material and any other material OSD may have requested OSD expects to complete a review of the Service and Agency-submitted Change Proposals by 30 September They’ll review for compliance with the guidance and acceptability of the offsets Those that are accepted will be assigned to PA&E or USD(C) for further issue development and resolution Please note that, as I said before, OSD staff will prepare any Change Proposals considered necessary to implement BRAC and QDR decisions that are made prior to submission of the FY 07 Pres Bud The overall process should be complete by 20 December with the DoD budget lock This is a good time to point out that the 12 May Memo announcing the Procedures and Schedule for FY 07-11 Integrated Program and Budget Review stated that detailed instructions will be provided later in another document and on the Program Review website

Resource Allocation Process CY07 CY08 CY09 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D FY07 Execution 2nd Yr 3rd Yr FY07 and prior FY08 Enactment Execution 2nd Yr 3rd Yr FY08 FY08 and prior PB FY09 Planning Program/Budgeting Enactment Execution 2nd FY09-13 SPG/JPG FY 09-13 “Change Proposals” FY09 FY09 and prior PB FY10 Planning Program/Budgeting Enactment Exec FY 10-15 SPG/JPG FY 10-15 POM FY 10-11 BES FY10 FY10 & prior PB FY11 Planning Program/Budgeting FY 11-15 SPG/JPG FY 11-15 “Change Proposals” SPG – Strategic Planning Guidance JPG – Joint Programming Guidance POM – Program Objectives Memorandum BES – Budget Estimate Submission

Congressional Enactment Timetable JAN FEB MAR APR MAY JUN JUL AUG SEP OCT ^ 15 15 PRES BUDGET “TARGET” FISCAL YEAR COMMITTEE INPUTS FLOOR HRNGS MARKS FLOOR HRNGS MARKS FLOOR HOUSE SENATE AUTHORIZATION APPROPRIATION BUDGET RESOLUTION CONF ^ RESOLUTION BILL / RPT This is a notional timetable -- based on perfect conditions (which almost never happens in real life.) Committees (HBC/SBC, HASC/SASC, HAC-D/SAC-D) Budget Resolution is not a law, but ceilings are binding If point of order because ceiling exceeded, 60% vote to pass Should be passed before Auth/Approp begin debating legislation Auth/Approp all going on at same time (House tends to lead Senate) Language (Committee and Conference Reports) TRANSITION: Now that we’ve seen the overall flow of a bill through Congress, let’s look at what DoD can do to affect Congressional action during the process. After the Committees mark up the PB, DoD attempts to convince Congress that some of the marks will be counterproductive -- these are called appeals. SAC HRNGS MARK-UP FLOOR HAC HRNGS MARK-UP FLOOR SASC HRNGS MARK-UP FLOOR HASC HRNGS MARK-UP FLOOR FLOOR CONF /RPT ^ ACT ^ ACT

Below Threshold Reprogramming Amounts are Cumulative Over Entire Period of Obligation Availability APPRN MAX INTO MAX OUT LEVEL OF CONTROL OBL AVAIL Lesser of - $10 M or - 20% RDT & E + $10 M Program Element 2 Years Lesser of - $20 M or - 20% 3 Years SCN: 5 Years + $20 M Line Item PROC None , unless otherwise specified Budget Activity (or Defense Agency) Some BA 1 Sub-Activity Limitations on Decreases (Operating Forces) O & M + $15 M 1 Year No Specific Congressional Restriction + $10 M MILPERS Budget Activity 1 Year BTR actions are approved by individual services. Service Comptrollers can reprogram these amounts without prior approval of SECDEF or Congress. These thresholds apply only within Appropriation accts and within the same FY Delegated to different levels in each Service Must identify source as well as bill Go thru thresholds MILCON has its own appropriation bill (and its own rules in the FMR) Obligation Availability: Remember that when we talk about reprogrammings, we’re only talking about those available years (01/02 for RDT&E, 00, 01, 02 for procurement). 03 is in prep for PBl. Moving money in the FYDP (03 & out) is called Zero Based Transfer (ZBT) TRANSITION: What happens to funds that are no longer available for obligation? To answer that we have to revisit appropriation life. Lessor of + $2 M + 25 % No Specific Congressional Restriction MILCON Project 5 Years Reference Source: USD (C) Memo; SUBJECT: FY 2006 Below Threshold Reprogramming Authority Policy, 10 Feb 2006