The ANAO has recommended that Defence institute a risk-based quality assurance process for information included in the Quarterly Performance Report. 5.39To work out whether performance-based contracting is yielding the outcomes it expects, Defence is undertaking an academic analysis of the Critical Success Factors for PBC and their role in Program success. Develop an Asset Management Strategy for sustainment. The CASG Cost Principles apply to all procurements. 42Defence advised the ANAO in June 2017 that no decision had been made on the scope of the Program Performance Management System, nor its roll-out plan. The implicit assumption is that future costs will be influenced by the same factors as past costs. 1.5The Committee noted, however, that the final structure for sustainment reporting was as yet undecided. Table94: Top 30 Sustainment Products by End of Financial Year Outcome, Under the heading Top 30 Sustainment Product Descriptions, Defence provides a description for each of the Top 30 sustainment products. As noted in paragraph 5.14, in July2016, a former senior Bechtel executive was seconded to the position of First Assistant Secretary Program Performance in Capability Acquisition and Sustainment Group, under the day-to-day direction of the senior Capability Acquisition and Sustainment Group leadership. F&A (indirect) cost pools must be distributed to benefitted cost objectives on bases that will produce an equitable result in consideration of relative benefits derived.. Defence is not easily able to identify the effort, in terms of staff numbers, expended on each. Reporting: SPOs report to multiple bodies for performance management and technical assurance, and all require different information, formats, and timings; Policy: implementing changes to policy and process from multiple sources with limited guidance or support; and. Defence has not published program level expenditure data on a consistent basis over time, or time series analysis, to assist with external scrutiny of its sustainment expenditure. 5.64The current Capability Life Cycle manual and its detailed design document do not mention a business model for sustainment nor any overarching sustainment framework. Source:Defence, PMkeys Reporting, Full-time equivalent staff in all Systems Program Offices DMO/Capability Acquisition and Sustainment Group, by month, July2004 to June2016. Note a:Navy Allowance (NAVALLOW) is the Navy logistics system. 200.410 Collection of unallowable costs. Further, Defences Capability Acquisition and Sustainment Group, is implementing reforms that will potentially increase reliance on industry to deliver these services. It provided no explanation of its inability to implement the recommendation in its advice to ministers on the matter. How to Prepare a Cash Flow Statement | HBS Online 136Defence advised the ANAO in March 2017 that examples of fully outsourced models in the Air Domain include AEW&C, C-17, the Lead-in-Fighter and the Heron Unmanned Aerial System. 29Defence, Operational Concept Document for DMO Sustainment Reporting System (Version A, December 2004, Sponsored by Director General Standardisation). Defence planned to reallocate the $20.6billion to other areas of Defence capability and contribute to the governments 2009 Defence White Paper, Defending Australia in the Asia Pacific century: Force 2030. 3.11The Quarterly Performance Report is the primary way by which Defence provides information to government and senior Defence personnel about the status of major acquisition and sustainment activities.43 The report was developed in 2015 in consultation with the office of the Minister for Defence. TheCASG Cost Principlesapply to all procurements. Develop and implement a contracting strategy to improve performance based contracting [Management Recommendation. As a result: service providers may have been contracted to provide services for which Defence has previously determined they were not suitable to deliver, and/or charge higher rates than previously negotiated with Defence; and there is a risk that the documentation required to support the procurement decision may not be adequate. 156ANAO Report No.52 201314, Multi-Role Helicopter Program. It provides only a partial account of materiel sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. The Committee considers sustainment expenditure to be an area requiring further parliamentary scrutiny on the adequacy and performance of Defence involving billions of dollars in the future.10. However, based on the ANAOs review of a Quarterly Performance Report produced during the audit, its contents are neither complete nor reliable, it takes two months to produce and its contents are sometimes difficult to understand. This risks encouraging insourcing in preference to outsourcing even where the total real cost to the Commonwealth of the former is greater.82 Defence has noted this internally (February2017): Any reduction of SPO [full-time equivalent staff], without a commensurate reduction of activity, will result in work being outsourced to industry and therefore increase the cost to the [Capability Manager]. 2.11A simplified representation of the essential relationship among elements responsible for the sustainment of specialist military equipment is in Figure2.1 below. The effectiveness of the reforms implemented following the 2003 Defence Procurement Review (the Kinnaird Review) were evaluated in 2008 by the Defence Procurement and Sustainment Review (the Mortimer Review).198 Mortimer made specific recommendations to improve sustainment, including that Defence create an independent Sustainment Efficiency Office to measure, benchmark, and find ways to improve the efficient delivery of sustainment. 3.7A joint review of Navys performance framework, completed in March2016 by Navy and Capability Acquisition and Sustainment Group, concluded that there was universal acceptance that the framework provides a sound basis for the assessment of sustainment outcomes.38 However, the review decided to remove one of Navys core key performance indicators (cost per materiel-ready day achieved) on the basis that the measure required the Systems Program Office to enter four separate data elements and stakeholder compliance was reportedly low. 5.35The problem of existing contract arrangements was described as follows by an RAAF officer in 2005, with a special focus on ageing aerospace platforms: The typical [support entity] entails a Systems Program Office managing a variety of small to large volume-based, process-oriented contracts. 22 and 81): 4.11In 2011, a Chief of Service advised DMOs audit committee112 that an emerging issue from the Strategic Reform Program, common across all the ADF, was a shortage of future funding for sustainment. On 26 November 2010, the Minister for Defence, Stephen Smith, in adding project AIR 5418 Joint Air to Surface Stand-off Missile (JASSM) to the 'Projects of Concern' list, stated that the listing was because of "our poor management, our failure to keep government properly and fully informed about the project and its difficulties." Top Cash Management Strategies to Manage Cash Effectively a collection of multi-functional, multi-disciplined teams; staffed to achieve a balance between environmental, capability system and technical needs in whole-of-life management; organised along class/fleet/weapon system lines; and. Similarly, a new Systems Program Office may be created for a major acquisition project. 2.17In late 2015, Defences Audit and Fraud Control Division reviewed the contracted service arrangements within three Systems Program Offices in response to a request by Defences Chief Finance Officer Group. It is apparent from this audit that Defence has developed information systems that could support the preparation of similar information for its sustainment work. 223, available from [accessed 16 January 2017]. Funding Adequacy over the Defence Management Finance Plan. For example, the description for the Canberra Class ships states that during. 106The reforms were aimed at: simplifying our internal processes to reduce time and/or waste; consolidating where process work is conducted so it is not duplicated in other parts of the organisation; aligning some of our more complex processes, like the acquisition of new capability, so there is a clear linkage between the identified need and the final product; ensuring our policies reflect contemporary standards; improving our decision making around expending resources; reducing our demand for goods and services; and building a cost-conscious culture in Defence. See Fisher, P., A Study of Defence Publications Relating to the Procurement of Software-intensive Systems, DSTO, 1997. In July 2005, DMO became a Prescribed Agency under Australian Financial Management and Accountability legislation, meaning that although it remains a part of the Department of Defence, it was separately accountable to the Minister of Defence for its budget and performance. Note c:Defence advised the ANAO that this amount includes elements considered acquisition due to the impossibility of separating these items in this context. The Defence Audit and Risk Committee will therefore require appropriate information on sustainment reporting to enable it to provide this advice and assurance to the Secretary. That review found sustainment is still being treated as a poor relation compared to the generally higher-profile acquisition work.27 The Sustainment Complexity Review (2010), which found 50 plus sustainment business models in DMOs Systems Program Offices, explained this diversity by reference to the greater attention Defence had given acquisition. 107The Pappas Review examined a sample of equipment fleets and interviewed senior Defence personnel. 169Defence, Observations and conclusions of the Gate Review Board, CA48MRH90 Multirole Helicopter: Sustainment Performance Gate Review, 12 May 2016. 3.9In September2016, Defence decided to expand SPMS to cover acquisition. 3.64Published estimates comprise of two separate data series. 4.14Also in September2012, Defence advised the minister that the performance of the broader Strategic Reform Program was continuing to decline, losing credibility as a transformation program, and that the programs financial performance was particularly difficult to assess. According to the online course Financial Accounting: "The purpose of the statement of cash flows is to provide a more detailed picture of what happened to a business's cash during an accounting period." 104Defence, 2008 Audit of the Defence Budget, April 2009. 1. The review considered the causes of this complexity, made comparisons with commercial organisations with similar operations and analysed the impact of this complexity on DMO. 132Defence considered not using the term Systems Program Office as this could be confused with the use of the same term in the USA, where Systems Program Offices were said to be concerned only with acquisition and not sustainment. Platforms represent a large and complex capability such as frigates, tanks or aircraft. Defence has not been able to provide the ANAO with adequate evidence to support this claim, nor an account of how $360million allocated as seed funding for Smart Sustainment initiatives was used. As part of the governance system, create a forum to bring together all suppliers to raise issues and identify opportunities. 187Defence Portfolio Budget Statements 201516, Table 94: Top 30 Sustainment Products by End of Financial Year Outcome 201516, p. 190, available from [accessed 20 April 2017]. The fact that a proposed cost is awarded as requested by an applicant does not indicate a determination of allowability. An internal survey a decade ago found that Systems Program Offices attributed the problem to Defence management in Canberra: sustainment still does not get sufficient level of attention and needs to be recognised as the major component of the life cycle. Acquisition and through life support for armoured fighting vehicles, including ASLAV, M1A1 Main Battle Tank, M88 Recovery Vehicle, M113 Armoured Personnel Carrier and the Protected Mobility Vehicle (Bushmaster) and associated equipment. 2.5Defence describes the accountabilities of the Group as follows: The Capability Acquisition and Sustainment Group (CASG) purchases and maintains military equipment and supplies in the quantities and to the service levels that are required by Defence and approved by Government.16. trailer 193Defence Annual Report 201516, Chapter 8, available from [accessed 20 April 2017]. However, even with higher rates of availability, improved fleet serviceability and Repairable Item (RI) turnaround time, flying hours are still lower than expected. 5.43Developing the Capability Acquisition and Sustainment Group Business Framework is the first component of First Principles Review Recommendation 2.11, which provides: that there be significant investment in the development of an operational framework which briefly but comprehensively explains how the organisation operates and the roles and responsibilities within it (the full recommendation is set out in paragraph 5.5, above). This high tempo period of exercises has tested the robustness of the logistics system and deficiencies have been identified. 3.26Moreover, there is an opportunity for Defence to extend the use of its Sustainment Gate Review program to have those reviews consider the quality of the information provided in the most recent Quarterly Performance Report for the asset under review, to help quality assure the accuracy, clarity and completeness of that information. Failure to achieve planning milestones has been identified as a key constraint and has a direct impact upon the ability of Capability Acquisition and Sustainment Group to deliver platforms out of maintenance periods on time. 4.19Notwithstanding Defences effort to keep track of the claimed and planned savings from Smart Sustainment, Defence has not been able to provide the ANAO with adequate evidence that the savings were realised. Cumulative effect of a change in accounting principle: remove it from From the perspective of the field review, there is some indication that the sustainment models continue to drift apart.202. Foreword Introduction 2. Box 3: Systemic issues identified by Defence in the reform of Systems Program Officesa. Cash management involves: reducing excessive amount of cash in hand utilizing cash effectively maintaining optimum balance of cash to meet planned and unexpected expenditures managing cash flows - that is cash disbursements and receipts at all times Thus, cash management helps to manage your business' working capital efficiently. 118The Australian Strategic Policy Institute commented: Why a savings [sic] should be claimed from a fluctuation in fuel prices is unclear. processes for documenting capability managers requirements around sustainment. , O8>vz_y!_BG10Vu j1+f)*f) A0 u`e0;F)l` qX+^09Wy7k&C ) 165United States Government Accountability Office, GAO/GGD-00-172R, Study on Facility Design Reviews, July 2000, available at http://www.gao.gov/assets/90/89986.pdf. There remains potential to improve some core key performance indicators used within the systemfor example, to more usefully determine the total cost of the capability to Defence. It has the agility to refine those strategies as new information becomes available. 5.66The ANAO recommends that Defence develop and implement an evaluation plan to assess the implementation of the recommendations of the First Principles Review. the experience, skills and competencies of Systems Program Office staff; [Systems Program Offices (SPOs)] not being able to manage to an effective asset management plan; Disrupted maintenance schedules, affecting availability and increasing costs; Shortened life of type, and increased whole-of-life cost; and. It addresses sustainment management at a high level and is not focused on the sustainment of individual platforms or the technical aspects of their maintenance. Defences 201516 public reporting of sustainment activity included expenditure information and other descriptive material. 3.44The Mortimer Review (2008) observed that through-life maintenance and support account for more than half of the DMO annual budget and involve about two-thirds of its workforce. In other cases it may be appropriate to outsource sustainment and partner with industry for the acquisition phase.120. The 2012 Coles Review, by subsequent reports, has been both successful and insightful.119. 3.68For each Service, comparing the amounts presented in the first and last years of this analysis yields an average annual (compound) rate of growth in the estimates.97, Table 3.1:Increases in sustainment estimates by service, 200607 to 202021 ($m), Annual rate of growth (compound) from 200607 to 202021. An output measure, which directly contributes to the Material Availability and Materiel Confidence outcome. Accounting standards IAS 18 require a company to recognize revenue only when the amount is measurable and cash flows are probable. SeeCost Considerations-The Cost Principlesfor additional details. As their names indicate, direct material . Learn why the cost principle is an important principle for your small business. The report assessed the maturity level of asset management policy and supporting guidance documentation only. 0000002145 00000 n The term contract for availability is a term used in British military circles but is equivalent to performance-based contracting. The effectiveness of Defences internal reporting system for sustainment could be improved in several areas. The concept was also included in the initial Materiel Sustainment Agreements in 2005 between DMO and the Defence Service Chiefs. The real growth rate for the then recommended force structure option was 4.2 per cent. There is a risk that insights into a very substantial reform process could be lost. 2The MPR Guidelines, which are endorsed by the JCPAA, provide that data of a classified nature is to be prepared in such a way as to allow for unclassified publication (see ANAO Report No.40 201617, 201516 Major Projects Report, paragraph 1.16, p. 463). Again, this presentation is not consistent as in certain years, for example, individual product sustainment costs are identified as separate line items.96 Nevertheless, Navy, Army and Air Force sustainment costs can be traced to identify trends. It is now not clear whether Defence will continue with this work. Antiviral chemotherapy typically involves a delicate interplay between host cellular functions and viral targets of action. Progress in implementing the quoted recommendation has not been explicitly tracked with the other recommendations such as 2.12 and 2.13 in regular reporting on progress of the First Principles Review. startxref %%EOF 55ANAO Audit Report No.52 201112, Gate Reviews for Defence Capital Acquisition Projects, June 2012. Fragmented management meant Defence did not have an enterprise-wide view of the many Smart Sustainment initiatives, and was missing opportunities for wider reform. They provide recommendations as to how government can become a smart buyer, knowing what it wants and judging better what it has bought. In November 2018, Tony Fraser was appointed Deputy Secretary CASG. 24. Earned Value Management in CASG - pgcs.org.au SeeCost Considerations-The Cost Principlesfor additional details. 180Defence engaged a consulting firm to carry out a high level Asset Management maturity assessment of the CASG policy and guidance documentation against the requirements of the Asset Management Standards. Materiel Ready Days Achievement, measured as a percentage achieved against planned reflects the reliability of the Mission System and the Support System. Combat Support Vehicles, including Fire Vehicles, C and D Vehicles, Bulk Liquid Distribution equipment, Special Forces Vehicles and Engineer Equipment, Management of vehicle maintenance and support equipment, electrical systems and general stores. 130139, available from [accessed 10 May 2017]. It provides only a partial account of materiel sustainment within Defence and is potentially at odds with the One Defence model promoted by the First Principles Review. [14] Wolfe was reinstated in April 2010 following a legal challenge against procedural aspects of her dismissal in the Federal Court of Australia. Defences devolved and fragmented leadership approach to the program meant that Defence had no holistic vision of what the reform program was setting out to achieve, and therefore no logical program of work designed to support it. For example, this approach could make in-sourced labour appear costless and put outsourcing at a comparative disadvantage. Systems Program Office consolidation and reform is one of the largest reforms to Capability Acquisition and Sustainment Group deriving from the 2015 First Principles Review. The development of an effective sustainment monitoring system remains a work-in-progress, and the effectiveness of Defences internal reporting system for sustainment could be improved in several areas. Systems Program Office staff are involved in both acquisition and sustainment. 199In its 200809 Annual Report, Defence stated that to implement this recommendation, it had created the Sustainment Reinvestment Office to co-ordinate DMOs role in achieving the $5.5 billion in savings expected from Smart Sustainment under the Strategic Reform Program. [13], In March 2009, the Corporate general manager of the DMO, Jane Wolfe, was dismissed for unsatisfactory performance. 43 199798, Lifecycle Costing in the Department of Defence, examined Defences 1992 policy on lifecycle costing, finding that while Defences policy and procedures advocate the use of whole-of-life costings in acquisition decisions, in practice, Defences use of whole-of-life costing was uneven. The Capability Acquisition and Sustainment Group (CASG) is an organisation within the Australian Department of Defence, responsible for acquisition, supply chain management, and sustainment of military equipment and materiel including aircraft, ships, vehicles, electronic systems, weapons, ordnance, uniforms and rations for the Australian Defence Force. This could have provided, for the first time, a systematic approach to the organisation of sustainment activities across the Systems Program Offices. 3.4This led to the commencement of work on a new IT system, the Sustainment Performance Management System (SPMS), in mid-2011 to replace the sustainment module in MRS.32 Defence agreed in August2012 to the continuing refinement and implementation of a shared Sustainment Performance Management Framework and reporting system for use in the sustainment of all products jointly managed by Defence and DMO.33 An objective of developing SPMS is that the system should provide the central source of truth for sustainment management data and reporting for sustainment management personnel at all levels of both Capability Acquisition and Sustainment Group and Capability Manager organisations.34 This was contrasted with the MRS, which reportedly required substantial work-arounds requiring double and triple handling.