Review of Defence Renewal

Final Report – May 2017

7055-64 (ADM(RS))

Reviewed by ADM(RS) in accordance with the Access to Information Act. Information UNCLASSIFIED.

Slide 2

Acronyms and Abbreviations

Back to Table of Contents

Slide 3

Statement of Conformance

The review followed the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing. Based on its professional judgment, the review team examined sufficient, relevant evidence and obtained sufficient information to provide a reasonable level of assurance to support the review’s conclusions.

Back to Table of Contents

Slide 4

Background – Defence Renewal

• Defence Renewal (DR) Objective: To create a lean and efficient organization that can generate savings to be reinvested in military capabilities and readiness.
• There are nine focus areas of renewal with 33 DR initiatives─24 performance and 9 organizational practices.
  • According to the October 2013 DR Plan, “the global reinvestment opportunity is projected to be in the range of $750 million to $1,200 million annually by 2017/18. This includes the potential for internally re-prioritizing between 2,800 and 4,800 military and civilian personnel on higher value work, either within a given organization, or elsewhere within Defence.”
• The four key outcomes of DR are as follows:
  • Resources to be focussed strategically on front-line military capabilities and readiness and overhead costs and process inefficiencies to be reduced to the greatest extent possible.
  • A comprehensive regime of performance metrics and targets to be in place and employed to measure and assess improvements, guide resource allocation decisions, and ensure accountability.
  • Technology and innovation will be embraced and used in ways that support, reinforce and enable process improvements.
  • A culture of continuous improvement and renewal will be instilled and accepted as a permanent feature of defence business.

Back to Table of Contents

Slide 5

Rationale, Objective and Criteria

Rationale

• Assistant Deputy Minister (Review Services) Risk-Based Audit Plan for fiscal years 2015/16 to 2017/18.
• The Departmental Audit Committee was asked to “provide an oversight and audit mechanism for renewal, assessing and validating progress, and helping to ensure renewal initiatives generate the expected reinvestment opportunities” (DR Charter, October 2013).

Objective

• To determine whether governance structures, risk management practices and internal controls are in place to facilitate informed decision making to achieve expected reinvestment opportunities and to effectively measure, assess, monitor and report on progress in implementing DR.

Criteria

1. Governance structures and control mechanisms are in place to measure, assess, monitor and report on the progress of DR, and to manage the reinvestment of savings identified.
2. The DR initiatives have established and maintained savings targets and timelines to achieve the expected reinvestment opportunities with well supported and relevant analysis.
3. Risks associated with achieving the DR objective are appropriately managed at both the initiative and program levels.

Back to Table of Contents

Slide 6

Scope, Methodology and Approach

Scope

• From DR initiation to the end of review conduct phase.

Methodology

• Interviews – Conducted interviews with the following individuals:
  • Key staff of the Defence Renewal Team (DRT);
  • Implementation teams of each of the sampled initiatives; and
  • Staff from Assistant Deputy Minister (Finance) / Chief Financial Officer (ADM(Fin)/CFO) and Corporate Secretary.
• Document Review – Reviewed relevant policies, planning and implementation documents, management information and reports, committee meeting documents and Department of National Defence (DND) analysis for the reinvestment opportunities proposal of the sampled initiatives.
• Sampling – Selected four initiatives (listed on Slide 7) primarily based on materiality and the maturity of implementation.

Back to Table of Contents

Slide 7

The Four Sampled Initiatives

Table 1. The Four Sampled Initiatives. This table shows for each of the sampled initiatives, the L1 Lead and the reinvestment opportunities estimated originally and declared for fiscal years 2013/14 and 2014/15.

Footnote 1. L1 = Level 1

Footnote 2. Figures as provided in the October 2013 DR Plan.

Footnote 3. Figures are provided in the DR Annual Reports 2013-2014 and 2014-2015. Amounts declared confirmed by Defence Renewal Reporting Template of the sampled performance initiatives.

Footnote 4. ADM(Mat) = Assistant Deputy Minister (Materiel)

Footnote 5. ADM(IE) = Assistant Deputy Minister (Infrastructure and Environment)

Footnote 6. VCDS = Vice Chief of the Defence Staff

Back to Table of Contents

slide 8

Context – The Four Sampled Initiatives

2.1 – Inventory Management Initiative

• This initiative aims to avoid incurring the cost of unnecessary items by optimizing the amount of inventory procured and held.
• Reinvestment opportunities are identified by the reduction of stock overbuys as captured in the Distribution Resource Planning system, which is consistent with the process used for the Materiel Acquisition and Support Transformation Campaign, and throughout the Deficit Reduction Action Plan. The initiative serves as an enabler to smart procurement through a combination of tools, stock accuracy, discipline and cultural change. Thus, it is difficult for the initiative to attribute the reinvestment opportunities to any one specific project or sub-initiative.

2.4 – Departmental Procurement Initiative

• This initiative aims to apply best practices approaches to DND “spend” across the Department, using all DND-controlled procurement levers to maximize value to DND.
• The renewal opportunity is addressed by utilizing a wide range of management efficiency levers, such as policy and process simplification and standardization of products/services. For initiative 2.4, reinvestment opportunities will be realized and harvested from multiple L1 organizations that procure goods and services.

Back to Table of Contents

Slide 9

Context – The Four Sampled Initiatives (p.2)

4.2 – Rationalize Real Property Portfolio Initiative

This initiative aims to rationalize the real property portfolio to be efficient, effective, operationally relevant, affordable, and sustainable and to support the roles and missions of the Canadian Armed Forces.

According to the October 2013 DR Plan, this initiative is made up of four lines of activities or sub-initiatives. ▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓▓, in November 2015 the initiative proposed to separate disposal as a sub-initiative to demonstrate quick wins with the other lines of activities.

6.2 – Project Approval Process Review Initiative

This initiative plans to reduce the cycle time of the process for departmental expenditures by half, while doubling the throughput and ensuring these processes are compliant with Treasury Board policy.

Partly due to delays in approval of the three-phase implementation strategy, significant reinvestment opportunities for this initiative cannot be delivered until the full implementation of Phase 2.

Back to Table of Contents

Slide 10

Context – DR Governance

Figure 1. Overall DR Governance. This figure shows the committee-based governance structure of DR.

Footnote 7. The Management Systems initiatives were governed by the Civilian Workforce Management Board, which has recently been disbanded. The Civilian Human Resources Management Committee will provide oversight of strategic civilian human resources management issues but has yet to be assigned DR governance responsibilities. Pending approval by the Program Management Board, it will also provide oversight of the Project Approval Process Review governance.

Back to Table of Contents

Slide 11

Context – DR Governance (p.2)

Governance and Reporting

Governance and reporting are a combination of pre-existing structures and the establishment of new structures that allows governance to occur at multiple levels of the organization.

• DROC was established in 2015 as a subordinate to the Defence Strategic Executive Committee to provide guidance and review of DR activities.
• The DRT, established by the Charter and governance decisions, is the strategic transformation team. The role of the DRT includes the following:
  • Brief at multiple governance committees; and
  • Operate under co-leads (Associate Deputy Minister and VCDS).
• Initiative Leads are the responsible implementing L1s who are governed by sub-committees. They report through DRT to DROC and report as L1s via normal business planning coordinated by C Prog.

Note:

Level 0 usually represents senior management at the Deputy Minister / Senior Associate Deputy Minister / Associate Deputy Minister and CDS/VCDS level.

L1 usually represents Assistant Deputy Minister and Environmental Chiefs of Staff level.

Back to Table of Contents

Slide 12

Context – DR Governance (p.3)

Reinvestment Opportunity Management

• Reinvestment Framework is now part of department-wide business planning.
• It has evolved with DRT, ADM(Fin)/CFO, C Prog and Chief of Force Development, and it was approved at the January 13, 2016 Investment and Resource Management Committee.

Performance Management

• Performance management is evolving with the DR Performance Management Framework.
• Initiative performance management is the responsibility of each Initiative Lead, assisted by DR liaison officers and managed at multiple levels.

Risk Management

• Risks are managed at multiple levels ─ Initiative Lead, DRT, DROC and Defence Strategic Executive Committee ─ through business planning.

Back to Table of Contents

Slide 13

Context – Ongoing Efforts

Examples of Ongoing Efforts to Strengthen the Delivery of DR

• The Change Management Services contract was awarded in October 2014 to a consulting firm to “provide guidance, analysis, advice and recommend methodologies that have shown demonstrable impact as best practices for change management in the defence and private sectors for improving effectiveness and efficiency.” Some of the key deliverables include assisting the DRT with the important effort to develop metrics and a performance measurement framework and with smaller discrete projects and activities for the development, design and implementation of efficient processes.
• The DROC was established in April 2015 and forms part of the larger governance structure of the Department.
• Ongoing Deep Dives will discuss and provide input into the reinvestment opportunities identified by the component initiatives and provide confidence in the overall progress of DR at Level 0.

Back to Table of Contents

Slide 14

Context – Reinvestment Opportunities

The Reinvestment Opportunity Portfolio

• The October 2013 DR Charter states that “the reinvestment opportunity portfolio is not static; as analysis is refined and implementation unfolds, the reinvestment opportunities associated with the initiatives will evolve.”
• A reinvestment opportunity can be categorized as follows:
  1. Cost avoidance – opportunities that are realized through the streamlining of processes or other actions that lead to benefits to the Department, but that may not generate financial savings that can be harvested or reallocated.
  2. Effectiveness – opportunities that are realized through the streamlining of processes or other actions that lead to benefits to the Department, but that may not generate financial savings that can be harvested or reallocated.
  3. Efficiency – achieving the same output or effect with fewer resources, thus producing financial savings that can be harvested and reallocated.
• As part of ongoing governance processes, which include trimestral and annual processes, the DRT performed a profile update in January 2016 to present to the Investment and Resource Management Committee. This latest update, which is a snapshot in time and the fourth update since DR inception, showed a slightly lower range of reinvestment opportunities by fiscal year 2017/18 than initially planned ($739 million to $1,177 million).

Back to Table of Contents

Slide 15

Context – The DR Reinvestment Framework and Model

The DR Reinvestment Framework and Model

• The DR Reinvestment Framework has evolved since the October 2013 DR Plan called for its development. For example, a reinvestment model was developed and approved at the Investment and Resource Management Committee in January 2016, in addition to the Framework. The Framework aims to provide direction on the process that the Investment and Resource Management Committee will use to manage efficiency savings that can be harvested for reinvestment elsewhere within Defence. The Reinvestment Model provides the overall direction to validate, track and report all DR reinvestment opportunities. Among other things, the Framework and Model help to do the following:
  • Address the reinvestment process, which consists of identifying, categorizing, declaring, forecasting and reallocating reinvestment opportunities;
  • Incorporate DR directly into the business planning process to ensure that senior management can reinvest those resources stemming from reinvestment opportunities into higher priorities; and
  • “Ensure opportunities are appropriately identified, actively pursued, strategically monitored and judiciously invested…,” as per the goal of the Framework in the DR Annual Report 2013-2014.

Back to Table of Contents

Slide 16

Summary of Results

Table 2. Summary of the Review Results. This table shows the summary of assessment results by line of enquiry for DR as a program, DRT, and the sampled initiatives.

● = Acceptable;

◐ = Need to continue some progress;

n/a = not applicable

Footnote 8. DR/DRT column includes multiple stakeholders, including the CFO, who form the governance and control mechanisms for DR.

Back to Table of Contents

Slide 17

Findings and Recommendations

Finding 1: Detailed analysis and implementation plans that demonstrate how sampled initiatives will meet the intended reinvestment targets have not been adequately developed to facilitate effective progress assessment and monitoring.

• Two of the four sampled initiatives did not have supporting assumptions and activities listed that were linked to monetary savings to show how they would achieve the planned targets.
• Implementation plans were not up to date or completed for all sampled initiatives.
• Identification of the detailed activities has not been completed for three of the four sampled initiatives, and DRT only tracks key milestones/activities for 12 months at a time.
• Leading indicators have not been developed or used to enable projection of the timing when reinvestment opportunities will be achieved.
• There are indications that the initial targets will not be met by fiscal year 2017/18.

Back to Table of Contents

Slide 18

Findings and Recommendations (p.2)

Finding 2: The Reinvestment Framework/Model has been developed, but further details need to be completed and communicated to ensure reinvestment opportunities can be achieved and reinvested by the Department as intended.

• Clear guidelines have not been fully developed at the implementation level and adopted to ensure reinvestment opportunities can be identified, declared, harvested, reinvested and tracked consistently across DR.
• Previously achieved reinvestment opportunities have not been validated independently before reporting at the Departmental level.

Back to Table of Contents

Slide 19

Findings and Recommendations (p.3)

Finding 3: Appropriate guidance to ensure a consistent approach to risk management across DR is not in place.

• Three of the four initiatives sampled did not have a documented risk management plan in place and did not have a complete or up-to-date risk register in place.
• A consistent approach to risk management was not observed across initiatives ─ i.e., inconsistent risk scales were used.

Back to Table of Contents

Slide 20

Conclusion

Based on the results of this review, further detailed analyses still need to be completed to demonstrate and ensure the achievement of the initial reinvestment opportunities. Some initiatives did not have a current detailed plan in place to reach their intended reinvestment opportunity targets. As the original timelines and progress have been slower than originally planned, new initiatives should be considered to help increase the likelihood of meeting the opportunity targets. The controls and measures in place for monitoring also need to be improved so that reinvestment opportunities can be achieved. Completion of the Reinvestment Framework/Model with specific details for operationalization will establish a consistent approach for the reinvestment of opportunities. Furthermore, the management of risks can be improved with a more consistent approach and better documentation across DR.

Back to Table of Contents

Slide 21

Annex A—Management Response and Management Action Plan

Back to Table of Contents

Slide 22

Annex A—Management Response and Management Action Plan (p.2)

Back to Table of Contents

Slide 23

Annex A—Management Response and Management Action Plan (p.3)

Back to Table of Contents

Slide 24

Annex A—Management Response and Management Action Plan (p.4)