Major Management Challenges and Program Risks: National Aeronautics and
Space Administration (Letter Report, 01/01/2001, GAO/GAO-01-258).

This report, part of GAO's high risk series, discusses the major
management challenges and program risks facing the National Aeronautics
and Space Administration (NASA). GAO identified four areas of concern
that warrant increased NASA attention, including contract management,
space station costs, space exploration strategies, and human capital
management.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-258
     TITLE:  Major Management Challenges and Program Risks: National
	     Aeronautics and Space Administration
      DATE:  01/01/2001
   SUBJECT:  Risk management
	     Accountability
	     Internal controls
	     Contract oversight
	     Cost control
	     Personnel management
	     Space exploration
IDENTIFIER:  High Risk Series 2001
	     GAO High Risk Program

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GAO-01-258

Performance and Accountability Series

January 2001 Major Management Challenges and Program Risks

National Aeronautics and Space Administration

GAO- 01- 258

Letter 3 Overview 6 Major

11 Performance and Accountability Challenges

Related GAO 31

Products Performance

34 and Accountability Series

Lett er

January 2001 The President of the Senate The Speaker of the House of
Representatives

This report addresses the major performance and accountability challenges
facing the National Aeronautics and Space Administration (NASA) as it seeks
to advance human exploration and development of space, advance and
communicate scientific

knowledge, and research and develop aeronautics and space technologies. It
includes a summary of actions that NASA has taken and that are under way to
address

these challenges. It also outlines further actions that GAO believes are
needed. This analysis should help the new Congress and administration carry
out their responsibilities and improve government for the benefit of the
American people.

This report is part of a special series, first issued in January 1999,
entitled the Performance and Accountability Series: Major Management
Challenges

and Program Risks. In that series, GAO advised Congress that it planned to
reassess the methodologies and criteria used to determine which federal
government operations and functions should be highlighted and which should
be designated as “high risk.” GAO completed the assessment,
considered comments provided on a publicly available exposure draft, and
published its guidance document, Determining Performance and Accountability
Challenges and High Risks (GAO- 01- 159SP), in

November 2000. The full 2001 Performance and Accountability Series contains
separate reports on 21 agencies- covering each cabinet department, most
major independent

agencies, and the U. S. Postal Service. The series also includes a
governmentwide perspective on performance and management challenges across
the federal government. As a companion volume to this series, GAO is issuing
an update on those government operations

and programs that its work identified as “high risk” because of
either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency,
or effectiveness.

David M. Walker Comptroller General of the United States

Overview The National Aeronautics and Space Administration's (NASA) mission
encompasses human exploration and development of space, the advancement and
communication of scientific knowledge, and research and development of
aeronautics and space technologies.

Its activities span a broad range of complex and technical endeavors- from
investigating the composition, evaluation, and resources of Mars; to working
with its international partners to complete and

operate the International Space Station; to providing satellite and aircraft
observations of Earth for scientific and weather forecasting purposes; to
developing new technologies designed to improve air flight safety. Overall,
NASA spends more than $12 billion annually for goods and services supporting
these and other activities, mostly on contracts with businesses and other
organizations.

Since 1990, we have identified a number of major management challenges at
NASA. Currently, four challenges warrant increased NASA attention, including
one area- contract management- that we are continuing to categorize as high
risk. As highlighted in this overview, NASA has made substantial progress in

addressing these challenges. Nevertheless, key steps remain.

Correcting weaknesses in contract management ? Controlling International
Space Station

development and support costs ? Effectively implementing the faster- better-
cheaper

approach to space exploration projects ? Integrating a human capital
approach into NASA's

workforce management strategies

Contract Much of NASA's success depends on the work of its

Management contractors- on which it spends the greatest part of its funds.
As such, it is exceedingly important for NASA to have accurate and reliable
information on contract

spending and to exercise effective contract oversight. In 1990, however, we
identified NASA's contract management function as an area at high risk due
to its ineffective systems and processes for overseeing contractor
activities. At that time, there was little emphasis on end results, product
performance, and cost control; the acquisition process itself was cumbersome
and time- consuming; and NASA found itself procuring expensive hardware that
did not work properly.

NASA has made progress in developing systems to correct some weaknesses-
notably by strengthening performance measurement and introducing widely
accepted standards for managing procurement activities. However, until its
integrated financial management system, which is central to providing

effective management and oversight over its

procurement dollars, is operational, performance assessments relying on cost
data may be incomplete, and full costing will be only partially implemented.
Therefore, the agency's contract management function remains a high- risk
area.

We have also reported that NASA is continuing to rely on undefinitized
change orders- that is, contract changes initiating new work before NASA and
the contractor agree on a final estimated cost and fee- to complete work on
its largest space station contract. This is a risky

way of doing business because it increases the potential for unforeseen cost
increases and scheduling delays. Space Station Costs The International Space
Station is characterized as one

of the most challenging engineering feats ever attempted. When assembly is
completed, the space station will be a football field- sized laboratory
manned by up to seven crewmembers. However, until the space station is
completed, NASA will continue to face challenges in controlling the cost and
schedule of the program. Initially, the prime contract for the space station
was expected to cost over $5. 2 billion, and the assembly of the station was
expected to be completed in June 2002. By October 2000, the prime
contractor's cost had grown to about $9 billion, of which $986 million was

for cost overruns. Moreover, the prime contractor has advised NASA of its
intent to submit additional claims totaling between $200 million and $300
million. The assembly sequence is now expected to be completed by April
2006. NASA's Office of Inspector General reported the same cost overrun
increase of $986 million in a

February 2000 audit report on performance management of the International
Space Station. The Inspector General stated that the prime contractor
attributed part of this increase to contractor reorganization activities.

In response to the Inspector General's recommendations, NASA agreed to take
several actions, including discussing the prime contractor's cost
performance at regularly scheduled meetings and preparing monthly written
reports to senior management on the overrun status. NASA's continued ability
to meet space station schedules will dictate whether previously experienced
station cost growth will

be mitigated. We have reported that space station cost growth stemmed in
many cases from schedule delays- particularly with Russian and U. S.- built
components.

Faster- BetterCheaper NASA faces the challenge of exploring numerous planets
and other distant bodies in a low- cost way. To meet this challenge, NASA
has embarked on an approach that emphasizes less complex designs that can

be assembled quickly and launched at lower cost. However, the recent failure
of two faster- better- cheaper Mars probes shows that there are limits to
this approach. NASA- sponsored investigative boards recently found that
opportunities to identify and resolve problems prior to launch were missed
due to poor communications, budget pressures, and poor management and
engineering practices. Also, senior management officials were not aware of
how much trouble the programs were in. NASA also faces

significant challenges as it attempts to create highly reliable missions and
faster more open communications under the budget constraints of its faster-
better- cheaper space exploration strategy. Until NASA resolves these
problems and finds an effective way to capture and disseminate lessons
learned on an agencywide basis, space exploration programs using this
approach may not achieve their objectives, and NASA's financial resources
will remain vulnerable to ineffective use.

Human Capital The space shuttle is the world's first reusable space
transportation system. Since it is the nation's only launch system capable
of carrying people to and from space, its viability is critical to other
space programs such as the International Space Station. Nevertheless,

since 1995, the shuttle workforce has decreased by more than one- third.
Several internal NASA studies have shown that the shuttle program's
workforce has been affected negatively by such downsizing. In particular,
the shuttle program has identified many key areas that are not sufficiently
staffed by qualified workers, and the remaining workforce shows signs of
overwork and fatigue. Moreover, the program's demographic shape and skill
mix jeopardize the program's ability to “hand off” leadership
roles to the next generation and achieve a higher flight rate to support
assembly of the International Space Station.

NASA has begun taking actions to address workforce problems. For example, it
has discontinued its downsizing plans and has hired 114 full- time personnel
to support current shuttle program operations requirements and shuttle
program upgrades. It has also undertaken a joint review with the Office of
Management and Budget to address personnel issues that will enable it to
identify its overall future workforce needs. At the outset, NASA used a
draft human capital

self- assessment checklist we published as a guide in discussions with the
Office of Management and Budget. A final version of the checklist was
published in September 2000. Continued NASA management emphasis on human
capital planning will be critical to continued safe shuttle operations in an
environment of increasing shuttle flights.

Major Performance and Accountability Challenges

Correcting NASA spends more than $12 billion annually for goods

Weaknesses in and services- ranging from procurements of expensive

Contract space hardware to contracts for research and Management

development- related services. As such, much of NASA's success hinges on its
contractors. Moreover, with most of its funds going to outside businesses
and other organizations, it is exceedingly important that NASA have good
control and oversight over its procurement dollars.

In 1990, we began a special effort to review and report on federal program
areas that our work had identified as high risk because of vulnerabilities
to waste, fraud, abuse, and mismanagement. We identified NASA's contract
management as an area at high risk because it lacked effective systems and
processes for overseeing contractor activities. Specifically, little
emphasis was being placed on end results and on controlling costs.

Procurement processes themselves were cumbersome and time- consuming. In
1992, we reported that the agency still had ineffective systems and
processes for overseeing contractors' activities and that NASA field centers
had failed to comply with contract management requirements. Since then, NASA
has made progress in addressing its contract management challenges. In July
1998, for example, we reported that NASA was developing systems to provide
oversight and information needed to improve contract management and that it
had made progress evaluating its field centers' procurement

activities on the basis of international quality standards and its own
procurement surveys. In January 1999, we found that NASA was implementing
its new system for

measuring procurement- related activities and had made progress in
evaluating procurement functions at its field centers.

Nevertheless, as discussed below, key issues remain. For example, in 1998
and again in 1999, we reported that NASA had delayed implementation of its
integrated financial management system- which was central to producing
accurate and reliable information needed to support contract management.
Moreover, in 2000, we reported that NASA needed to rely less on the use of
undefinitized contract actions- that is, unnegotiated contract changes- as a
way of doing business since this practice could result in contract cost
overruns and cost growth in the International Space Station program. NASA
Delayed Modernizing NASA's financial management systems is Implementation of
key to providing better oversight over contract Integrated Financial

management activities. However, according to NASA, Management System

the agency's financial management environment is comprised of decentralized,
nonintegrated systems with policies, procedures, and practices that are
unique to its field centers. For the most part, data formats are not
standardized, automated systems are not interfaced, and

on- line financial information is not readily available to program managers.
Thus, it is difficult to ensure contracts are being efficiently and
effectively implemented and budgets are executed as planned. In addition,
NASA has pointed out that the cost to maintain these systems has been high,
since both data and software are replicated at each field center. To correct
these problems, on September 18, 1997, NASA awarded a fixed- price contract,
valued at $186 million, to provide a NASA- wide integrated financial
management system primarily based on

commercial off- the- shelf software. The contract required that the
integrated financial management project be implemented at all NASA centers
by July 1, 1999. From its inception, the project experienced significant
development and implementation problems. Work was stopped on the contract in
March 2000. On October 13, 2000, a settlement agreement was reached

between NASA and the contractor to terminate the contract for the
convenience of the government. NASA's total cost for the unsuccessful
attempt to implement the integrated financial management project was

$131 million. NASA is undertaking its third attempt to implement the
integrated financial management project. Its approach focuses on learning
from other organizations' successes

in implementing similar projects, as opposed to revisiting its own failures.
NASA has also abandoned the single product approach that the two prior
attempts had as their basic architecture. Instead, the project will be
broken down into implementable modules on the basis of the availability of
proven software products. Specifically, NASA has segmented implementation of
the integrated financial management project into 14 modules, with estimated
completion scheduled in fiscal year 2007. The first project scheduled for
completion is the core financial project for acquiring and implementing
financial software to serve as the

backbone for all the other projects. However, NASA has established only
tentative planning dates for full implementation.

Until the core financial project is operational, NASA has devised an interim
approach, which it believes will achieve certain benefits associated with
full- cost accounting practices. The concept of full- cost accounting ties
all agency costs (including civil service personnel costs) to major
activities. NASA officials expect this approach to provide complete cost
information to management for more fully informed decision- making. In
September 1999, NASA's Chief Financial Officer directed that (1) the centers
initiate full- cost accounting activities in fiscal year 2000; (2) the focus
in the immediate future be on providing full cost reports to center project
managers; and (3) NASA not plan to spend significant amounts on enhancing
existing systems on the basis of current plans to replace many of

these systems, if not all, in the future. NASA plans to follow this interim
approach until the core financial project is operational at all centers
(estimated in 2003).

NASA Has In response to our March 1997 report on NASA's Implemented Its New

contract management and our observation on the System for Measuring agency's
need to produce accurate and reliable Procurement- Related procurement-
related information, NASA implemented a Activities

revised system of procurement metrics in fiscal year 1999. This revised
system involves the development of measurable performance metrics,
benchmarking these metrics, and the development of both NASA headquarters
and agencywide procurement customer satisfaction surveys for timeliness,
quality, and service. According to a NASA official, the purpose of the

initiative is to help procurement managers measure and improve the
performance of their organizations. NASA conducted a customer satisfaction
survey in 1999. It showed that most participants were satisfied with
procurement services quality, timeliness, and customer service. A second
survey, now being analyzed, will further assess satisfaction in
communication, customer service, meeting mission goals, and procurement

knowledge and skills. NASA Has Made To strengthen contract management across
the agency, Progress in NASA now requires a management system that, at a
Evaluating minimum, complies with the International Organization Procurement
at Its

for Standardization (ISO) 9000 1 series of standards, Field Centers

which includes a standard for purchasing. The ISO 9000 series consists, in
part, of 20 quality management and assurance standards. The general
purchasing standard 1 ISO is a worldwide federation of national standards
bodies from some 130 countries. ISO 9000 standards provide a framework for

quality management and quality assurance.

states that the supplier (for example, NASA's field centers' procurement
offices) shall establish and maintain documented procedures to ensure that
purchased products conform to specified requirements.

In April 1998, NASA's procurement officers agreed that a combination of ISO
9000 external and internal audits and procurement surveys should provide
sufficient confidence in the soundness of NASA's procurement system. A NASA
procurement official stated that NASA survey teams are currently conducting
self- assessments

and extensive audits of center operations on a 3- year schedule.
Furthermore, NASA headquarters and all centers were certified as ISO 9000
compliant by authorized independent accreditation organizations as of the
end of fiscal year 1999. NASA Continues to NASA officials can authorize work
to begin on a Use Undefinitized

contract change before NASA and the contractor agree Contract Actions

on a final estimated cost and fee. Such changes are referred to as
undefinitized contract actions- that is, unnegotiated contract changes.
Relying on unnegotiated changes as a way of doing business is risky because
it increases the potential for additional unanticipated cost growth. This,
in turn, may force an agency to divert scarce budget resources intended for
other important programs. In view of this risk, the Federal Acquisition
Regulation and current NASA policy state that work on contract changes that
have not been negotiated should

occur on an exception basis and be limited to urgent requirements. Both
NASA's Office of the Inspector General and we have reported our concerns
about NASA's frequent use of undefinitized contract changes. In May 2000, we
reported that NASA authorized 593 changes to the space station prime
contract in fiscal years 1998 and 1999. The cost of these changes amounted
to $897. 7 million. Of the 593 changes, 280 added capability or revised
initial

designs. Added capabilities were to increase the station's operational
performance, especially in meeting research needs. Revisions of initial
designs included changes to (1) correct operability and design deficiencies
and (2) reduce cost, schedule, and technical risks. The total estimated cost
of changes made to add capabilities and revise initial designs was $368. 1
million.

NASA officials have stated that because the space station program is complex
and is nearing completion of the design, development, test, and evaluation
stage of the program, the agency expects many urgent changes in the future.
While they recognize that beginning work on contract changes that have not
been negotiated is not

the preferred way of doing business, NASA officials believe that such
changes are necessary in order to avoid delaying the space station program
schedule,

modify ongoing work, or reduce the cost of a change by taking advantage of
other ongoing work. Our recent review of space station prime contract
changes, however, showed that unnegotiated change orders accounted for more
than one- half of all authorized changes and 98 percent of the cost of
changes whereas the Federal Acquisition Regulation limits the use of such
change orders to an exception basis. Moreover, the practice puts NASA at
risk to unanticipated cost increases that may require funding

reallocations and negatively impact other critical NASA programs. Contract

While NASA has made progress in correcting some Management weaknesses in
contract management, it has not yet Remains a High- Risk

established a financial management system or Area integrated it with full-
cost accounting practices. NASA is starting its third attempt on this effort
by segmenting implementation of the project into 14 modules, with completion
tentatively scheduled in fiscal year 2007. This effort will require
continued management attention

to correct problems and keep projects on schedule. NASA included an
objective in its fiscal year 2000 strategic plan to continue to develop a
new integrated financial management system. The strategic plan notes that
the integrated financial management project and other initiatives, such as
full- cost accounting, will improve NASA's financial resource management.
Until the system is operational, performance assessments relying on cost
data may be incomplete and full costing will be only partially implemented.

In NASA's view, with the exception of an integrated financial management
system, significant progress has been made resolving those contract
management challenges related to the procurement function, notably,
measuring procurement- related activities and evaluating procurement
activities at its field centers. Therefore,

NASA officials believe designating contract management as a major management
challenge and high- risk area is no longer warranted. While these actions
are steps in the right direction, more actions are required to provide for
effective oversight and management of the entire contract implementation
process. Principally, NASA still needs an effective and efficient integrated
financial management system as well as cost controls, particularly for the
International Space Station program. Moreover, NASA's Inspector General and
we have repeatedly reported on the need to limit the use of undefinitized
contract change orders to prevent further unanticipated cost increases and

scheduling delays. Therefore, we are retaining contract management as a
major management challenge and a high- risk area.

Controlling NASA and its international partners- Japan, Canada,
International Space

the European Space Agency, and Russia- are building a Station space station
as a permanently orbiting laboratory to Development and conduct research on
materials and life sciences, to Support Costs

observe the earth, and to provide commercial services under nearly
weightless conditions. In December 1998, NASA successfully coupled the first
two elements of the space station in orbit. Since then, several other
missions have been successfully launched, including the Russianprovided
Service Module in July 2000. However, cost estimates continue to increase
substantially. Prime Contract and

Initially, the prime contract for the space station was Nonprime Activity

expected to cost over $5. 2 billion, and the assembly of Costs Continue to
the station was expected to be completed in June 2002. Increase

In September 1997, we reported that the cost and schedule performance of the
space station's prime contractor, which showed signs of deterioration in
1996, had continued to worsen steadily and that program financial reserves
for contingencies had deteriorated, principally because of program
uncertainties and cost overruns. At that time, we also reported that NASA
had

questioned the accuracy of the prime contractor's reported estimate of the
cost overrun at completion. On the basis of an internal review, the prime
contractor more than doubled its estimate of the total cost growth at
contract completion, from $278 million to $600 million. We also reported
that NASA had become concerned with Russia's ability to meet its
commitments. As shown in table 1, costs for the station have continued to
escalate since our 1997 report- leading to funding shortfalls and subsequent
delays in assembly of the station.

Table 1: Space Station Cost Escalation May 1998 We reported that the life-
cycle cost estimate to develop, operate, and decommission the station had
increased by about $2 billion since 1995, to about $95.6 billion. The
increase in development cost was offset by a dramatic reduction in NASA's
estimate of the shuttle support costs for the station. ? Also, the final
assembly date of the station slipped from June 2002 to December 2003 and a
number of potential program changes, including additional schedule delays
and the need for more shuttle launches, threatened to further increase
costs. Moreover, financial reserves appeared inadequate, considering that
development was still about 6 years from completion.

January 1999 ? We reported that the program was still facing cost and
schedule challenges. NASA continued to identify cost growth and limited
reserves as major program concerns and gave added attention to problems with
nonprime contractors. The prime contractor's latest estimate of cost
overruns at completion increased from $600 million to over $780 million. ?
We reported that cost increases had negatively impacted the program. In
October

1998, NASA and its partners revised the official assembly sequence, adding
additional shuttle flights and extending the assembly date of the station to
July 2004.

August 1999 ? We reported that the estimated development costs for the
station were between $24 billion and $26 billion primarily due to further
schedule slippage and Russian manufacturing delays. The prime contractor's
estimate of cost overruns at assembly completion increased from $783 million
to $986 million.

? We also reported that one mechanism that could help managers deal with
cost growth risks was a thorough risk management plan. Such a plan could
force managers to identify and cost out all major program risks and develop
effective strategies for mitigating risks. We recommended that NASA finalize
the overall space station plan before the launch of the Service Module, an
important component.

February 2000 ? NASA's Office of Inspector General reported on the station's
cost overrun of $986 million on the basis of its review of performance
management of the space station contract and stated that the prime
contractor attributed part of the cost overrun to unexpected cost increases
due to contractor reorganization activities. a The Inspector General made 14
recommendations aimed at strengthening space

station performance management and minimizing or eliminating the cost impact
to NASA of contractor restructuring activities. September 2000 ? NASA
officials stated that on the basis of the agency's review of the cost
estimate at completion in June 2000, the prime contractor was still
estimating cost overruns at $986 million. b Moreover, the prime contractor
advised NASA of its intent to submit claims totaling between $200 million
and $300 million. NASA indicated that it could not comment on the validity
of the claims since they had not yet been submitted for adjudication. ?
NASA's own projections predicted a cost overrun at assembly completion of
about $1.2 billion, due to additional costs to rework flight hardware and
software to resolve problems relating to integration, parts quality, and
pre- launch testing. NASA officials indicated that the agency was taking
steps to increase its vehicle

development budget reserves to cover the potential impact of the prime
contractor's claims. NASA's most recent station assembly sequence showed a
final assembly date of April 2006. a Review Report: Performance Management
of the International Space Station Contract (IG- 00- 007; Feb. 16, 2000).

b In December 2000, NASA officials stated that by October 2000, the prime
contract cost had grown to about $9 billion, of which $986 million was for
cost overruns.

Figure 1 shows the trend of estimated cost overruns for the prime contract
and NASA's budget for overruns.

Figure 1: Estimates of Prime Contract Cost Overruns at Completion

1400 Dollars in millions

1200 1000

800 600 400 200

0 95

96 96

96 96

97 97

97 97

98 98

98 98

99 99

99 99

00 00

00 Dec- Mar- Jun- Sept- Dec- Mar- Jun- Sept- Dec- Mar- Jun- Sept- Dec- Mar-
Jun- Sept- Dec- Mar- Jun- Sept- NASA budget for cost overruns

Prime contractor cost overruns

Source: NASA

In the past, we reported that NASA had initiated a number of actions to
mitigate the impact of cost increases and delays that affected the assembly
completion milestones. These actions included (1) negotiating with partners
to provide hardware

associated with the U. S. commitment in return for launch services or other
considerations; (2) dropping components from the design; (3) transferring
funds from other NASA programs, notably science funding; and (4) deferring
activities, such as the procurement of spare parts, until later fiscal
years. We also reported in August 1999 that the costs of the nonprime
portion of the program's development budget- activities related to science
facilities and ground and vehicle operations- had increased from $8. 5
billion in 1994 to over $12. 4 billion by early 1999. The increase was due
largely to added scope and schedule slippage. NASA began undertaking
initiatives to improve its oversight of nonprime contract activities,
including requiring periodic evaluations and increasing visibility through
high- level reviews. In September 2000, NASA officials told us that although
numerous minor

changes had been made to the content of the nonprime budget, the overall
budget outlook had remained constant since our August 1999 report. NASA
provided information that indicated that nonprime costs totaled
approximately $12. 5 billion, slightly higher than the $12.4 billion in our
August 1999 report. According to NASA officials, the agency is continuing to
undertake initiatives to improve the oversight of nonprime contract
activities. Overall Contingency We reported in August 1999 that because of
Russia's Plan Not Yet

continuing funding problems, NASA had developed a Approved

multifaceted contingency plan to mitigate the risk of further delays in the
Russian Service Module and the possibility that the Russians may not provide
reboost capability for the station. The contingency plan provided for
financial assistance to the Russian Space Agency and development of
additional U. S. hardware. We further stated in our August 1999 report that
while NASA had a plan to deal with Russian nonperformance, it did not have
an approved overall contingency plan to address

space station development issues involving all partners. NASA identified the
lack of such a plan as a program risk and, in response, drafted a plan to
address issues such as late delivery or loss of critical hardware.

However, the plan lacked an estimate of the potential cost of all
contingencies. According to program officials, the higher priority items
included in the overall contingency plan would ultimately be costed. We
recommended that the NASA Administrator direct the station program manager
to finalize the overall contingency plan before the Russian Service Module
was launched to minimize the potential of further schedule disruptions and
related cost increases. As of

September 2000, the plan was still a draft and had not been approved by all
station partners. Also, the potential cost of all contingencies in the plan
had not been estimated. We continue to believe that completion of such a
plan is critical if potential disruptions and related

cost increases are to be minimized. Space Station Cost NASA's fiscal year
2000 and 2001 performance plans do Control and not include performance
measures that directly address Contingency

space station cost control issues or risk mitigation Planning Are Not
activities and contingency planning. These plans include Adequately

an objective to deploy and use the space station to Addressed advance
scientific, exploration, engineering, and commercial objectives. However, we
reported in June 2000 that the objective would be strengthened if
performance measures that clearly addressed space

station cost control and risk mitigation issues were established. Also, in
addressing factors that could influence NASA's ability to achieve its goals
and objectives, NASA's 2000 strategic plan states that NASA has developed
alternate courses of action in the event an International Space Station
partner is unable to meet a

commitment. The value of this statement would be strengthened if the plan
went a step further and briefly described some of the actions NASA had
developed or referenced a separate plan that included such actions.

We will continue to monitor NASA's annual performance and strategic plans to
determine the progress the agency is making in addressing cost control
issues and risk mitigation activities and contingency planning.

Effectively To meet the challenge of exploring space in a low costway,

Implementing the NASA began following a faster- better- cheaper Faster-
BetterCheaper

management philosophy in 1992. The approach focuses Approach

on building less expensive space probes much quicker to Space than in the
past. It is intended to stimulate innovative Exploration

development and application of technology, streamline policies and
practices, and energize and challenge a workforce to continue to safely and
successfully undertake bold new missions in an era of diminishing resources.
Specifically, NASA is emphasizing the following with this new approach:

? Distribution of risk by moving from single high- cost, long development
time missions to multiple low- cost, shorter development time missions. ?
Accountability and responsibility for success placed with the implementing
teams at NASA's centers, as

well as within industry and academia. ? Efficiency in process and
methodology and

exploitation of new, yet mature, technology to enable and enhance new and
challenging science and technology programs and projects consistent with
short development cycles.

Since NASA has introduced this approach, it has launched 158 missions valued
at a total of $18. 9 billion. All but 10 missions were successful. However,
as a result of two recent failed missions to Mars, at a cost of about $300
million, the approach has come under increased scrutiny. The Mars Climate
Orbiter, which was intended to observe Mars' seasonal climate and daily
weather from a

low orbit around the planet, was lost on September 23, 1999. Then on
December 3, 1999, the Mars Polar Lander, a robotic spacecraft intended to
land near the South Pole of Mars for a planned 90- day mission to study the

planet's layered polar terrain, was also lost. NASA sponsored investigative
boards to determine the causes of the failed Mars missions. For example,
NASA's Mars Program Independent Assessment Team found that a combination of
mission design and execution factors

had caused the failures. Further, opportunities to identify and resolve
problems were missed due to poor communications, budget pressures, and poor
management and engineering practices. Also, upper management officials were
not aware of the extent of the programs' problems.

In March 2000, NASA's Administrator delegated authority to NASA's chief
engineer to define an integrated plan to address the recommendations of
NASA- sponsored investigative boards in response to the

two failed Mars missions, shuttle wiring problems, and a generic assessment
of NASA's approach to executing faster- better- cheaper projects. NASA's
chief engineer chartered a NASA- wide senior team, the NASA Integrated
Action Team, which concluded that the faster- better- cheaper principles are
valid if properly applied. However, the team found that agency guidance

associated with the application of faster- better- cheaper principles to
actual situations was not sufficiently articulated. Moreover, the report
recommended that NASA improve its approach to applying the principles with
safety and prudent risk as key criteria.

Furthermore, the report concluded that one of the critical elements for
success in the faster- better- cheaper approach is the project manager's
ability to understand and control risk.

NASA still faces significant challenges as it attempts to create highly
reliable missions and foster open communications under the budget
constraints of the agency's faster- better- cheaper space exploration
strategy. In addition, real success will require a comprehensive integration
of lessons learned from failures on an agencywide basis. Until NASA resolves
these problems, its financial resources are vulnerable to inefficient use.
We will continue to monitor NASA's future progress in refining its faster-
better- cheaper strategy. Integrating Human The space shuttle is the world's
first reusable space Capital Approach transportation system. Since it is the
nation's only Into NASA's launch system capable of carrying people to and
from Workforce

space, its viability is critical to other space programs Management

such as the International Space Station. In August 2000, Strategies

we reported that, according to internal NASA studies, workforce reductions
were affecting NASA's ability to safely support the shuttle's planned flight
rate. Recognizing that in- house workforce reductions had

gone too far, NASA discontinued its downsizing and began addressing critical
staffing needs. However, the agency still faces several human capital
challenges, including attracting and retaining employees with critical
skills.

Recent Studies and In August 2000, we reported that several internal NASA
NASA's Actions studies had shown that the agency's space shuttle Highlight
Shuttle program's workforce had been affected negatively by Workforce
Problems

NASA's downsizing, much of which occurred after 1995. Since 1995, the
shuttle workforce has decreased by more than one- third, to about 1,800
full- time equivalent employees. 2 The studies found that stress levels had
2 Full- time equivalent is a measure of staff hours equal to those of an
employee who works 40 hours per week in 1 year.

reached the point of creating an “unhealthy” workforce.
According to NASA's Associate Administrator for the Office of Space Flight,
the agency faced significant safety and mission success risks as a result of
the downsizing. NASA's Aerospace Safety Advisory Panel concluded that
workforce problems could potentially impact flight safety, as the shuttle
launch rate increased

to meet International Space Station's demands. In addition, NASA concluded
that the shuttle program's workforce was showing signs of overwork and
fatigue as a result of downsizing. For example, indicators on

forfeited leave, absences from training courses, and stress- related
employee assistance visits were all on the rise. Moreover, the program's
demographic shape and skill mix jeopardized the program's ability to hand
off leadership roles to the next generation, achieve a higher flight rate to
support assembly of the International

Space Station, and safely support the shuttle's planned flight rate. For
example, throughout the Office of Space Flight, which includes the shuttle
program, there were more than twice as many workers over 60 years old than
under 30 years old. NASA has identified many key areas in which the shuttle

program is experiencing critical skill shortages. These areas include
avionics, mechanical engineering, computer systems, and software assurance
engineering.

One internal NASA study has concluded that NASA should determine the size of
the workforce, skill levels, and experience needed to maintain and operate
the shuttle at the anticipated higher flight rates. The shuttle program flew
four flights each in fiscal year 1998 and 1999. However, the number of
flights is projected to increase substantially over the next 5 years. For
example, NASA plans nine flights in fiscal year 2001.

NASA Has Begun We reported in August 2000 that NASA had begun taking Taking
Actions to

actions to address its shuttle workforce problems. It Address Shuttle

discontinued downsizing plans and was expecting to Workforce Problems add 95
full- time equivalent employees to the shuttle program in fiscal year 2000
to address many critical skill shortages. Data obtained from NASA since our
August 2000 report show that of the 873 total personnel gains at all NASA
centers, 778 are new hires to the agency, and

95 are transfers from other centers. NASA's Office of Space Flight has
gained a total of 405 personnel, including 370 new hires and 35 transfers.
The three space flight centers have hired 114 full- time personnel in the
shuttle program. The Kennedy Space Center has

hired 55 full- time personnel, the Marshall Space Flight Center has hired
31, and the Johnson Space Center has hired 28. These new hires have been
staffed to support current shuttle program operation requirements and
upgrades. In addition to these new hires, the centers have reallocated
personnel from other activities to the space shuttle program. According to
NASA officials, the

combination of new hires and realignment of experienced personnel has helped
the shuttle program infuse new talent to meet current program requirements.
In its fiscal year 2001 budget request, NASA sought authority to add another
278 full- time equivalent employees to the shuttle workforce. In addition,
NASA has undertaken a joint review with the Office of Management and Budget
with the goal of identifying overall future workforce needs. This review
will assess potential tools for and approaches to overall agency personnel
management. NASA and the Office of Management and Budget plan to complete
the study in time for consideration during the fiscal year 2002 budget
process.

The President made human capital management a priority management objective
in the fiscal year 2001 budget and in June 2000, he directed the heads of
all

executive branch federal agencies to integrate human resource management
into planning, budgeting, and mission evaluation processes. The directive
requires each agency to include specific human resource management goals and
objectives in its strategic and annual performance plans beginning October
1, 2000. NASA human resource officials told us that the agency is using a
draft human capital self- assessment checklist we

published as a guide in ongoing workforce planning and discussions with the
Office of Management and Budget. A final version of the checklist, which was
published in September 2000, follows a five- part framework that comprises
strategic planning, organizational alignment, leadership, talent, and
performance culture. For example, NASA has developed a draft Human Resources

and Education Functional Leadership Plan that establishes the human resource
management and development strategies and flexibilities necessary to achieve
the agency's missions and goals. In addition, NASA's Office of Human
Resources and Education is working collaboratively with NASA's chief
engineer in developing the agency's next strategic capability review.

This review will assist NASA in developing future strategic capabilities and
in identifying and addressing current and future skill gaps. NASA included a
broad objective in its fiscal year 2000 strategic plan to invest in the
agency's use of human capital, developing and drawing upon the talents of
all its employees. The objective states that NASA must align the management
of its employees to best achieve its strategic goals and objectives. In
reviewing NASA's fiscal year 2000 annual performance plan, we found that the
plan did not adequately describe how the agency's strategies and human
capital resources would help achieve performance goals. NASA's fiscal year
2001 performance plan addressed at least some human capital issues in that
it included an objective to improve workforce health monitoring. However,
addressing other relevant human capital issues, such as skill mix

and staffing levels, would be beneficial to the agency and provide a better
link to the human capital objective in the strategic plan. NASA has an
opportunity to include in its future annual performance plans specific
performance measures for achieving its strategic human capital objective. We
will continue to monitor NASA's annual performance plans and reports to
determine the progress the agency is making in integrating human resource
management into its performance planning and in establishing results-
oriented human capital performance measures for the space shuttle and other

programs. To ensure that a proper skill mix and staffing level for the
shuttle program are achieved and maintained, continued NASA management
emphasis on human capital planning is critical, especially for continued
safe shuttle operations in an environment of increasing flight rates. In
dealing with its workforce issues, NASA shuttle

program officials will have to deal with a number of complicating
challenges. These include (1) meeting increased training needs deriving from
higher workforce levels, (2) ensuring adequate staffing levels for its
safety upgrade program, (3) attracting and retaining employees with critical
skills, and (4) achieving a higher projected flight rate in support of the
International Space Station compared with rates of recent years. NASA's
human capital problems can be seen as part of a broader pattern of human
capital shortcomings that have eroded mission capabilities across the
federal government. See our High- Risk Series Update: An Update (GAO- 01-
263) for a discussion of human capital as a newly designated governmentwide
high- risk area.

Key Contact Allen Li, Director Acquisition and Sourcing Management (202)
512- 4841 lia@ gao. gov

Related GAO Products Contract

Space Station: Prime Contract Changes Management

(GAO/ NSIAD- 00- 103R, May 11, 2000). NASA Procurement: Status of Efforts to
Improve Oversight (GAO/ NSIAD- 98- 198R, July 13, 1998).

NASA: Major Management Challenges (GAO/ T- NSIAD- 97- 178, July 24, 1997).
High- Risk Program: Information on Selected High- Risk Areas (GAO/ HR- 97-
30, May 16, 1997).

NASA Procurement: Contract Management Oversight (GAO/ NSIAD- 97- 114R, Mar.
18, 1997). NASA: Procurement Assessments (GAO/ NSIAD- 97- 80R, Feb. 4,
1997).

NASA: Contract Management (GAO/ NSIAD- 96- 95R, Feb. 16, 1996). NASA
Budgets: Gap Between Funding Requirements and Projected Budgets (GAO/ NSIAD-
95- 155BR, May 12, 1995).

International Observations on the National Aeronautics and Space Space
Station

Administration's Fiscal Year 1999 Performance Report and Fiscal Year 2001
Performance Plan (GAO/ NSIAD- 00- 192R, June 30, 2000). Space Station:
Russian Commitment and Cost Control Problems (GAO/ NSIAD- 99- 175, Aug. 17,
1999).

Space Station: Status of Russian Involvement and Cost Control Efforts (GAO/
T- NSIAD- 99- 117, Apr. 29, 1999).

Space Station: U. S. Life- Cycle Funding Requirements (GAO/ T- NSIAD- 98-
212, June 24, 1998). International Space Station: U. S. Life- Cycle Funding
Requirements (GAO/ NSIAD- 98- 147, May 22, 1998). Space Station: Cost
Control Problems (GAO/ T- NSIAD- 98- 54, Nov. 5, 1997). Space Station:
Deteriorating Cost and Schedule Performance Under the Prime Contract (GAO/
T- NSIAD- 97- 262, Sept. 18, 1997).

Space Station: Cost Control Problems Are Worsening (GAO/ NSIAD- 97- 213,
Sept. 16, 1997). NASA: Major Management Challenges (GAO/ T- NSIAD- 97- 178,
July 24, 1997). Space Station: Cost Control Problems Continue to Worsen
(GAO/ T- NSIAD- 97- 177, June 18, 1997). Space Station: Cost Control
Difficulties Continue (GAO/ NSIAD- 96- 210, July 24, 1996). Space Station:
Cost Control Difficulties Continue (GAO/ NSIAD- 96- 135, July 17, 1996).
Space Station: Estimated Total U. S. Funding Requirements (GAO/ NSIAD- 95-
163, June 12, 1995).

Space Shuttle Human Capital: A Self- Assessment Checklist for Agency

Human Capital Leaders (GAO/ OCG- 00- 14G, Sept. 2000).

Space Shuttle: Human Capital and Safety Upgrade Challenges Require Continued
Attention (GAO/ NSIAD/ GGD- 00- 186, Aug. 15, 2000).

Space Shuttle: Human Capital Challenges Require Management Attention (GAO/
T- NSIAD- 00- 133, Mar. 22, 2000). Human Capital: A Self- Assessment
Checklist for Agency Leaders (GAO/ GGD- 99- 179, Sept. 1999). Observations
on the National Aeronautics and Space Administration's Fiscal Year 2000
Performance Plan (GAO/ NSIAD- 99- 186R, July 20, 1999).

Performance and Accountability Series

Major Management Challenges and Program Risks: A Governmentwide Perspective
(GAO- 01- 241)

Major Management Challenges and Program Risks: Department of Agriculture
(GAO- 01- 242)

Major Management Challenges and Program Risks: Department of Commerce (GAO-
01- 243)

Major Management Challenges and Program Risks: Department of Defense (GAO-
01- 244)

Major Management Challenges and Program Risks: Department of Education (GAO-
01- 245)

Major Management Challenges and Program Risks: Department of Energy (GAO-
01- 246)

Major Management Challenges and Program Risks: Department of Health and
Human Services (GAO- 01- 247)

Major Management Challenges and Program Risks: Department of Housing and
Urban Development (GAO- 01- 248)

Major Management Challenges and Program Risks: Department of the Interior
(GAO- 01- 249)

Major Management Challenges and Program Risks: Department of Justice (GAO-
01- 250)

Major Management Challenges and Program Risks: Department of Labor (GAO- 01-
251)

Major Management Challenges and Program Risks: Department of State (GAO- 01-
252)

Major Management Challenges and Program Risks: Department of Transportation
(GAO- 01- 253)

Major Management Challenges and Program Risks: Department of the Treasury
(GAO- 01- 254)

Major Management Challenges and Program Risks: Department of Veterans
Affairs (GAO- 01- 255)

Major Management Challenges and Program Risks: Agency for International
Development (GAO- 01- 256)

Major Management Challenges and Program Risks: Environmental Protection
Agency (GAO- 01- 257)

Major Management Challenges and Program Risks: National Aeronautics and
Space Administration (GAO- 01- 258)

Major Management Challenges and Program Risks: Nuclear Regulatory Commission
(GAO- 01- 259)

Major Management Challenges and Program Risks: Small Business Administration
(GAO- 01- 260)

Major Management Challenges and Program Risks: Social Security
Administration (GAO- 01- 261)

Major Management Challenges and Program Risks: U. S. Postal Service (GAO-
01- 262)

High- Risk Series: An Update (GAO- 01- 263)

GAO United States General Accounting Office

Page 1 GAO- 01- 258 NASA Challenges

Contents

Page 2 GAO- 01- 258 NASA Challenges

Comptroller General of the United States

Page 3 GAO- 01- 258 NASA Challenges United States General Accounting Office

Washington, D. C. 20548

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Overview Page 7 GAO- 01- 258 NASA Challenges

Overview Page 8 GAO- 01- 258 NASA Challenges

Overview Page 9 GAO- 01- 258 NASA Challenges

Overview Page 10 GAO- 01- 258 NASA Challenges

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Major Performance and Accountability Challenges Page 12 GAO- 01- 258 NASA
Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Challenges

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Related GAO Products Page 32 GAO- 01- 258 NASA Challenges

Related GAO Products Page 33 GAO- 01- 258 NASA Challenges

Page 34 GAO- 01- 258 NASA Challenges

Performance and Accountability Series

Page 35 GAO- 01- 258 NASA Challenges

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