Defence Financial Management Reform

1. Defence Financial Management Reform

2. Case for Change • Implementation of Defence Reform (Levene Report June 2011) • Financial Management should be considerably strengthened • A culture of managing Defence within available resources • Single version of the financial truth • Managing Taxpayer’s money wisely • Govt Finance Transformation Programme • Finance at the heart of Decision Making

3. Vision Strategic Planning, Effective Delegation, Coherence Authority & Financial Reality 3 An integrated financial military capability process optimised to deliver force elements at readiness and to plan for the future, coherent with Department Strategy and DSD and within a balanced and affordable framework. The process will be underpinned by transparency and management information which supports effective decision making at every level and will include: • A strategically focussed Financial and Military Capability organisation in Head Office, geared toward long-term strategic balance of investment and strategic force development, performance analysis and holding to account; • Empowered TLBs where the delegation of authority responsibility and accountability engenders innovation and drives efficiency into the programme in the short to medium term, within the constraints of an approved Command Plan; • Professional and skilled delivery organisations, designed to provide capital acquisition and support programmes within defined time cost and performance parameters; and • A motivated, trained and committed workforce who own the transformation agenda.

4. Key Principles The transformation will drive an improvement in the way we do our business 4 Finance and Capability Coherence at the heart of decision making. A more stable plan, improved financial planning, more focus on delivery. Focus on the medium and long term, not just in-year management. Making every pound add value to Defence. Timely and reliable information that reports the past, monitors the current and models the future. Better decision making, less bureaucracy, clearer outcomes and fewer processes. A trained and motivated workforce engaged in delivering best for Defence. Decisions that make sense in the future, not just for now. Effective delegation and empowerment of Commands.

5. Fin-Mil Cap Operating Model – Changes (1) 5

6. Working Assumptions • Head Office will retain: • Strategic Balance of Investment • approval and governance functions on particular programmes and projects • holding to account functions to ensure delegations are exercised appropriately • ultimate determinant on escalated risks • set standards, policies and rules as applicable through proportionate Process Owner Sub-Strategies

7. Fin-Mil Cap Operating Model – Changes (2) 7

8. Command Plan Contents

9. Costs & Efficiency Strategy • Key Principles • Increase awareness of cost drivers and material impacts • Pursuing the lowest operating costs in comparison with peers • Instilling a culture of cost consciousness • Adopting approaches to drive cost reduction • Incentives to drive out efficiencies and redeploy savings

10. Section 2: Commissioned studies to test and cost efficiency ideas Section 1: Cost Driver Overview – Declare areas to investigate Efficiencies Cost Efficiency Section 3: table of declared and deliverable efficiencies Command Plan Contents – Cost Efficiency

11. Fin-Mil Cap Operating Model – Changes (4)

12. Fin-Mil Cap Operating Model – Changes (4) 12

13. Risk Ownership

14. Command Plan Review – Holding to Account Cost Leadership Interventions (Board) Reporting Strategic Plan/Budget Investment Decisions Accounts Outputs Forecast IY & Budget Financial Risk IAs/BCs Output Costing Options Assure/Detect/Control Interpretation (Methodology & Assumptions) Integrated Systems MainSources Finance Systems Industry & SSRO CAAS Analysis DASA Financial Management Information • Key Principles • Trusted sources of data • Stated, consistent and adhered to methodologies and assumptions • Standardised outputs and products where applicable • Coherent repository of information with clear audit trail Single version of the Financial Truth – Report the Past– Monitor the Current – Model the Future

15. Target Operating Model – Key Themes Version 2 issued December 2012 Version 3 Due March 2013 Management of investment and control of entry into the Defence portfolio. Freedoms and Constraints. Organisational capacity and competence. H2A process and behaviours. Risk and Contingency management. Command/DE&S interface 15

17. Freedoms or Constraints? Corporate Governance (Controls) • Introduction of early resource envelopes and Financial Planning Assumption in strategic planning. • Updated Holding to Account and Performance Management regime with appropriate metrics and KPIs • Establishment of Personal Holding to Account regime at the highest level Freedoms • Establish and manage strategic BOI & White Board. • Pan DLOD Resource aware decision making and risk management. • Capability Management and Programme delivery delegation to Commands • DE&S in-year expenditure controlled by the customer • Retention of self-generated efficiencies • Cat B-Ds approval authority delegated to Dir Res • Creation and ownership of financial contingency Facilitating the Change • Smaller, conjoined Finance and Capability staffs working to new operating model, revised functions and adjusted processes • Introduction of TLB/Commands Plans – contract between HO and TLB/Commands • Fewer Planning Rounds • DG Fin chair of IAC (delivered) • Utilisation of Genesis options to support Strategic BOI and manage affordability • Appointment and development of Dir Res • Training Needs Analysis conducted and used to amend training delivery. • DAC will take a pan Defence view on audit • A 5 year programme of improvements in Finance and Military Capability Management Information