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20060913165134 | https://web.archive.org/web/20060913165134/http://www.defence.gov.au/dmo/id/defence_industry_2006/21june/DCEO.ppt | 2006-09-13 | 2006-09-13 | 500 | DMO PROJECTS: SCHEDULE - COST - PERFORMANCE Kim Gillis Deputy CEO DMO 06/07 BUDGET $8.7 Billion – $5.018 Billion on Acquisition – $3.599 Billion on Sustainment – About 45% of Defence budget – Approx. 0.8% of Australia’s GDP TOP LEVEL GOALS FOR THE DMO DMO Purpose: ‘Equip and Sustain Australia’s Defence Force’ Optimise capability to military and nation by: 1. Delivering projects and sustainment (‘effectiveness’): – On time – On budget – To required quality – Safety – Capability 2. Make DMO more businesslike, accountable and outcome-driven (‘efficiency’) • ANAO 2005-06 program: Explosives, ASLAV, Army minors, HMAS Westralia replacement, Air Combat Fleet ISS, SDSS Get Well, HF Modernisation • ANAO concerned about cumulative effect of CCPs and low-level approving of CCPs. - Schedule - Cost - Requirements/Capability - Contract and CCPs - Logistics - Project management - Funding approval and legislative adherence - Test regime - Interoperability & standardisation - In-service support Performance Audits — ANAO measure against 10 attributes: AUDIT — ANAO AMCIP EXPENDITURE BUDGET NUMBERS • DMO has about 210 major projects • Total value of projects in the capital plan is $53.7b • Since Jul 03, of the 26 projects closed (worth about $5b): – eight projects required real budget increase ($127m) – excludes the effects of ‘intentional’ scope increase – 18 managed a real budget decrease ($90m) • This equates to a Nett Variation of $37m (only 0.7% of the total) • Australia’s problem is not COST - it is SCHEDULE 80% of the remaining cost problem is schedule A surrogate for schedule slippage is capital underspend 59% of cost ‘increase’ was inflation, 30% was foreign exchange Only 11% was ‘real’ cost increase COST/SCHEDULE SLIPPAGE ACROSS PROJECT LIFE TOP 64 AMCIP PROJECTS 1983 - 2004 Tempo (1) OPERATIONAL DEPLOYMENTS - Effects on Contracts • Managing emergent capabilities straight into the field with not every contractual risk mitigation process in place • ASLAVs and Bushrangers to Iraq are examples • Not really new – we are just rediscovering it • Impacts on Contracts: – Prolongation , Excusable Delay, Certification – Spares, Logistic Support • Requires Defence Industry to play by new rules – in a ‘working together’ way in the national interest • East Timor - concurrency Tempo (2) DMO ANNUAL BUDGET (excluding GST) Budget in next 3 years $8.4b to $9.4b (12%) Constant 06/07 Dollars Budget in 3 years $6.5b to $8.4b (30%) 07-08 Actual Dollars 08-09 09-10 10 9.5 $AUS Billion 6.5 7.0 7.5 DMO Prescription 1 July 2005 Financial Year 03-04 02-03 04-05 05-06 06-07 PBS 06/07 data but with $0.4b Brought Forward from 06-07 to 05-06 for C17 Heavy Airlift Projected Budget 9.0 8.5 8.0 6.0 Actuals Kinnaird Review completed September Why is capability not achieved to Schedule? • Delays in approving projects • Delays in contracting for equipment • Contract Change Proposals • Delays in delivery of equipment • Delays in introduction into service WHY SCHEDULE SLIPPAGE? • Unrealistic schedules • Contract change proposals • Staff qualifications/training • Late delivery • Failure to report schedule problems early (industry) • Failure to detect schedule problems early (DMO) • Staff changes post-contract signature (both) FROM SLIPPAGE TO COST INCREASE Schedule slip causes cost increase to contractors or Defence through: • Inflation and FOREX movements as time passes. • Real cost of equipment rising over time • Overheads carried for a longer time. • Replanning and schedule recovery cost money. - Consequent costs, including T & E. • Production line ‘gap’ missed - restarts. • Dependent projects delayed. • ADF operational effects. • Early obsolescence or higher cost of equipment retention. • May compel change proposals. • Early warranty expiry. How does the DMO compare vs US AND UK? - MAJOR ACQUISITION PROJECTS (Converted to $AUS & 2006 figures) * 25 identified US projects ** 19 identified UK projects *** Across Top 30 DMO Acquisition projects **** Based on 26 projects closed since July 2003 (Approx. $5b) US IT data based on 2003 Standish Group Survey 15.7 $5.04 billion billion 30%- 40% 43% 10.4% 0.7% 17% 82% 20% 16% DMO 0.8% US DoD US IT UK MoD DMO Australia BUDGET (Aquisition) $126.1 billion $255 billion AVERAGE COST INCREASE AVERAGE SCHEDULE SLIPPAGE Defence 1.8% % OF GDP 3.9% 7.8% 2.4% UK MOD PROCUREMENT – AUDIT STUDIES – 1st report Effective project control is the key. Developing the contracting strategy: - Plan & manage the negotiation process. - Understand the desired outcomes. - Plan for successful execution. UK NATIONAL AUDIT OFFICE: THE GOLD STANDARD (1) Plan and manage contract negotiation – Right portfolio of skills & experience – Clear ground rules for negotiation and application of the contract – Active strategic analysis of the portfolio of contracts and application of lessons learnt Understand the outcomes to be delivered – Negotiate from a common baseline – Ensure all parties understand the contract negotiated Plan for successful execution – Link the contract to the agreement of desired behaviours in executing the project – Use the contract to incentivise achievement, with use of contract terms to protect the parties. UK NATIONAL AUDIT OFFICE: THE GOLD STANDARD (2) The Contracting Strategies Tool – Encourages early commercial input – Promotes discussion of procurement arrangements – Analyses the type of procurement applicable – Guides development of the appropriate contracting strategy – Provides a checklist review before the strategy is implemented * Has been developed to ‘proof of concept’ stage. WHY SCHEDULE SLIPPAGE? (reprise) • Unrealistic schedules • Contract change proposals • Staff qualifications/training • Late delivery • Failure to report schedule problems early (industry) • Failure to detect schedule problems early (DMO) • Staff changes post-contract signature (both) SCHEDULE & MANAGEMENT: AREAS OF INTEREST (1) • Realistic schedules and simpler master schedules. • Minimise number of contract changes. • Minimise time taken resolving contract changes. • Keep contract changes to the design stage. • More incentives for on-time delivery. • Enforced penalties for late delivery. SCHEDULE & MANAGEMENT: AREAS OF INTEREST (2) • Increasing % of contract value paid on delivery. • Regular and earlier contractor reporting. • Contractor to report regularly on est. delivery date. • Earlier detection of project slippage. • Minimise changes to staff numbers and personnel. SUPPORTING THE DMO’S PEOPLE • DMO Institute comes with high quality training on schedule management (art & science) and the tools. • Class room training should be followed up by on-the-job assessment. • Can universities introduce engineers to schedule management and tools such as OPP? • Train project directors/managers in schedule analysis. • Clear and & concise Instructions on the principles of schedule management. • Simple and concise administrative processes and procedures in support of project schedule management. Project management • Complex project management competencies • Establishment of Project Management College • UK MOD and DPA discussions • AIPM Special Reference Group • DMO commitment to project management • Industry incentives to participate • SADI review CONCLUSION Schedule Cost Performance | application/vnd.ms-powerpoint | 200 | http://www.defence.gov.au/dmo/id/defence_industry_2006/21june/DCEO.ppt | au,gov,defence)/dmo/id/defence_industry_2006/21june/dceo.ppt | PG3V4UN2OQPWHKFJJQSAKE7ZNZQLR3YG | 327752 | domains/defence-gov-au/powerpoints/original/au-gov-defence-dmo-id-defence-industry-2006-21june-dceo-ppt-20060913165134.ppt |