The steps necessary in the formulation of a major NASA project leading to project approval are discussed. Emphasis is placed on certain unique aspects of managing the definition of optical system payloads. The approach of establishing a baseline configuration and doing engineering trade studies utilizing this baseline is described. The strong interdependence of subsystems in a precision, complex optical system is discussed, and the necessity of establishing a systems error budget is emphasized. Initially, it was planned to trace through the various steps of the Space Telescope definition, but a more general approach was decided upon. A new Federal procurement policy that affects the definition of NASA programs has been established and the principal features of this policy are described. Also, certain aspects of the definition of the Advanced X-ray Astrophysics Facility (AXAF) are discussed. The AXAF is a large X-ray observatory, similar in size and concept of operation to the Space Telescope; however, it operates in the X-ray region of the spectrum and has grazing incidence optics.