Full cost accounting and resources management (budgeting) is a concept that ties all agency costs (including Civil Service personnel costs) to major activities (programs) and budgets, accounts, reports and manages programs with a full cost perspective. No resources are "free". NASA plans to implement full cost accounting and budgeting ("full costing") to enhance cost effective mission performance by providing complete cost information for improved (more fully informed) decision making and management.
While the title implies financial matters, the approach to implementation includes broad and significant management implications. Full costing also supports full disclosure and reporting on programs and an improved matching of costs with related program performance. In that regard, full costing is also consistent with sound business practices and with recent legislative and administrative guidance, including the Chief Financial Officers (CFO) Act, Government Performance and Results Act (GPRA), the National Performance Review (NPR) and NASA's Zero Base Review. (Full costing is also consistent with the required cost effective agency responsiveness to the current and anticipated future severe budget environment of the Federal government.)
A variety of approaches are available for achieving full costing. The planned approach in NASA was developed by a team of NASA accountants and resource managers, as well as, program managers supported by academic and public accounting experts, including consultation with industry and other agencies. NASA's approach to full costing includes categorizing all costs as direct or indirect costs and subsequently refining the indirect cost group into two basic categories.
For purposes of this concept paper, direct costs are costs that can be obviously and physically traced to a particular program and can be "controlled" directly by the responsible program manager. Indirect costs are all other costs. (While all costs are controlled and managed within the agency, direct costs are directly controllable at the program manager level.)
Indirect costs are all costs that are not direct costs. NASA's approach to full costing identifies two basic indirect cost categories, traceable and non-traceable. Traceable indirect costs are all non-direct costs (support costs) that cannot be specifically and immediately identified to a program but that subsequently can be traced or linked to a program in an economically feasible manner. These costs can be expected to be controlled in a broad sense by program managers. Non-traceable indirect costs are all non-direct costs (support costs) that cannot be specifically and immediately identified to a program and that subsequently cannot be traced or linked to a program in an economically feasible manner. Many organizations refer to such non-traceable indirect costs as general and administrative (G&A) costs. These costs will be allocated to programs in a consistent, logical manner.
The preliminary approach to full cost accounting includes several key features:
The preliminary approach to full cost budgeting includes several considerations:
Full costing presents several new challenges. For example, NASA must maintain the appropriate flexibility to redistribute, without external approval, indirect funding between Strategic Enterprises and programs, as necessary. (In the current internal budgeting environment, NASA has considerable flexibility to adjust budget resources as programs evolve.) Furthermore, NASA must work carefully with the Office of Management and Budget (OMB) and Congress regarding previously established program “budget caps” to explain the potential confusion related to indirect costs that were not included in the original “budget cap.” In addition, program managers must assume a new role in managing or influencing the total costs of their programs.
Initial analysis indicates that full costing can be introduced in a phased manner and implemented throughout NASA concurrently with required new financial systems. NASA's ongoing new integrated financial system is expected to provide the required standard accounting and budgeting capabilities in the late-1990's. Any possible appropriation/budget structure changes are likely to involve extensive external consultation that is also consistent with a late-1990's target implementation. In the interim, the change to full costing requires some key activities, including obtaining agency agreement on the concept and approach, initiating full cost prototyping activities for a selected Enterprise and related Centers/programs with requisite system capability, and establishing a basic strategy for appropriation/budget structure changes. NASA plans to pursue these and other implementation matters during the next few years.