1. Capability Development Group post-Kinnaird - a personal perspective. Vice Admiral Matt Tripovich, AM CSC RAN Chief Capability Development Group

2. Capability Life Cycle Government Agreement/Approval process Accountability Strategic Assessment Initial Business Cases Acquisition Business Cases Capability Management Agreement for Further Analysis 1st Pass Approval 2nd Pass Approval Acquisition Service Life Extension Approval to Dispose Acquisition Management In Service Management Disposal Dep Sec Strategy & Corp Gov’nce Chief Capability Development Group CEO Defence Material Organisation Capability ManagersChief Capability Development Group

3. Kinnaird Review

4. Kinnaird Recommendation 1  Present to Government achievable capability development information in a succinct form on an annual basis  Defence Planning Guidance (DPG)  Defence Capability Strategy (DCS)  Defence Capability Plan (DCP)

5. Kinnaird Recommendation 2  A three star officer, military or civilian, should be responsible and accountable for managing capability definition and assessment  Capability Development Group formed to:  manage the capability development process  maintain a joint warfare focus  deliver the Defence Capability Plan (DCP)

6. CDG MISSION To shape Defence’s future joint war fighting capability CCDG VISION To be a leading Defence Capability Development organisation which is respected by Defence, industry, the central agencies and international defence forces

7. Kinnaird Recommendation 3  Government should mandate and enforce, via revised Cabinet rules, a rigorous two pass system for new acquisitions  Entry into the Defence Capability Plan  Intention to commence a project  1st Pass Approval – Initial Business Case  Explore options), analyse capability, costs (acquisition and through life), schedule and risk  2nd Pass Approval – Acquisition Business Case  Obtain Government funding commitment to acquire new capability

8. Delivering the Defence Capability Plan  Significant preparatory work between 1st and 2nd Pass approval:  ~ 6% of total project funds are spent before 2nd Pass approval  ~ 22 months between 1st and 2nd Pass  Plus total annual funding of up to $66m for:  Project Development Funds  Capability Technology Demonstrators  Rapid Prototyping Development and Evaluation

9. Kinnaird Recommendation 6  The Defence Materiel Organisation (DMO) should become an executive agency  DMO became a a ‘Prescribed Agency’, separately funded and accountable, in July 2005  flexibility to adjust budget and staff resources to meet workload  works closely with CDG to deliver new capability  establishes ‘contracts’ with Service Chiefs to support in-service equipment

10. DMO Purpose To equip and sustain the ADF DMO Goal To deliver capability and sustainment on time, on budget and to the required capability, safety and quality DMO Vision To become the leading program management and engineering services organisation in Australia

11. DMO – Facts  Controls 40% of the Defence budget annually  Manages a capital budget of $4.5b annually  Spends $3.6b on support annually  Manages 210+ major projects  Manages 200+ minor projects

12. DMO themes  Professionalise workforce  Reprioritise work  Standardise business practices  Benchmark against best practice  Improve industry relationships  Lead reform and embrace change

13. Kinnaird Recommendation 7  Project Managers should be:  Selected on merit  Drawn from the military, industry or the public service  Be accountable to CEO DMO  Have minimum tenures  Have remuneration levels set to attract and retain specialists

14. CDG – DMO relationship  More independent……  “Prescribed Agency”  Materiel Acquisition Agreements  …..but closer working relationship:  Steering Groups  Integrated Project Teams  Embedded Personnel

15. Relationships with Industry  Capability Development Advisory Forum (CDAF)  Critical Industry Capabilities (CRITICS)  Request For Tender before 2nd Pass  Skilling Australia’s Defence Industry program

16. Measuring CDG performance 200520062007 to date Significant decisions 594 1 st Pass 8155 2 nd Pass 11177 Total approvals 244116 Value$3.0B$6.4B$13.2B

17. Major Capital Equipment spending in real 07-08 $B 0.0 1.0 2.0 3.0 4.0 5.0 6.0 59-6061-6263-6465-6667-6869-7071-7273-7475-7677-7879-8081-8283-8485-8687-8889-9091-9292-9394-9596-9798-9900-0102-0304-0506-0708-0910-1112-13 $ Billion (REAL Expenditure) Transition from Cash to Accrual Accounting Further predicted by DCP 06-16 (Source ASPI/DMO 2007) Vietnam F18s Anzac & Collins FACILITIES KINNAIRD MAJORS MINORS 7.0

18. Measuring DMO performance  ~ 210 major projects = ~ $55b  Jul 03-Jul 06, 93 major projects were closed (~ $5.5b)  10 projects required real budget increase ($131m) - ~ 0.2% of the total program value (this excludes the effects of ‘intentional’ capability increase)  51 managed a real budget decrease, returning an unspent budget of about $94.5m  This equates to a nett variation of just $36.5m  Australia’s problem is not COST, it is SCHEDULE

19. Measuring DMO performance 73% 27% Initial Variation Total Project Approval $60.6B Initial Approval $44.3B Variations $16.3B Shows variations(+ and -) across project life of all projects managed by DMO since July 2003 This circle is $60.6B

20. 16% 5% 6% 73% Indexation Exchange Real Initial Total Project Approval $60.6B Initial Approval $44.3B Indexation $9.5B Exchange $3.1B Real $3.7B Shows variations(+ and -) across project life of all projects managed by DMO since July 2003 This circle is $60.6B Measuring DMO performance

21. Real cost increases by category (1) Shows variations(+ and -) across project life of all projects managed by DMO since July 2003 Estimate insufficient 12% Post 2 nd Pass Scope Increase 38% 1st pass Scope Increase 3% Adjustment 2% Class 1% P&E 0% White Paper Reapproval 14% Other 7% 2nd Pass Scope Increase 23% This circle is $3.7B (6%) RCI ( 2% ) RCI ABOUT 34% of 6% = 2%

22. Very large civil & defence projects SOURCE: RAND COST GROWTH STUDY 2006 Benchmarking

23. Lessons Learned  Reforms are working  Transparency and accountability  Early stakeholder engagement  Professional project management  Fiscal responsibility - value for money  Timely delivery of capability

24. Pre-Kinnaird project management

25. Questions?