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Audit Report: ER-B-98-08

May 29, 1998

The Cost Reduction Incentive Program at the Savannah River Site

The Department of Energy (Department) established a Cost-Reduction Incentive Program (CRIP) at Westinghouse Savannah River Company (Westinghouse) in October 1992. The objective of the CRIP is to provide an incentive for Westinghouse and its employees to examine processes and techniques and make one-time improvements to reduce the cost of the contract and return "saved" funds to the direct control of the Department. In 1997, the Department performed a comprehensive review of Westinghouse's performance-based incentives and cost-reduction incentives, and concluded that most of the savings identified through the CRIP occurred through greater management focus on reducing costs, working smart, or the results of budget constraints, as opposed to innovative changes in work methods and processes. The Assessment Team recommended that the Savannah River Operations Office (Operations Office) reevaluate the effectiveness of the CRIP and consider either modifying the program to provide for payment only for innovative ideas, or cancel the program and utilize performance-based incentives to reward cost savings over some pre-established threshold. The objective of this audit was to determine whether the Operations Office took appropriate action in response to the Department's internal assessment of the CRIP.