Full Cost Simplification

Strategic Management Council: Meeting Minutes and Actions - Date: 16 May 2006 Time: 8:00 a.m. – 4:55 p.m. (PDT) Location: Jet Propulsion Laboratory, Building 167 conference room

Twelfth Item of Business: Full Cost Simplification - David Schurr, PA&E, presented the status of the effort to eliminate service pools.

• - Agency has eliminated allocated service pools in FY2007 budget. Facilities and information technology were moved into a center management and operations account.
• Consumption (demand) service pools still exist at several centers. Issues include the high fixed cost of capabilities (services require highly technical skills), inability to accurately forecast the need for services, and general insufficient use of services.
• Basic principles applied to full cost simplification are being applied to the elimination of service pools:
• Do no harm;
• Programs should only pay for direct and overhead;
• Direct costs should only be those completely in a program's control;
• Cost pooling as an accounting tool is appropriate if it is consistent with the first three basic principles;
• Agency needs processes for budgeting and funding underused capabilities and personnel.
• Agency needs the ability to scale up capabilities in overhead if the demand increases.
• Eliminating service pools is a very complex task.
• Eliminating service pools will not solve under-forecasting or insufficient use.

Schurr also provided a brief update on center management and operations rates, reporting that the attempt to set one rate for all NASA centers unfairly penalized the Jet Propulsion Laboratory as it resulted on overhead on top of overhead. Setting individual center rates made research centers less competitive. The solution is to set a single overhead rate for the nine government-owned and operated centers.

Members discussed issues related to eliminating service pools and the problems of under- forecasting facility use and insufficient use of facilities. Griffin stated that the goal is to competitively price the use of facilities so that program managers know what to expect. He also is trying to get the Agency into a position where decisions can be made about what facilities are still needed in both the near and long term. Dominguez reported that Infrastructure and Administration's Shared Capability Asset Program (SCAP) received 15 proposals that will be analyzed and brought forward to the OMC or SMC for funding decisions. Dale reported that the Mission Support Implementation Plan effort includes 5 teams, one devoted to facilities. Dominguez stated that as much as possible issues and decisions will be worked through in smaller meetings before coming to the management councils.

No decision, no action required.

[Note: The presentation "Framework for Acquisition Strategy" was deferred in order to permit Harrison Schmitt to present at his appointed agenda time.]