constraints that lead to inefficient expenditures.²¹ Fourth, they can ensure a match between the managerial and engineering talent furnished to the project and the challenges inherent in the project. Finally, they can reduce the probability of deliberate underestimating of the “basic cost estimate”—the estimate for the baseline mission elements before the application of reserves—by insisting on a high confidence in that cost estimate.

As discussed in the prior section, NASA program managers do avail themselves of these tools, and have made adjustments in their management approach in response to changed circumstances. The findings and recommendations provided below should be viewed as building on and strengthening current NASA practices. The Academy team’s examination of the cost growth of projects from the baseline without reserves (as seen in “the internal cost growth” for Discovery projects) indicates how seriously underestimated the starting estimates for many projects have been. The team’s findings, analysis, and proposed corrective actions are presented below.

The analysis is broken down by two principal processes. The first examines how the proposal process for PI-led missions influences the quality of the basic cost estimates. The second focuses on the mission development process.

Finding 1: The proposal and selection process has characteristics and limitations that encourage the submission of optimistic basic mission cost proposals for science missions.

The AO proposal process encourages a proposer to adopt strategies that emphasize the prospects for exciting science returns from innovative missions that explore new environments, using a mixture of proven and new technologies. Proposers are astutely packaging their proposals to address NASA’s expectations—as articulated in the AO and NASA program management directives—in terms of accepted project management processes. And proposers are very aware of the need to meet NASA’s stipulation that a specified percentage level of project cost reserves be shown as available at key milestones before the project will be approved for development start.

However, the specific rules set up by NASA in the AO work against proposers providing NASA with proposal cost estimates for the baselined mission content that have a higher probability of being successfully executed without reliance on project cost reserves.

• First, the proposers must satisfy NASA’s emphasis on the amount of reserves included, where higher levels of reserves in the estimates are evaluated as “a strength.” The AO specifies a percentage of “unencumbered reserves” at the time of confirmation for development of at least 25 percent of all development costs in phases C and D; if the unencumbered reserves are lower than 25 percent, the projects “are likely to be judged as having an unacceptably high cost risk and, therefore, not confirmed for further development.”²² As a consequence, the proposers are encouraged to prepare estimates that ensure the required level of reserves can be displayed. The Academy team’s interviews suggest that proposers are achieving this requirement by using more “optimistic” costing assumptions in their basic cost estimates.