A report on the implementation of major Defence capability development projects has recommended extensive reforms that could affect upcoming projects worth over $150 billion.
The Australian National Audit Office (ANAO) report into the Department of Defence’s Capability Development Reform recommends wide-ranging changes to the Department’s management of major capability development projects, including better consideration of off-the-shelf products, improved risk assessments, and changes to project approval processes.
Defence expects to seek approval for projects for communications systems, aircraft, weapons and other military equipment worth around $153 billion in the next four years, according to its 2012 Defence Capability Plan (DCP).
The scope of the audit covers capability projects from initiation to completion. The report’s main focus is on the acquisition phase, where it found “that these issues manifest”.
“When projects are delayed, run into difficulties or, as sometimes happens, fail altogether, the consequences are serious: these include the likelihood of a gap in ADF [Australian Defence Force] capability developing or persisting, and a poor return on a generally substantial public investment,” according to the report.
The report recommends greater consideration of off-the-shelf alternatives to newly designed systems. Defence is performing poorly against recommendations in the 2003 Kinnaird Review into Defence Procurement that “at least one off-the-shelf option must be included” in submissions for first-pass approval.
ANAO also found the need for better identification of “whether an option is truly off-the-shelf or developmental in some respect”, with instances where failure to properly assess the nature of a solution has resulted in inadequate risk assessment and mitigation measures.
Another major aspect of the recommendations includes better internal governance surrounding project approval, including better use of the two-pass process to refine project requirements and specifications.
Under the current project approval process in place at Defence:
- Projects costing $100 million or more must be approved by Cabinet;
- Projects between $20 million and $100 million require the approval of the Minister for Defence and the Minister for Finance; and
- Projects costing less than $20 million must be approved by the Minister for Defence.
The two-pass approval process for major capital projects between $20 million and $100 million was introduced at Defence in 2000 and strengthened through the establishment of the Defence Materiel Organisation’s Independent Project Performance Office in July 2011.
However, there remains scope for better use of two-pass approval requirements to improve the Department’s assessment of requirements, potential solutions, timelines and costs ahead of the acquisition stage.
This can be achieved through a more rigorous assessment of these areas prior to the submission of projects for approval, and for continual review in the lead up to project initiation, with further approval sought for any changes, according to the report.
In addition, the report recommends changes to the development of the public Defence Capability Plan, with more “rigorous analysis” applied to projects ahead of their inclusion in the Plan. The 2003 Kinnaird Review recommended even greater scrutiny of projects by requiring first-pass approval prior to their inclusion in the DCP.
Although the recommendation was accepted at the time, the development of the DCP remains separate to the two-pass approval process.
Other ANAO report recommendations include:
- Organisational reform to address complex accountability and responsibility structures across a number of personnel and committees;
- Annual reporting on the outcomes of completed major projects against approval decisions;
- The potential introduction of a system to track and report on the progress of projects throughout their development to ensure better management of Defence capability over its lifecycle;
- Improving the accuracy of technical risk assessments by reviewing risk assessment advice against actual problems incurred during project development and implementation; and
- The Defence Materiel Organisation (DMO) publishing data on key milestones for acquisition projects on its website (partially agreed).
Defence has agreed to six of the ANAO’s seven recommendations, and partially agreed to the recommendation about DMO’s publication of increased data.
These reforms are likely to have implications for the approval process and project management practices surrounding major ICT projects that are upcoming or underway. Projects identified in the 2012 DCP include:
- Management System Improvement (JP 2080), comprising the implementation of shared services and human resource reform initiatives, and the enhancement of personnel and financial systems by 2017;
- The development of Defence Network Operation Centre capability (JP 2068) through the rollout of an enhanced Computer Network Defence system by 2017;
- The modernisation of maritime communications systems (SEA 1442), including the introduction of a Mobile Tactical Wide Area Network on fleets by 2018; and
- A corporate Enterprise Content Management system (JP 1544) to be implemented across Defence’s business and operational bodies, with integrated Web Content management and Digital Image management capabilities, to be operational by 2022.
In the longer term, Defence intends to replace or upgrade 85 per cent of its equipment, including ICT systems, over the next 15 years.
Defence agencies (including the Department of Defence and Defence Materiel Organisation) received funding of around $611 million in the 2013-14 budget for operational ICT expenditure, down from $675 million in 2012-13, according to Intermedium’s analysis of budget data.
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