Background

Under the Defence capability architecture, the force structure that is in place, when combined with its preparedness to undertake operations, delivers military capability. This allows for the separation of preparedness management (which relates to the current force-in-being) from the longer term investment processes associated with new capital equipment.

Preparedness is conceptually broken down into the components of ‘readiness' and ‘sustainability'. This division is intended to recognise the separate nature of the management processes underlying the achievement of military readiness and the many factors influencing the length of time for which a military force may sustain operations on a particular mission.

Preparedness of the Australian Defence Force (ADF) is managed as an integral part of the processes by which Defence plans, resources, evaluates and reports its performance. The Preparedness Management System (PMS) has been developed to manage preparedness and is intended to be a performance enhancement process. Preparedness outcomes are linked with a range of other outcomes sought by Defence, such as military capability development and contributing to the Government's international policy commitments. The management of preparedness involves the allocation of resources to achieve strategic policy objectives, in order to prepare for possible contingencies. It involves four phases: development, implementation, reporting, and review.

The nature of preparedness means that many areas within Defence perform activities that are highly relevant to preparedness and, indeed, ‘enable' it. The 2003–04 Defence Budget provides four capability outcomes (with a total budgeted price of $13 781 million) and two functional outcomes (with a total budgeted price of $616 million). All six are directed towards the defence of Australia and its interests.

Audit objective and focus

The objective of the audit was to provide assurance to Parliament concerning the adequacy of Defence preparedness management systems and to identify possible areas for improvement. The audit focused on the systems and processes that Defence uses to manage preparedness. We did not review the preparedness levels of specific capabilities, nor did we cover capital acquisition processes. The audit included coverage of:

• preparedness system architecture;
• control and direction of preparedness;
• coordination among contributors to preparedness; and
• performance management of preparedness.

Key audit findings

Management of Defence Force Preparedness (Chapter 2)

The ANAO found that the PMS provides a sound framework for preparedness planning down to the unit level. A number of linkages exist between Government strategic guidance, Defence operational planning and Service outputs. However, improvements could be made to the design of the system so as to strengthen and make more effective these linkages, which should result in better outcomes.

The PMS operates alongside operational planning arrangements which maintain more frequent review points for immediate planning of the use of ADF capability than the annual cycle of activities in the PMS. This means that, at operational levels, there are effectively two management systems working in tandem. While each system serves different purposes, there would be benefits to Defence in creating functional linkages between the two. This would enable the military task identification process in the PMS to be informed by the more frequent strategic assessments used in the immediate planning context, compared to using the current annual cycle in the PMS.

Defence is seeking to develop a common basis for military task definition that could be used across the Services. As a result, it has developed the Australian Joint Essential Task (ASJET) list. The ASJET list could be used to support consistent training and proficiency development, and to enhance consistency of approach across ADF units, a critical element in the conduct of joint operations. It could also contribute substantially to the interoperability of ADF units with those of other countries. This would enhance the PMS, as such cross-Service training and international interoperability aspects are not specifically developed in the present definitions of operational preparedness objectives.

At unit level, key preparedness management concepts and definitions are frequently understood in different ways. Also, at lower levels of capability management, there was found to be some latitude taken in determining actual numbers of force elements to be held at particular settings of Readiness Notice. Though individually minor, these differences, when aggregated, could lead to distortions in the reporting of overall preparedness.

The Directed Level of Capability (DLOC) assumes central importance as a standard for resourcing of preparedness in a financially constrained environment. It will be important to retain the concept of a Minimum Level of Capability (MLOC) so as to maintain a reality check on how difficult it may be to transition a force element from its resourced level of capability (DLOC) to the state of operational usefulness to perform particular tasks. Concerns should be raised where the DLOC status falls below the MLOC standard.

Management of the sustainment dimension of preparedness is subject to limited policy guidance. The arrangements for assessing sustainment requirements for core war-fighting needs, including reserve stockholding policies, are characterised by informal processes and complex planning structures. The deficiency reporting system is especially weak in sustainment aspects for the band of Military Response Options with longer warning times (that is, greater than 365 days). Defence recognises the need to develop the PMS framework to incorporate a disciplined and coordinated assessment procedure for sustainment issues in the logistic and materiel areas.

Control and Direction of Preparedness (Chapter 3)

Defence governance systems and organisational structures generally facilitate preparedness planning and management. The Chief of the Defence Force Preparedness Directive, in combination with the Australian Theatre Operational Preparedness Requirement and the system of annually renegotiated Organisational Performance Agreements, create a coherent governance framework resourced and controlled through the Defence Management and Finance Plan. The ANAO found that this framework provides a strong basis for policies, guidelines, directives and financial management arrangements to be devised to satisfy ADF preparedness requirements.

The information base on which capability controls and reporting takes place is a composite of judgments and assessments made at various levels in the Services, using different methodologies, different sources and deriving from variations in understandings about the meanings of some concepts in the PMS. The ANAO found that quantitative information is generally lacking. Information technology systems are not major suppliers of reporting data used for PMS purposes.

Although individual Services are giving attention to improving and standardizing reporting from their capability outputs, no consistent means are employed to workshop ‘best practice' ways of calibrating and reporting preparedness across the Force Element Groups and capability output managers, which are the source of much of the data. To enhance the quality of preparedness data and ensure greater consistency of information proceeding to higher levels, Defence should introduce greater standardisation of preparedness measures and systems applied across the ADF and also promulgate common terminology for use in preparing inputs to the PMS.

Coordination Among Contributors to Preparedness (Chapter 4)

The Defence business model depends on the interlocking networks of customer supplier and service level arrangements between ‘enabling groups' (the Defence Materiel Organisation (DMO) and the Corporate Services and Infrastructure Group (CSIG)) and the capability outcome groups. These present an incomplete picture of the underlying complexity of actual transactions. No mechanisms exist to map the range of interdependencies that have developed. The PMS only partly reflects them. Defence would benefit from mapping these interdependencies and identifying the implications for the architecture on the Defence preparedness arrangements.

The structures and supply arrangements in place between the ADF and enabling organisations that provide logistics and support services to meet preparedness requirements are not yet fully developed. The mechanisms for facilitating the contributions of the enabling groups to chosen levels of military preparedness need to be further developed if they are to play an effective role in the PMS and, in particular, in its control and risk management capabilities.

The mix and different types of alignment in service provision being applied by DMO and CSIG to the needs of the capability outcome groups are often not congruent with the PMS. Coordination arrangements between DMO and CSIG and the outcome groups should be reviewed to take account of the different forms of supply delivered, and to determine whether their services are properly coordinated internally in each enabling group as well as being accessible to the outcome groups.

The translation of the capability outcome groups' preparedness management needs into concepts and measurement systems, that correspond to the operations of the materiel and supply ‘worlds' in which DMO and CSIG must operate, is ineffective in some areas, or at least incomplete. On the other hand, some areas have done substantial work on these matters that could be studied for its relevance to other support areas. Without progress in achieving a better translation, the ‘enablement' of preparedness will be not be fully effective. As a result, inaccurate management information may produce distortions in the preparedness picture.

Governance systems in place across Defence in the materiel and logistic fields leave gaps which do not allow adequate performance controls. No accountable point of responsibility beneath the head of the DMO has overall control of logistic support for ‘capability', as against logistic support for ‘operations'. The coordinating entities located, or based, in DMO have consultative functions only. The contribution of DMO to whole-of¬Defence preparedness management processes could be enhanced through better governance arrangements. The Defence Committee does not possess mechanisms to enable it to take a holistic view of the related strategic, tactical and operational ‘enablement' services that are directly relevant to preparedness, especially in regard to longer lead time preparedness planning.

DMO, in consultation with Headquarters Australian Theatre, the Service Headquarters and Policy Guidance and Analysis Division, needs to provide comprehensive and integrated materiel preparedness assessments to the capability managers.

Performance Management of Preparedness (Chapter 5)

Preparedness performance management is centred in each of the Services, but is aligned with Defence-wide strategic planning and management arrangements. A wide range of information-collection processes and systems is in use across the ADF, with some measurement systems being more robust than others. A central feature is the On-Occurrence Preparedness Report (OOPR) system controlled by Commander Australian Theatre. This deficiency reporting system enables a reasonable measure of quality control. As well, enhancements to it are planned. The OOPR system has imparted an element of coherence and consistency to performance management in the PMS. It allows timely decision-making in those areas of preparedness relating to shorter warning time contingencies, though less so for contingencies in the post-365 day period.

The ANAO found that the PMS enables Defence to instigate corrective action for deficiencies in the range of shorter warning time contingency tasks, within the limitations of the current capability costing systems. It also permits Defence to manage the risks entailed in the gap between funded levels of capability and the levels that would be considered appropriate in an unconstrained environment. In this way, senior Defence management are broadly able to assure themselves that preparedness types and levels required by current Government guidance are delivered. However, the management process does not provide Defence with the ability to consider alternative preparedness levels on the basis of detailed relative costs. As a decision support tool, the PMS relies on the development of whole-of-Defence financial systems, in particular the implementation of full capability costing mechanisms. Until such systems are available, the PMS will not fulfil its potential.

The ANAO considers that the reporting framework could be developed by introducing more focussed consideration of preparedness for contingencies in the post 365 day warning time band at the whole-of-ADF level.

The effectiveness of the PMS should be made subject to formal review processes by the Defence Committee. This could be done in the context of the role and relevance of the PMS as tested in other Defence portfolio review activity. These other activities may throw light on the operation of the PMS.

In external reporting to Parliament, the different capability outcome groups present preparedness information in varying ways. With the exception of Navy, external reporting comprises primarily qualitative information, and the quantitative information related specifically to the PMS uses input metrics such as flying hours and aircraft numbers. This has meant that the development of PMS mechanisms in Defence over the last two years has not been well reflected in public reporting of capability on an ADF-wide basis. Navy's introduction of new indicators in the 2003–04 Portfolio Budget Statements for Defence was based on PMS metrics, reflecting some of the latter's dynamic features. This suggests that scope exists to improve external reporting, while not compromising national security information requirements.

Overall audit conclusion

The Defence PMS supports risk management decisions on the preparedness levels of ADF capabilities. The ANAO found that the PMS is essentially a sound framework with a cascade of linkages between Government strategic guidance and the Service outputs. This enables Defence management to generate preparedness types and levels required by current Government guidance. Improvements could be made to the design of the system so as to strengthen the linkages with strategic review processes.

The PMS has a heavy reliance on subjective and professional military judgements in preparedness management processes, and on methodologies that vary between outputs. Scope exists for Defence to enhance the quality of preparedness measures and supporting systems for greater effectiveness and accountability for performance.

A significant weakness in the PMS is the relatively low level of development of the sustainment dimension of preparedness: in particular, the level of policy guidance, the ability to assess sustainment requirements and sustainment deficiency reporting. Strains have also been placed on the PMS as a result of the recent high operational requirement, in particular in regard to its flexibility to respond to system stresses associated with expeditionary deployments, and the changing strategic environment. The relationships between capability outcomes and enabling inputs, while subject to continuing scrutiny and development, have not reached the point where they fully support preparedness management requirements. Governance issues in regard to the management of logistics and materiel that need to be better addressed impede the full development of the PMS. Management of these areas is characterised by complex networks of liaison, information and supply chain management, without adequate visibility at all relevant points of accountability. In particular, the DMO performance reporting processes in regard to its preparedness contribution need to be developed, so as to enable the Defence Committee to play a more comprehensive role in regard to sustainment matters.

Although there are security sensitivities that need to be recognised in the public exposure of any preparedness deficiencies, scope exists for enhanced and more consistent public performance reporting.

The openness of the PMS to continuing reform and development is crucial if the above issues are to be appropriately addressed by Defence. The role and relevance of the PMS need to be assessed on a regular basis.

Response to the report

The ANAO made seven recommendations on the management, governance, coordination and reporting of Defence Force preparedness. Defence provided the following overview paragraph.

Defence agrees with all of the seven recommendations and is pleased to see the acknowledgment on page 12 paragraph six stating:

The ANAO found that the PMS provides a sound framework for preparedness planning down to the unit level. A number of linkages exist between Government strategic guidance, Defence operational planning and Service outputs. However, improvements could be made to the design of the system so as to strengthen and make more effective these linkages, which should result in better outcomes.