ARCHIVED - Independent Review: 2013 Department of National Defence Annual Update on Next Generation Fighter Capability Life Cycle Costs
Executive Summary
Raymond Chabot Grant Thornton Consulting Inc. (RCGT) has been contracted by the National Fighter Procurement Secretariat (NFPS) to conduct an independent review of the 2013 Department of National Defence (DND) Annual Update on Next Generation Fighter Capability (NGFC) life cycle costs (LCC) to verify the assumptions and cost estimates, including their alignment to the LCC Framework (“the Framework”) developed in 2012. 1 This report presents the observations and recommendations resulting from the 2013 Independent Review.
The focus of the Independent Review was to assess whether the Framework was appropriately applied. This process included assessing whether the cost estimates and all changes to the underlying assumptions, validated in the 2012 Annual Update 2, were calculated and presented in a manner consistent with the Framework. The review did not assess the appropriateness or accuracy of source data relied upon in the LCC estimation.
The Independent Review involved assessing DND’s LCC processes, procedures and documentation against the Framework. The review process included a:
- Review of the estimates in the 2013 Annual Update;
- Review of the Model used to calculate the 2013 estimates; and
- Comparative review of the 2013 LCC estimation approach to the 2012 LCC estimation approach.
Our Independent Review of DND’s application of the Framework did not reveal any deviations from the Framework’s principles that would result in any material changes to the overall LCC estimate.
The Framework includes key principles that focus on the planning, sustainability and the continuous improvement of DND’s cost estimating processes and tools. Based on the review conducted, we have provided a set of recommendations for DND and other relevant stakeholders that are aimed at supporting a more sustainable approach to costing and ensuring the consistent application of the methodology and principles from year-to-year. The recommendations have been grouped into three (3) categories related to:
- Documentation of processes, procedures and information;
- Improvements to the Model or analytical methods; and
- Risk management enhancement.
The recommendations have been summarized in the following table:
| Recommendation Number | Description |
|---|---|
| Documentation of processes, procedures and information: | |
| D1 | Although ground rules and assumptions are included and well-documented through the Model and LCC Plan, in an effort to better align with the Boundaries and Assumptions Principle in the Framework, DND should maintain a dedicated and separate ground rules and assumptions document, containing all current and approved ground rules and assumptions. |
| D2 | In 2013, DND effectively conducted quality assurance on the Model and estimates. However, as DND strives to assume greater responsibility for LCC assurance in future years, DND should consider formalizing quality assurance activities through guidelines or policies to ensure that roles and responsibilities are clear and structured. |
| Improvements to the Model or analytical methods: | |
| I1 | DND should continue to build on its existing improvements to the Model and supporting documentation by developing a Model configuration management plan that is aligned with best practices and incorporating additional incremental improvements and simplifications to the Model that further improve sustainability, flexibility, traceability and auditability. |
| I2 | While instances of double counting in fuel, lubricant and ammunition estimates are not deemed to be material (i.e. less than 1% of the LCC estimate value), and result from limits of the source data, DND should consider modifications to their cost estimating process in order to mitigate the risk of double counting in the future. |
| I3 | Although the sensitivity analysis conducted as part of the 2013 LCC estimate considered a wide array of risk factors, which is consistent with the Framework and deemed to be comprehensive given the data that was available to DND at the time, DND should consider adding additional sensitivity analysis scenarios in future estimates to quantify the cumulative impact of changing the number of aircraft purchased. |
| Risk management enhancement: | |
| R1 | While risk and uncertainty analysis conducted as part of the 2013 Annual Update is consistent with the Framework’s requirements, DND should continue to evaluate options to further improve the robustness of its risk mitigation strategies. Specifically, DND should continue exploring options to mitigate foreign exchange risk. |
The overall assessment of the NGFC LCC process is that DND has continued to improve and refine its processes and methods as the NGFC Project continues to evolve. There are further improvements that can be made in terms of process documentation and formalization, but these are largely reflective of the maturity level of the NGFC LCC process, recognizing that the NGFC project remains in the options analysis phase. In the interim period between the 2013 Annual Update and the 2014 Annual Update, DND should remain focused on addressing the remaining recommendations from the 2012 Independent Review (See Section 4 and Appendix A) along with the recommendations provided by the 2013 Independent Review.
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