This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its May 2019 report entitled NASA: Assessment of Major Projects, the U.S. Government Accountability Office (GAO) found significant risks of ongoing cost overruns and delays in the major projects portfolio of the National Aeronautics and Space Administration (NASA). In its annual snapshot of NASA projects, the GAO stated that “as of February 2018, the cost and schedule performance of major projects was deteriorating, with 9 of 17 projects in development reporting cost or schedule growth”. The report also found that “NASA was likely to continue to see cost and schedule growth, as new, large projects were entering the portfolio while others were taking longer to launch than planned.” In fact, the GAO found the highest rate of project delays ever measured in its NASA reviews:
What GAO Found
The cost and schedule performance of the National Aeronautics and Space Administration’s (NASA) portfolio of major projects continues to deteriorate. For this review, cost growth was 27.6 percent over the baselines and the average launch delay was approximately 13 months, the largest schedule delay since GAO began annual reporting on NASA’s major projects in 2009.
The report found that current funding could not sustain the NASA portfolio given the increasing project delays and resulting cost increases. The GAO warned that the affordability of NASA’s project portfolio will come under increasing strain and that “NASA will have to increase its annual funding request for major projects in future years or make other funding trade-offs as part of its annual budget request” if current trends continue:
…NASA is currently managing a portfolio of programs that costs more than what its planned annual budget request can support, and this trend will continue, assuming its budget requests stay on the same trajectory. Our previous work on Department of Defense acquisitions shows that when agencies commit to more programs than resources can support, unhealthy competition for funding is created among programs. This situation can lead to inefficient funding adjustments, such as moving money from one program to another or deferring costs to the future. We have also found similar conditions at the Coast Guard. In July 2018, we found that the Coast Guard’s funding plans over the next 5 years for its portfolio of major acquisitions exceeds average budget requests in the last several years. To address funding constraints, the Coast Guard has been in a reactive mode by making prioritization decisions through the annual budget process without identifying how trade-off decisions made in the current budget cycle will affect the future of the acquisition portfolio. As a result, the Coast Guard has continued to defer planned acquisitions to future years and left a number of operations capability gaps unaddressed that could affect future operations.
Furthermore, while the GAO found that NASA had improved the stability of its original project design work by implementing a design review process, it also found that most projects continued to experience design changes after that design review, which exposed those projects to further cost increases:
Most projects have not demonstrated a stable design at the project’s critical design review, but more are doing so now than several years ago. In addition, the average percentage of released drawings for the portfolio has remained generally consistent with the past 5 years. Our work on product development best practices shows that releasing at least 90 percent of engineering drawings by the time of the critical design review lowers the risk of projects experiencing design changes and manufacturing problems that can lead to cost and schedule growth. Further, many of NASA’s major projects—including several of those that did not demonstrate a stable design at critical design review—continue to experience late design changes. Design changes after the critical design review can be costly to the project in terms of time and funding because hardware may need to be reengineered or reworked as a result.
However, the GAO found a slight decrease in the amount of design changes that were occurring after design review:
The average percentage of drawing growth for projects past critical design review decreased slightly, from 19 percent to 18 percent. Of the 11 projects included in this year’s analysis, 9 experienced design drawing growth after their critical design review, ranging from 1 to 52 percent. This is an improvement from last year, when 11 out of 12 projects experienced design drawing growth. Further, 6 of 8 of the projects that did not meet the best practice of releasing 90 percent of their design drawings by critical design review then had late design drawing growth of 15 percent or higher.
While these modest improvements were a step in the right direction, they were too small to offset the general deterioration in project governance that was putting the NASA major project portfolio in funding peril.
As this case study illustrates, the failure to manage delays and cost overruns in major projects can have a significant adverse impact on an organization’s long-term ability to fund its ongoing projects portfolio, putting the viability of those long-term projects in a state of peril.
