Defence Capability Plan (DCP)
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Defence Capability Plan (DCP) Challenges in managing the portfolio: Doing the same for less How can portfolio prioritisation be achieved? Tim Hogan – Acting Director Program Analysis. Topics. DCP Overview and DCP 2012 Prioritisation framework and planning

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Defence Capability Plan (DCP)Challenges in managing the portfolio: Doing the same for lessHow can portfolio prioritisation be achieved?Tim Hogan – Acting Director Program Analysis


Topics

Topics

  • DCP Overview and DCP 2012

  • Prioritisation framework and planning

  • Financial Planning approaches in the DCP

    • Planning constraints and realities

    • Fitting more in – Management approaches

    • Planning risks

  • Human Judgement in Prioritisation


Dcp overview

DCP Overview

  • The Defence Capability Plan (DCP) provides an outline of the major capital equipment initiatives that are planned for Government Approval.

  • The DCP is developed taking into account that available funding guidance from Government, the delivery schedule required for the capability and the capacity of Defence and Industry.

  • The Public Defence Capability Plan (DCP) 2012 is a five year rolling ‘working’ capital investment plan of Australia’s military capabilities. It lists the projects that have yet to be 1st or 2nd pass approved by Government.

  • Internal to the Department, we manage a program over a longer ten year period.


Dcp 2012 overview

DCP 2012 Overview

  • Minister Smith directed a full review of the DCP in July 2011 driven by realignment of the DCP by programme slippage and reduction to over-programming as a DCP management principle

  • Defence announced Budget 2012-13

    • Removed $3.5 billion of Forward Estimates funding

    • About 35 percent of funding

    • Affected around 75 projects

  • The DCP 2012 incorporates five main outcomes:

    • Government’s key strategic priorities, over the next 2-5 years

    • Reducing over-programming and over-promising

    • Is coherent

    • Is achievable and executable

    • Underpinned by robust set of initiatives

  • Further pressures identified requiring rigorous analysis as part of 2013 White Paper.


Dcp prioritisation challenges

DCP Prioritisation Challenges

  • DCP planning is a high-stake complex process which requires satisfying several competing objectives under the given constraints

  • External and internal threats exist to DCP planning

  • DCP prioritisation is dominated by the ‘big four capabilities’, thus ‘orchestration’ of the DCP becomes more complex

  • Need a balance between operational priorities vs. available budget

  • Similar challenges Industry may face, but operating in a unique fitness landscape


Dcp view existing approved capital projects being delivered

DCP View: Existing Approved Capital Projects being delivered

AMCIP


Dcp view approved and unapproved capital projects

DCP View: Approved and Unapproved Capital Projects

Top 10 projects comprise the majority

of the DCP portfolio

Remaining projects below the

Top 10

AMCIP


Dcp view defence capital program over ten years vs capital budget

DCP View: Defence Capital Program over ten years vs. Capital Budget

Budget

Top 10 projects comprise the majority

of the DCP portfolio

Remaining projects below the

Top 10

AMCIP


Dcp make up four dcp capabilities represent almost 60 of total programme cost

DCP Make-up: Four DCP capabilities represent almost 60% of total programme cost

Project estimated cost as a % of total programme estimated cost

  • 99 projects

% total programme cost

100

95% of cost

  • 57 projects

80

80% of cost

  • 16 projects

60

57% of cost

40

  • 4 strategic capabilities

    • SEA 1000

    • LAND 400

    • AIR 6000

    • SEA 5000

20

0

20 projects take up 80% of total programme budget, 99 projects take up 5%


Dcp prioritisation challenges1

DCP Prioritisation Challenges

  • The DCP looks to model this programming problem as multi-objective optimisation problem through:

    • Balancing Government’s key strategic priorities

    • Reducing over-programming and over-promising

    • Dealing with optimism bias in cost estimation

    • Human judgement

  • What are the decision making trade-offs/ prioritisation decisions that can be made in the portfolio:

    • Delay

    • Remove

    • Accelerate

    • Re-scope

    • Merge/ Split Project Phases


Prioritisation framework built around two dimensions strategic importance and urgency

Prioritisation framework built around two dimensions: strategic importance and urgency

Input

Working Definition

What is the relative strategicimportance of DCP projects?

  • Alignment long-term force structure requirements as defined in the DPG

  • Impact on Defence's preparedness in the next 10 years

  • Number and criticality of dependencies on other capabilities (e.g., "glue" projects)

  • Low: At least 2yr buffer btwn IOC & PWD

  • Med:1yr buffer to 2 yr gap btwn IOC & PWD

  • High: >2yr gap btwn IOC & PWD

Force structure

Short-to-medium term preparedness

Interdependencies

Degree of urgency

1

2

3

4

What is the sequencingpriority?


Topics

The aim of prioritisation is for a robust, repeatable results from a well defined approach and organised information

  • A formal rigorous prioritisation model

Outcome: repeatable and robust DCP prioritisation

Prioritisation process

High-level process steps for repeatable prioritisation exercise

Prioritisation approach

Prioritisation framework

Urgency

Strategic Importance

Scheduling

tool

Integrated Decision Support Tool

Forward Work Program

Project financials

Current System Retirement Date

Initial Operating Capability

Prepared-ness assessment

Force Structure assessment

Dependencies

Key Underlying Input data

Prioritisation information


Dcp planning constraints and uncertainty

DCP Planning Constraints and Uncertainty

  • “Crystal ball dilemma” - Unfortunately, we do not know which projects will become more risky or more uncertain as they progress through the approval process.

  • Financial constraints:

    • Most cost estimates that set DCP provisions are actually low quality

    • Building the DCP is based on uncertain baseline information

    • Projects with large cash demands can restrict DCP building activities and prioritisation of other projects

  • Financial risks:

    • Underspend: poor estimates and optimism means we are at risk of not spending early cash

    • Overspend: unexpected large cash demands risk blowing DCP budget; go to jail under FMA Act


Dcp planning constraints and uncertainty1

DCP Planning Constraints and Uncertainty

  • Capability constraints:

    • Capabilities more difficult to accelerate

    • Project independencies with other DCP capabilities

    • Capabilities can driven by foreign partnership/programs

  • Capability risks to the portfolio:

    • Capability not delivered: unacceptable capability gaps created, risk to delivering Defence’s strategic priorities

    • Capability prioritisation: less important capabilities approved, capability immature for Industry to deliver

  • The challenge is to strike a balance between managing the risk and uncertainty in the DCP and applying an adaptive DCP modelling to allow the DCP to remain achievable


Dcp portfolio management to fit more in

DCP portfolio management to “fit more in”

  • Given the complexity, ‘orchestration’ of DCP, development of the portfolio can be inherently difficult as any other Capital investment program

  • Objectives of portfolio management aim to adjust for DCP-wide financial uncertainty including estimation biases and financial slippage, and schedule uncertainty

  • The DCP is constantly evolving, if somewhat volatile, and being updated to reflect:

    • Changes of capability priorities

    • Revised cost estimate/ acquisition strategies

    • Schedule adjustments

    • Approval of projects

  • Portfolio modelling can be applied to allow for these ‘real world’ considerations


Dcp portfolio management to fit more in1

DCP portfolio management to “fit more in”

  • Portfolio assumptions and modelling applied to the DCP for the ‘real world’:

    • Over-programming

    • Slippage

    • Portfolio contingency

  • Given the DCP is due to ongoing review, there is a need to systematically capture information to inform the validity of current capital portfolio assumptions and modelling

  • The aim of portfolio modelling is to strike a balance in the DCP to ensure:

    • Full use of available budget so no potential important opportunities are wasted

    • There is no over-spend or under-spend of the DCP Budget

    • Smooth development and progression of project approvals with a balanced option set to ensure both major and smaller projects are approved


Dcp portfolio management risks

DCP portfolio management risks

  • Slippage modelling

    • If more early cash required, it means in short term that something else needs to wait

    • If costs blow-out – need offsets from elsewhere in the plan

  • Delays on approvals

    • Without over-programming, we no longer have a buffer

    • Lose opportunity to use cash for capability outcomes/ too late to spend funds in time

  • Contingency calls

    • Lean programming – ensure sufficient funding held to cover contingency needs

    • If someone needs contingency cash, they have a priority


  • Collecting this information together to target value based dcp prioritisation

    Collecting this information together to target value-based DCP prioritisation

    • Bringing together each of the elements to target prioritisation:

      • Schedule tightly linked to DCP

      • Resourcing pressures can be quantified

      • Capability impacts understood

      • Portfolio assumptions are linked to build a ‘plan’

    • Whilst bringing these elements help inform prioritisation, the value of each project cannot be measured on the same scale: Human Judgement required!!!

    DCP Prioritisation

    Human Judgment

    MinSub/ CabSub

    Actual project spend

    NPOC Budget

    Capital

    Budget

    Workforce

    Price basis and forex

    Approval constraints

    Force structure

    Preparedness

    Planned end of service date

    Project cost templates

    Interdependency

    Project schedule risk assessment

    Acceleration assessment

    Planning Rules

    -Out-turning

    -Slippage

    -Contingency

    Project Prioritisation Data

    Guidance Data

    Project Information

    Portfolio Assumptions


    Human judgement on project value proposition

    Human Judgement on Project Value Proposition

    • The aim of human judgement on a project value proposition is to:

      • Understand the true nature of a projects value and its prioritisation

      • There is no over-spend or under-spend of the DCP Budget

      • Smooth development and progression of project approvals with a balanced option set to ensure both major and smaller projects are approved

    • This framework provides portfolio prioritisation to a start state, but requires an element of human engagement to define the capability value proposition of each project

    • The value of a Navy project cannot be measured on the same scale as a Army project. There is a need to consider the collective demands from Services to determine the value of a project


    Human judgement on project value proposition1

    Human Judgement on Project Value Proposition

    • Human engagement required with the expertise of relevant Capability Managers and Subject Matter Experts to convince the value proposition of a Navy project over an Army project for example

    • Other human engagement considerations include

      • Threat level

      • Strategic Environment

      • Industry capacity

      • Politics

      • Capability performance requirements


    Summary

    Summary

    • Given the complexity, ‘orchestration’ of DCP prioritisation can be inherently difficult as any other Capital investment program

    • The ‘big four capabilities’ make up the majority of the DCP which determine how the DCP is shaped

    • DCP prioritisation framework aims to maximise capability outcomes against an available Defence capital budget and a project information/value/data

    • This framework provides portfolio prioritisation to a start state, but requires an element of human engagement to define the capability value proposition of each project


    Topics

    • QUESTIONS??

    • THANK YOU


    Rational of financial adjustments to capital estimates

    Rational of financial adjustments to capital estimates


    Topics

    A range of planning rules are currently applied to DCP capital and NPOC estimates to mange inherent uncertainty and risk

    Project estimate

    Project provision

    Aggregate portfolio provision

    Cash management

    Outturn escalation

    Once provision made, cash management rules determine how much funding provision is held where within the organisation

    Capital

    Over (under) programming

    Project contingency

    Project bid adjustments

    Slippage

    Project provision

    Project bid

    Net portfolio bid

    Cost growth wedges

    Portfolio contingency

    Project base estimate

    Base portfolio estimates

    NPOC

    NPOC Bid

    NPOC provision

    Port. NPOC bid

    NPOC base estimate

    NPOC bid adjustments

    Base portfolio estimate - sum of NPOC provisions

    Planning rule subject to focused analysis in this project

    Budget artefact

    Planning rule not subject to focused analysis in this project

    Key


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