LMI 2010 Annual Report

OFFERING

INSIGHT INSPIRING

ACTION 2010 ANNUAL REPORT

Complex Problems. Practical Solutions.

MISSION AREAS

DEFENSE

INTELLIGENCE

HEALTHCARE

HOMELAND SECURITY

ENERGY AND ENVIRONMENT

CIVIL GOVERNMENT

CAPABILITIES POLICY AND PROGRAM SUPPORT

ORGANIZATIONAL IMPROVEMENT

LOGISTICS

INFORMATION MANAGEMENT

INFRASTRUCTURE MANAGEMENT

ACQUISITION AND FINANCIAL MANAGEMENT

Table of Contents Letter from the Chairman of the Board............................... 2 Letter from the CEO.............................................................. 4 LMI Research Institute........................................................... 6 Year in Review........................................................................ 8 Corporate Governance....................................................... 26 Corporate Officers............................................................... 28 Program Leaders................................................................. 28 Consulting Services............................................................. 30 Financial and Other Data.................................................... 32

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William Norman, Chairman of the Board, and Nelson Ford, President and Chief Executive Officer.

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Letter from the Chairman of the Board Reflecting on our past year In 2010, LMI completed its 49th year helping government leaders advance the management of government.

As we acknowledge our 50th anniversary, it is appropriate to reflect on LMI’s half-centurylong mission. LMI was founded by Robert McNamara in 1961 to fill a glaring hole in the Department of Defense by serving as a fact-finding and logistics research organization.

Specifically, LMI was tasked with bringing private-sector best practices to the federal realm to solve the challenges facing government managers.

Today, we continue that mission by developing pragmatic and grounded solutions to address evolving federal priorities. LMI clients appreciate our continuing effort to focus on our mission. And, as an independent, not-for-profit consulting firm, LMI is free from bias.

The members of our staff are renowned for their deep understanding of the government, and this provides them with a distinct perspective of the problems facing the public sector.

In 2010, LMI worked with more than 40 government agencies and other clients faced with changing times. This annual report contains just a few examples of the commendable work performed by the LMI staff each and every year.

The year 2010 represented my last as chair of LMI’s board of directors. It has been an honor and a privilege to continue my career in public service as a steward of LMI’s mission to support federal managers. I know LMI moves forward in capable hands. My successor, Michael A. Daniels, understands and supports the philosophy that makes LMI stand out from its counterparts. LMI’s officers lead with steady hands as the organization strives to enhance its reputation for innovation and pragmatism.

I commend the staff for its continued work on behalf of the federal government and will take great pride in their continued success.

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Letter from the CEO Looking forward When you have a seasoned staff, an established corporate culture, and a significant body of work, you have in place a foundation that other organizations envy. It’s a product of being in business for 50 years, and it’s a big part of why LMI is now established as a leader in serving the federal government. It’s worth celebrating.

That said, our next 50 years will not be easy, and success won’t come from resting on our laurels.

We face a tough, uncertain market. The economy has forced some tough decisions by federal managers, and significant changes to programs and expenditures are coming. But while these challenges affect every one of us who serve the federal government, LMI has the foundation in place to propel us forward.

Our emphasis, as always, will be on our core capabilities: acquisition and financial management, infrastructure management, information management, logistics, organizational improvement, and

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policy and program support. These areas are the core of our staff’s expertise. Our staff members use these skills to create multidisciplinary, cross-market solutions with agility and precision.

Today, we find ourselves exploring new markets—both service related and geographic— where we can apply LMI’s considerable expertise. For example, in the past year, we’ve identified strong opportunities in the San Antonio region and in the healthcare market.

LMI entered the San Antonio market several years ago, helping the Army think through base realignment and closure activities as well as energy and environment policy activities.

As the federal government expands its presence in San Antonio, LMI is expanding our presence and assembling a great staff for helping our clients meet their missions.

Healthcare reform is clearly a priority for the current administration, and this issue isn’t limited to the federal domain. States will also be seeking guidance on how they can improve services not only to patients but also providers, administrators, and regulators in this historic effort. The LMI Center for Health Reform is working to develop solutions that are both innovative and inspire action.

Each year, we identify one project that exemplifies the extraordinary capabilities and expertise we offer our clients. For 2010, we selected the Afghanistan In-Transit Visibility Joint Task Force Implementation Plan. Described more fully on pages 11 and 12, that project helped the Department of Defense solve the problem of determining where specific assets are, how they are being moved, and when they are going to get to their destination. Our recommendations focused on immediate improvements in Afghanistan and will likely serve as the basis for revising DoD ITV policy worldwide. This small but critical project showed how to improve government efficiency and effectiveness. The Office of the Assistant Secretary of Defense for Logistics and Materiel Readiness, Transportation Policy, characterized LMI’s work as “superb.”

This support of military operations in Afghanistan demonstrates how we approach our work at LMI: applying deep understanding of the federal domain to develop practical, yet innovative solutions for our clients. But it’s just one of many projects that meet these high standards, and these projects are but a drop in the bucket of what LMI’s staff will achieve over the next 50 years.

Another 50 years! It is an enviable position to be in and a challenge to all of us here at LMI. We are ready and eager to show you what we can do.

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LMI Research Institute As part of our not-for-profit mission, LMI uses a portion of its revenue for independent research on the difficult issues facing our nation today and tomorrow. In 2010, LMI committed more than $2.8 million to sponsor a variety of projects in the areas of public policy, inventory management, organizational improvement, facilities management, logistics, climate change, social media, and other issues. These efforts allow our staff the freedom and flexibility to pursue research and thought leadership to the benefit of our clients and the public they serve.

One such effort focused on the state of pandemic planning and response in the United States today. Inspired by the 2009 H1N1 pandemic, LMI assembled a research team from several different areas of expertise, including health, emergency response, economics, supply chain and logistics, communications, command and control, organizational structure, and capacity development. Capitalizing on these different viewpoints and experiences, LMI assessed the current federal and state pandemic response approaches, evaluating results and lessons learned from the recent H1N1 experience, and then extrapolated performance against a predicted severe pandemic with high hospitalization and mortality rates.

The LMI team identified 12 components to pandemic response, which range from pandemic-specific health concerns to general emergency response considerations.

For each component, we identified weaknesses in individual federal and state plans—from lack of identified resources (infrastructure, supplies, or people) to perform a specified action, to unclear command and control information flow, to a complete absence of detail on critical items, such as fatality management. Sorting and categorization of these specific weaknesses pointed to a few overarching gaps in current federal and state pandemic planning approaches, namely, a disconnect between the idealized guidance of what federal and state plans say should be done and what the local communities, which will carry the brunt of enacting and enforcing actions, will be able to do. In short, federal and state plans have been written with little thought about the resources available.

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To help communities understand the magnitude of the situation they may face in a severe pandemic, LMI has recommended a bottom-up planning framework that will facilitate an assessment of community-specific and community-focused pandemic response resources and capacity. By using our framework, communities will be able to better prepare for a pandemic, and federal and state governments will be able to compare community readiness throughout the nation, prioritize capacity development efforts before a pandemic hits, and allocate resources for responding during a pandemic. Our team’s next step is to create and test the proposed framework with a local community.

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Year in Review For nearly 50 years, we have been helping our clients tackle business issues related to acquisition and financial management, infrastructure management, information management, logistics, organizational improvement, and policy and program support. We apply those capabilities in six mission areas: Defense Intelligence Healthcare Homeland security Energy and environment Civil government.

This section highlights projects in each mission area to demonstrate our continuing commitment to improving government performance by providing unbiased and practical approaches to the public sector’s most complex problems. We undertook these projects for a broad range of defense, intelligence, and civil agencies.

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Defense The nature of warfare has changed substantially over the 50 years we have been helping defense agencies and the individual military services. But the capabilities we bring to bear on defense issues are as relevant as ever: innovative thinking, deep functional expertise, and practical guidance on the careful planning and management of resources to help make our defense clients more agile and effective.

Implementing Readiness-Based Sparing Practices at the U.S. Marine Corps The Supply Management Center, Marine Corps Logistics Command, requested our assistance with upgrading its inventory management techniques using readiness-based sparing principles. The SMC’s goals included improving weapon system readiness and lowering the cost of spares. We focused our analysis on four areas: (1) developing historical demand data for depot-level reparable items, (2) forecasting demands for spares, (3) estimating RBS requirements, and (4) developing stratification budgets for those spares. In the first area, we reviewed the Marine Corps’ inventory management practices and supporting information systems; we then developed recommendations for improvement and identified opportunities for streamlining the processes. In the second, we showed how adjustments to the Marine Corps’ forecasting parameters would affect different measures of inventory performance, such as cost, back orders, and customer wait time. In the third, we used an RBS model to set requisitioning objectives, which yielded a wholesale RBS solution that would lower the cost of spares by 20 percent over the current method without increasing back orders. In addition, we adapted multiechelon-like approaches that give the Marine Corps the flexibility to use wholesale and retail RBS solutions together or separately, and we identified critical items on mission-essential equipment that need more spares protection. In the fourth area, we automated a paper-based stratification process that will enable the Marine Corps to perform complex analyses. We briefed these results to SMC representatives and will soon start the follow-on effort to assist the Marine Corps with implementing our recommended practices in each of the four areas.

Enhancing the Long-Term Viability of DoD’s Maintenance Depots The Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 directed the Department of Defense to evaluate the logistics capabilities and capacities of its maintenance depots and to determine whether they are sufficient for national defense. This mandate builds on previous NDAA provisions requiring DoD to develop a comprehensive strategy for ensuring that its organic depots are viably positioned for the future and have the required workforce, equipment, and facilities to operate efficiently to meet warfighter demands, now and in the future. Congress directed DoD to submit its findings in two reports: interim and final.

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LMI is assisting DoD as the independent evaluation. In the interim report, which we drafted and submitted early this fiscal year, we described the analytical framework that we would follow in conducting the evaluation; discussed the primary laws, regulations, and policies guiding depot maintenance performance and financial reporting; examined several topics that have shaped the current depot maintenance environment; and detailed the remaining steps that we would follow in satisfying Congress’s requirements. We also outlined the topics we would address in the final report. They included the requirement to maintain an efficient and enduring DoD depot capability, the potential for changes to current laws, the need for an enhanced method to determine the depots’ core logistics requirements and the associated risk, the business rules that could incentivize the Secretary of Defense and the military department secretaries to keep DoD depots efficient and cost-effective, and the strategies for enabling and monitoring the ability of the depots to produce performance-driven outcomes.

Advising the Joint Contingency Acquisition Support Office The Joint Contingency Acquisition Support Office orchestrates, synchronizes, and integrates program management of operational contract support across combatant commands and U.S. government agencies during combat and post-conflict operations. JCASO augments the capabilities of the commanders’ staffs in the execution of operational contract support.

LMI has advised JCASO since it was formed in 2008. We helped establish the initial organizational structure, including drafting and staffing numerous policy documents and directives, and we developed the language for Program Objective Memorandum 10-15, which established permanent funding for JCASO. We also assisted the combatant commanders with developing contingency acquisition annexes to their operation plans and concept plans, and we advanced the combatant commanders’ use and understanding of the Synchronized Predeployment and Operational Tracker system for managing and maintaining visibility over contractors accompanying U.S. armed forces overseas. In addition, LMI personnel, representing JCASO, participated in numerous joint exercises in Europe, South America, and the Pacific, where we demonstrated our value and organizational flexibility by operating simultaneously at both the combatant command and joint task force levels. LMI is currently supporting the transition of operational contract support in Iraq from the Department of Defense to the Department of State and the development of an institutionalized wholeof-government approach to operational contract support.

Improving Inventory Management at DoD The Department of Defense manages more than 4 million secondary items (such as reparable components, subsystems, and consumable repair parts) valued at approximately $90 billion.

To ensure that its inventory is properly sized and not excess to customer requirements, DoD is preparing a Comprehensive Inventory Management Improvement Plan. The plan includes specific actions and targets aimed at improving forecasts of requirements, enhancing asset visibility and accessibility, terminating on-order excesses, improving the methods for

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determining economic and contingency retention limits, and ensuring timely review and disposal of excess inventory. Section 328 of the National Defense Authorization Act for Fiscal Year 2010 established a formal requirement for the Secretary of Defense to submit a comprehensive plan for improving military department and Defense Logistics Agency inventory management systems, specifying eight areas to be addressed. The DoD plan extends beyond the eight areas cited in the legislation, addressing a broad range of improvements to better size the DoD inventory to meet the needs of the warfighter. LMI is helping DoD prepare and administer the plan, initially focusing on actions necessary to minimize the initial acquisition of unneeded inventories, retain inventory that may be needed, and expedite the elimination of unneeded assets. These actions are particularly important because both the government and the taxpayer benefit when no unnecessary inventory purchases occur and no unnecessary inventory holding costs are incurred. In addition, to ensure the completion of planned actions as expected, and to permit quick response to any potential course corrections, we will review progress and, as required, update the plan to ensure the continuous improvement of DoD inventory management.

Strengthening Visibility of Materiel Movements within Afghanistan Following a visit to Afghanistan, the Under Secretary of Defense for Acquisition, Technology and Logistics formed an In-Transit Visibility Joint Task Force to address visibility issues associated with intra-Afghanistan movements of military materiel. LMI served as the principal technical advisor to

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the task force. Considering a Joint Surface Assessment Team report from Afghanistan, the task force identified several major ITV deficiencies in the Combined Joint Operations Area–Afghanistan: (1) absence of a single automated system for movement control; (2) restricted visibility of commonuser land transportation assets, both host nation and military; (3) lack of a common logistics operating picture by U.S. forces and International Security Assistance Force coalition partners, which precluded ITV of movement requirements and execution; (4) limited use of automatic identification technology media to capture shipment and content data; and (5) use of movement control organizational structures, which evolved over time as the mission expanded and were inconsistent with NATO and U.S. doctrine.

In response to these and other issues, the task force recommended the deployment of satellite transponder capability on all military and host nation common-user land transportation assets and the implementation and enforcement of U.S. Central Command active radio frequency identification policy. The task force also recommended having the Battle Command Sustainment Support System–Node Management serve as the U.S. common logistics operating picture, restructuring organizations to more closely mirror movement control doctrine, and updating the command movement program and republishing it as a command directive.

A group of senior DoD logisticians—cochaired by the Principal Deputy Assistant Secretary of Defense for Logistics and Materiel Readiness and the Joint Chiefs of Staff Deputy for Logistics—approved the task force’s recommendations. The group meets periodically to monitor implementation of the task force recommendations.

Serving the Quadrennial Defense Review Independent Panel Every 4 years, the Department of Defense conducts a congressionally mandated review of the projected national security environment for the upcoming 20 years. The purpose of this review,

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known as the Quadrennial Defense Review, is to identify the defense strategy, forces, and resources required to meet security challenges. After DoD has completed the QDR, the QDR Independent Panel assesses the QDR recommendations and reports its findings and recommendations to Congress.

LMI, reporting directly to the panel’s executive director, provided a team of five senior staff members to support the plenary sessions and serve as a dedicated staff to the five subpanels. The subpanels covered the following topics: nature of 21st century conflicts, whole-of-government approach to national security, force structure and personnel, acquisition and contracting, and future of the QDR process. LMI helped the subpanels by researching various topics, such as the future strategic environment, estimated personnel and healthcare costs, the whole-of-government capacity for national security, and cybersecurity. We also provided administrative support.

The panel’s report noted that the QDR may help Congress review DoD’s current missions, but it is not the long-term planning document that the statute envisions. Looking to the future, the panel’s report warned that the current projections of personnel and healthcare costs are unsustainable and that DoD is on a path to a budgetary “train wreck.” It also concluded that the executive branch lacks an effective whole-of-government policy that integrates the planning and execution capabilities for the departments and agencies with national security responsibilities.

Following the testimony of the panel’s cochairs before congressional committees, LMI assisted with developing responses to questions submitted to the panel by Congress.

Educating Soldiers about Sexual Assault Prevention and Response The Army has undertaken an I. A.M. STRONG campaign to create a climate that will eliminate sexual assault incidents, encourage victims to report incidents of sexual assault without fear, and, if an incident occurs, ensure sensitive and responsive treatment to restore victims’ health and well-being. As part of this campaign, the Army established a Sexual Harassment/Assault Response and Prevention Program to reinforce its commitment to eliminate incidents of sexual assault through a comprehensive policy that centers on awareness and prevention, training and education, victim advocacy, response, reporting, and accountability. Army policy promotes sensitive care and reporting for victims of sexual assault and accountability for those who commit such crimes.

LMI has been assisting with sexual assault prevention training and awareness programs to educate soldiers. In support of the Army’s SHARP Program Management Office, LMI developed a curriculum and trained mobile teams to train more than 17,000 soldiers at sites around the world. We combined the Army’s sexual harassment and sexual assault response curriculum into an 80-hour block of instruction to teach soldiers about their new roles and responsibilities as SHARP specialists throughout all levels of Army commands.

LMI also developed a SHARP curriculum and trained senior leaders on the overall intent of the program and the leaders’ responsibilities regarding their response to sexual assault victims, including thoroughly investigating allegations of sexual assault and taking appropriate administrative and disciplinary actions.

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Intelligence Intelligence organizations must make sense of increasing volumes and types of information if they are to provide the best, action-oriented insight to those protecting our country, particularly in a resource-constrained climate. To help the Intelligence Community meet its challenges, LMI takes a big-picture perspective, identifying areas where clearer policy, changes to strategy, refined processes, or improved analytics will make intelligence better and more responsive.

Supporting the Intelligence Community To help the Intelligence Community become more agile and more collaborative, LMI took on a series of client projects that shared a common thread: applying our understanding of the IC culture and our expert analysis to help intelligence organizations define their strategic direction and develop appropriate performance measures. LMI’s goal was to help these clients become outcome oriented, which involved developing training programs to sharpen the skills of intelligence officers and shaping the organizational culture of individual intelligence organizations, with an emphasis on developing a sensitivity to and awareness of what their IC counterparts are doing.

LMI also helped IC clients harness the power of social media for the delivery of information to national security customers.

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LMI has an acute understanding of the continued push for U.S. intelligence organizations to remain relevant and to address change with the philosophy that “the status quo is unacceptable.” With our expertise in IC management and culture development, we can help all 16 IC agencies improve their intelligence capabilities, performance management, intelligence education services and curriculum development, mission and technology alignment, social software, and leadership and workforce survivability.

Expanding Intelligence Analysis Using Agent-Based Modeling and Simulation In recent years, agent-based modeling and simulation have become increasingly popular methods for examining how the actions of individuals can be combined to create systemic outcomes that may not be intended by any of the actors in the system. At the same time, analytic tradecraft has increasingly emphasized the use of structured analytic techniques that help analysts develop, manage, and test hypotheses, as well as explicate assumptions and uncertainties, to produce more robust analytic products. As agent-based modeling continues to transition from research to an applied method, it can contribute significantly to intelligence analysis by providing a mechanism to structure and test ideas.

LMI’s instructional and modeling activities have enabled us to incorporate agent-based modeling and simulation indirectly into a number of Intelligence Community projects.

Through our work, we have helped refine the intelligence questions of our customers and assisted with generating hypotheses that may be evaluated using more traditional analytic techniques. We have also tested hypotheses using simulation data that can provide support for, or refutation of, particular judgments about intelligence-related issues. By applying this method, we have enabled our customers to conduct “what-if” analyses as well as explore how different scenarios and sets of conditions lead to different outcomes.

Healthcare Improving healthcare has moved to the forefront of the national agenda. It’s a top citizen priority and a government one as well. LMI’s healthcare specialists serve as a conduit to LMI’s core areas of expertise for healthcare managers and policymakers. We are healthcare management specialists, with substantial expertise in the business aspects of healthcare.

Helping to Implement Healthcare Reform LMI has a history of identifying and seeking to solve the most difficult problems facing publicsector managers, regardless of complexity. Our newest initiative is the establishment of the Center for Health Reform to help federal and state governments face the challenges of implementing and assessing the impact of the sweeping changes to our nation’s healthcare

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system brought about by Congress in 2010. The center provides practical solutions and services to many of the implementation issues of the newly enacted Patient Protection and Affordable Care Act. LMI’s healthcare actuaries and policy experts use a hands-on approach to determining best practices for implementing health reform. They also assist with actuarial analyses of the ACA, evaluate the Medicare Advantage program’s cost and effectiveness for the Centers for Medicare and Medicaid Services, and work to help integrate multipleagency processing for military personnel, allowing for a seamless transition from active duty to inactive duty care. Bringing our mission-driven perspective to this critical issue, LMI’s goal is simple: provide the research and logistical support for government managers to implement health reform initiatives.

Deterring Medicare and Medicaid Fraud, Waste, and Abuse The Centers for Medicare and Medicaid Services has undertaken a program to establish a centralized repository of integrated Medicare Parts A, B, and D data and Medicaid data, standardized to a common data model, from all states and territories. The availability of a centralized source for accessing the tremendous volume of data on claims, providers, and beneficiaries will allow investigators—for the first time—to perform detailed cross-state and cross-program analyses. The ability to perform consistent, reliable, and timely analyses will improve the ability to detect and prevent fraud, waste, and abuse in the Medicare and Medicaid programs.

The new software application will support the daily analysis of every data element in the complete fee-for-service claim record; in the past, only summary information was available for analysis. More important, the system aggregates data into episodes of care, episodes of admission, and personal health profiles, enabling entirely new types of analyses, such as the comparison of treatments for heart-attack victims.

LMI prepared the business case for the data repository and has been helping CMS manage the repository’s implementation. We provide program management services, such as project planning, risk management, earned value assessments, and functional and technical support.

Among other things, we helped develop a program management plan that covers all aspects of the program, including the organization, policies, and practices required for CMS to manage the program to achieve successful outcomes for all stakeholders. When fully implemented, the data repository is estimated to save at least $25 billion over the first 5 years.

Assessing Medical Supply Chains in the International Community The Millennium Challenge Account has funded several initiatives to reform the public procurement system in Kenya to improve the delivery of health services. In support of one of those initiatives, undertaken by Management Sciences for Health, LMI assessed the Kenya Medical Supplies Agency’s management, procurement, warehousing, logistics, and information technology functions. After identifying the strengths and weaknesses of

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KEMSA’s functions, we developed ways to bolster and improve the accountability of its storage and distribution programs. We also identified information and information systems needed to better realize KEMSA’s vision and mission.

LMI also helped KEMSA correct key deficiencies identified in previous assessments. We reviewed five core supply chain process areas—warehouse, logistics distribution, procurement, service liaison, and quality assurance—and drafted standard operating procedures and business flow diagrams. We helped KEMSA stakeholders develop key performance indicators for each of the five core process areas, and we recommended priorities for developing an enterprise resource planning system.

In a follow-on project, we assisted KEMSA with the development of a plan for moving Kenya’s central medical warehouse from Nairobi to Embakasi. In addition, we helped develop a master warehouse design and equipment list, and we revised the warehouse standard operating procedures with business flows that facilitated the movement.

The work we did in Kenya led us to engage in other areas of global health support. For instance, we assisted the Bangladesh Directorate General of Family Planning with a nationwide assessment of the medical supply chain. This overall assessment of the entire supply chain, from the national level to the provider, set the stage for subsequent tasks to improve the delivery of healthcare to the people of Bangladesh.

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Homeland Security The men and women on the frontlines of America’s homeland security efforts carry monumental responsibility. We stand ready to support them. From improving every aspect of the supply chain, to rigorous data analysis for more insightful decision making, to modeling and comparing alternative courses of action, LMI brings the right combination of government, management, data, and technology specialists.

Helping to Secure Our Southwest Border The Secure Border Initiative is a comprehensive, multiyear program established by the Department of Homeland Security to secure America’s borders and reduce illegal immigration. Section 102 of the Secure Fence Act of 2006 (Public Law 109-367) required DHS to construct—as expeditiously as possible—the infrastructure necessary to deter and prevent illegal entry over the U.S. southwest border. In less than 3 years, U.S. Customs and Border Protection built more than 600 miles of pedestrian and vehicle fencing and roads—plus numerous drainage structures, lights, and electrical components—in rugged, remote terrain.

LMI has been a key member of the highly successful team from the CBP Facilities Management and Engineering Directorate, providing broad-based infrastructure engineering management and

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analytical support to the FM&E program office. As a trusted advisor to FM&E’s senior leaders, LMI helped CBP reach decisions and execute its projects to meet the extremely aggressive timelines and tight project budgets of the comprehensive multibillion-dollar fence program.

Our work has ranged from strategic program concept development and planning, through management support, analysis, and oversight during real estate acquisition, to design, engineering, construction, and, now, operations and maintenance. LMI has assisted with engineering and construction management, environmental planning and compliance, and development and implementation of an innovative supply chain logistics and data/information system. For example, we helped CBP standardize and manage the fence inventory, saving more than $75 million. LMI’s environmental planning experts have been key in keeping the extremely aggressive construction schedule on track, garnering numerous commendations from DHS, the Department of the Interior, and the Council on Environmental Quality.

Optimizing Inspection Resources at U.S. Ports of Entry Following the assignment of the Animal and Plant Health Inspection Service’s responsibilities to U.S. Customs and Border Protection, the Office of Field Operations asked LMI to assess the effect of the additional inspection responsibilities on CBP staffing. We found that APHIS’s resource allocation systems for agricultural inspections were 20 years old, could not accommodate the merger into CBP or new processes, and could not support the increased level of operations after September 11, 2001. In response to that situation, we collected data at five ports of entry, interviewed numerous staff members at CBP headquarters, gathered information from CBP staff members through a questionnaire, and analyzed extensive historical CBP and APHIS workload data. We used the results of those efforts to identify the high-level agriculture inspection activities, the timing of those activities, and the drivers of inspection functions and to construct a dynamic resource optimization model. We designed that parametric model to give CBP the ability to allocate agriculture inspection resources on the basis of several factors, including mission need, commerce flow, seasonality, port size, and structure. When we exercised the model with current and projected workload data, we found that inspection activities required more K-9 teams, more operators of non-intrusive inspection equipment, and more agricultural specialists.

In additional testing, we demonstrated that our model gives CBP the ability to understand workload drivers, determine the optimum number of resources for agriculture inspection activities, document staffing requirements, support management decision making, and help the Office of Field Operations prepare budget requests.

Upgrading U.S. Coast Guard Logistics The U.S. Coast Guard engaged LMI to review its logistics performance; identify opportunities for improvement, including policies, procedures, and operations; and update the Coast Guard Handbook of Acquisition Logistics and Templates. Our updates focused on describing the logistics information that should be collected during each acquisition phase, outlining the logistics analyses that should be performed in each phase, and developing a process guide for Coast Guard personnel when preparing contract data requirements lists. LMI crafted a policy document that outlines the rules, roles, and responsibilities for the Coast

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Guard’s Independent Logistics Assessment Program, along with a guide for performing those assessments. We filled a similar void for the Logistics Readiness Review Program, which the Coast Guard uses to evaluate the implementation of logistics plans. LMI also conducted an independent logistics assessment of the planning for the Coast Guard’s Fast Response Cutter (Sentinel class) Project. In this assessment, we examined the project’s life-cycle cost, evaluated the elements in the integrated logistics support plan, reviewed the budget status of the support facilities, and evaluated the project’s integrated master schedule for appropriate logistics events.

Energy and Environment Some of LMI’s clients have been focused on energy and environment issues for a long time; for others, these issues are new territory. But all are motivated by pending regulations on climate change, concerns about sustainability, and smarter use of resources. LMI helps federal agencies find the best balance of cost management, compliance, and their responsibility to protect the environment.

Developing the Army Sustainability Campaign Plan By implementing sustainable practices through installation-level projects and programmatic initiatives, the Army has made great progress in reducing its demand on energy, water, and other resources, while maintaining operational capability. The Office of the Assistant Chief of Staff for Installation Management sought the assistance of LMI to further these practices through development of the Army Sustainability Campaign Plan. The plan provides a framework to institutionalize sustainability through an enterprise-wide synchronization of effort across four lines of operation: materiel, readiness, human capital, and services and infrastructure.

Through this synchronization, the Army will better integrate sustainability in its culture and values, meeting operational requirements while using fewer resources.

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LMI provided our planning, logistics, and environmental management expertise to assist the Army with assessing the situation and drivers, refining the mission, framing the outcomes, and evaluating areas of coordination and execution. We worked with Army leaders and an integrated planning team to outline and draft the plan and, subsequently, to refine it by addressing input from stakeholders across all lines of operation.

By following our recommendations, the Army was able to capture existing initiatives and to identify strategic tasks to be pursued and the organizations responsible for those tasks. On May 12, 2010, U.S. Army Vice Chief of Staff, General Peter Chiarelli, and Under Secretary of the Army, Joseph Westphal, signed the Army Sustainability Campaign Plan. Through this plan, the Army will collaborate across lines of operation to instill sustainability as an organizing principle and framework for decision making.

Advancing the Integrated Ocean Observing System The U.S. Integrated Ocean Observing System is envisioned as a coordinated network of marine observations, data management, data communications, and modeling and analysis that provides ready access to, and dissemination of, information on the oceans, U.S. coastal waters, and Great Lakes. U.S. IOOS is expected to serve a wide variety of critical and expanding societal needs, ranging from improving weather prediction, to reducing public health risks, to facilitating maritime commerce. Since the early 1990s, a consortium of ocean observation stakeholders has worked in close collaboration with the National Oceanic and Atmospheric Administration to realize this goal. This effort was further advanced with the enactment of the Integrated Coastal and Ocean Observation System Act of 2009, which specifically calls for the establishment of a National Integrated Coastal and Ocean Observation System. The act also designated NOAA as the lead federal agency for implementing and administering the system.

LMI has been working closely with NOAA for the past 4 years, concentrating on fostering NOAA’s role in the development of U.S. IOOS, including collaboration with a broad network of federal and non-federal partners to establish the U.S. IOOS capability. In particular, LMI led the development

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of Blueprint for U.S. IOOS Full Capability, which details the essential functional components of U.S. IOOS, including diagrams identifying which components of U.S. IOOS perform what functions and how information will be exchanged. We also identified the actions necessary to integrate those components into a cohesive national system and outlined a plan to implement U.S. IOOS in logical steps from its current state to a fully functional system. In addition, LMI created a database that documents the U.S. IOOS partners’ roles and responsibilities for U.S. IOOS development and sustainment, and we developed a strategy and supporting plan for engaging partners and assessing their progress. In short, the U.S. IOOS blueprint provides the foundational requirements and implementation guidance for developing, fielding, and sustaining a viable and fully capable U.S. IOOS.

Developing a Climate Change Knowledge Engine Locating meaningful and comprehensive data related to specific aspects of climate change is a daunting task. To address that problem, LMI developed a web-based tool called LMI-CliCKE (pronounced “click”). This tool represents an innovative approach to interacting with climate change data and contributes to the smarter use of climate knowledge by all interested parties.

With LMI-CliCKE, users can explore, analyze, evaluate, and compare nearly 3,000 scientific findings related to climate change. These scientific findings are drawn from the Fourth Assessment Report of the Intergovernmental Panel on Climate Change and are also an integral part of LMI’s A Federal Leader’s Guide to Climate Change.

LMI-CliCKE allows users to search and filter climate change findings on the basis of combinations of various criteria, such as the level of scientific uncertainty, region, period of projections, and topic (agriculture, energy, infrastructure, and so on). The tool uses the IPCC’s levels of scientific understanding to compare and categorize climate change findings. LMI is exploring the expansion of this tool to supplement the IPCC data set with similarly well-vetted findings from other authoritative sources.

LMI-CliCKE was developed using Web 2.0 and semantic web technologies in an effort to promote collaboration and “open data” principles. This work is part of a larger effort to help public-sector organizations more efficiently manage their growing inventories of information and data assets by using emerging web technologies.

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Civil Government Every day, our work advances the management of civil government. By applying our expertise in logistics, acquisition and financial management, infrastructure management, information management, organizational improvement, and policy and program support, LMI helps civil agencies meet their mission, program, and service goals more efficiently and effectively and with greater transparency for the public.

Assessing the National Park Service’s Housing Needs The National Park Service preserves our national parks, keeping them unspoiled for the public’s enjoyment, education, and inspiration. To protect the natural condition of these important assets and ensure visitor safety and enjoyment, NPS houses some of its employees within the parks. Employee housing units are a necessity at many parks due to their remote locations and the need for round-the-clock law enforcement, search and rescue, and emergency medical response. At the same time, NPS wants to keep the physical footprint at each park to a minimum, providing only the number of housing units necessary to support the NPS mission.

LMI is helping NPS reevaluate its housing needs so that it can establish the optimal sustainable housing inventory at each park, a major challenge because it requires balancing competing interests. Over the next 5 years, LMI will visit more than 200 parks that have employee housing. To analyze a park’s housing needs, we collect and verify data on the park’s job positions and its housing inventory. We also collect data on the local area’s ability to meet NPS employees’ housing needs. In particular, we look for privately owned for-sale and rental housing within a 60-minute commute of the park. We input the data into NPS’s web-based housing needs application, which standardizes the analysis and reporting of each park’s housing needs. After the NPS director certifies the park’s requirements, LMI produces a final report that contains a discussion of the current situation at the park, the results of our analysis of the local housing market, and an explanation of the certified on-park housing requirements. NPS uses our reports to brief Congress on its parks’ housing needs.

2010 LMI ANNUAL REPORT | 23

Assessing the Constraints on the Growth of Air Travel The National Aeronautics and Space Administration is developing concepts, capabilities, and technologies to mitigate airport system constraints on achieving the goals of the Next Generation Air Transportation System. NASA’s focus is on the airportal domain, which includes the airport surface (taxiways and runways) and the immediate terminal airspace used for the final approach of aircraft during arrivals and for the initial climb during departures. The airportal domain also includes groups of closely situated airports that may impose constraints on each other but potentially could be operated as a system to improve capacity.

Before it can determine how to mitigate the constraints on achieving the NextGen goals, NASA needs to understand the nature of those constraints. Toward that end, LMI conducted an integrated analysis of airportal capacity and environmental constraints. Our analysis required the development of a complex model capable of representing various scenarios, such as the level of air traffic demand and the projected capacity of the system; metrics to quantify three types of capacity constraints (runways, taxiways, and gates) and three types of environmental constraints (noise, fuel efficiency, and nitrogen oxide emissions); and data on 310 critical U.S. airports. We found noise to be the most binding of the six constraints. The runway and taxiway constraints are more concentrated in the large airports, while the environmental constraints are present at almost every airport regardless of size. Our modeling results show that airportal capacity shortfalls are significant, even assuming NextGen implementation, and suggest the need for exploring other strategies to meet the projected traffic growth. In addition, the widespread environmental constraints suggest the need for new or accelerated engine and airframe programs. Our research results will assist NASA with identifying and prioritizing fundamental research to enable NextGen.

24 | 2010 LMI ANNUAL REPORT

Helping Managers at the Nonproliferation and Disarmament Fund The Office of the Nonproliferation and Disarmament Fund—part of the Department of State’s Bureau of International Security and Nonproliferation—seeks to secure, move, and destroy weapons of mass destruction (nuclear, chemical, and biological weapons) and their delivery systems in accordance with State Department policy. LMI is helping NDF to perform its mission effectively and efficiently. In particular, we are developing and validating project and contract management processes to ensure that NDF managers have timely, critical information, on the fly, anywhere in the world.

In the project management area, LMI developed a project managers guide that standardized procedures for closing out NDF projects. We also helped develop a requirements management team to evaluate emerging needs that require new contracts or modifications to existing ones; we facilitate the team’s discussions to help build consensus. In addition, LMI provides independent validation and project support to the NDF’s integrated cloud computing system for managing the office’s financial, project management, and contract management data.

In the contract management area, LMI helped strengthen the relationships between NDF and State’s Office of Acquisition Management. We developed a standard process for closing out contracts, and we tested the process in cooperation with AQM. After refining the process, we generated a memorandum of agreement between AQM and NDF that implemented the proven process. We have used this process and the standardized project closeout procedure to help NDF recover more than $650,000 in excess funds for future use. We continue to provide guidance and hands-on assistance to NDF project managers in all aspects of the acquisition cycle, from requirements definition through contract administration and closeout.

2010 LMI ANNUAL REPORT | 25

Corporate Governance

Back Row: Jonathan Perlin, Patricia McGinnis, Kenneth Krieg, Daniel Burnham, Robert Raggio, Steven Kelman, and Douglas Bereuter.

Front Row: Michael Daniels, Nelson Ford, William Norman, Alice Maroni, and Robert Dail.

At the end of FY10, the Chairman of the Board, William S. Norman, retired after 17 years of service to LMI. During his tenure as a board member, LMI transformed from a small organization—with a scope of work limited by our role as the Defense Department’s Federally Funded Research and Development Center for logistics—to an organization that is substantially larger, with capabilities in defense, intelligence, healthcare, homeland security, energy and environment, and civil government.

Mr. Norman often praised LMI as a meeting place of the best and brightest—people with a passion for public service and committed to solving government’s most difficult management challenges.

Mr. Norman became Chairman of the Board in 2006. A former President and Chief Executive Officer of the Travel Industry Association of America and former Executive Vice President of Amtrak, Mr. Norman’s approach to business helped transform LMI for the better.

Also in 2010, Daniel P. Burnham retired from LMI’s Board. He joined the Board in 2003 and served most recently as Chair of the Human Resources and Compensation Committee. Mr. Burnham was a former Chairman and Chief Executive Officer of Raytheon Company and a former Vice Chairman and member of the Board of Directors of AlliedSignal, Inc. His guidance and counsel will be sorely missed.

26 | 2010 LMI ANNUAL REPORT

Members of the FY10 Board William S. Norman, Chairman of the Board and Chair of the Executive Committee. Former President and Chief Executive Officer of the Travel Industry Association of America; former Executive Vice President of Amtrak.

Douglas K. Bereuter. President of the Asia Foundation; former 13-term U.S. Representative from Nebraska.

Daniel P. Burnham, Chair of the Human Resources and Compensation Committee. Former Chairman and Chief Executive Officer of Raytheon Company; former Vice Chairman and member of the Board of Directors of AlliedSignal, Inc. Robert T. Dail. Former Director of the Defense Logistics Agency; former Deputy Commander, U.S. Transportation Command.

Michael A. Daniels, Chair of the Audit and Finance Committee. Former Chairman of Network Solutions; former Chairman and Chief Executive Officer of Mobile365.

Nelson M. Ford, President and Chief Executive Officer. Former Under Secretary of the Army; former Assistant Secretary of the Army for Financial Management and Comptroller.

Steven Kelman. Weatherhead Professor of Public Management at the John F. Kennedy School of Government, Harvard University; former Administrator of the Office of Federal Procurement Policy in the Office of Management and Budget.

Kenneth J. Krieg. Founder of Samford Global Strategies; former Under Secretary of Defense for Acquisition, Technology and Logistics.

Alice C. Maroni. Chief Financial Officer of the Smithsonian Institution; former Principal Deputy Under Secretary of Defense (Comptroller).

Patricia McGinnis, Chair of the Board Governance and Nominating Committee. Professor of Practice at Georgetown University’s Public Policy Institute and Advisor to the White House on Presidential Appointee Leadership programs.

Jonathan B. Perlin. Chief Medical Officer and President, Clinical and Physician Services Group, HCA; former Under Secretary for Health, Department of Veterans Affairs.

Robert F. Raggio. Executive Vice President of Dayton Aerospace; former Commander, U.S. Air Force Aeronautical Systems Center.

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Corporate Officers From Left to Right: Jeffery Bennett, Senior Vice President, Logistics Management Nelson Ford, President and Chief Exective Officer William Moore, Executive Vice President, Infrastructure Management Donna Bennett, Senior Vice President, Resource Management Manik Rath, Senior Vice President, General Counsel, and Corporate Secretary Anthony Provenzano, Senior Vice President, Chief Financial Officer, and Treasurer

Program Leaders LMI’s program leaders have a deep understanding of their areas of expertise. Many of them have held highlevel positions in defense, intelligence, and federal civil agencies, giving them first hand knowledge of agencies’ distinctive cultures and climates. Others come from business, bringing leading practices and processes to thorny management issues. And some come from academia, bringing intellectual integrity and a thirst for new and better answers.

Debra Deville 28 | 2010 LMI ANNUAL REPORT

Christopher Alligood

Timothy Carrico

David Gallay

Eric Gentsch

John Handy

Wilhelm Hansen Jr.

Thomas Hardcastle

Shahab Hasan

W. David Helms

David Keller

William Ledder

Raymond Schaible

John Selman

Sue Tardif-Nicholas

Dennis Wightman

Joseph Zurlo 2010 LMI ANNUAL REPORT | 29

Consulting Services LMI’s corporate officers guide and direct all of our activities. We provide our consulting services through three operating units: Infrastructure Management, Logistics Management, and Resource Management. This section highlights the general structure and capabilities of those units.

Infrastructure Management Our Infrastructure Management operating unit consists of four program groups.

Energy and Environment, John R. Selman, Program Director. Areas of focus include energy program planning and management, climate change and sustainability, greenhouse gas management and reporting, chemical and biological program support, environmental and safety management systems, and occupational health and safety planning and management.

Health Systems Management, John B. Handy, Program Director. Areas of focus include analysis and assessment of the Medicare Advantage program, medical logistics planning and support, public health emergency planning and response, agricultural emergency planning and response, management of healthcare services delivery, wounded warrior support programs, and healthcare management.

Center for Health Reform, W. David Helms, Director. Areas of focus are business solutions and services (such as accountable care organizations, insurance exchanges, healthcare payment reform models, and high-risk pools) to help federal and state agencies implement the Patient Protection and Affordable Care Act. Health Information Technology, Timothy W. Carrico, Director. Areas of focus include program management, strategic planning, business case and alternatives analysis, acquisition, contract management, budget and finance, and process management for implementations.

Infrastructure and Engineering Management, David R. Gallay, Vice President. Areas of focus include facilities management, construction project management, engineering economics and cost engineering, infrastructure outsourcing and privatization, federal installation management, and military base operating support.

Intelligence Programs, Christopher L. Alligood, Program Director. Areas of focus include intelligence capabilities within national security organizations, use of Government 2.0 social software in the Intelligence Community, tradecraft and analytic methods, training in core Intelligence Community functions, and intelligence program management and policy advice.

Logistics Management Our Logistics Management operating unit consists of six program groups.

Logistics Analysis, Eric L. Gentsch, Program Director. Areas of focus include logistics research and development, logistics business case analysis, acquisition logistics strategy and implementation, integrated logistics support planning, logistics engineering, performance-based logistics design and implementation, operations and support cost analysis, and emergency management logistics.

Logistics Technology, William R. Ledder, Program Director. Areas of focus include distribution and transportation business processes, automatic identification technology, satellite and other in-transit tracking applications, asset visibility, and logistics information system program support.

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Maintenance and Readiness Management, Dennis J. Wightman, Program Director. Areas of focus include weapon system and equipment maintenance, weapon system and equipment readiness analysis and reporting, performance-based logistics, public- and private-sector integration, and manufacturing resource planning.

Operational Logistics, Raymond A. Schaible, Vice President. Areas of focus include force projection and distribution policy; strategic mobility programs and studies; logistics advanced technologies; logistics concept of operations; weapon system logistics; casualty estimation; interagency, multinational, and coalition logistics; defense export and cooperation policy; defense strategy and policy; and capacity development.

Strategic Logistics, Debra Deville, Program Director. Areas of focus include logistics strategic planning, logistics transformation planning and program support, joint logistics capability portfolio management, logistics force design and development, and National Guard and Reserve equipping and resourcing analysis.

Supply Chain Management, David P. Keller, Program Director. Areas of focus include supply chain benchmarking and performance assessment, supply chain performance management and metrics, supply chain business case analysis, distribution and inventory management, inventory theory, and modeling of logistics processes.

Resource Management Our Resource Management operating unit consists of five program groups.

Financial, Acquisition, and Resource Management, Wilhelm A. Hansen Jr., Program Director. Areas of focus include resource management strategies, acquisition policy, contracting, grants policy and process, standardization policies and procedures, budget formulation and execution, financial management policies, financial system requirements and compliance, accounting classification structure, and working capital fund analysis.

Information Management, Thomas P. Hardcastle, Program Director. Areas of focus include information technology program management, independent verification and validation, enterprise architecture, capital planning and investment control, strategic planning and business case analyses, earned value management, and information assurance.

Investment and Cost Analysis, Shahab Hasan, Program Director. Areas of focus include engineering analysis, operations research, mathematical modeling, economic analysis, risk analysis, statistical data analysis, policy analysis, analysis of alternatives, and modeling and simulation resulting in technology assessments, life-cycle cost estimates, cost-benefit assessments, business case analyses, and systems analysis studies.

Organizational Improvement, Sue E. Tardif-Nicholas, Program Director. Areas of focus include strategic business and human capital planning, organizational design and assessment, continuous process improvement, customer relationship management, workforce planning and modeling, training and leadership development, compensation, and communications and change management.

Systems Development, Joseph M. Zurlo, Program Director. Areas of focus include life-cycle systems development, systems integration, Web 2.0 and social media solutions, knowledge management, client hosting solutions, cloud computing, virtual data center consulting, information technology security and cybersecurity, surveys and data collection, and economic and statistical analysis.

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Financial and Other Data $250 $208

$200

$150

$100 $82

Note: Funding is in $ million.

$50 FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

LMI’s funding has grown some 150 percent over the past decade, in line with our corporate mission to extend our support to a broader range of government managers.

Dayton, OH Aberdeen, MD

Mechanicsburg, PA Baltimore, MD Washington, DC

Honolulu, HI

Newport News, VA Petersburg, VA Huntsville, AL Montgomery, AL San Antonio, TX Tampa, FL St Louis, MO

For the convenience of our clients, and to better support them, LMI has a presence in more than a dozen locations across the country.

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LMI’s client base now includes almost every department and agency in the federal government.

Note: Funding is in $ million.

With approximately 70 percent of LMI’s consulting staff holding a master’s degree or doctorate, we have remarkable subject matter depth to complement our broad experience.

2010 LMI ANNUAL REPORT | 33

25%

20%

15%

10%

Our turnover rate of less than 10 percent, about one-half that of the industry average, ensures that our clients have a stable, secure, and dependable LMI team.

5%

0

2006

2007

2008

2009

2010

Government contractors in the Washington, DC, area, as reported in a survey by the Human Resource Association of the National Capital Area.

LMI consulting staff.

LMI’s commitment to excellence and client satisfaction is proven by the high satisfaction scores we receive from our clients. In customer satisfaction surveys, our clients have continually scored us above 99 percent since 2006.

When assigning scores, our clients consider LMI’s familiarity with and responsiveness to their needs, the technical quality of our work, the substance and timeliness of deliverables, our objectivity, and the overall value of the work.

100%

99%

98%

97%

96%

95%

94%

34 | 2010 LMI ANNUAL REPORT

FY06

FY07

FY08

FY09

FY10

LMI Locations Headquarters

2000 Corporate Ridge McLean, VA 22102-7805 703.917.9800 800.213.4817 Information@LMI.org

Satellite Offices

7104 Ambassador Road, Suite 280 Baltimore, MD 21244

4690 Millennium Drive, Suite 200 Belcamp, MD 21017

101 Quality Circle, Suite 140 Huntsville, AL 35806

5010 Ritter Road, Suite 123 Mechanicsburg, PA 17055

11837 Rock Landing Drive, Suite 200 Newport News, VA 23606

10541-43 South Crater Road Petersburg, VA 23805

1777 NE Loop 410, Suite 808 San Antonio, TX 78217

703 Seibert Road Scott AFB, IL 62225

Complex Problems. Practical Solutions.

WWW.LMI.ORG