The recent ANAO report on the Defence capability reform highlights the key role now played by the Defence Capability Plan (DCP). Since its introduction in 2000, the DCP has come to dominate the ADF capability development process and thinking about future force structure. (While the DCP has been recently split in two, for the purposes of this post this change isn’t significant.) The DCP serves as a financial management tool that sets out the approximate funding and schedule for future projects, both in aggregate and on an individual basis. In many respects it’s simply a multi-billion dollar spreadsheet. The ANAO report (Chapter 5) casts doubt on the process of entering projects into the DCP. It seems there is a fundamental flaw in the current DCP construct.

While the DCP is a financial management plan, making accurate cost estimates of the new projects entered into it is inherently impossible. Such costing requires a level of detail unknown at this early stage of the acquisition process. Only after several years of analysis will matters such as the brand name, numbers, logistic support concept, operating bases and tempo be defined sufficiently to allow accurate costing. But using incorrect cost estimates from the start decisively shapes both future expectations of each project—in terms of capability delivered, when and for what cost—and the overall financial envelope.

What can be done? For a start, we could rethink the DCP. The funds flowing into the DCP are known but the precise costs of each project in it cannot be. These outgoings won’t be accurately known until years later, after contracts are negotiated and agreed. Because of that, the DCP is better suited to being a Balance Of Investment (BOI) plan, which maps out where future funding will flow in accordance with the government’s endorsed defence strategy and priorities. Rather than tying money to particular projects, a BOI approach would simply allocate funding to particular capability areas or functions across time. For example 20% to air defence, 10% to sea control, 15% to land force fire support, and so on. This contrasts with the present way of inserting a new project, which might specify (for example) buying an amphibious assault ship of a size to allow a company-sized helicopter lift with an in-service date around 2021. (Current practice can been seen here (PDF).)

A BOI DCP would allow the linkages between spending and strategy to be clearer than present. Strategic priorities would be readily apparent and more easily met. But if the White paper sets out the strategy and the DCP the investment plans that flow from that, it’s still necessary to move from the broad capability area funding allocations to specific new equipment projects.

The aim is to make sure that the money allocated to each function is spent wisely. This requires both professional expertise but also positive incentives and negative sanctions. The key is to make the judicious use of taxpayer funding important to the ambitions and aspirations of the people within Defence. If spending money wisely is important both to individuals and their collective organisations, it will be done. But they need a sense of ownership. It has to seem to be ‘their’ money, not belong to ‘the system’.

One way of doing that would be to have the Capability Managers (the three service chiefs and the Deputy Secretary for Intelligence and Security) translate the allocated balance of investment into actual projects. In this model Capability Development Group (CDG) staff can continue to take projects through the first and second pass stages, but the initial distribution of the funding stream into specific projects is done by those individuals responsible for raising and sustaining the nation’s warfighting and intelligence capabilities.

Perhaps several smaller purchases of diverse equipment may give a better overall result then one big buy of a single type. Or maybe some new idea or new technology has just emerged and should be take advantage of. The Capability Managers can use their innovation and their smarts to best spend ‘their’ money—but no more! The key aspect in all this is to stick to the funding allocation. Hard funding boundaries will encourage innovation in addressing capability needs and will lead to trade-offs being made where necessary. For example, Chief of navy would have to decide where the addition of submarine numbers started to move into diminishing returns compared to other elements of his portfolio and the strategic demands on him.

The intent would be to force the best solutions to be developed through fiscal discipline. A fundamental problem in Defence is that holding people to account for poor investment decisions is impossible. Having a firm policy on sticking to budget allocations would be needed to institutionalise higher-quality decision-making. If there’s an organisational penalty for making bad judgements, the organisations concerned will soon appreciate the need for high-quality decision making. Now the converse is true; bad judgments are rewarded by being bailed out later.

Some will say my proposed approach is simply an extension of what’s done now, and that this simply adds another step in moving from strategy to projects. Quite so, but it’s an open and transparent one. At the moment, the machinations are mostly hidden. Clearly, making the Capability Managers responsible both harnesses their expertise and ensures they focus on the optimum use of ‘their’ money.

In this approach, the people most affected and with the greatest personal and organisational interest in spending the cash in the most effective and efficient way are deeply involved. Having a BOI DCP would help ensure a strategy-driven future ADF force structure. This idea needs fleshing out and, like any approach, has some shortcomings. Nevertheless, the current approach has a fundamental flaw unfixable by simple process tweaks. We need to rethink the DCP.

Peter Layton is undertaking a research PhD in grand strategy at UNSW, and has been an associate professor of national security strategy at the US National Defense University. Image courtesy of the Department of Defence.