Capability Development Group post-Kinnaird

- a personal perspective.

Vice Admiral Matt Tripovich, AM CSC RANChief Capability Development Group

Capability Life Cycle

Government Agreement/Approval process

Accountability

Strategic Assessment

Initial Business Cases

AcquisitionBusiness

Cases Capability Management

Agreement for Further

Analysis

1st PassApproval

2nd Pass Approval

AcquisitionService

Life Extension

Approval to Dispose

Acquisition Management

In Service Management

Disposal

Dep SecStrategy

& Corp

Gov’nceChief Capability Development Group

CEO Defence Material Organisation

Capability ManagersChief Capability

DevelopmentGroup

Kinnaird Review

Kinnaird Recommendation 1

Present to Government achievable capability development information in a succinct form on an annual basis

Defence Planning Guidance (DPG) Defence Capability Strategy (DCS) Defence Capability Plan (DCP)

Kinnaird Recommendation 2

A three star officer, military or civilian, should be responsible and accountable for managing capability definition and assessment

Capability Development Group formed to: manage the capability development process maintain a joint warfare focus deliver the Defence Capability Plan (DCP)

CDG MISSION

To shape Defence’s future joint war fighting capability

CCDG VISION

To be a leading Defence Capability Development organisation which is respected by Defence, industry, the central agencies and international

defence forces

Kinnaird Recommendation 3 Government should mandate and enforce,

via revised Cabinet rules, a rigorous two pass system for new acquisitions

Entry into the Defence Capability Plan Intention to commence a project

1st Pass Approval – Initial Business Case Explore options), analyse capability, costs

(acquisition and through life), schedule and risk 2nd Pass Approval – Acquisition Business

Case Obtain Government funding commitment to

acquire new capability

Delivering the Defence Capability Plan

Significant preparatory work between 1st and 2nd Pass approval: ~ 6% of total project funds are spent before 2nd

Pass approval ~ 22 months between 1st and 2nd Pass

Plus total annual funding of up to $66m for: Project Development Funds Capability Technology Demonstrators Rapid Prototyping Development and Evaluation

Kinnaird Recommendation 6

The Defence Materiel Organisation (DMO) should become an executive agency

DMO became a a ‘Prescribed Agency’, separately funded and accountable, in July 2005 flexibility to adjust budget and staff resources to

meet workload works closely with CDG to deliver new capability establishes ‘contracts’ with Service Chiefs to

support in-service equipment

DMO Purpose To equip and sustain the ADF

DMO Goal To deliver capability and sustainment on time, on

budget and to the required capability, safety and quality

DMO Vision To become the leading program management and

engineering services organisation in Australia

DMO – Facts

Controls 40% of the Defence budget annually

Manages a capital budget of $4.5b annually

Spends $3.6b on support annually Manages 210+ major projects Manages 200+ minor projects

DMO themes

Professionalise workforce

Reprioritise work

Standardise business practices

Benchmark against best practice

Improve industry relationships

Lead reform and embrace change

Kinnaird Recommendation 7

Project Managers should be: Selected on merit Drawn from the military, industry or the

public service Be accountable to CEO DMO Have minimum tenures Have remuneration levels set to attract and

retain specialists

CDG – DMO relationship

More independent…… “Prescribed Agency” Materiel Acquisition Agreements

…..but closer working relationship: Steering Groups Integrated Project Teams Embedded Personnel

Relationships with Industry

Capability Development Advisory Forum (CDAF)

Critical Industry Capabilities (CRITICS)

Request For Tender before 2nd Pass

Skilling Australia’s Defence Industry program

Measuring CDG performance

2005 2006 2007 to date

Significant decisions

5 9 4

1st Pass 8 15 5

2nd Pass 11 17 7

Total approvals

24 41 16

Value $3.0B $6.4B $13.2B

Major Capital Equipment spending in real 07-08 $B

0.0

1.0

2.0

3.0

4.0

5.0

6.0

59

-60

61

-62

63

-64

65

-66

67

-68

69

-70

71

-72

73

-74

75

-76

77

-78

79

-80

81

-82

83

-84

85

-86

87

-88

89

-90

91

-92

92

-93

94

-95

96

-97

98

-99

00

-01

02

-03

04

-05

06

-07

08

-09

10

-11

12

-13

$ B

illio

n (

RE

AL

Exp

end

itu

re)

Transition from Cash to Accrual Accounting

Further predicted by DCP 06-16 (Source ASPI/DMO 2007)

Vietnam

F18sAnzac & Collins

FACILITIES

KIN

NA

IRD

MAJORS

MINORS

7.0

Measuring DMO performance

~ 210 major projects = ~ $55b

Jul 03-Jul 06, 93 major projects were closed (~ $5.5b) 10 projects required real budget increase ($131m) - ~ 0.2% of

the total program value (this excludes the effects of ‘intentional’ capability increase)

51 managed a real budget decrease, returning an unspent budget of about $94.5m

This equates to a nett variation of just $36.5m

Australia’s problem is not COST, it is SCHEDULE

Measuring DMO performance

73%27%

Initial

Variation

Total Project Approval $60.6BInitial Approval $44.3BVariations $16.3B

Shows variations(+ and -) across project life of all projects managed by DMO since July 2003

This circle is $60.6B

16%

5%

6%

73%Indexation

Exchange

Real

Initial

Total Project Approval $60.6BInitial Approval $44.3BIndexation $9.5BExchange $3.1BReal $3.7B

Shows variations(+ and -) across project life of all projects managed by DMO since July 2003

This circle is $60.6B

Measuring DMO performance

Real cost increases by category

(1) Shows variations(+ and -) across project life of all projects managed by DMO since July 2003

Estimate insufficient12%

Post 2nd Pass Scope Increase

38%

1st pass Scope Increase

3%

Adjustment2%

Class1%

P&E0%

White Paper Reapproval14%

Other7%

2nd Pass Scope Increase

23%

This circle is $3.7B (6%)

RCI (2%)

RCI ABOUT 34% of 6% = 2%

Very large civil & defence projects

0

0.5

1

1.5

2

2.5

3

Large USRoad Projects

Large US RailProjects

ChannelTunnel

US DefenceWeaponsSystems

InternationalGas and Oil

Industry

CommercialBuildings

Co

st G

row

th R

atio

SOURCE: RAND COST GROWTH STUDY 2006

Benchmarking

Lessons Learned

Reforms are working

Transparency and accountability

Early stakeholder engagement

Professional project management

Fiscal responsibility - value for money

Timely delivery of capability

Pre-Kinnaird project management

Questions?