Polar-Orbiting Environmental Satellites: Information on Program  
Cost and Schedule Changes (30-SEP-04, GAO-04-1054).		 
                                                                 
Our nation's current operational polar-orbiting environmental	 
satellite program is a complex infrastructure that includes two  
satellite systems, supporting ground stations, and four central  
data processing centers. In the future, the National		 
Polar-orbiting Operational Environmental Satellite System	 
(NPOESS) is to combine the two current satellite systems into a  
single state-of-the-art environment monitoring satellite system. 
This new satellite system is considered critical to the United	 
States' ability to maintain the continuity of data required for  
weather forecasting and global climate monitoring through the	 
year 2020. Because of changes in funding levels after the	 
contract was awarded, the program office recently developed a new
cost and schedule baseline for NPOESS. GAO was asked to provide  
an interim update to (1) identify any cost or schedule changes as
a result of the revised baseline and determine what contributed  
to these changes and (2) identify factors that could affect the  
program baseline in the future. In commenting on a draft of this 
report, DOD, NOAA, and NASA officials generally agreed with the  
report and offered technical corrections, which we incorporated  
where appropriate.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-1054					        
    ACCNO:   A12855						        
  TITLE:     Polar-Orbiting Environmental Satellites: Information on  
Program Cost and Schedule Changes				 
     DATE:   09/30/2004 
  SUBJECT:   Cost overruns					 
	     Earth resources satellites 			 
	     Environmental research				 
	     Future budget projections				 
	     Interagency relations				 
	     Life cycle costs					 
	     Procurement planning				 
	     Research and development contracts 		 
	     Schedule slippages 				 
	     Environmental monitoring				 
	     Polar-orbiting satellites				 
	     Defense Meteorological Satellite Program		 
	     National Polar-Orbiting Operational		 
	     Environmental Satellite System			 
                                                                 
	     NOAA Polar-Orbiting Operational			 
	     Environmental Satellites				 
                                                                 

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GAO-04-1054

Contents

Tables

Figures

Abbreviations

September 30, 2004Letter

The Honorable Vernon J. Ehlers Chairman The Honorable Mark Udall Ranking
Member Subcommittee on Environment, Technology, and Standards Committee on
Science House of Representatives

Our nation's operational polar-orbiting environmental satellite program is
a complex infrastructure encompassing two satellite systems, the
Polar-orbiting Operational Environmental Satellites (POES) and the Defense
Meteorological Satellite Program (DMSP), as well as supporting ground
stations and four central data processing centers. The program provides
general weather information and specialized environmental products to a
variety of users, including weather forecasters, military strategists, and
the public. A tri-agency Integrated Program Office-comprised of officials
from the Department of Defense (DOD), the National Oceanic and Atmospheric
Administration (NOAA), and the National Aeronautics and Space
Administration (NASA)-is working to combine the two current satellite
systems into a single state-of-the-art environment monitoring satellite
system called the National Polar-orbiting Operational Environmental
Satellite System (NPOESS). This new satellite system is considered
critical to the United States' ability to maintain the continuity of data
required for weather forecasting and global climate monitoring through the
year 2020.

When we testified on the NPOESS program in July 2003,1 we reported that
the program office was working to address changes in funding levels after
the contract was awarded, and planned to develop a new cost and schedule
baseline. Concerned with these cost and schedule changes, you asked us to
provide an interim update on the revised baseline. Specifically, our
objectives were to (1) identify any cost or schedule changes as a result
of the revised baseline and determine what contributed to these changes,
and (2) identify factors that could affect the program baseline in the
future.

To address these objectives, we reviewed the new NPOESS cost and schedule
baseline and compared it to the old baseline. Then we identified the
factors that contributed to any cost increases or schedule delays. We also
analyzed program cost estimates and project management reports and
interviewed officials from the NPOESS Integrated Program Office, DOD,
NOAA, and NASA. In addition, this review builds on other work we have done
on environmental satellite programs over the last several years.2 As
agreed with your staff members, we plan to continue our oversight of this
program.

We conducted our work at NOAA, DOD, and NASA headquarters in the
Washington, D.C., metropolitan area between November 2003 and August 2004,
in accordance with generally accepted government auditing standards.
Appendix I contains further details on our objectives, scope, and
methodology.

Results in Brief

The program office has increased the NPOESS cost estimate by $1.2 billion,
from $6.9 to $8.1 billion, and delayed key milestones, including the
expected availability of the first NPOESS satellite-which was delayed by
20 months. The cost increases reflect changes to the NPOESS contract as
well as increased program management funds. According to the program
office, contract changes include extension of the development schedule,
increased sensor costs, and additional funds needed for mitigating risks.
Increased program management funds were added for non-contract costs and
management reserves. The schedule delays were the result of stretching out
the development schedule to accommodate a change in the NPOESS funding
stream.

Other factors could further affect the revised cost and schedule
estimates. Specifically, the contractor is not meeting expected cost and
schedule targets of the new baseline because of technical issues in the
development of key sensors. Based on its performance to date, we estimate
that the contractor will most likely overrun its contract at completion in
September 2011 by $500 million. In addition, risks associated with the
development of the critical sensors, integrated data processing system,
and algorithms, among other things, could also contribute to increased
cost and schedule slips.

In commenting on a draft of this report, DOD, NASA, and NOAA officials
generally agreed with the report and offered technical corrections, which
we incorporated where appropriate.

Background

Since the 1960s, the United States has operated two separate operational
polar-orbiting meteorological satellite systems: POES, managed by NESDIS
of NOAA and DMSP, managed by DOD. The satellites obtain environmental data
that are processed to provide graphical weather images and specialized
weather products and are the predominant input to numerical weather
prediction models. These images, products, and models are all used by
weather forecasters, the military, and the public. Polar satellites also
provide data used to monitor environmental phenomena, such as ozone
depletion and drought conditions, as well as data sets that are used by
researchers for a variety of studies, such as climate monitoring.

Unlike geostationary satellites, which maintain a fixed position above the
earth, polar-orbiting satellites constantly circle the earth in an almost
north-south orbit, providing global coverage of conditions that affect the
weather and climate. Each satellite makes about 14 orbits a day. As the
earth rotates beneath it, each satellite views the entire earth's surface
twice a day. Today, there are two operational POES satellites and two
operational DMSP satellites that are positioned so that they can observe
the earth in early morning, mid morning, and early afternoon polar orbits.
Together, they ensure that for any region of the earth, the data provided
to users are generally no more than 6 hours old. Figure 1 illustrates the
current operational polar satellite configuration. Besides the four
operational satellites, six older satellites are in orbit that still
collect some data and are available to provide some limited backup to the
operational satellites should they degrade or fail. In the future, both
NOAA and DOD plan to continue to launch additional POES and DMSP
satellites every few years, with final launches scheduled for 2008 and
2011, respectively.

Figure 1: Configuration of Operational Polar Satellites

Each of the polar satellites carries a suite of sensors designed to detect
environmental data that is either reflected or emitted from the earth, the
atmosphere, and space. The satellites store these data and then transmit
them to NOAA and Air Force ground stations when the satellites pass
overhead. The ground stations then relay the data via communications
satellites to the appropriate meteorological centers for processing. The
satellites also broadcast a subset of these data in real time to tactical
receivers all over the world.

Under a shared processing agreement among the four processing
centers-NESDIS, the Air Force Weather Agency, Navy's Fleet Numerical
Meteorology and Oceanography Center, and the Naval Oceanographic
Office-different centers are responsible for producing and distributing
via a shared network different environmental data sets, specialized
weather

and oceanographic products, and weather prediction model outputs.3 Each of
the four processing centers is also responsible for distributing the data
to its respective users. For the DOD centers, the users include regional
meteorology and oceanography centers, as well as meteorology and
oceanography staff on military bases. NESDIS forwards the data to NOAA's
National Weather Service for distribution and use by government and
commercial forecasters. The processing centers also use the Internet to
distribute data to the general public. NESDIS is responsible for the
long-term archiving of data and derived products from POES and DMSP.

In addition to the infrastructure supporting satellite data processing
noted above, properly equipped field terminals that are within a direct
line of sight of the satellites can receive real-time data directly from
the polar-orbiting satellites. There are an estimated 150 such field
terminals operated by U.S. and foreign governments, academia, and many are
operated by DOD. Field terminals can be taken into areas with little or no
data communications infrastructure-such as on a battlefield or a ship-and
enable the receipt of weather data directly from the polar-orbiting
satellites. These terminals have their own software and processing
capability to decode and display a subset of the satellite data to the
user. Figure 2 depicts a generic data relay pattern from the
polar-orbiting satellites to the data processing centers and field
terminals.

Figure 2: Generic Data Relay Pattern for the Polar Meteorological
Satellite System

NPOESS Overview

Given the expectation that combining the POES and DMSP programs would
reduce duplication and result in sizable cost savings, a May 1994
Presidential Decision Directive4 required NOAA and DOD to converge the two
satellite programs into a single satellite program capable of satisfying
both civilian and military requirements. The converged program, NPOESS, is
considered critical to the United States' ability to maintain the
continuity of data required for weather forecasting and global climate
monitoring. To manage this program, DOD, NOAA, and NASA formed a
tri-agency Integrated Program Office located within NOAA.

Within the program office, each agency has the lead on certain activities.
NOAA has overall program management responsibility for the converged
system, as well as satellite operations; DOD has the lead on the
acquisition; and NASA has primary responsibility for facilitating the
development and incorporation of new technologies into the converged
system. NOAA and DOD share the costs of funding NPOESS, while NASA funds
specific technology projects and studies. Figure 3 depicts  the
organizations coordinated by the Integrated Program Office and their
responsibilities.

Figure 3: Organizations Coordinated by the NPOESS Integrated Program
Office 

Program acquisition plans call for the procurement and launch of six
NPOESS satellites over the life of the program, as well as the integration
of 13 instruments, consisting of 11 environmental systems and 2
subsystems. Together, the sensors are to receive and transmit data on
atmospheric, cloud cover, environmental, climate, oceanographic, and
solar-geophysical observations. The subsystems are to support
nonenvironmental search and rescue efforts and environmental data
collection activities. According to the program office, 7 of the 13
planned NPOESS instruments involve new technology development, whereas 6
others are based on existing technologies. In addition, the program office
considers 4 of the sensors involving new technologies critical because
they provide data for key weather products; these sensors are shown in
bold in table 1, which presents the planned instruments and the state of
technology on each.

Table 1: Expected NPOESS Instruments (critical sensors in bold), as of
August 31, 2004

Instrument name            Description                 State of technology 
                              Measures microwave energy                       
                              released and scattered by   
                              the atmosphere and is to be 
                              used with infrared sounding 
Advanced technology        data from NPOESS'           New
microwave sounder          cross-track infrared        
                              sounder to produce daily    
                              global atmospheric          
                              temperature, humidity, and  
                              pressure profiles.          
                              Retrieves specific                              
                              measurements of clouds and  
                              aerosols (liquid droplets   
Aerosol polarimetry sensor or solid particles          New
                              suspended in the            
                              atmosphere, such as sea     
                              spray, smog, and smoke).    
                              Collects microwave images                       
                              and data needed to measure  
                              rain rate, ocean surface    
Conical-scanned microwave  wind speed and direction,   
imager/sounder             amount of water in the      New
                              clouds, and soil moisture,  
                              as well as temperature and  
                              humidity at different       
                              atmospheric levels.         
                              Collects measurements of                        
                              the earth's radiation to    
Cross-track infrared       determine the vertical      New
sounder                    distribution of             
                              temperature, moisture, and  
                              pressure in the atmosphere. 
                              Collects environmental data                     
Data collection system     from platforms around the   Existing
                              world and delivers them to  
                              users worldwide.            
                              Measures solar short-wave                       
                              radiation and long-wave     
Earth radiation budget     radiation released by the   Existing
sensor                     earth back into space on a  
                              worldwide scale to enhance  
                              long-term climate studies.  
                              Collects data needed to                         
Ozone mapper/profiler      measure the amount and      New
suite                      distribution of ozone in    
                              the earth's atmosphere.     
                              Measures variances in sea                       
                              surface height/topography   
                              and ocean surface           
                              roughness, which are used   
                              to determine sea surface    
Radar altimeter            height, significant wave    Existing
                              height, and ocean surface   
                              wind speed and to provide   
                              critical inputs to ocean    
                              forecasting and climate     
                              prediction models.          
Search and rescue          Detects and locates                             
satellite aided tracking   aviators, mariners, and     Existing
system                     land-based users in         
                              distress.                   
                              Collects data to identify,                      
                              reduce, and predict the     
Space environmental sensor effects of space weather on New
suite                      technological systems,      
                              including satellites and    
                              radio links.                
                              Monitors for attacks on the                     
Survivability sensor       satellite and notifies      Existing
                              other instruments in case   
                              of an attack.               
Total solar irradiance     Monitors and captures total                     
sensor                     and spectral solar          Existing
                              irradiance data.            
                              Collects images and                             
Visible/infrared imager    radiometric data used to    
radiometer suite           provide information on the  New
                              earth's clouds, atmosphere, 
                              ocean, and land surfaces.   

Source: GAO, based on NPOESS Integrated Program Office data.

In addition, the NPOESS Preparatory Project (NPP), which is being
developed as a major risk reduction initiative, is a planned demonstration
satellite to be launched in 2006, several years before the first NPOESS
satellite launch in 2009. It is scheduled to host three of the four
critical NPOESS sensors (the visible/infrared imager radiometer suite, the
cross-track infrared sounder, and the advanced technology microwave
sounder), as well as one other noncritical sensor (the ozone
mapper/profiler suite).  NPP will provide the program office and the
processing centers an early opportunity to work with the sensors, ground
control, and data processing systems. Specifically, this satellite is
expected to demonstrate the validity of about half of the NPOESS
environmental data records5 and about 93 percent of its data processing
load.

NPOESS Acquisition Strategy

When the NPOESS development contract was awarded, program office officials
identified an anticipated schedule and funding stream for the program. The
schedule for launching the satellites was driven by a requirement that the
satellites be available to back up the final POES and DMSP satellites
should anything go wrong during the planned launches of these satellites.
In general, program officials anticipate that roughly 1 out of every 10
satellites will fail either during launch or during early operations after
launch.

Key program milestones included (1) launching NPP by May 2006, (2) having
the first NPOESS satellite available to back up the final POES satellite
launch in March 2008, and (3) having the second NPOESS satellite available
to back up the final DMSP satellite launch in October 2009. If the NPOESS
satellites were not needed to back up the final predecessor satellites,
their anticipated launch dates would have been April 2009 and June 2011,
respectively.

These schedules were changed as a result of changes in the NPOESS funding
stream. A DOD program official reported that between 2001 and 2002 the
agency experienced delays in launching a DMSP satellite, causing delays in
the expected launch dates of another DMSP satellite. In late 2002, DOD
shifted the expected launch date for the final DMSP satellite from 2009 to
2010. As a result, DOD reduced funding for NPOESS by about $65 million
between fiscal years 2004 and 2007. According to NPOESS program officials,
because NOAA is required to provide no more funding than DOD provides,
this change triggered a corresponding reduction in funding by NOAA for
those years. As a result of the reduced funding, program officials were
forced to make difficult decisions about what to focus on first. The
program office decided to keep NPP as close to its original schedule as
possible because of its importance to the eventual NPOESS development and
to shift some of the NPOESS deliverables to later years. This shift
affected the NPOESS deployment schedule. To plan for this shift, the
program office developed a new program cost and schedule baseline.

NPOESS Costs Have Increased, and Schedules Have Been Delayed

The program office has increased the NPOESS life cycle cost estimate by
$1.2 billion, from $6.9 to $8.1 billion, and delayed key
milestones-including the expected availability of the first NPOESS
satellite, which was delayed by 20 months. The cost increases reflect
changes to the NPOESS contract as well as increased program management
funds. The contract changes include extension of the development schedule,
increased sensor costs, and additional funds needed for mitigating risks.
Increased program management funds were added for non-contract costs and
management reserves. The schedule delays were the result of stretching out
the development schedule to accommodate the change in the NPOESS funding
stream. In addition, the delayed launch dates of the NPOESS satellites
have extended the maintenance and operation of the satellite system from
2018 to 2020.

When we testified on the NPOESS program in July 2003, we reported that the
program office was working to develop a new cost and schedule baseline due
to a change in the NPOESS funding stream. The program office completed its
efforts to revise the NPOESS cost and schedule baseline in December 2003.

As a result of the revised baseline, the program office increased the
NPOESS cost estimate by $638 million, from $6.9 to $7.5 billion. The
program office attributed the $638 million cost increase to extending the
development schedule to accommodate the changing funding stream, increased
sensor costs, and additional funds needed for mitigating risks. The
program office has since increased funds for non-contract costs and
management reserves, which raised its estimate by an additional $562
million to bring the NPOESS life cycle cost estimate to $8.1 billion.
According to program officials, non-contract costs included oversight
expenses for the prime contract and sensor subcontracts. Management
reserves, which are a part of the total program budget and should be used
to fund undefined but anticipated work, are expected to last through
2020.6 Table 2 shows a breakdown of the cost increases resulting from the
revised plan.

Table 2: Cost Increases Resulting from the Revised Plan (dollars in
millions)

Effort                                                              Amount 
NPOESS cost estimate before revised plan                            $6,950 
Changes to the NPOESS Contract                                      
Inflationary impacts of delays to accommodate funding cuts             112 
Impact of slowed start and contract extension resulting from               
delaying the first NPOESS satellite and stretching out several         406
sensor deliveries                                                   
Additional tasks related to sensors                                     64 
Preparation cost of the revised plan effort                             13 
Additional funds required for risk mitigation                           43 
Total revised plan costs                                               638 
Changes to Program Management Costs                                 
Additional non-contract costs and management reserves                  536 
Increase in program office costs                                        26 
NPOESS cost estimate after revised plan                             $8,150 

Source: NPOESS Integrated Program Office data.

Recently, program officials reported that a new life cycle cost estimate
would be developed by the contractor and program office. The program
office expects to brief its executive oversight committee on the results
of its cost estimate analysis by December 2004. The new cost estimate will
be used to help develop the NPOESS fiscal year 2007 budget request.
Officials reported that the new estimate is necessary in order to ensure
that the program will be adequately funded through its life.

In addition to increasing the cost estimate, the program office has
delayed key milestones, including the expected availability of the first
satellite, which was delayed by 20 months. The program office attributed
the schedule delays to stretching out the development schedule to
accommodate the changing funding stream. Table 3 shows program schedule
changes for key milestones.

Table 3: Program Schedule Changes

                       As of August 2002 As of February Change from contract  
Milestones          contract award    2004 after the award to the revised  
                                         revised plan   plan                  
NPP launch          May 2006          October 2006   5-month delay         
Final POES launch a March 2008        March 2008     
First NPOESS                                                               
satellite available March 2008        November 2009  20-month delay b
for launch                                           
First NPOESS                                                               
satellite planned   April 2009        November 2009c 7-month delay
for launch                                           
Final DMSP launch a October 2009      May 2010d      
Second NPOESS                                                              
satellite available October 2009      June 2011      20-month delay
for launch                                           
Second NPOESS                                                              
satellite planned   June 2011         June 2011      No change
for launch                                           
Third NPOESS                                                               
satellite available March 2011        May 2013       26-month delay
for launch                                           
Third NPOESS                                                               
satellite planned   May 2013          June 2013      1-month delay
for launch                                           
Fourth NPOESS                                                              
satellite available June 2012         May 2014       23-month delay
for launch                                           
Fourth NPOESS                                                              
satellite planned   November 2015     November 2015  No change
for launch                                           
End of operations   2018              2020           2-year extension      
and maintenance                                      

Source: GAO analysis, based on NPOESS Integrated Program Office data.

aPOES and DMSP are not part of the NPOESS program. Their launch dates are
provided because of their relevance to the NPOESS satellite schedules.

bIn our July 2003 testimony (GAO-03-987T), we reported a 21-month delay
with launch availability in December 2009. However, since then, the
program office has accelerated this date.

cA program official reported that if the first NPOESS satellite is needed
to back up the final POES satellite, the contractor will prepare the
satellite to be launched in a different orbit with a different suite of
sensors. These factors will prevent launch from taking place until
February 2010.

dIn commenting on a draft of this report, DOD officials noted that the
current launch date is October 2011.

A result of the program office extension of several critical milestone
schedules is that less slack is built into the schedules for managing
development and production issues. For example, the first NPOESS satellite
was originally scheduled to be available for launch by March 2008 and to
launch by April 2009. This enabled the program office to have 13 months to
resolve any potential problems with the satellite before its expected
launch. Currently, the first NPOESS satellite is scheduled to be available
for launch by November 2009 and to launch the same month. This will allow
the program office less than one month to resolve any problems. The
program office has little room for error, and should something go wrong in
development or production, the program office would have to delay the
launch further.

NPOESS Could Experience Further Cost and Schedule Increases

NPOESS costs and schedules could continue to increase in the future. The
contractor's continued slippage of expected cost and schedule targets
indicates that the NPOESS contract7 will most likely be overrun by $500
million at contract completion in September 2011. Program risks,
particularly with the development of critical sensors to be demonstrated
on the NPP satellite, could also increase costs and delay schedules for
NPOESS.

Current Shortfalls in Cost and Schedule Targets Could Require Additional
Funds to Meet Launch Deadlines

To be effective, project managers need information on project deliverables
and on a contractor's progress in meeting those deliverables. One method
that can help project managers track progress on deliverables is earned
value management. This method, used by DOD for several decades, compares
the value of work accomplished during a given period with that of the work
expected in that period. Differences from expectations are measured in
both cost and schedule variances.

Cost variances compare the earned value of the completed work with the
actual cost of the work performed. For example, if a contractor completed
$5 million worth of work and the work actually cost $6.7 million, there
would be a -$1.7 million cost variance. Schedule variances are also
measured in dollars, but they compare the earned value of the work
completed to the value of work that was expected to be completed. For
example, if a contractor completed $5 million worth of work at the end of
the month, but was budgeted to complete $10 million worth of work, there
would be a -$5 million schedule variance. Positive variances indicate that
activities are costing less or are completed ahead of schedule. Negative
variances indicate activities are costing more or are falling behind
schedule. These cost and schedule variances can then be used in estimating
the cost and time needed to complete the program.

Using contractor-provided data, our analysis indicates that NPOESS cost
performance was experiencing negative variances before the revised plan
was implemented in December 2003, and continued to deteriorate after the
implementation of the revised plan. Figure 4 shows the 15-month cumulative
cost variance for the NPOESS contract. From March 2003 to November 2003,
the contractor exceeded its cost target by $16.1 million, which is about
4.5 percent of the contractor's budget for that time period. From December
2003 to May 2004, the contractor exceeded its cost target by $33.6
million, or about 5.7 percent of the contractor's budget. The contractor
has incurred a total cost overrun of about $55 million with NPOESS
development less than 20 percent complete. This information is useful
because trends tend to continue and can be difficult to reverse. Studies
have shown that, once programs are 15 percent complete, the performance
indicators are indicative of the final outcome.

Figure 4: Cumulative Cost Variance of the NPOESS Program over a 15-Month
Period 

Our analysis also indicates that the program is showing a negative
schedule variance. Figure 5 shows the 15-month cumulative schedule
variance of NPOESS. From March 2003 to November 2003, the contractor
recovered almost $11 million worth of planned work in the schedule.
Program officials reported that within this time period, the program
office ordered the contractor to stop some work until the new baseline was
established. This work stoppage contributed to schedule degradation
between March 2003 and August 2003. In September 2003, the program office
implemented portions of the revised plan, which resulted in an improvement
in schedule performance. The revised plan alleviated some of the
cumulative schedule overrun by delaying the deadline for first unit
availability by 20 months. However, based on our analysis, the cumulative
schedule variance indicates slippage in the new schedule. Since December
2003, the contractor has been unable to complete approximately $19.7
million worth of scheduled work. The current inability to meet contract
schedule performance could be a predictor of future rising costs, as more
spending is often necessary to resolve schedule overruns.

Figure 5: Cumulative Schedule Variance of the NPOESS Program over a
15-Month Period

According to program office documents, cost and schedule overruns that
occurred before December 2003 were caused by planning activities related
to the revised plan, as well as by technical issues related to the
development of the critical sensors and the spacecraft communications
software. Since the completion of the revised plan, the program's ability
to meet the new performance goals continues to be hampered by technical
issues with the design complexity, testing, and integration, among other
things, of the critical sensors. These technical issues could cause
further cost and schedule shortfalls.

Based on contractor performance from December 2003 to May 2004, we
estimate that the current NPOESS contract-which ends in September 2011 and
is worth approximately $3.4 billion-will overrun its budget by between
$372 million and $891 million. Our projection of the most likely cost
overrun will be about $534 million, or about 16 percent of the contract.
The contractor, in contrast, estimates about a $130 million overrun at
completion of the NPOESS contract.

Risks Could Further Affect NPOESS Cost and Schedule

Risk management is a leading management practice that is widely recognized
as a key component of a sound system development approach. An effective
risk management approach typically includes identifying, prioritizing,
resolving, and monitoring project risks.

Program officials reported that they recognize several risks with the
overall program and critical sensors that, if not mitigated, could further
increase costs and delay the schedule. In accordance with leading
management practices, the program office developed a NPOESS risk
management program that requires assigning a severity rating to risks that
bear particular attention, placing these risks in a database, planning
response strategies for each risk in the database, and reviewing and
evaluating risks in the database during monthly program risk management
board meetings.

The program office identifies risks in two categories: program risks,
which affect the whole NPOESS program and are managed at the program
office level, and segment risks, which affect only individual segments8
and are managed at the integrated product team level. The program office
has identified 21 program risks, including 14 medium to medium-high risks.
Some of these risks include the development of three critical sensors (the
visible/infrared imager radiometer suite (VIIRS), the cross-track infrared
sounder (CrIS), and the conical-scanned microwave imager/sounder (CMIS))
and the integrated data processing system; the uncertainty that algorithms
will meet system performance requirements; and the effort to obtain a
security certification and accreditation. Figure 6 includes the 21 program
risks and their assigned levels of risk.

Figure 6: Key Program Risks as Identified by the NPOESS Program Office, as
of February 2004

Managing the risks associated with the development of VIIRS and CrIS, the
integrated data processing system, and algorithm performance is of
particular importance because these are to be demonstrated on the NPP
satellite currently scheduled for launch in October 2006. Any delay in the
NPP launch date could affect the overall NPOESS program because the
success of the program depends on the lessons learned in data processing
and system integration from the NPP satellite.

At present, the program office considers the three critical sensors-VIIRS,
CMIS, and CrIS-to be key program risks because of technical challenges
that each is facing. VIIRS's most severe technical issue, relating to
flight-quality integrated circuits, was recently resolved; however, the
program office continues to consider the schedule for the VIIRS sensor
acquisition to be high risk. The prime contractor's analysis of the
current schedule indicated that the present schedule is unlikely to be
achieved, considering the technical risks, the optimistically planned
integration and test phase, and the limited slack in the schedule at this
stage of the program. VIIRS is experiencing ongoing technical issues on
major subcontracts related to the motors, rotating telescope, and power
supply. As a result of the numerous ongoing issues-many of which affect
system performance-significantly more modeling, budget allocation work,
and performance reviews have been required than were originally planned.
Until the current technical issues are resolved, delays in the VIIRS
delivery and integration onto the NPP satellite remain a potential threat
to the expected launch date of the NPP.

The CMIS and CrIS sensor acquisitions are experiencing schedule overruns
that may threaten their respective expected delivery dates. CMIS technical
challenges include unplanned redesigns for receiver and antenna
components, system reliability issues, and thermal issues. A significant
amount of CrIS's developmental progress has been impeded by efforts to
address a signal processor redesign, vibration issues in an optical
instrument, and the late subcontract deliveries of some parts.

To the program office's credit, it is aware of these risks and is using
its risk management plans to help mitigate them. We plan to further
evaluate the risk mitigation strategies of the Integrated Program Office
in a follow-on review.

Conclusions

The next generation polar-orbiting environmental satellite program,
NPOESS, recently underwent a replanning effort that increased the NPOESS
cost estimate by $1.2 billion, from $6.9 to $8.1 billion and delayed key
milestones, including the expected availability of the first satellite by
20 months.

Other factors could further affect the revised cost and schedule
estimates. Specifically, the current shortfalls in performance targets
indicate that the NPOESS contract will most likely be overrun by $500
million at completion in September 2011 and program risks could contribute
to additional cost and schedule slips. The program office is planning to
develop new cost estimates but has not yet determined the impact of these
risks.

Given the history of large cost increases and the factors that could
further affect NPOESS costs and schedules, continued oversight is more
critical than ever. Accordingly, we plan to continue our review of this
program.

Agency Comments

We provided a draft of this report to the Secretary of Commerce, Secretary
of Defense, and the Administrator of NASA for review and comment. The
departments generally agreed with the report and provided written and oral
technical corrections, which have been incorporated as appropriate.

NOAA, Integrated Program Office, DOD officials, including the System
Program Director of the NPOESS Integrated Program Office and the Assistant
for Environmental Monitoring from the Office of the Assistant Secretary of
Defense, noted that changes in funding levels, triggered after the
contract was awarded, were the primary reason for rebaselining the
program's costs and schedules. These funding level changes caused them to
delay the development of the NPOESS system and led them to renegotiate the
NPOESS contract. We revised our report to clarify the factors leading up
to revising the baseline.

Additionally, NOAA officials commented that the Integrated Program Office
continues to aggressively manage the NPOESS program to ensure it is
completed within cost, schedule, and performance. In regard to our
estimate that the contract will overrun by at least $500 million, NOAA
officials reported that the agency will manage the contract to ensure that
any cost overrun is identified and addressed. To this end, NOAA has asked
the contractor to develop a new life cycle cost estimate.

NOAA and DOD officials also noted that in August 2004, the President
directed the Departments of Defense, the Interior, Commerce, and NASA to
place a LANDSAT-like imagery capability on the NPOESS platform. This new
capability will collect imagery data of the earth's surface similar to the
current LANDSAT series of satellites, which are managed by the Department
of Interior's U.S. Geological Survey, and are reaching the end of their
lifespans. Officials expect that this new sensor will be funded separately
and will not affect the NPOESS program's cost or schedule. Accordingly,
while this recent event is important to the NPOESS program, it does not
change the results of our report.

We are sending copies of this report to the Secretary of Commerce, the
Secretary of Defense, and the Administrator of NASA. In addition, copies
will be available at no charge on the GAO Web site at http://www.gao.gov.
Should you have any questions about this report, please contact me at
(202) 512-9286 or Colleen Phillips, Assistant Director, at (202) 512-6326.
We can also be reached by e-mail at [email protected] and [email protected],
respectively. Other key contributors to this report included Carol Cha,
Barbara Collier, John Dale, Neil Doherty, Karen Richey, and Eric Winter.

David A. Powner Director, Information Technology Management Issues

Objectives, Scope, and MethodologyAppendix I

Our objectives were to (1) identify any cost or schedule changes as a
result of the revised baseline and determine what contributed to these
changes and (2) identify factors that could affect the program baseline in
the future. To accomplish these objectives, we focused our review on the
Integrated Program Office, the organization responsible for the overall
National Polar-orbiting Operational Environmental Satellite System
(NPOESS) program.

To identify any cost or schedule changes as a result of the revised
baseline, we reviewed the new NPOESS cost and schedule baseline and
compared it to the old acquisition baseline, as reported in our July 2003
testimony.1 To determine the factors that contributed to the cost and
schedule changes in the new baseline, we reviewed program office plans and
management reports. We also interviewed IPO officials to discuss these
contributing factors.

To identify factors that could affect the program baseline in the future,
we assessed the prime contractor's performance related to cost and
schedule. To make these assessments, we applied earned value analysis
techniques2 to data captured in contractor cost performance reports. We
compared the cost of work completed with the budgeted costs for scheduled
work for a 15-month period, from March 2003 to May 2004, to show trends in
cost and schedule performance. We also used data from the reports to
estimate the likely costs at the completion of the prime contract through
established earned value formulas. This resulted in three different
values, with the middle value being the most likely. We used the base
contract without options for our earned value assessments. We reviewed
these cost reports and program risk management documents and interviewed
program officials to determine the key risks that negatively affect
NPOESS's ability to maintain the current schedule and cost estimates. We
reviewed independent cost estimates performed by the Air Force Cost
Analysis Agency and compared them with the program office cost estimates
in order to determine possible areas for cost growth. To assess the
potential effect of the NOAA-N Prime satellite incident on the current
program baseline, we reviewed documentation related to the POES accident
and alternatives for moving forward and interviewed officials from the
National Aeronautics and Space Administration (NASA) and NOAA's National
Environmental Satellite, Data, and Information Service.

We obtained comments on a draft of this report from officials at the
Department of Defense (DOD), NOAA, and NASA, and incorporated these
comments as appropriate.

We performed our work at the Integrated Program Office, DOD, NASA, and
NOAA in the Washington, D.C., metropolitan area between November 2003 and
August 2004 in accordance with generally accepted government auditing
standards.

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