This represents a major investment of at least $120million, including contracts for services from the principal provider (Bechtel) valued at some $107million. 4.10Defence gave examples of activities it considered successful in its 201011 Annual Report (pp. 147A summary of the findings of the first tranche of Systems Program Offices reviews is set out in Chapter 2. Defence advised the ANAO that Capability Acquisition and Sustainment Groups expenses on all employees in 201516 were $490.4million. Cash Accounting Definition, Example & Limitations - Investopedia Cash Conversion Ratio - the amount of time between when a business pays for its inventory (cost of goods sold) and receives payment from its customers is the cash conversion ratio Funding Gap - a measure of the shortfall a company has to overcome (how much more cash it needs) Dividend Payments - CF can be used to fund dividend payments to investors The consultants attributed the diversity to historical issues around original parent organisations, [and] individual service influences. A final consideration is that of resourcing. 3.40In October2016, Defence concluded that inadequate attention to managing its equipment on a whole-of-life basis had resulted in funding shortfalls for ongoing operating, maintenance and support costs. For example, Quarterly Performance Reports could include a section providing an update on how the issues identified in the sustainment gate reviews are being addressed over time. 59Defence Materiel Organisation, Zero-Based ReviewPhase 2, Final Report, 9 December 2003. Free Cash Flow (FCF) Formula - Corporate Finance Institute But no such global improvement approach had been implemented across sustainment. CostPrinciples AuditRequirementsentsand ents Reasonableness Allocability Conformance Allowability MUST= Compositionof DirectCost IndirectCost Applicable Costs Credits REQUIRED SHOULD= Bestpractice or recommended 200.404Reasonable costs cost is reasonable if, in its nature and amit not exceed that which would be incurred ount, by adoes 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. In 2011, a health check by external consultants found some early successes with cost reductions and changes in practice. Note b:Staff numbers are rounded to the nearest whole number. Defence has done earlier work relevant to the assessment of its productivity. 4.5The government announced Defences Strategic Reform Program in May2009. 56Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 68. 200.403 Factors affecting allowability of costs. The Australian Government through the Defence Ministers (our owner). Consequently, DMO retains over 50 SPOs [Systems Program Offices] each operating relatively independently of others and in different positions in the value chain. 3.45The First Principles Review found that, at the project level, Defence treats staff as a free good across the department: Employee costs are not considered part of a projects costs and a manager cannot adjust numbers of staff based on project need. 153Defence [DMO], CEO Roundtable Discussions [Note: Document dated 23 July 2008. This Key Health Indicator serves to measure the quality and appropriateness of the work undertaken during maintenance periods. Improve leadership skills, knowledge and experience. Tiger is not currently deployed on operations. These estimates, based on the latest available figures each year (generally from the Portfolio Additional Estimates Statements) are set out below (in Figure3.3) for the period 200506 to 202021 (the end of the current forward estimates period as at May2017). 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. In particular, the other recommendations with substantial implications for the management of sustainment are as follows: 2.3 developing a new organisational design and structure as part of the implementation process for the Capability Acquisition and Sustainment Group with reduced management layers; 2.4 examining [and analysing] each Systems Program Office to determine where each fits within the smart buyer function, [and] the most appropriate procurement model [for delivering the capability] and achieving value for money; and, 2.11 significant investment to develop an operational framework which comprehensively explains how the organisation operates and the roles and responsibilities within it; a detailed set of life cycle management processes which provide project and engineering discipline to manage complex materiel procurement from initiation to disposal; and reviewing architecture to reinforce accountability at all levels and bringing together information upon which good management decisions can be made.123. In January 2014, the International Standards Organisation released the ISO 55000 series of standards for asset management. A group of measures (Monthly and Year to Date) which assess the reliability of price prediction by Capability Acquisition and Sustainment Group and is represented as measure of Achievement against In-Year Phasings. In March 2016, Defence extended Bechtels contract until 30 June 2016, which increased the value to $9.7 million. In 2000, when the expected benefits were not being realised, Defence reviewed Support Command Australia and the Defence Acquisition Organisation, finding that serious problems persisted in capital acquisition and whole-of-life support. There are over 40 platform fleets being supported and they represent around 60percent of total sustainment expenditure in any given year. 52Defence, Houston Review into Army Aviation, November 2016. Defence later recognised that gate reviews also have potential value for sustainment, especially where it allows management to become aware of maintenance problems that might otherwise remain hidden. Box 7: The current Defence definition of smart buyer. Committed people with the right skills in appropriate jobs. 0000000883 00000 n
Defence has clear and long-standing governance and organisational arrangements for managing the sustainment of specialist military equipment. Note b:The availability of the Collins Class was about half that achieved by comparable submarine fleets; time spent in planned maintenance was about one third greater; and maintenance overruns and percentage days lost due to defects were approximately double. Navy, Army, Air Force units and Joint Logistic Command business units also conduct sustainment activities at a tactical level, inclusive of maintenance, inventory management and regulation of the technical integrity of materiel within units. Defence decided to migrate only material, high-risk existing contracts onto its central register. Second, the material to be produced for scrutiny of sustainment performance would need to reflect a One Defence (that is, whole of portfolio) view. The document details the cost principles that Defence and industry will utilise in costing contracts. Poor Demand Satisfaction outcomes will ordinarily be reflected in the increase of Urgency of Need Designators A and B demands or directly in Priority 1 stores related Urgent Defect. Using internal and external expertise to provide the best advice so that the outcome is delivered in the most cost-effective and efficient manner. 5.67Defence already has an evaluation process developed that will be implemented by the end of 201617. This was funding to be spent by DMO on sustainment on behalf of Defence.95 From 201314 forward, Defence also reported the estimated cost of capability sustainment for the whole of Defence. 115Raytheon Australia, Smart Sustainment Solutions, March 2013. 16Defence, Capability Acquisition and Sustainment Group, Accountability, available from [accessed 13 April 2017]. The First Principles Review recommended integration. Systems Program Offices are located in different parts of the country but are organisationally all part of the Capability Acquisition and Sustainment Group within Defence. 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. Given the substantial resources involved, both in the expenditure on sustainment and the reform process, Defence would benefit from assessing all aspects of these changes carefully. 13. 3.69When sustainment costs are presented cumulatively, the contribution of items other than Navy, Army and Air Force sustainment to sustainment cost growth over the forward estimates can be seen. It was not expected to meet key sustainment metrics such as Reliability/Availability/Maintainability, Rate of Effort and cost of ownership, and should be replaced; the Chief of Army has place caveats on its useeffectively limiting what the aircraft can be used for, and where it can be used; Army did not deploy the helicopter in its engagements in Afghanistan or Iraq; the program has consistently underperformed; on average only 3.5 aircraft of the operational fleet of 16 aircraft were serviceable at 10 am on any given day in 2015, against a requirement of 12 aircraft; availability for the aircraft is predominantly limited by premature component level failures and is constrained by inadequate sustainment arrangements, despite the lower than expected hours flown, by June2014 sustainment costs for the Tiger had exceeded the original sustainment contract (, in June2016, the cost per flying hour for the Tiger fleet was $30335, compared to a target of $20000 (the long-term average in June2016 was $39472 per flying hour); and. 279280. 6. How to Prepare a Cash Flow Statement | HBS Online 2.1The ANAO examined Defences governance and operational arrangements for managing the sustainment of specialist military equipment, with a particular focus on the clarity of: 2.2Defence has clear and long-standing arrangements for the management of materiel sustainment for specialist military equipment. Defence confirmed in March2017 that this risk remains. Defence expects that all sustainment products will be reporting in SPMS by the end of June2017. 5.40The analysis could usefully have regard to the outcomes of past reviews and audits, which provide insight into the effectiveness of Defences contracting arrangements for specific fleets of equipment. This indicates that any actual adjustments, if made, were to internal Defence allocations. 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. CASG Definition | Law Insider 5.63The Sustainment Business Model project has not delivered all that DMO expected. 3.2The reporting system relied upon by Capability Acquisition and Sustainment Group and, before it, the DMO, to track major acquisition projects since mid-2004 has been its web-based Monthly Reporting System (MRS). Figures for 201516 are based on Defence advice with one-third of Capability Acquisition and Sustainment Group staff costs allocated to acquisition and two-thirds to sustainment. That data showed the performance of the Collins Class submarines fell well below that of international comparator submarine fleets.b The review also found the cost effectiveness (cost per materiel ready day)c of the international navies fleets was at least twice that of the Collins Class sustainment program. 34. 3.17The ANAO observed marked differences in the information provided about Armys Armed Reconnaissance (Tiger) helicopter between: 3.18A comparison shows that the Quarterly Performance Report does not include information available to Defence that is critical to the readers ability to understand the gap between the expectation of capability and reality for the Tiger helicopter program (See Appendix 3). Source: Defence, Plan to Reform Support Ship Repair and Management Practices, [Rizzo Review] July 2011, p. 38. The First Principles developed were: Clear authorities and accountabilities that align with resources Decision-makers are empowered and held responsible for delivering on strategies and plans within agreed resourcing. 107The Pappas Review examined a sample of equipment fleets and interviewed senior Defence personnel. 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. 21In April 2015, the ANAO completed a performance audit of Materiel Sustainment Agreements (ANAO Report No.30 201415, Materiel Sustainment Agreements). Most of the sustainment budget is for maintenance of major platforms which, in turn, depends on age and use. He described the areas where he expected they could make cost reductions, including by: reducing spares; more performance-based contracting; discouraging end-of-year spending to meet budget; travel efficiencies; and improved maintenance philosophies. For commodities, the maintenance component of the budget is comparatively small with replacement or replenishment being the dominant activity. Defence suppliers have access to potentially commercially sensitive Defence financial information which could provide an unfair advantage to some service providers. 11. 0
Completing this work is likely to take longer than the two years intended for the First Principles Review Implementation. 96For example, in the Portfolio Additional Estimates 200708 (pp. Although this largely represents the absorption and re-badging of the former DMO, other subsidiary recommendations are directed at substantial restructuring and reformulating the business practices in this part of Defence. 1.9The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $422000. There are four basic financial . See Defence Portfolio Budget Statements 201718, Table 68: Top 30 Sustainment Products by End of Financial Year Outcome 201718, pp. Defence lacked a single set of accurate information to inform decision makingThe review found that, whilst significant levels of information and analysis exist across the Collins Class Sustainment Program, the basis for long-term decision making was not always consistent or accurate, with multiple systems and datasets in use for financial, maintenance and supply chain activities. 98Australian Strategic Policy Institute, The Cost of Defence: ASPI Defence Budget Brief 201617, p. 58. Instead, it would usually be done as several separate calculations, as we showed in the first 4 steps of the derivation. It must cover a minimum of four years. Other reforms flowing from the First Principles Review remain underway: Defence has also been developing its approach to asset management over many years, having obtained substantial advice from internal and external sources to adopt a Defence-wide asset management strategy to underpin a sustainment business mode for specialist military equipment. Defence published a final, complete edition, comprising 18 pages plus appendices with a date of 12December2016. 5.1The most recent major review of Defence, the 2015 First Principles Review, was a comprehensive examination with a suite of recommendations for reform. This can result in bad news remaining at lower levels in the organisation, increasing enterprise risk and only becoming apparent when recovery is expensive, difficult or even impossible.56, 3.23Defence commenced sustainment gate reviews in December2015. The Defence Materiel Organisation was formed in 2000 when the then Defence Acquisition Organisation merged with Support Command Australia, bringing together the Department of Defence's capital acquisition and logistics organisations into a single entity. Defence spends similar amounts each year on sustainment and the acquisition of new equipment. 193Defence Annual Report 201516, Chapter 8, available from [accessed 20 April 2017]. 190Defence Portfolio Budget Statements 201516, Section 2: DMO Outcomes and Planned Performance, p. 151, available from [accessed 20 April 2017]. Defence began its Smart Sustainment reforms in early 2010 as part of the Strategic Reform Program Implementation package. Appendix 5 of this audit report sets out both the root causes and those of the Coles Reviews consequential recommendations that have wider applicability in Defence sustainment. 108Defence, The Strategic Reform Program: Making it Happen, 2010, p. 4. 177Defence, Defence Asset Management Landscape Document, May 2012, p. 1. 5. 140Defence, First Principles Review, p. 36. 149Defence, The Australian Defence Aerospace Sector Strategic Plan: Strengthening Military Aerospace Capability in Australia, 2003, Recommendation 4, p. 8. 26Paul J Rizzo, Plan to Reform Support Ship Repair and Management Practices, July 2011, p. 8the Rizzo Review. All 22 Tiger helicopters, simulators, ground support systems and contracted training devices have been accepted and introduced into service within project budget approvals. First Principles Review (April 2015) 2. 4. Box 1: The origin of Systems Program Offices. The SPMS system was not fully implemented during audit fieldwork but is expected to be fully operational by the end of June2017. It is both a lead and a lag indicator, which has a direct correlation to decreased near term and future unit availability and increased corrective maintenance and Priority 1 Urgent Defect. The DMO was a half-way house with a separate chief executive and badging, but staff and funds continued to be provided by the department. A Smart Buyer undertakes the roles that government must perform, and effectively outsources other functions when that is the Smart thing to do. requirements as long as they meet the standards prescribed in 2 CFR Part200.302 and 45 CFR Part 75.302 for financial management systems. At worst, nondelivery will result in a red traffic light status in DMO Sustainment Overview Reports which it seems that few stakeholders read.31. Note b:Man-marking is where Defence staff in the Systems Program Office supervise the performance of one or a small number of contractor personnel. The Chief of the Defence Force is Australias senior military leader. The Tiger fleet achieved a total of 312.0 flying hours in June against a planned 698 hours. There are no standardised reporting mechanisms (reporting is informal, anecdotal, local or crisis based) or management processes, with all divisions having different methodologies and management systems. 81Defence, First Principles Review, p. 66. The primary element of this reform is the consolidation and review of the Systems Program Offices; establishing centres of expertise as part of a matrix organisation within Capability Acquisition and Sustainment Group to make best use of specialist skills that are common across its Systems Program Offices. The effectiveness of these reviews could be increased if the lessons obtained from gate reviews were routinely incorporated into management reporting on sustainment and if gate reviews were extended to contribute to the proposed quality assurance mechanism for Quarterly Performance Reports.
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