The program budget as at March 4, 2024, six weeks after the Steering Committee approved the post-discovery re-baseline. This document carries two baselines rather than one, because the first was produced under a legal prohibition on examining the data that determines integration cost. It sets out the cost by control account, the distinction between contingency and management reserve, spend to date, and — equally deliberately — what the budget does not contain.
This program has two cost baselines and that is not an embarrassment, it is the honest consequence of how the transaction works. The first was built for the deal model at a point where antitrust rules and the Clean Team Protocol forbade examining member-level data. Estimating an integration whose largest work package is sized by data quality, without being permitted to look at the data, produces an estimate at the accuracy the standards call concept screening. The re-baseline is not a change to the program. It is the first time the program had a real estimate.
Table of Contents
Part I — The Baselines
Part II — The Money
Part III — Boundaries
1. Two Baselines and Why
| Component | Baseline 1 deal model, Feb 2023 | Baseline 2 re-baseline, Jan 2024 | Movement |
|---|---|---|---|
| Base estimate | $42,000,000 | $51,800,000 | +$9,800,000 |
| Contingency | $6,300,000 15% of base | $4,144,000 8% of base | −$2,156,000 |
| Cost baseline | $48,300,000 | $55,944,000 | +$7,644,000 |
| Management reserve | $4,200,000 | $4,200,000 | — |
| Total authorized | $52,500,000 | $60,144,000 | +$7,644,000 |
1.1 Estimate maturity
The two baselines sit at different points on a recognized accuracy scale. Stating that plainly is more useful than presenting a single number and defending it later.
| Baseline | Estimate class | Expected accuracy | Basis |
|---|---|---|---|
| 1 — deal model | Class 5, concept screening | −20% to +50% or wider | ⚠ Benchmarks and management representations. No member-level data examined. |
| 2 — re-baseline | Class 2, control | −5% to +15% | Post-close discovery, WBS decomposed to 54 work packages, resource plan costed from a rate card |
The contingency moving from 15% to 8% is a statement about confidence, not a saving. A larger contingency on a weaker estimate and a smaller one on a stronger estimate is what a maturing estimate looks like — the uncertainty has moved out of the allowance and into the base, where it is now decomposed and owned. A program that re-baselines upward while keeping its original contingency percentage has not actually learned anything; it has simply added the same proportional uncertainty on top of a bigger number.
2. Contingency and Management Reserve
These are two different instruments with different owners and different triggers, and conflating them is the most common budget error on a program of this size.
Contingency sits inside the cost baseline. It funds known unknowns — work the program knows it will encounter but cannot yet size, like defect remediation during parallel run. The Program Manager draws it within the delegated threshold, and drawing it is normal operation.
Management reserve sits outside the cost baseline. It funds unknown unknowns — events not in the plan at all. The Executive Sponsor controls it, every draw is a Steering Committee-visible decision, and drawing it means the program has met something it did not anticipate.
A program that treats reserve as a second contingency has no signal left: the moment it needs one, the money that was supposed to be there for it has already been spent on ordinary variance.
Contingency sits inside the cost baseline. It funds known unknowns — work the program knows it will encounter but cannot yet size, like defect remediation during parallel run. The Program Manager draws it within the delegated threshold, and drawing it is normal operation.
Management reserve sits outside the cost baseline. It funds unknown unknowns — events not in the plan at all. The Executive Sponsor controls it, every draw is a Steering Committee-visible decision, and drawing it means the program has met something it did not anticipate.
A program that treats reserve as a second contingency has no signal left: the moment it needs one, the money that was supposed to be there for it has already been spent on ordinary variance.
| Instrument | Amount | Controlled by | Draw triggers |
|---|---|---|---|
| Contingency | $4,144,000 | Program Manager, to $250,000; Sponsor above | Known unknowns inside scope — estimating variance, defect remediation, rework |
| Management reserve | $4,200,000 | ⚠ Executive Sponsor, at any amount | Events outside the plan. Each draw reported individually to the Steering Committee. |
3. Cost by Control Account
Baseline 2 decomposed to the eleven control accounts of the work breakdown structure. Every figure rolls up from work packages; the total is the base estimate, before contingency.
| Ref | Control account | Budget | % | Owner |
|---|---|---|---|---|
| 1.3 | Data Migration & Identity Resolution | $11,400,000 | 22.0 | Dr. A. Ravindran |
| 1.4 | Core Administration Consolidation | $8,900,000 | 17.2 | W. Ferriday |
| 1.5 | Cloud Migration & Infrastructure | $7,800,000 | 15.1 | B. Trammell |
| 1.6 | Integration Architecture & Interfaces | $5,200,000 | 10.0 | R. Delacroix |
| 1.1 | Program Management & IMO | $4,200,000 | 8.1 | C. Tyrrell |
| 1.2 | Day 1 Readiness & Cutover | $3,600,000 | 7.0 | R. Villanueva |
| 1.7 | TSA Exit & Knowledge Transfer | $2,700,000 | 5.2 | G. Threadgill |
| 1.9 | Organization, Change & Communications | $2,400,000 | 4.6 | A. Winterbourne |
| 1.8 | Provider Network & Care Management | $2,000,000 | 3.9 | J. Kirkendall |
| 1.10 | Vendor & Contract Consolidation | $1,900,000 | 3.7 | H. Castellow |
| 1.11 | Legal, Regulatory & Compliance | $1,700,000 | 3.3 | F. Underhill |
| Base estimate | $51,800,000 | 100 | Reconciles to the WBS |
Identity resolution is the largest control account on the program at 22% of base, and that allocation is the argument this budget makes. A reader expecting a technology integration to be dominated by platform and cloud work will find those second and third. The money follows the risk: the work that gates the critical path, cannot be accelerated by adding engineers, and is performed by people reading records one at a time is the work that gets the largest share. A budget where the biggest number is not on the biggest risk is describing a different program from the one the schedule describes.
4. Spend to Date and Forecast
Five months into execution, against baseline 2.
| Position | Amount | Of base | Note |
|---|---|---|---|
| Spent to March 4, 2024 | $17,300,000 | 33.4% | Front-loaded by Day 1 readiness and landing zone build |
| Committed, not yet spent | $6,900,000 | 13.3% | Contracted vendor work and appliance transfer |
| Remaining base | $27,600,000 | 53.3% | Weighted toward identity resolution and core admin cutover |
| Base estimate | $51,800,000 | 100% | |
| Contingency drawn to date | $620,000 | 15.0% of contingency | Interface rework and an extended landing zone security review |
| Management reserve drawn | $0 | — | ⚠ Nothing outside the plan has occurred |
A third of the budget spent against roughly a third of the schedule looks reassuring and should not be read that way. Spend is not progress, and on this program the two are deliberately out of step: the front half is heavy on readiness and infrastructure, both of which cost money on predictable curves. The back half contains the work that is neither predictable nor accelerable — a review queue whose size is not yet measured, and a parallel run whose duration is set by claim cycles. The reassuring number is a function of what has been done, not of what remains.
5. Cost to Achieve Against Synergy
| Position | Amount | Character |
|---|---|---|
| Committed synergy, run-rate by Year 3 | $85,000,000 | Recurring, annual |
| Dis-synergy allowance, netted inside | $6,000,000 | Recurring, annual |
| Program cost to achieve, authorized | $60,144,000 | One-time |
Stating cost to achieve beside the benefit is half the argument, and it is the half deal models routinely omit. Roughly $60,144,000 of one-time authorized spend establishes $85,000,000 of recurring annual saving — a payback inside the first full year of run-rate. That is a strong return, and it is also the shape of sentence a CFO wants to hear, because they already know the savings did not arrive on their own. A program manager who can only quote the benefit is quoting a brochure.
6. What This Budget Does Not Contain
Four material costs sit outside this budget on purpose. Each is recorded here so that a reader adding up integration cost does not conclude the program has understated it.
| Cost | Carried by | Why it sits outside |
|---|---|---|
| TSA service fees | Receiving functions, as operating cost | ⭐ Deliberate. The function slow to absorb a service should feel the cost of being slow. Putting the fees in the program budget would insulate them from it. |
| Retention payments | Human Resources | The program identifies the roles; it does not price them. ⚠ Sixteen roles, all at Cumberland Valley. |
| Severance and restructuring | Corporate | A consequence of the transaction, not of the integration program |
| Transaction costs — advisory, legal, financing | Corporate Development | Incurred before the program existed |
The TSA row is the one worth defending, because putting those fees in the program budget would look more complete and would be worse. The fees are large, they run monthly, and they escalate deliberately. If the program absorbed them, a function with no urgency about absorbing a service would experience no consequence for that — the cost would land somewhere abstract. Leaving them with the receiving function converts an abstract deadline into a line item that a named executive explains every month. That is a governance choice made through budget structure, and it is more effective than any amount of escalation.
7. Authority and Change Control
| Decision | Approver | Instrument |
|---|---|---|
| Reallocation within a control account | Program Manager | Recorded, no change request |
| Reallocation between control accounts, under $250,000 | Program Manager | Change request |
| Cost impact $250,000 to $1,000,000 | Executive Sponsor | Change request |
| Cost impact above $1,000,000 | Steering Committee | Change request |
| Any draw on management reserve | Executive Sponsor | ⚠ At any amount, reported individually |
| Change to the cost baseline itself | Steering Committee | Re-baseline, not a change request |
Every change request states which constraint it protects and which it spends, against the Charter's priority order. That single field is what allows the change log to be audited against the Charter after the fact rather than merely listed — a reader can take any approved request, look up which constraint it claimed to protect, and check whether the program actually behaved that way. It also makes the arithmetic checkable: approved requests must reconcile exactly to the difference between this baseline and whatever the closeout report eventually shows.
Related artifacts: 1 — Integration Charter · 2 — Deal Summary · 8 — Consulting SOW · 10 — Work Breakdown Structure · 11 — Master Schedule · 13 — Synergy Realization Plan · 14 — Resource Plan · 22 — TSA Schedule & Exit Plan · 44 — Change Control Log · 46 — Closeout Report