Streamlining the Defence Investment ApprovalProcess

Risk-based tailoring in the Capability Life Cycle

Patrick HetheringtonASIP

ADF HQ

Outline of Presentation

• CLC refresher and reasons for change• Tailored investment approval pathways

through SmartBuyer• Capability Program Approvals and

Capability Stream Updates• Question time

CLC Refresher

The Capability Life Cycle is the end-to-end process for planning,developing, acquiring and maintaining Defence capability – majorcapital, infrastructure, and ICT.

Key design components include: • More centralised direction – explicit alignment with strategic guidance• An ongoing Force Design process – rather than episodic reviews• Strong arm’s-length contestability – central to improving the quality of our advice• Earlier and better interaction with external stakeholders – both government

and industry• Increased accountability for Capability Managers• Streamlined process and documentation• Tailoring of project investment approval pathways

Ref: http://drnet.defence.gov.au/AssociateSecretary/first-principles/Capability-Development/Pages/default.aspx

Reasons for Change – First Principles Review

The FPR identified that: • The ‘one-size fits all’ approach used in the past was not the most efficient use of

Government, Defence or Industry’s time. • Approximately half of the projects that were considered by Government were

worth less than six per cent of the total program cost. • Individual project approvals lacked proper strategic context and identification of

interrelationships and interdependencies. • Project approval processes are lengthy and expensive

– “The average government submission is 70 pages long, takes 16 weeks to movethrough the Cabinet preparation process and an average of 46 months to progressfrom first pass initiation through to second pass approval.”

The FPR recommended: • “…Strengthening the front end of the capability development life cycle by

revising the two pass process, establishing an entry gate and creating moreopportunity to tailor and fast track projects…”

• “…revising the Defence investment approval process for all large or

complex capability projects…” • “…[that] Government increase approval thresholds for capability

development projects, with ministerial approval required only for projectsabove $20 million, two ministers above $100 million and Cabinet above $250Million…”

Reasons for Change – First Principles Review

“…Not all projects need to follow the full process — there should

be judicious use of a fast track path, subject to strongcontestability that confirms delivery risks are acceptable. This willimprove efficiency, reduce the duration of the pre-acquisitionphase and relieve pressure on the volume of Governmentapprovals.It is the common sense approach of a smart buyer…”

“…This change would accelerate project delivery, ensure thatsenior attention is focused on critical projects and would start toreduce the transactional nature of interactions with Government,which need not be concerned with smaller capability projects…”

FPR Ch 3 Pg 39

What does success looklike?

So what has happened?

• Government has agreed to a process for ‘Streamlining the Defence InvestmentApproval Process’.

• Co-sponsored with the Department of Finance • Fully supported by all Government Departments and Agencies • Built around the SmartBuyer Decision Making Framework process, the

governance of the Investment Committee, and the reporting cycle of theIntegrated Investment Program Biannual Update.

What’s new?

The new Defence Investment Approval Process includes two key differences fromthe previous capital investment approval process:

• A risk-based approach to Defence investment approvals

• Government approval pathways and authorities for Defence projectswill be tailored according to SmartBuyer risk, instead of focusingsolely on the financial thresholds set out in the Budget ProcessOperational Rules (BPORs).

• Capability stream and Capability program level submissions

• Defence will bring forward submissions for Government considerationusing either a capability stream or program level approach whereappropriate, rather than exclusively through individual projectapprovals.

CLC Phases and Gates – where we started

Example Project Approval Pathways

Tailored approvals

• There are two key forms of tailoring:

– Approval Authority – “Who is approving?”• Eg NSC, Two Minister, One Minister, internal Defence (or a

combination of all of these at different time points)

– Approval Pathway – “How many approvals?”• Eg Two Pass, Combined Pass, multiple approaches, and ‘rolling wave’

tranches.

Identify the risks and drivers ---> shape thepathway

Tailoring the Approval Authority – “Who is approving”

Projects will automatically be referred to NSC if they are assessed as HIGHrisk against the below criteria:

Financial: if the likely costs of the proposed capability are unaffordable from within the

existing IIP profile and, or the size and uncertainty of the planned financial investmentin the project is such that potential cost increases (for example, associated with the

financial stability of a supplier) will require significant re-profiling elsewhere in the IIPand/or the extent to which the Commonwealth is exposed on a project;

Requirements: if the planned capability represents a new and/or potentially contentious

military capability or if the requirements are ill-defined and therefore a very wide rangeof options might conceivably meet the need;

Technical and Integration: if the planned capability is developmental or requires extensive

technical design or development work, especially around integration activities andinteroperability; and

Industrial and Strategic: if the project involves strategically significant industrial capability

or contractor selection that may have potentially significant innovation and economicopportunities for Australian industry, such that the selection of the preferred contractor,

is likely to be driven by strategic factors. Political factors and security will also beconsidered under this category of risk.

Criteria for a ‘Fast Track’/Gate 0-2 Approval Pathway ➢There is only one feasible supplier; ➢The proposal involves acquiring additional quantities of an existing capability; ➢There are mandatory interoperability requirements that dictate a certain platformchoice; ➢Operational urgency is more important than optimising cost/capability trade-offs; and ➢The proposal is simple and low risk and within existing operational policies.

If a 0-2 path is agreed, there may be a requirement to seek early access to IIPfunding ahead of Gate 2, and permission to engage with Industry ahead ofGovernment approval. This is achieved through the omnibus Biannual IIP

Update to Government

Pathway Considerations

• The majority of individual IIP projects are still likely to be 2 Pass /

NSC approvals

• The Investment Committee will validate the pathway, the CentralAgencies will assess the claims and Government will agree the newFWP.

The Capability Stream and Program level submissions will flag key strategicconsiderations (including Gaps and Opportunities) that need to be brought tothe Government’s attention, including updates to strategic guidance or policy.

Other key themes that may be addressed include:• Australian Industry considerations;• Workforce and skilling updates;• Whole-of-Government implications; and• Other Government or military relationships (for example, memorandums of

understanding or cooperative programs).

Capability Stream and Capability Program approvals

Capability Stream and Capability Program approvals

• Capability Stream and Program level submissions will provide updates toGovernment on the progress of each capability stream and relevant programactivities, and highlight any key risks, issues or lessons learned that have beenidentified during the preceding period.

• They will foreshadow the key investment decisions sought in the near term and,

where possible, forecast the intended decision points and key activities that areknown beyond that timeframe.

Stream and Program updates are about talking to Government about

our progress in achieving the CAPABILITY EFFECTS described inthe Defence White Paper

The Capability Stream updates will be shaped through the CapabilityStream Boards conducted as part of the Force Design Cycle

The structure of the Investment Portfolio

Project Product

Portfolio, Program, Project/Product Management (P3M)

Program

Portfolio

Program Management

Questions?

Pathway RiskProfile developedin SmartBuyer

process

Central AgencyWorkshop to

evaluateForward Work

Program

ProposedPathway in

Gate 0 ProjectExecutionStrategy

InvestmentCommittee

validates thepathway at

Gate 0

IC considersthe BiannualUpdate (inc.

FWP)

Cabinetagrees the

Biannual andFWP

Project Development

Portfolio – IIP Biannual Process

The Biannual cycle will take pathwayinputs from a variety of sources, at

different stages of maturity

The Biannual will include requests for earlyaccess to IIP funding and seek permission toengage with Industry for fast track projects

The SmartBuyer tailoring process is fed in to the IIP Biannual Update

SmartBuyer Status & Benefits

Examples of tailored approval pathways using the SmartBuyer decision framework: • Continuing an existing Prime Systems Integrator relationship (i.e. ‘single supplier’) on a $1B+

project, with sub-elements to be competed by Industry:- Saved ~12 months of schedule and tendering cost, reduced the overall risk profile, maintained a

successful existing Industry partnership, and encouraged market competition where it was appropriateto do so.

- Approach was approved by Government at First Pass and approved ‘below the line’ (i.e. fullysupported by all Government Departments

• Development of a ‘rolling wave’/tranched approach due to a need to respond to quickly changing

threats and technologies:- The ‘rolling wave’ tranches will allow greater responsiveness by seeking flexible funding

arrangements in a cyclical fashion, while maintaining Government oversight through regularupdates and forecasting future need in response to changing environments

• Program level approvals with a mix of First Pass, Second Pass and early IIP funding requests, as

well as updates on in-flight projects and sustainment products- This presents a more strategic view to Government, clearly linked to a capability effect, whilst

allowing flexible funding ‘offset’ arrangements that allow time critical work to continue.

Developing a tailored forward work plan of approvals

When developing the annual forward work plan, the key considerations relating to a project’sapproval pathway include:

The number of required Government decision points (one, two, or multiple);The nature of the decision point(s) and approval sought (strategic (First Pass), acquisition (SecondPass) or combined pass);The required approval authority (for example, Cabinet approval, Two Minister (Finance andDefence) approval, or One Minister (Defence) approval);

This may include whether referral to other committees of cabinet, including ExpenditureReview Committee and Digital Transformation Committees of Cabinet, is appropriate.

If applicable, CDIF requirements in support of high risk projects, or projects of interest to Ministers;If applicable, the requirement and mechanism to access IIP funding (First to Second Pass CapabilityDevelopment Funding) to progress activities ahead of the first formal Government decision point;andFor enterprise and corporate only Information and Communications Technology (ICT) projects, theICT Investment Approval Process may also be applied.