Budget 2011: Strategic Reform Program announcements | ADM June 2011

1 June 2011

Katherine Ziesing | Canberra

As mentioned earlier, only days before the budget in Canberra, ministers Smith and Clare took the opportunity to announce a range of measures under the Strategic Reform Program (SRP) umbrella. Many of the details build on the work done under the previous Kinnaird and Mortimer reviews.

“Defence will now accelerate the implementation of all outstanding agreed recommendations made by Mortimer as a matter of priority,” Smith said.

“This includes project directives issued by the Secretary of the Department of Defence and the chief of the Defence force to ensure Defence acquisitions progress according to Government direction; and benchmarking all acquisition proposals against off-the-shelf options where available.”

“These reforms will focus on improving project management and minimising risk at project start and identifying problems early.

“They include:

  • The introduction of a two-pass approval system for minor capital projects valued between $8 million and $20 million;
  • Implementation of an Early Indicators and Warning system;
  • The expansion of the Gate Review system; and
  • The introduction of Quarterly Accountability Reports.

“Over the coming months the next stages of reform will include the Government’s response to the Black Review into Accountability and Governance in the Defence Department and the Government’s response to the Rizzo Review into the Maintenance of naval Ships.”

As a matter of priority Defence will accelerate the implementation of the agreed recommendations of the Mortimer Review that have not yet been fully implemented.

These include:

  • Cost-benefit analysis of projects that are not off-the-shelf purchases, to review the project to assess the cost and risk against off-the-shelf purchases.
  • Establishing Project Directives to provide clear direction to Defence on decisions made by the Government regarding Defence capabilities.
  • Establishing an independent Project Performance Office within DMO to review projects and assist project teams to solve problems.
  • Regular reporting to Government requiring capability Managers to provide advice on the status of capability development projects for which they are accountable.
  • Creating a more disciplined process for changing the scope of a project including the requirement that Defence seek the Government’s approval for significant changes to the scope of a project.
  • The Government will also request the Auditor General conduct a planned audit of the implementation of the Report in the second half of this year.

“Major projects which have been through the two-pass system demonstrate a 20 to 25 per cent improvement to their schedule when compared to those that did not,” Smith said in explanation of the measure.

Defence has also assessed that 80 per cent of problems with Defence capability projects occur in the first 20 per cent of the project’s life, according to research from the Defence Materiel Organisation.

“One of the biggest challenges in Defence procurement is projects running late,” Smith said. “The earlier these issues are picked up, the earlier the problem can be fixed.

“The Government will implement an Early Indicators and Warning System. This system will help identify and correct potential problems with projects.

“The Minister for Defence, the Minister for Defence Materiel, the Secretary of Defence and the chief of the Defence force will be advised when these triggers are activated,” Smith confirmed.

“When a trigger is activated Defence will conduct an internal review of the project and recommend whether a full diagnostic examination (a Gate Review) is required and should be conducted.”

The initial triggers for each project stage are set out below. These will be adjusted or added to as the system matures.

Triggers will be activated post first pass if it is assessed that:

  • the project is likely to go outside a parameter agreed by Government at First Pass;
  • a significant milestone will not be achieved within three months of the schedule approved at First Pass; or
  • the project cannot meet the essential requirements within the cost, schedule and risk levels approved at First Pass.

Triggers will be activated post second pass if it is assessed that:

  • the schedule for meeting Initial or Final Operational capability will be delayed by 10 per cent or more for off-the-shelf capability, 20 per cent or more for local adaptation of off-the-shelf capability and 30 per cent or more for developmental projects.
  • the project’s costs will exceed its approved budget;
  • the contractor is not meeting promised capability or schedule milestones or exceeding approved costs;
  • policy or legislative changes are likely to increase the project’s schedule or cost;
  • an essential capability requirement will not be met;
  • emerging requirements or regulatory or safety standards are different to those at the time the project was approved and will materially affect the project;
  • industry engaged in the project does not have the required workforce or financial capacity or management commitment  to meet critical project milestones; or
  • project risks have increased beyond the parameters agreed by Government.

The Defence Annual Report will publish details of the action taken on projects as a result of an early warning indicator being triggered.

All major projects managed by the DMO will now undergo at least one Gate Review per year. Gate Reviews will also be extended to other areas of Defence including Chief Information Officer Group and Defence Support Group.

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