Space Shuttle: NASA Must Reduce Costs Further to Operate Within Future
Projected Funds (Chapter Report, 06/15/95, GAO/NSIAD-95-118).

Pursuant to a congressional request, GAO reviewed the National
Aeronautics and Space Administration's (NASA) efforts to reduce space
shuttle operating costs, focusing on the: (1) potential for further cost
reductions; and (2) impact of cost reductions on shuttle safety.

GAO found that: (1) NASA has reduced its cumulative funding for shuttle
operations by 22 percent from fiscal years (FY) 1992 to 1995 and its
actual operating costs by 8.5 percent between FY 1992 and 1994; (2)
additional funding reductions are needed to achieve NASA future budget
projections, since program requirements will exceed budget estimates by
at least 10 percent in FY 1996 through 2000; (3) it is unclear how NASA
will further reduce its funding for shuttle operations; (4) if NASA
cannot reduce its shuttle operating costs to match available funds in FY
1996 through 1999, the NASA budget must be increased or other program
funding will have to be cut; and (5) although NASA has adequately
considered shuttle safety in implementing these cost reductions, it is
difficult for NASA to know how much further it can reduce costs without
affecting safety.

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

 REPORTNUM:  NSIAD-95-118
     TITLE:  Space Shuttle: NASA Must Reduce Costs Further to Operate 
             Within Future Projected Funds
      DATE:  06/15/95
   SUBJECT:  Space exploration
             Aerospace research
             Budget cuts
             Cost control
             Safety
             Future budget projections
             Fiscal year
             Mission budgeting
             Presidential budgets
             Labor costs
IDENTIFIER:  NASA Space Shuttle Program
             NASA International Space Station Alpha Program
             Challenger
             
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Cover
================================================================ COVER


Report to Congressional Requesters

June 1995

SPACE SHUTTLE - NASA MUST REDUCE
COSTS FURTHER TO OPERATE WITHIN
FUTURE PROJECTED FUNDS

GAO/NSIAD-95-118

Space Shuttle


Abbreviations
=============================================================== ABBREV

  GAO - General Accounting Office
  NASA - National Aeronautics and Space Administration

Letter
=============================================================== LETTER


B-260706

June 15, 1995

The Honorable William S.  Cohen
Chairman, Subcommittee on Oversight
 of Government Management and
 the District of Columbia
Committee on Governmental Affairs
United States Senate

The Honorable James A.  Hayes
House of Representatives

As requested, we reviewed efforts by the National Aeronautics and
Space Administration (NASA) to reduce operating costs for the space
shuttle program.  This report addresses (1) the extent to which
shuttle operating costs have been reduced and what changes enabled
the reductions; (2) the potential for further cost reductions; and
(3) NASA's consideration of the impact, if any, of cost reductions on
shuttle safety. 

Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 30 days after its issue date.  At
that time, we will send copies to other interested congressional
committees, the Administrator of NASA, and the Director of the Office
of Management and Budget.  We will also provide copies to others on
request. 

Please contact me at (202) 512-8412 if you or your staff have any
questions concerning this report.  Other major contributors are
listed in appendix II. 

David R.  Warren
Director, Defense Management
 and NASA Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The space shuttle is the single most expensive program in the
National Aeronautics and Space Administration's (NASA) budget.  In
fiscal year 1992, NASA set a goal of substantially reducing the costs
to operate the shuttle to provide additional funding for other
programs. 

The current Chairman, Subcommittee on Oversight of Government
Management and the District of Columbia, Senate Committee on
Governmental Affairs; and the former Chairman, Subcommittee on
Investigations and Oversight, House Committee on Science, Space, and
Technology, asked GAO to review NASA's efforts to reduce funding
requirements for shuttle operations.  The specific objectives were to
determine (1) how successful NASA has been in reducing funding for
shuttle operations and what changes enabled the reductions; (2) if
the potential exists for further reductions; and (3) whether NASA
adequately considered the impact, if any, of the reductions on
shuttle safety. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The space shuttle has operated for about 14 years and is likely to be
used well into the next century.  Since it is the nation's only
launch system capable of transporting people, the shuttle's viability
is critical to other space programs such as the international space
station.  The shuttle has not lived up to its expectations to make
space access routine and inexpensive.  In fiscal year 1996, NASA
spent about $3.2 billion of its $14.3-billion budget for shuttle
production and operations.  NASA's Office of Space Flight established
a program to reduce shuttle funding requirements and operating costs
beginning in fiscal year 1992. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

NASA has made substantial reductions in funding for shuttle
operations and plans to make further cuts.  However, these additional
reductions in some cases are not yet defined.  GAO's review showed
that NASA reduced (1) cumulative funding for fiscal years 1992
through 1995 by 22 percent from the requirements projected at the
time of the fiscal year 1992 budget and (2) actual annual operating
costs by 8.5 percent between fiscal years 1992 and 1994--the
equivalent of a 12.3-percent reduction after inflation. 

Significant additional funding reductions are needed to achieve
NASA's future budget projections for shuttle operations.  At the time
of the fiscal year 1996 budget request, program requirements still
exceeded budget estimates by at least 10 percent in fiscal years 1996
through 2000, not including any of the "unresolved percentage
reductions" shown in the budget request.  Shuttle managers told GAO
they were concerned about their ability to achieve the needed
additional reductions, but in February 1995, independent review teams
recommended additional ways to reduce costs.  NASA has not yet acted
on all of the recommendations and does not have an estimate of the
savings that may result from them.  If NASA cannot reduce shuttle
operating costs to match available funds in fiscal years 1996 through
2000, either NASA's budget must be increased or funding for other
programs will have to be cut.  On May 19, 1995, after completion of
GAO's work, the Administrator announced plans for significantly
reducing NASA's infrastructure.  GAO did not evaluate the potential
effect of these changes on shuttle costs. 

NASA appears to have adequately considered safety while implementing
cost reduction actions to date.  However, because shuttle safety
cannot be directly measured, it is difficult for NASA to know how
much further it can reduce costs without affecting safety.  In 1994,
two outside review teams expressed concern about the planned size and
pace of future cost reductions.  However, two different review teams
reported in February 1995 that additional reductions were possible
without adversely affecting safety.  Shuttle program managers have
begun to more closely monitor trends in certain indirect safety
indicators, such as the numbers of problems in flight and the number
of mishaps during processing for flight. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      NASA HAS REDUCED FUNDING
      REQUIREMENTS FOR SHUTTLE
      OPERATIONS
-------------------------------------------------------- Chapter 0:4.1

In its fiscal year 1992 budget, NASA estimated $13 billion in
cumulative funding would be required to operate the shuttle between
fiscal years 1992 and 1995.  In the fiscal year 1995 budget, NASA
reduced required funding for those years by a cumulative amount of
$2.9 billion--22 percent.  Reductions have resulted primarily from a
combination of decreasing contract labor by increasing operating
efficiency (about $1.6 billion), reducing program requirements ($388
million), decreasing the level of funding reserves ($458 million),
and making other miscellaneous changes ($417 million).  Between
fiscal years 1992 and 1994, NASA reduced shuttle operations contract
labor by 19 percent--from 19,556 direct equivalent persons to
15,902--by freezing designs, automating processes, eliminating
unnecessary paperwork, and implementing other efficiencies.  The
primary reduction in requirements was a reduction in the planned
annual flight rate from 10 to 7 flights.  Although NASA planned to
fly up to 10 missions a year, it never launched more than 8 in any
given year.  Other reductions included decreasing the level of
funding reserves available for unforeseen changes and experiencing
lower than expected inflation rates. 


      NASA HAS REDUCED ACTUAL
      SHUTTLE OPERATING COSTS
-------------------------------------------------------- Chapter 0:4.2

To some extent, the reductions in funding requirements resulted from
eliminating projected cost increases.  NASA also reduced the actual
operating costs from $2.8 billion in fiscal year 1992 to about $2.6
billion in fiscal year 1994 for the same number of flights--an
8.5-percent decrease.  Because the costs decreased over the period,
when inflation is taken into account, the 8.5-percent decrease
equated to a 12.3-percent decrease in constant dollars. 


      FURTHER REDUCTIONS WILL BE
      REQUIRED TO MEET FUTURE
      BUDGET PROJECTIONS
-------------------------------------------------------- Chapter 0:4.3

To meet its future budget targets, NASA must reduce shuttle operating
costs by at least an additional $1.3 billion in fiscal years 1996
through 2000--an average of $250 million a year.  For example, the
fiscal year 1996 budget for shuttle operations was $258.5 million
lower than the estimated funding requirements at the time the budget
was submitted to the Congress.  The gap between estimated funding
requirements and future budgets will be even larger if future shuttle
operations budgets must be reduced to compensate for "unresolved
percentage reductions" shown in NASA's fiscal year 1996 budget
request.  NASA has not yet identified how it will accomplish these
"unresolved target reductions," totaling $775 million for human space
flight activities in fiscal years 1997 through 2000. 

NASA's ability to resolve even the $1.3-billion projected shuttle
operations funding deficit for fiscal years 1996 through 2000 is
uncertain.  Some officials are more optimistic than others that
needed reductions can be achieved.  In February 1995, two reviews
reported their recommendations for further ways of reducing costs,
but NASA has not acted on all of the recommendations and does not yet
have an estimate of the savings expected to result from the reviews. 
An internal NASA workforce review recommended over 500 changes that,
according to the team, will allow NASA to significantly reduce its
shuttle labor force.  An independent shuttle management review
recommended that NASA restructure shuttle program management by
consolidating operational activities under a single contractor, more
clearly define operating requirements, and limit NASA's oversight of
contractor activities. 


      NASA CONSIDERED SAFETY
      IMPLICATIONS IN SHUTTLE
      CHANGES
-------------------------------------------------------- Chapter 0:4.4

All proposed changes to hardware or procedures have been approved
through a formal review process that included reviews by independent
NASA safety and mission assurance personnel.  Some proposed changes
were not implemented because the review panel concluded that safety
risks were unacceptable.  So far, NASA has targeted only noncritical
hardware and processes--those which could not result in injury,
damage, or loss of mission or life--for cost reduction efforts. 

Two external and two internal studies of the safety implications of
the cost reduction effort found no adverse safety impact resulting
from the reductions.  For example, a July 1994 General Research
Corporation study concluded that reductions up to that point were a
healthy "tightening up" of the program while protecting content and
that no instances of safety compromise were found.  An October 1994
internal NASA study of trends for 18 measures of shuttle performance
that could provide indirect indications of any possible adverse
impact of cost reductions concluded that all of the indicators had
remained stable or improved. 


      OUTSIDE REVIEW GROUPS ASSESS
      POSSIBLE IMPACTS OF FURTHER
      REDUCTIONS
-------------------------------------------------------- Chapter 0:4.5

The Aerospace Safety Advisory Panel, in its March 1994 report, and
the General Research Corporation, in its July 1994 report, both
expressed concern about the pace of future cost reductions.  Both
studies cited the difficulty of measuring the impact of the
reductions on shuttle safety.  The Aerospace Safety Advisory Panel
stated that future reductions carry a higher probability of affecting
safety.  The General Research Corporation study concluded that the
frequency and rate of budget and budget-driven change experienced by
the program decrease the ability to assess impacts and risk. 
However, both the NASA workforce review and the independent
management review team that reported in February 1995 concluded that
additional reductions were possible without adversely affecting
safety.  According to the management review team, because the program
has matured since the Challenger accident, shuttle processing
requirements and safety oversight can be reduced. 


      NASA MONITORING POTENTIAL
      SAFETY IMPACTS AT HIGHER
      MANAGEMENT LEVEL
-------------------------------------------------------- Chapter 0:4.6

Because of the safety concerns, NASA, in November 1993, asked the
General Research Corporation to recommend a system to help monitor
the potential impact of funding reductions on safety.  NASA did not
adopt all of the recommendations, but it did develop its own system
similar to the one suggested by the corporation.  Although no new
measurements are to be made, some data will be analyzed and reviewed
at the highest level of shuttle management. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

GAO recommends that the Administrator (1) identify any significant
unresolved cost reductions in future budget requests so that the
Congress can provide oversight and make informed decisions and (2)
request an independent organization, such as the National Research
Council, to review significant cost reduction actions in future
years, in the context of safety tradeoffs. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

NASA concurred with the two recommendations and stated that it had
already begun implementing them.  (See app.  I for a copy of NASA's
comments.)


INTRODUCTION
============================================================ Chapter 1

The space shuttle has operated for about 14 years and is likely to be
used into the next century.  It is the only U.S.  launch system
capable of carrying people to and from space, and its viability is
critical to other space programs, especially the international space
station.  The shuttle--the world's first reusable space
transportation system--consists of a reusable orbiter with three
liquid fueled main engines, two partially reusable solid rocket
boosters, and an expendable external fuel tank.  The shuttle is used
primarily when human space activities are required. 


   SHUTTLE COST HISTORY
---------------------------------------------------------- Chapter 1:1

The shuttle is the single most expensive program in the National
Aeronautics and Space Administration's (NASA) budget.  It is
estimated to consume about one fourth of NASA's $14.3 billion fiscal
year 1996 budget (see fig.  1.1). 

   Figure 1.1:  NASA's Fiscal Year
   1996 Budget

   (See figure in printed
   edition.)

Originally intended to make space access routine and inexpensive, the
shuttle has not lived up to its expectations.  NASA initially planned
up to
60 missions a year.  Prior to the January 1986 Challenger accident,
NASA reduced the target flight rate to 24 per year and after the
accident, to
16 per year.  After shuttle flights resumed, the target rate was
reduced to
10 per year.\1 The budgets for fiscal years 1994 and 1995 supported
eight flights per year.  Reductions in flight rates were based on
more realistic estimates, national policy, and funding constraints. 
As the number of flights decreased, the average cost of operating the
shuttle increased significantly.  A June 1976 estimate placed the
average cost of 572 flights at about $53 million each (in 1995
dollars).\2 In its fiscal year 1995 budget to the Congress, NASA
estimated the eight flights planned for fiscal year 1995 would cost
an average of $336 million each (in 1995 dollars), an increase of
about 534 percent over the 1976 estimate.  According to NASA, the
cost increase was due primarily to the reduction in the number of
flights. 


--------------------
\1 Although NASA planned for higher flight rates, it never launched
more than eight flights in a given year. 

\2 The June 1976 estimate was $16.07 million in 1975 dollars.  To
make it comparable with current estimates, we added an allowance for
the inflation that occurred between 1975 and 1995 using a factor
supplied by NASA. 


   COST REDUCTION GOALS
---------------------------------------------------------- Chapter 1:2

In response to tight fiscal constraints, the Deputy Associate
Administrator for Space Shuttle, in January 1991, established a
program to reduce shuttle funding requirements\3 and operating
costs.\4 The goal was to reduce recurring shuttle costs by 3 percent
in fiscal years 1992 and 1993 without compromising flight safety.  In
August 1991, the Space Shuttle Director extended the 3- percent per
year reductions through fiscal year 1996.  The cumulative reductions
would total 15 percent by fiscal year 1996. 

In May 1992, the Acting Deputy Administrator implemented a
coordinated review of all NASA programs.  The objective was to
identify additional areas where program costs could be reduced by
increasing efficiency, eliminating work no longer required, and
prioritizing work that was not mandatory to safely accomplish the
flight manifest.  The review resulted in an initial target for these
additional reductions in shuttle costs of about 8 percent per year
between fiscal years 1994 and 1998. 

Even further reductions to shuttle funding requirements were directed
in fiscal years 1994 and 1995.  The Space Shuttle Operations Office
first asked shuttle element project managers to identify possible
reductions.  NASA reduced funding estimates based on these
recommendations; however, further reductions would be required based
on the funding that would be available.  The shuttle program office
allocated the remainder of the reductions to each project based on
its share of the budget.  Project managers were challenged to find
further ways to reduce funding requirements. 

Initially, NASA measured its shuttle funding reductions by comparing
the projected funding requirements in the fiscal year 1992 budget
request to the projected funding requirements in the budget requests
for subsequent years.  When NASA submitted its fiscal year 1995
budget to the Congress, NASA began tracking reductions in shuttle
operating costs from one year to the next. 


--------------------
\3 Funding requirements are estimates of the funding needed to
accomplish the planned program in any given time period. 

\4 Operating costs are the actual costs to accomplish the program in
any given year. 


   CHANGES IN SHUTTLE BUDGET
   STRUCTURE
---------------------------------------------------------- Chapter 1:3

Prior to fiscal year 1995, NASA included space shuttle funding
requirements in the Space Flight, Control, and Data Communications
category of its budget.  Shuttle costs were divided between two
lines:  shuttle production and operational capability and shuttle
operations.  Shuttle production and operational capability included
nonrecurring or investment costs such as those to modify and improve
flight hardware and ground facilities and produce reusable hardware
such as liquid fueled main engines.  Shuttle operations included
recurring costs such as those for production of expendable flight
hardware, mission training and support at Johnson Space Center, and
shuttle processing and support at Kennedy Space Center. 

Beginning in fiscal year 1995, NASA moved shuttle funding to a new
appropriations category entitled "Human Space Flight." Again, shuttle
funds were included in two lines that closely parallelled the
previous budget lines.  Nonrecurring costs were included in a line
entitled "Safety and Performance Upgrades" and recurring costs were
included in a line entitled "Shuttle Operations." Other costs
totaling about $243 million in fiscal year 1995 that were formerly
included in the shuttle operations line were moved to other budget
lines.  Payload operation costs were included in a separate line
within the Human Space Flight category.  Research operation
support--support to civil service staff and physical plants at field
centers where shuttle operations activities are performed and at NASA
headquarters--was moved to a new category entitled "Mission Support."


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

The Chairman, Subcommittee on Oversight of Government Management and
the District of Columbia, Senate Committee on Governmental Affairs,
and the former Chairman, Subcommittee on Investigations and
Oversight, House Committee on Science, Space, and Technology, asked
us to review NASA's efforts to reduce shuttle funding requirements. 
Our specific objectives were to determine (1) how successful NASA has
been in reducing shuttle operating costs and what changes enabled the
reductions; (2) if the potential exists for further funding or
operational cost reductions; and (3) whether NASA adequately
considered the impact, if any, of cost reductions on shuttle safety. 

To evaluate how successful NASA has been in reducing shuttle
operating costs, we compared budgets for fiscal years 1992 through
1995 and visited NASA Headquarters and three NASA field centers.  In
addition, we judgmentally selected cost estimates for five shuttle
projects, one directorate, and two operations for detailed review to
determine how NASA had achieved the reductions.  The budgets of these
eight elements constituted an average of 85 percent of NASA's total
operating budget for the shuttle.  Our analyses were all based on
recurring operations costs and, for consistency, we adjusted all of
the estimates to reflect the new budget structure.  We also discussed
efforts to reduce costs with NASA and contractor project managers,
business managers, and cost and budget analysts to determine how
costs had been reduced for the eight elements. 

To determine the potential for further reductions, we reviewed NASA's
plans for achieving further reductions and discussed items the agency
may have considered but rejected.  We also reviewed reports of
outside groups and independent assessments of potential reductions
and discussed the findings with the outside organizations and with
NASA officials. 

To evaluate whether NASA adequately considered safety in reducing
shuttle operating costs, we reviewed NASA's procedures for evaluating
the safety implications of the cost reductions.  We discussed
specific reductions with safety, reliability, and quality assurance
personnel at the project, program, and headquarters levels.  We also
reviewed independent safety assessments and discussed the findings
with NASA officials. 

We conducted our audit work at

  Marshall Space Flight Center, Alabama;

  Johnson Space Center, Texas;

  Kennedy Space Center, Florida; and

  NASA Headquarters, Washington, D.C. 

We conducted our work between October 1993 and March 1995 in
accordance with generally accepted government auditing standards. 


NASA HAS REDUCED SHUTTLE OPERATING
COSTS, BUT ADDITIONAL CUTS ARE
NEEDED
============================================================ Chapter 2

Over the past 3 years, NASA has substantially reduced shuttle funding
requirements and operating costs.  To achieve future budgets, NASA
will have to reduce projected shuttle funding requirements by at
least another 10 percent between fiscal years 1996 and 2000. 
Reductions may be even larger, depending on how NASA allocates
"unresolved percentage reductions" for fiscal years 1997 through
2000.  Agreement about the likelihood of achieving the projected
shuttle operating cost reductions was not universal.  Consequently,
in 1994, NASA initiated two independent reviews aimed at identifying
additional ways of reducing shuttle operating costs.  Both groups
reported their change recommendations in February 1995, but as of the
end of March 1995, NASA had not acted on all of the recommendations
and did not have an estimate of the savings expected to result from
the changes. 


   NASA HAS REDUCED PROJECTED
   FUNDING REQUIREMENTS FOR
   SHUTTLE OPERATIONS
---------------------------------------------------------- Chapter 2:1

Between fiscal years 1992 and 1995, NASA reduced projected shuttle
operations funding requirements by 22 percent.\1 In its fiscal year
1992 budget request, NASA projected that annual appropriations
required to fund shuttle operations would increase from about $3
billion in fiscal year 1992 to about $3.6 billion in fiscal year
1995.  By the time the President submitted his fiscal year 1995
budget request, shuttle operations funding requirements for those
years had been reduced by a total of about $2.9 billion from the
levels estimated in the fiscal year 1992 budget (see
fig.  2.1). 

   Figure 2.1:  Estimated Shuttle
   Funding Requirements

   (See figure in printed
   edition.)

NASA achieved the reductions primarily by making operations more
efficient and reducing the planned number of shuttle flights and
funding reserves.  Using a reasonable methodology, NASA allocated the
cost reduction amounts to four categories, which have some
interrelationship.  Increased efficiency, which translated primarily
into reductions in the contractor labor force, accounted for over
half of the total reductions.  Reduced program content--primarily
eliminating some flights between fiscal years 1992 and
1995--accounted for another 13 percent of the reductions.  Reduced
management reserve funding accounted for another 16 percent, and
other miscellaneous changes accounted for the remaining 15 percent. 


--------------------
\1 We adjusted all estimates to conform to the structure of the
fiscal year 1995 budget. 


      INCREASED EFFICIENCY
-------------------------------------------------------- Chapter 2:1.1

NASA reduced shuttle operations funding requirements by $1.6 billion
through increasing efficiency.  The most significant reductions
occurred in the production of flight hardware such as the external
tank, space shuttle main engines, redesigned solid rocket motor,
solid rocket booster, orbiter, and orbiter spare parts and ground
support equipment.  Other reductions were about equally spread
between launch and landing, which is primarily the processing
activities at Kennedy Space Center that ready the shuttle for its
next flight, and flight operations at Johnson Space Center, which
include mission control, crew training, systems engineering, and
other similar activities (see fig.  2.2). 

   Figure 2.2:  Reductions in
   Projected Shuttle Funding
   Requirements

   (See figure in printed
   edition.)

Efficiency reductions included a large number of individual changes
to each of the shuttle projects and activities.  Examples included
decreases in some contract fees, reduced material prices, and
decreased stockage levels for some spare parts.  Decreases in shuttle
contractor labor constituted the single largest reduction.  The labor
reductions were made possible by such actions as freezing the design
of major hardware components, reorganizing and combining work tasks,
automating some tasks, eliminating unnecessary administrative work,
and closing some facilities. 

From fiscal years 1992 to 1995, NASA reduced shuttle contractor labor
by 3,654 people,\2 a reduction of about 19 percent (see fig.  2.3).\3
The largest single reduction was in the shuttle processing contract
at Kennedy Space Center. 

   Figure 2.3:  Labor Reductions

   (See figure in printed
   edition.)

The contractor that produces the shuttle's external fuel tank reduced
its labor force by 300 people from a baseline of 2,328 people in
1992.  The reductions were made possible by reducing the flight rate
from 12 to 8 per year and freezing the tank's design, except for
safety and efficiency changes.  As a result, engineering and
administrative personnel who were no longer required to process
numerous design changes were released. 

The redesigned solid rocket motor contractor reduced its labor force
by almost 480 people between fiscal years 1992 and 1995 through more
efficient operations.  The reductions were achieved primarily by
automating part of the process for mixing and casting the solid
propellants, by constructing a new, more efficient facility for final
assembly of motor segments, and by freezing the motor design, except
for safety and efficiency changes. 

Contractors responsible for launch and landing activities at Kennedy
Space Center also found more efficient ways to operate.  As a result,
the largest of these contractors, the shuttle processing contractor,
reduced its workforce by 1,421 people between fiscal years 1992 and
1995.  The contractor reduced clerical and administrative personnel,
programmers, planners, schedulers, and crafts labor by the highest
proportion, and only about 19 percent of the reductions were of
"hands-on," or touch labor.  For example, the prime contractor
analyzed work authorization documents to determine the value of
multiple levels of review.  If the reviews did not result in added
value--such as increased safety or reliability--then one or more of
the reviews were eliminated.  Technical procedures were not changed
and the areas affected were primarily support areas such as
logistics, communications, and ground systems engineering. 

Contractors performing mission operations and crew training
activities also reduced their combined labor forces by almost 590
people between fiscal years 1992 and 1995 through increased
efficiency.  For example, the Mission Operations Directorate
maintains a library of computer tapes containing flight software. 
Previously, storage and retrieval of the tapes were performed
manually.  The Mission Operations Directorate now uses an automated
system to store and retrieve computer tapes instead of storing and
retrieving the tapes manually.  The Directorate also merged its
software production facility with the Engineering Directorate's
software development facility.  The merger consolidated facility
operations and sustaining engineering under a single contractor and
permitted labor reductions. 


--------------------
\2 Labor is measured in "equivalent persons." One equivalent person
is equal to the number of hours one person could be expected to work
in a year less adjustments such as for federal holidays. 

\3 The analysis assumes that the contractor will make the reductions
currently estimated for fiscal year 1995. 


      REDUCTIONS IN FLIGHT RATES
-------------------------------------------------------- Chapter 2:1.2

Lowering the planned number of shuttle flights resulted in a
cumulative reduction of $388 million\4 in operations funding between
fiscal years 1992 and 1995.  At the time of its fiscal year 1992
budget request, NASA planned for 38 flights between fiscal years 1992
and 1995 at a rate of up to 10 flights per year.  Funding restraints
imposed by several consecutive budgets, however, forced NASA to
reduce its planned maximum flight rate to eight a year, which
eliminated one flight each planned for fiscal years 1992 and 1993 and
two flights each planned for fiscal years 1994 and 1995.  Additional
funding reductions in fiscal year 1995 caused NASA to reduce the
planned number of flights for that year to seven. 


--------------------
\4 The reduction was offset somewhat by an increased cost for the
super lightweight external tank, but the net effect was a reduction
of $388 million. 


      REDUCED MANAGEMENT RESERVE
-------------------------------------------------------- Chapter 2:1.3

NASA also reduced the amount of funds it set aside as management
reserves by $458 million, or 93 percent, between fiscal years 1992
and 1995.  The shuttle program uses these funding reserves to cover
unanticipated increases in program requirements not funded in the
budget.  For example, the external tank must be emptied and then
refilled when a launch is rescheduled, which increases the cost for
propellants because some of the liquid hydrogen and oxygen is lost
during the process.  Management reserves may be needed to cover the
added costs. 

In its fiscal year 1992 budget, NASA projected it would need $474
million in management reserves between fiscal years 1992 and 1995, or
about
3.5 percent of the projected funding requirement for those years. 
Budgets for subsequent years include progressively less funding for
reserves.  For example, the management reserves budgeted for fiscal
year 1995--$17 million--was less than 1 percent of estimated funding
for that year. 

According to NASA's Shuttle Resources Management Chief, reductions in
the level of reserves were possible because the shuttle program's
actual costs have been less than available funding in each of the
past 5 years.  Excess funds have been used to replenish reserves or
carried over for use in succeeding fiscal years.  The official
acknowledged, however, that reduced reserves increase the level of
schedule risk in the program.  If funds are not available to quickly
resolve problems, flights may have to be delayed. 


      OTHER REDUCTIONS
-------------------------------------------------------- Chapter 2:1.4

The remaining $417-million cost reduction resulted from a variety of
other changes such as unrealized inflation.  For example, in
preparing its fiscal year 1992 budget request, NASA anticipated 5
percent inflation each year for the following 3 years.  Actual price
level increases were less than 5 percent; therefore, NASA did not
need as much funding as previously estimated for shuttle operations. 


   NASA HAS REDUCED ACTUAL SHUTTLE
   OPERATIONS COSTS
---------------------------------------------------------- Chapter 2:2

Another measure of NASA's shuttle operations cost reduction effort is
changes in the actual costs to operate the shuttle from one year to
the next.  In that regard, NASA also reduced the actual cost to
operate the shuttle between fiscal years 1992 and 1994\5 by 8.5
percent.  Considering the general price level increases that occurred
in the economy over this period, this reduction equated to a real
decrease of 12.3 percent. 

NASA processed the shuttle for flight eight times in each of these
years.\6 As shown in figure 2.4, operating costs in fiscal year 1992
totaled $2,832.6 million, and in fiscal year 1994, these costs
totaled $2,591.8 million, a reduction of $241 million, or 8.5
percent.  After adjusting the fiscal year 1992 costs to reflect price
level increases that occurred between fiscal years 1992 and 1994,\7
the reduction would be about $363.3 million, or about 12.3 percent,
in constant fiscal year 1994 dollars. 

   Figure 2.4:  NASA Reduced
   Actual Shuttle Operating Costs

   (See figure in printed
   edition.)


--------------------
\5 Fiscal year 1994 is the latest year for which actual operating
costs are known. 

\6 NASA processed eight flights in fiscal year 1992, but launch of
one of the flights was delayed by about 3 weeks into the next fiscal
year. 

\7 We used the gross domestic product deflator for fiscal years 1992
through 1994 to calculate price level changes. 


   ADDITIONAL CUTS WILL BE NEEDED
   TO ACHIEVE FUTURE SHUTTLE
   BUDGETS
---------------------------------------------------------- Chapter 2:3

To achieve future shuttle budgets, NASA must continue reducing
shuttle funding requirements because the purchasing power of funds
available for shuttle operations is expected to decline through the
end of the century.  Shuttle officials estimate that current funding
requirements exceed projected budgets by about $1.3 billion in fiscal
years 1996 through 2000, even after the impact of cost reduction
measures to date has been considered. 

In addition, NASA's fiscal year 1996 budget documents show that NASA
expects to reduce human spaceflight costs by another $775 million in
fiscal years 1997 through 2000.  This reduction is a portion of a
$4-billion general reduction to NASA's projected budgets for those
years.  The reduction was identified in February 1995 when NASA
submitted its fiscal year 1996 budget to the Congress.  NASA has not
yet determined how the reduction will be allocated.  If the shuttle
program absorbs a portion of the reduction, the shuttle operations
funding deficit will increase even further in those years. 

NASA estimates that in fiscal year 1995, it will have to reduce
shuttle operating costs by $75.3 million below the fiscal year 1994
level.  NASA officials told us that they will make the reductions by
decreasing the planned number of flights from eight to seven,
reducing contractor labor forces even further, consolidating some
small contracts, and using funds carried over from prior years.  As
of February 1995, officials were still projecting a $54.1-million
funding deficit for shuttle operations in fiscal year 1995. 
Officials told us that they were confident they could resolve the
deficit by finding additional efficiencies in shuttle operations. 

Achieving the reductions that are needed in fiscal years 1996 through
2000 is less certain, however.  For example, at the time NASA
submitted its fiscal year 1996 budget, it estimated that shuttle
operations would cost $258.5 million more than the amount budgeted
for that year.  NASA estimates that funds available for shuttle
operations will rise slightly in fiscal years 1997 through 2000.  The
increases, however, will not be sufficient to cover forecasted price
level increases. 

The estimated shuttle operations funding requirements, the funding
levels projected to be available in fiscal years 1996 through 2000,
and the projected funding deficits for those fiscal years are shown
in figure 2.5.  The amounts are based on fiscal year 1996 budget
documents and do not reflect any impact in available funding that may
result from the $775-million general reduction to the human
spaceflight budget. 

   Figure 2.5:  Program
   Requirements Versus Likely
   Budgets

   (See figure in printed
   edition.)

To achieve the projected budgets, NASA must reduce funding
requirements for shuttle operations by an additional 10 percent
between fiscal years 1996 and 2000.  NASA currently estimates the
shuttle program will require a cumulative amount of about $14.3
billion to operate during this time period, but it projects that only
about $13.1 billion will be available in its budgets, leaving a
funding deficit of about $1.3 billion.  The deficit averages about
$250 million a year, or about 10 percent of the shuttle operations
budget. 

NASA officials and outside reviewers agreed that the shuttle program
is more efficient than it has ever been, but future efficiencies will
be more difficult to achieve.  NASA's Administrator has stated that
NASA can reduce shuttle funding requirements below current levels. 
The Administrator and other agency officials point out that NASA had
achieved all of the necessary reductions through fiscal year 1994. 
In addition to achieving the necessary reductions each year since
fiscal year 1992, NASA estimated that the shuttle program spent $83
million less than the amount shown in the cost plan in fiscal year
1994.  The $83-million underrun will help achieve reductions
necessary in fiscal year 1995.  The Chief of Shuttle Resources
Management told us shuttle managers also hope to underrun the cost
plan for fiscal year 1995, thereby generating savings to be applied
to the unresolved shuttle funding gap in fiscal year 1996. 

Some of the shuttle managers we interviewed told us that, in their
view, the only way to achieve significant further reductions was to
reduce program requirements, primarily the numbers of flights. 
According to the Administrator, NASA cannot safely operate the
shuttle at fewer than six flights a year.  NASA has already reduced
the shuttle program to seven flights a year, and eliminating another
flight will not be enough to resolve all of the projected
$1.3-billion deficit.  According to NASA, although it can safely
reduce the flight rate from the current seven flights a year to six,
there would be a reduction in efficiency, a loss of schedule and
surge flexibility, and a serious problem meeting space station
assembly and operation requirements. 

According to a December 1994 report by the National Academy of Public
Administration,\8 the amount that can be saved from reducing the
number of shuttle flights depends upon whether the reduction is for a
single year or for several consecutive years.  Reducing the number of
flights in a single year would reduce costs by about $50 million. 
If, however, the reduction were for several consecutive
years--essentially a reduction in the maximum flight rate--annual
costs could be reduced between $90 million and $100 million because
labor can be reduced to match the reduced flight rate. 

Reducing the number of shuttle flights would increase the schedule
risk associated with the assembly of International Space Station
Alpha, which is projected to begin in fiscal year 1998.  The current
schedule requires three space station assembly flights in fiscal year
1998 and seven assembly flights in fiscal year 1999.  Thus, as
assembly of the station progresses, fewer flights can be eliminated
without endangering the station assembly schedule. 

Many of the shuttle managers we interviewed expressed uncertainty
about achieving the cost reductions necessary to match available
shuttle operating funds in fiscal years 1996 through 2000.  Some of
the managers stated they did not know how they would achieve the
necessary reductions and still support the flight schedule.  For
example, the Kennedy Space Center Director wrote in June 1994 that
significant funding gaps existed in shuttle operations and that the
center could not achieve the needed cost reductions and still support
the projected flight rate.  Similarly, the orbiter project manager
told us that the project's ability to achieve the needed cost
reductions in fiscal year 1996 and beyond was doubtful.  If forced to
absorb the reductions, the project manager said that timeliness of
decisions and implementation of corrective actions would be adversely
affected.  He stated that key technical skills were already at the
minimum levels required to sustain operations and that reducing the
skills base further could affect the planned flight schedules. 

In July 1994, the General Research Corporation, under contract to
NASA, reported on its review of shuttle cost reductions.\9 The review
team concluded that although reductions taken through the end of
fiscal year 1993 represented a healthy tightening up of the program,
there were no obvious, significant additional reductions that would
be easy to achieve.  The review did recommend that NASA consider
several additional ways of reducing costs, such as combining the
external tank, solid rocket booster, and redesigned solid rocket
motor projects into a single propulsion project.  However, the review
team acknowledged that none of the recommended actions would
individually resolve the difference between shuttle funding
requirements and likely budgets.  Also, the National Academy of
Public Administration reported in December 1994\10 that most shuttle
project managers believe that nearly all of the readily identifiable
reduction opportunities have been accomplished and that further
reductions will be much more difficult to achieve. 


--------------------
\8 National Academy of Public Administration, A Review of the Space
Shuttle Cost, Reduction Goals and Procedures (Dec.  1994). 

\9 General Research Corporation, Space Shuttle Budget Allocation
Review (July 1994). 

\10 National Academy of Public Administration, A Review of the Space
Shuttle Costs, Reduction Goals and Procedures (Dec.  1994). 


   EXTERNAL REVIEWS CHARTERED TO
   IDENTIFY ADDITIONAL REDUCTIONS
---------------------------------------------------------- Chapter 2:4

In August 1994, the Administrator directed senior management to
comprehensively review contractor and civil service workforces across
the agency.  NASA's primary objective for the review, known as the
"Shuttle Workforce Review," was to develop a understanding of
reductions that can be achieved while maintaining safety.  In
implementing the review, the Associate Administrator for Space Flight
instructed the center directors to

  identify every function and person required to safely support the
     schedule,

  specify areas where changes to shuttle program requirements or
     plans can lead to savings without jeopardizing safety, and

  forecast the expected savings or cost avoidances to be achieved as
     a result of ongoing continuous improvement programs. 

Twelve teams comprised of four to five members, most of whom were
independent of the organization and associated management under
review, were formed.  Each team had representatives for major
areas--such as engineering, management, and business--with
significant experience related to functions of the organization being
reviewed. 

In February 1995, the teams reported that they had identified over
500 recommendations for further cost reductions.  The recommendations
were grouped into six categories: 

  eliminating tasks such as all nonessential panels, work groups, and
     teams that are not value added;\11

  reducing workforces such as engineering support contractor labor at
     Kennedy Space Center;

  improving processes such as adopting more efficient flight software
     development and verification processes;

  eliminating potential overlaps by actions such as consolidating
     responsibility for institutional activities at Kennedy Space
     Center;

  shifting some work such as contract administration support from
     contractors to civil service personnel; and

  making other changes such as closing redundant facilities. 

Some of the recommendations require further coordination, but
according to the teams, most recommendations can be accomplished
during fiscal years 1996 and 1997.  NASA does not yet have a firm
estimate of the savings that may result from the recommendations, but
according to the Office of Space Flight, implementing the
recommendations will help reduce the funding gap in future shuttle
budgets. 

In December 1994, the Administrator established another independent
team to review management of the shuttle program.  The team, which
consisted of aerospace executives, business leaders, and former NASA
officials, was charged with evaluating the current processes and
procedures for conducting shuttle operations at NASA's various field
centers and recommending a new and more efficient operating
structure. 

In February 1995, the management review team reported its conclusion
that significant additional reductions in cost will be difficult
without a new and innovative approach.\12 This new approach must
transition the current program to a more operational program and
introduce cost-effective operations as a primary goal.  To achieve
this goal, the review team recommended that NASA (1) establish a
clear set of program goals, placing a greater emphasis on efficient
operations and payload integration; (2) redefine the management
structure, separating development and operations and disengaging NASA
from routine shuttle operations; and (3) provide the necessary
environment and conditions within the program to pursue these goals. 
The review team also recommended that NASA consolidate all shuttle
operations under a single prime contractor and provide incentives for
the contractor to reduce operations cost while maintaining safety of
flight and mission success.  The team's report did not include any
estimate of the savings that might result from its recommendations. 
NASA has not yet acted on the recommendations. 

On May 19, 1995, the Administrator announced plans for significantly
downsizing NASA's infrastructure to reduce the cost of agency
operations.  We did not assess the potential affect of these changes
on the shuttle program.  One potential action still being studied was
to restructure the shuttle program and prepare it for contractor
consolidation and privatization. 


--------------------
\11 Not value added means the review did not increase the safety or
reliability of the process. 

\12 NASA, Report of the Space Shuttle Management Independent Review
Team (Feb.  1995). 


   CONCLUSION
---------------------------------------------------------- Chapter 2:5

NASA has substantially reduced shuttle operating costs since it first
began cost reduction efforts in fiscal year 1992.  However,
substantial additional reductions are needed to eliminate gaps
between estimated funding requirements and projected budgets for
fiscal years 1996 through 2000.  While review groups have recommended
additional changes to reduce costs, NASA has not acted on all of the
recommendations and has no estimate of the savings that will result
from the changes.  The current funding gaps are not specifically
identified in NASA's budget documents, but if they cannot be
eliminated, NASA's future budgets will have to increase or funding
for other programs will have to decline.  Decreasing funds for other
programs to eliminate the gaps could disrupt the balance between
human spaceflight activities and science, aeronautics, and technology
that NASA has sought to achieve. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 2:6

We recommend that in future budget submissions, the Administrator
specifically identify any significant unresolved reductions that
remain so that the Congress can provide oversight and make informed
budget decisions. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 2:7

In commenting on a draft of this report, NASA agreed with our
recommendation.  NASA indicated that the January 12, 1996, budget
cuts were not specifically accounted for by program in the NASA
budget submission, due to the late timing of the reductions. 
However, NASA intends to delineate the various programs' and
institutions' share of these reductions in future budget inputs. 


NASA CONSIDERS SAFETY IMPACTS OF
COST REDUCTIONS
============================================================ Chapter 3

Although there are no direct measures of shuttle safety except for
accidents such as the Challenger, there are some indirect indicators. 
To date, NASA appears to have given adequate consideration to safety
in evaluating potential cost reductions.  Therefore, only noncritical
hardware and processes\1 have been changed, and all potential changes
to hardware and processes were formally reviewed by appropriate
groups, including NASA's safety and mission assurance organizations,
before being implemented.  Both internal and external reviews have
concluded that the changes have not affected safety.  Two groups have
cautioned that further reductions on the scale planned by NASA could
increase safety risks especially since the impact of changes is
difficult to determine.  However, both the NASA workforce review and
the independent management review team reported in February 1995 that
additional reductions were possible without adversely affecting
safety.  Because of its concern about the possibility that cost
reductions could affect safety, higher level NASA managers recently
began monitoring some potential, indirect safety indicators. 


--------------------
\1 Noncritical hardware and processes are those for which no injury,
damage, or loss of mission or life would result from a failure. 


   NASA CONSIDERED SAFETY
   IMPLICATIONS IN EVALUATING
   SHUTTLE COST REDUCTIONS
---------------------------------------------------------- Chapter 3:1

NASA's commitment to safety is reflected in the processes it has to
ensure that safety is adequately considered.  Changes to hardware and
processes are reviewed by multiple levels before being implemented. 
Neither highly critical components nor the processes that support
them have been changed to achieve cost reductions.  Several groups
outside NASA have echoed the agency's commitment to a safe shuttle
program.  Trends in a number of indirect safety indicators remain
stable or improve while operating costs are being reduced. 


      POTENTIAL CHANGES REVIEWED
      BY APPROPRIATE GROUPS
-------------------------------------------------------- Chapter 3:1.1

NASA has an approved and defined shuttle program configuration that
is used for a reference point for program planning and as a point of
departure for controlling changes.  Changes to it must be approved
either by NASA or by the contractor, depending on the classification
of the change.  All configuration changes to flight hardware or
software must be authorized by the space shuttle program or one of
its projects.  Changes that affect safety must be forwarded to the
Space Shuttle Program for disposition. 

The space shuttle configuration control structure consists of three
levels.  The Associate Administrator for Space Flight and the Deputy
Associate Administrator for Space Shuttle provide strategic guidance,
programmatic oversight, budget and procurement direction, and
external advocacy for the program.  The Director of Space Shuttle
Operations manages the day-to-day operations of the program,
including the integration of the various shuttle program elements. 
Project managers at Johnson and Kennedy Space Centers and at Marshall
Space Flight Center manage the design, qualification, and
manufacturing associated with their projects and control
specifications and changes to them.  At the contractor level, those
charged with project implementation are responsible for design,
development, manufacture, test, qualification, and certification of
certain contract end items. 

The ultimate controlling authority for all changes to the space
shuttle program baseline is the Space Shuttle Program Requirements
Control Board.  The board has delegated authority to make decisions
about certain changes to the baseline to other boards.  The Mission
Integration Control Board decides about changes to mission
integration requirements such as those with impacts to standard
launch or landing processes and flows.  At the project level, a
number of configuration control boards represent the controlling
authority for changing baselines for the hardware elements, flight
support equipment, payload ground support equipment, and launch and
landing.  Several other boards control changes in areas such as crew
procedures. 

Membership varies somewhat among the boards.  Generally, members
represent areas such as engineering, integration, NASA and contractor
management and safety, reliability, and quality assurance.  We
reviewed the paperwork associated with several proposed changes and
found that in all cases, the boards included a member of the safety,
reliability, and quality assurance community. 

All proposed changes to the baseline must be documented, evaluated,
coordinated, and either implemented or disapproved.  Changes proposed
by the contractor must be documented and must provide, among other
information, the impact of the proposed changes on safety,
reliability, quality assurance, test, operations, and logistics. 
Baseline changes proposed by a NASA organization must include the
same minimum data as changes proposed by the contractor.  Engineering
change proposals are submitted to the project office, which in turn
submits the proposals to the appropriate configuration control board. 
Any changes affecting space shuttle program baselines or another
project must be decided upon by the board. 

In addition to the various control boards, there is a System Safety
Review Panel that provides an independent review of proposed changes
presented to the Program Requirements Change Board.  The panel was
established as a result of the presidential commission that
investigated the Challenger accident and has been functioning since
the shuttle program resumed flights.  Its membership includes a
number of mandatory members of the safety community from the centers,
some projects, and the Department of Defense.  In addition, prime
contractors serve as advisory members, and safety representatives
from NASA headquarters observe the panel's proceedings. 

We reviewed several proposed cost reductions to determine if they
were handled in accordance with applicable procedures.  All of the
changes we reviewed were processed in accordance with procedures. 
Some of these changes were approved while others were not approved
because of safety concerns. 

In some cases, proposed cost reductions were not approved because of
their potential adverse impact on safety.  For example, the external
tank project office directed the prime contractor to propose an
engineering change that would eliminate nearly all of the x-ray
inspections of tank welds done before tank proof testing.  The
change, if approved, would have reduced tank costs by about $3
million.  The contractor's initial analysis concluded that 92 percent
of the x-ray inspections of the welds done before proof testing could
be eliminated because the weld process had never produced defects
that were not otherwise identified.  An analysis by NASA engineers,
however, raised concerns that critical flaws could escape detection
by other means and could cause a leak or burst either in proof
testing or in flight.  A leak or burst occurring during testing could
lead to the loss of a facility and in-flight would likely be
catastrophic.  Consequently, the project configuration control board
disapproved the change. 


      ONLY NONCRITICAL CHANGES
      CONSIDERED
-------------------------------------------------------- Chapter 3:1.2

Through March 1995, NASA had targeted only noncritical hardware and
processes for cost reduction changes.  All of the project managers
stated that neither highly critical hardware items nor processes
would be considered in the future to accommodate reductions. 

Shuttle hardware is categorized according to its criticality, or the
potential effect of its loss.  Hardware items are categorized
according to the worst possible result of their failure to perform a
required function within limits, under conditions, and for the
duration specified.  Level 1 criticality could lead to the loss of
life or vehicle, criticality 2 to the loss of a mission or the
failure of a redundant item that could cause the loss of life or a
vehicle, and all others are criticality 3. 

Hardware functions are categorized according to the effect of loss of
all redundancy for that particular function.  Functional criticality
includes the above definitions for levels 1, 2, and 3, plus an
intermediate level between levels 1 and 2 and between levels 2 and 3. 
Criticality 1R relates to redundant hardware items that, if all
failed, could cause the loss of life or vehicle.  Criticality 2R
failures are redundant hardware items that, if all failed, could
cause the loss of mission. 

None of the most critical hardware on the external tanks, main
engines, redesigned solid rocket motors, solid rocket boosters, or
orbiters has been changed to reduce cost.  In some cases, redesign of
hardware resulted in a coincidental cost reduction.  For example, on
the solid rocket booster, a single length of tubing replaced two
pieces, which increased the safety and reliability of the part and
decreased cost. 

The Orbiter Logistics Office has not changed any program requirement
to achieve cost reductions.  The only changes implemented to date
have involved delivery schedules and the length of time to effect
repairs.  Support levels for some highly critical items have been
lowered.  The logistics office considers the criticality of the
hardware when buying spare parts or prioritizing repairs.  However,
such considerations do not impact safety.  Neither has the Mission
Operations Directorate considered changing any highly critical items
or processes. 


      KEY SHUTTLE INDICATORS
      REMAIN STABLE OR IMPROVE
-------------------------------------------------------- Chapter 3:1.3

In October 1994, the Director for Safety and Risk Management of
NASA's Office of Safety and Mission Assurance reviewed and reported
on trends in 18 measures of performance in the space shuttle program
since shuttle flights resumed.  The analysis was in response to
questions raised by the Congress and the Administrator concerning the
existence and monitoring of indicators to gauge the safety and
mission assurance of the shuttle program because of recent budget and
personnel reductions.  While these trends do not directly measure
shuttle safety, they can provide indications of problems, according
to a NASA safety official.  A preliminary assessment of the
indicators did not identify any adverse trends. 

All elements of the space shuttle program track certain key
performance indicators continuously.  These indicators show trends
that may be indicative of incipient problems when interpreted in the
context of engineering and management judgment.  Such trends are not,
in isolation, used to judge shuttle safety, but according to the
Safety and Mission Assurance officials, the trends can identify areas
where further study may be warranted.  Other processes, such as
pre-launch assessment reviews, flight readiness reviews, mission
safety evaluations, and management involvement provide for the
assessment of overall shuttle safety. 

The review analyzed trends in 18 different measures in 12 areas of
shuttle operations, including launch attempts, processing, logistics,
and problems reported prior to or during flight.  Each trend was
summarized graphically and the data interpreted.  NASA's Safety and
Risk Management Division selected the 18 indicators charted in this
review.  Some of the indicators selected were those highlighted by
the report of the presidential commission on the Challenger accident. 

One indicator reviewed was the number of launches attempted or
scrubbed\2 over a period of time.  This trend could provide an
indication of shuttle processing quality and the effectiveness of
pre-launch and flight readiness reviews in detecting potential
problems.  Between the resumption of shuttle flights and the end of
1991--just before the first round of reductions--the trend showed an
average of 1.7 attempts per launch, excluding weather scrubs. 
Between 1992 and October 1994, the trend declined slightly, to an
average of 1.6 attempts per launch.  An increase in the number of
scrubs over a period of time might have indicated that processing
quality had declined, but a more thorough review would have been
required to determine the reasons. 

Another potential indicator of declining quality is the number of
problems reported with the flight hardware elements during processing
for any given flight.  This trend could indicate system quality and
reliability problems.  Since 1991, the total number of problems for a
given flight has remained well within established upper and lower
control limits, with the exception of the first flight of a new
orbiter and the first flight after the maintenance down period for
other orbiters.  Exceeding either limit would probably have warranted
a more thorough review to determine the cause.  Upper and lower
control limits are periodically reviewed and adjusted to reflect
improved performance. 

One indicator that concerned the presidential commission
investigating the Challenger accident was overtime on the shuttle
processing contract.  Tracking the percentage of overtime provides
insight into workloads that may have an effect on performance and
schedule.  Prior to the Challenger accident, overtime on this
contract was between 20 percent and 26 percent.  After the accident,
additional labor was hired, and overtime rates dropped significantly,
to about 13 percent.  Despite a decrease in the number of labor hours
expended to process each mission, overtime has not increased. 
Between September 1992 and January 1995, overtime decreased from 9
percent to 3 percent. 


--------------------
\2 A scrub is a delay of 24 hours or more after the start of
countdown for launch. 


      OUTSIDE GROUPS HAVE
      CONCLUDED THAT SAFETY HAS
      NOT BEEN ADVERSELY AFFECTED
-------------------------------------------------------- Chapter 3:1.4

The Aerospace Safety Advisory Panel conducted an annual review of
NASA between February 1993 and January 1994.\3 The panel recognized
NASA's continued strong commitment to safety but stated that the
impact on safety of organizational and budget changes will be
significantly more difficult to assess.  The panel noted that
although the shuttle processing contractor had eliminated more that
1,200 positions since September 1991, reductions had been made
without any apparent adverse impact on safety. 

In 1994, the General Research Corporation reviewed shuttle cost
reduction efforts to assess whether actual or planned cost reductions
or functional changes across the program could have a significant
impact on risk.  The review team reported in July 1994 that the cost
reductions through fiscal year 1993 were a healthy "tightening up"
while protecting content and no instances of compromise were found. 

Preliminary results from an internal study are also consistent with
the outside reviews.  The internal study, known as the Shuttle
Workforce Review, was chartered in September 1994 to, among other
objectives, identify any adverse consequences of cost reductions to
date.  In February 1995, the workforce review teams reported that the
last 3 years of program reductions have not created any unacceptable
safety holes. 


--------------------
\3 The Aerospace Safety Advisory Panel, Annual Report (Mar.  1994). 


   REVIEWS ASSESS RISK OF
   CONTINUED REDUCTIONS
---------------------------------------------------------- Chapter 3:2

Both the Aerospace Safety Advisory Panel and the General Research
Corporation expressed concern about the safety implications of future
projected cost reductions.  However, the shuttle workforce review and
the independent management review team have concluded that further
cuts are possible without jeopardizing safety. 

The Aerospace Safety Advisory Panel expressed concern that even
though reductions already made to the shuttle processing contract had
not adversely affected safety, comparable further reductions called
for by the end of fiscal year 1995 could not be made without a higher
probability of affecting safety.  The panel recommended that NASA and
contractor management remain vigilant and vocal in avoiding
unacceptable impacts on safety as a result of cost reductions planned
for fiscal year 1995 and beyond.  The panel also indicated in a
letter to the Associate Administrator for Space Flight that the key
to monitoring the safety of the program is not just in reviewing
metrics but fostering good communication with the managers throughout
the system. 

The General Research Corporation also found that safety had not been
compromised by reductions made to date.  The corporation, however,
stated that the frequency and rate of budget and budget-driven change
experienced by the program decreases the ability to assess impacts
and risks.  According to the review team, the program needs time to
plan and implement changes prior to taking on additional reductions. 

In February 1995, both the internal shuttle workforce review and the
independent management review team recommended additional program
changes to reduce costs.  The workforce review made over
500 recommendations that, according to the teams, contained no
significant safety impacts when taken individually.  The management
review team recommended a new program management structure. 
According to this team, as a result of the Challenger accident, NASA
created a safety environment that is duplicative and expensive. 
Managers, engineers, and business people are reluctant to make
decisions that involve risk because of the "fear of persecution,"
according to the management review team.  As a result, a parallel and
independent safety, reliability, and quality assurance element has
grown to large proportions.  According to the review team, to achieve
significant cost reduction, NASA must restructure and streamline
safety, reliability, and quality assurance throughout the shuttle
program, maintaining only the necessary checks and balances.  The
management review also recommended that NASA review shuttle
requirements with the goal of significantly reducing checkout and
other requirements based upon operations experience. 


   NASA MONITORS POTENTIAL SAFETY
   INDICATORS AT HIGHER LEVELS
---------------------------------------------------------- Chapter 3:3

In 1994, NASA contracted with the General Research Corporation to
develop and demonstrate a system of metrics to monitor the impact of
changes on shuttle schedule, performance, and safety and recommend a
system to improve the measurement of space shuttle program
performance and risk.  The task included identifying any key
indicators that would provide broad performance metrics, standards
for risk assessment, and a management analysis process.  The
corporation identified five areas that were key to assessing shuttle
program performance--program management, logistics, engineering,
flight crew preparation, and operations.  The operations area was
further broken down into personnel, hardware, and schedule. 

Within each area, the corporation identified metrics that would
indicate the overall status for each area.  The corporation
identified a total of
32 metrics distributed across the five areas.  It also recommended
potential sources for the data to be analyzed and provided a means
for scoring each metric as being satisfactory, having minor
weaknesses, having major weaknesses, or having major problems.  In
addition, arrows indicated whether the trend was improving,
worsening, or remaining stable. 

NASA did not adopt all of the recommended metrics.  Instead, the then
Associate Administrator for Space Flight tasked the Deputy Associate
Administrator to establish a team to review the recommendations.  The
team presented its recommendations to the Deputy Associate
Administrator who then decided which metrics were key and should be
tracked.  From the original 32 metrics, the team recommended tracking
in-flight anomaly history, space shuttle monthly cost rate,
maintenance trend analysis report, total mishaps at Kennedy Space
Center, orbiter system and line replaceable unit problem reports,
waivers of the processing criteria, overtime for the shuttle
processing contract, and errors in the Kennedy Space Center and
shuttle processing contractor's structured surveillance system. 

NASA currently tracks all of these trends as well as others.  The
difference is that the identified trends are singled out as key and
are subject to a scoring system similar to the one the corporation
suggested.  The team also recommended parameters outside of which the
metric would be coded as other than satisfactory. 

One key difference between the system recommended by the contractor
and the one NASA is considering is the level at which the trend data
is reviewed and scored.  The corporation recommended the analysis and
coding at the project level, and NASA believes that the project
managers already track these metrics and many more.  The Deputy
Associate Administrator (Space Shuttle) believes that the purpose of
the headquarters metrics is to supplement existing programmatic
communications systems with a few key indicators of program health. 


   CONCLUSION
---------------------------------------------------------- Chapter 3:4

Except for accidents like Challenger, NASA has no direct measure of
shuttle safety, but it has placed substantial emphasis and effort
into considering the safety implications of cost reduction actions to
date.  However, the absence of any direct safety measure makes
continued reductions progressively riskier.  Nonetheless, because of
NASA's declining budgets, pressure to cut costs will no doubt remain
high.  Some external reviewers have advised more caution in the cost
reduction effort while others have recommended additional reductions,
including eliminating what they view as duplicative and unnecessary
safety, reliability, and quality assurance activities.  Because of
concern about the possible impact of the reductions on safety, NASA
managers are more closely monitoring possible indirect indicators of
safety problems.  An independent assessment of proposed cost
reduction approaches may prove helpful in the critical and complex
task of balancing the need to reduce costs and the need to maintain
safe shuttle operations. 


   RECOMMENDATION
---------------------------------------------------------- Chapter 3:5

Because the potential safety impact of cost reduction changes cannot
be measured directly, we recommend that the Administrator request an
independent organization, such as the National Research Council, to
review significant cost reduction actions to be taken in the future. 
This organization could bring added objectivity because it would not
be subject to the same cost reduction measures that all NASA
employees are experiencing. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 3:6

In commenting on a draft of this report, NASA agreed that an
independent entity should review the possible safety implications of
the cost reductions.  According to NASA, it has asked the Aerospace
Safety Advisory Panel to undertake this effort. 




(See figure in printed edition.)Appendix I
COMMENTS FROM THE NATIONAL
AERONAUTICS AND SPACE
ADMINISTRATION
============================================================ Chapter 3



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION
-------------------------------------------------------- Appendix II:1

Lee Edwards
Fred Felder
Dayna Foster
Mark Lambert
Charles W.  Perdue
