Ensuring Australia’s economic sustainability

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National goals: Review funding reforms and determine future shape and requirements of the wider capability lifecycle, address the enterprise level of strategic planning and risk management and focus on changing Defence culture and behaviour including the implication of a reduced operational tempo.

The recent Defence White Paper (2013) outlines Australia’s strategic policy approach and highlights the need to sustain a strong Defence industry, that the Australian Defence Force (ADF) will need in the coming years.

It also touches briefly on some aspects of human capital management, particularly the challenges of managing the pending drawdown from major operations overseas.

Commentary since the White Paper and Federal Budget in May this year has suggested that there is ‘insufficient cash to buy all new capabilities’1. The Australian Strategic Policy Institute's (ASPI’s) Mark Thompson2 has been suggesting for four years that the cuts to Defence have brought the percentage of GDP for Defence to its lowest point in decades.

While he acknowledges that the 2013/14 Defence budget shows an improvement in spending, ”regrowth” in Defence’s budget is occurring from a low base, and in absolute terms funding remains well below what was promised in 2009.’3 Against this background of fiscal constraint, we believe the key aspects facing the ADF in next 12 months and beyond, include:

  • Funding reforms and what is needed to determine the future shape and requirements of the Defence Materiel Organisation (DMO) and the wider Capability Lifecycle
  • The need to address the enterprise level of strategic planning and risk management
  • The wider, well published aspect, of changing Defence culture and behaviour, including the implications of a reduced operational tempo.

Recommendations for Defence

Issue 1: Budgetary Constraints and Wider Capability Lifecycle Management

Even though Defence spend has reduced in real terms, it still draws more than $24 billion out of Government revenues every year. A significant portion of this is allocated towards funding major Defence equipment acquisition programs / projects through DMO. Historically, the DMO has managed the majority of these projects well, however major larger projects continue to prove challenging in terms of their completion within budget, on time and to the required level of capability.

Over the next 15 years, even allowing for a reduced operational tempo, the Government will need to replace or upgrade up to 85% of the ADF’s equipment, including purchasing equipment in all of the major elements of ADF Land, Air, Sea and Joint capabilities – at an estimated cost of up to $150 billion in the next decade alone. It is vital that these projects avoid the slippage experienced in previous years.

There is also a wider discussion occurring in relation to the interface and balance between (and required improvements of) Capability Managers, Requirements Definition and Acquisition and Sustainment within these projects. Currently, the critical components of the Capability Lifecycle are not operating as cohesively as they should ... and an imbalance exists as a result of increasing asset acquisition lag times and inappropriate asset sustainment cycles.

As a result, some critically important assets may not deliver their ‘military effect’ within targeted timeframes, the consequence of which may threaten Australia’s sovereign security and potentially put our war-fighters in harm’s way.

Capability Managers must become more adept at understanding their asset demand profile which assists in downstream planning across the capability lifecycle; and ultimately achieving the assets intended ‘military effect’ ... to enable our war-fighters to fight and win.

The large number of on-going individual reviews must be consolidated and dealt with at a systemic level. Decisions that support capability needs in a constrained fiscal environment will assist in addressing the imbalance of key components of the Capability Lifecycle.

“The management of Major Projects is complex and, for this reason, it is a major challenge for the DMO to deliver the required capability on schedule and within budget. Consistent with previous years, schedule slippage remains a key focus for the DMO.”4
Australian National Audit Office (ANAO) Report No.15 2012–13, 2011–12 Major Projects Report

Issue 2: Enterprise Level Strategic Planning and Risk Management

Improvements in enterprise and strategic planning and risk management frameworks could realise significant benefit for the ADF. While some work has been completed and there is a sense that a number of Services and Divisions are doing good work to address this issue, a more strategic holistic approach will realise greater benefits, including:

  • better alignment of strategy,
  • more appropriate accountability for outcomes,
  • improved performance management, and
  • the creation of a significantly enhanced and informed decision making environment.

Appropriate planning and risk management will underpin numerous aspects of the ADF’s operations and business, including:

  • the prioritisation of investments,
  • the alignment and execution monitoring of strategic and operational plans,
  • the measurement and accountability of resultant targeted benefit,
  • the capture of longer term impacts of changes in government policy positions (such as changes owing to budgetary constraints often linked to political expediency) and ultimately
  • the way the ADF manages its business risks.

This is often an overlooked component of large organisations, which when addressed at the strategic level (and coupled with a broader benefits identification measurement and realisation programs) will generate significant improvements in the execution and delivery of ADF KPIs.

Issue 3: Changes in ADF Behaviour, Culture and Operational Tempo

A key issue to the future success of the ADF, irrespective of operational posture, is their ability to assure the appropriate behaviour of its members (often within diverse and wide-ranging community environments). In the words of Lieutenant General David Morrison, Army must ‘have a strong culture built on values of courage, initiative and teamwork’5, and to this he recently added a 4th principle of ‘respect’6. These initiatives are at the forefront of CDF General David Hurley’s mind and are broadly supported across the ADF executives as a whole. Their importance is reinforced by reviews such as those conducted by Australia’s Sex Discrimination Commissioner, Elizabeth Broderick.

After a long phase of operational deployment activity, the ADF is now returning to a period of more moderate operational tempo. It has already commenced the operational drawdown from Iraq, Afghanistan and other areas of regional conflict.

This transition will require careful planning and management to avoid any adverse impacts on capability. The recent 2013 White Paper recognises the changing shape of our region and the broader capability developments required to adjust to these circumstances.

We believe the incoming government has a unique opportunity to transform the nature of Defence employment by implementing more flexible service arrangements and optimising the contribution of the ADF Reserves to Total Force capability. Such initiatives will support the transition of repatriating troops, help retain and build on existing skills capability and will deliver a more agile, capable force to mitigate future risks and changing security threats and demands.

Conclusion for Defence

The current fiscal environment dictates that significant changes to the business of defence, (especially around the 2013 White Paper, Budget Guidance and wider Capability Lifecycle requirements), will be inevitable. The effects of these will impact all aspects of the ADF’s operations not just DMO but Capability Managers, Capability Development and all ADF support functions in terms of demand for improved cost efficiency and the more effective use of resources.

A strategic approach to enterprise planning and risk management will inform and direct the ADF as it seeks to address these challenges. It will deliver substantial benefit, not only within the current Defence environment, but also for wider government policy initiatives.

The demands of a change to operational tempo should be seen as an opportunity to reshape the ADF’s employment environment to create a model which is more flexible and agile; one which sustains and improves capability; which provides blended and flexible career options that allows long-term connection and engagement; and one which encourages and fosters diversity, inclusiveness and a culture which delivers both behaviour and performance in accordance with the ADF’s and our broader communities expectations.

1 ‘Defence and money: how to manage in an era of austerity?’ Peter Layton, ASPI Strategist, Jul 2013
2 ‘The Cost of Defence: ASPI Defence Budget Brief 2013 – 2014’, Mark Thomson, ASPI Report, 30 May 2013
4 ANAO Report No.15 2012–13, 2011–12 Major Projects Report
5 LTGEN David Morrison, AO, Speech to the Sydney Institute, February 2012.
6 LTGEN David Morrison, SBS Observer Effect Interview with Ellen Fanning, July 7 2013