Compliance and awareness
Based on its examination of Defence's acquisition process the committee
found that on paper at least Defence has a robust risk management regime, which
is comprehensive, systematic and engages all stakeholders. Further, that if
followed correctly, risk would be considered from the outset or formative phase
of a project when critical decisions are made and then managed throughout the
project including a continuous process of identifying, analysing and mitigating
risk. Defence's key policy documents explicitly recognise risk management as an
essential part of corporate governance and senior Defence leaders have stated
their commitment to sound risk management practices.
In this chapter, the committee examines the implementation of Defence's
risk management strategies. It compares Defence's stated policy on risk
management and the advice contained in its relevant guides on procurement with
practice and actions. Having determined that Defence's policy and advice on
risk management is not the problem, the committee's purpose in drawing these
connections is to better locate the source of poor decision-making and
Problems in defence procurement
Evidence before the committee identified significant failings in a
number of major projects. They included inadequate description of risk during
capability definition and planning phase; underestimation of the maturity of
the technology and/or complexity of integration; and miscalculation of
industry's capacity to deliver. In essence, a failure to understand, appreciate
and mitigate risk. Indeed, Defence in its submission recognised that the common
causes of poor project performance noted from past and current projects of
- unachievable expectations in terms of technology, performance or
- scope changes;
- ineffective defence stakeholder engagement and interaction; and
- challenging commercial or business relations.
In this context, the committee believes that it is important to refer
again to the finding of the Helmsman Institute that some of the complexity in Defence's
acquisition projects was 'self-inflicted'. It cited factors such as embarking
on highly developmental projects; level of customisation; limited clarity on the
key drivers of the project; lack of clear plans to achieve target dates and
results; and tension between the needs of the military chain of command and the
requirement to deliver against defined contracts and commitments.
The causes of poor project performance identified by Defence and the
Institute's observation about 'self-inflicted' complexity indicate that
although Defence has a solid risk management policy, in practice it is not
working to full effect.
Culture of risk management
Having examined risk management in the UK MoD, Mr Chris Maughan, defence
analyst, was compelled to ask that if the MoD had the right process, guidance
documentation and tools why then was risk management not delivering the
anticipated benefits. In his opinion 'the answer can only lie in its actual
For improvements to be experienced there needs to be a major
shift, by the MoD, away from process and towards a concentration on
comprehensive quantitative schedule and cost risk analysis. There needs to be
an appreciation, within both MoD and the wider defence industry, of the root
causes of the failure of risk management and a willingness to take the
necessary actions to resolve them.
This observation has direct relevance for Australia's Defence
organisation. Indeed, a number of the independent members of the gate reviews
cited risk identification, mitigation and management as one of the major
challenges for Defence and an area in need of 'significant attention'.
Dr Ralph Neumann stated:
It is not a matter of process: the process exists. It is a
matter of better understanding the business, focusing on things that matter and
better utilising the opportunities to reduce risk rather than managing the
fallout of the risks.
In the previous chapter, the committee noted that to be effective a risk
management regime should be:
...fully integrated and embedded in an organisation's culture
so that risk management policy and practice is part of management thinking and
actions and permeates all levels of the organisation—enterprise level, function
level or business unit level—senior managers in particular must show leadership
and commitment and managers at all levels must take responsibility.
Despite the clear statement of commitment to risk management, evidence
presented to the committee suggests that risk management may not be front and centre
of people's thinking in defence procurement. The first indication is the extent
to which personnel adhere to the guidance or directions issued in Defence's
handbooks and instructions.
Adherence to procurement policy and
Compliance is essential if Defence's risk management policies and their
supporting guidelines and manuals are to translate into organisation-wide practice.
In its preliminary report, the committee noted problems caused by
non-compliance with such directions and advice. For example, the Defence
Teaming Centre described the Defence Procurement Policy Manual as 'robust', but
noted that 'it is the differential tailoring and interpretation of these
policies by the DMO that causes significant frustration and confusion for
It suggested that training in the interpretation of the manual across DMO would
create 'a consistent interpretation and implementation' of the Manual.
This practice would encourage a 'more fluid and efficient procurement process
with both the customer and contractor understanding and having the same
interpretation of the policy'.
Likewise, the Australian Industry Defence Network agreed that DMO's
procurement procedures and processes as detailed in the procurement manual
appear sound. It noted, however, that the poor implementation and apparent non-compliance
with the DCP, Defence Procurement Policy Manual and the Defence Capability
Manual schedules and processes adversely affected the acquisition and
sustainment of ADF capability on a regular basis.
In this regard, the committee notes ANAO's audit report on Planning and
Approval of Defence Major Capital Equipment Projects, which examined the key
capability development documents from a sample of 20 Defence projects. The ANAO
found that Defence was not consistently adhering to its 'administrative framework
for implementing the process'.
Along the same lines, the Pappas Report observed that the manner in
which projects approach the management of risk was somewhat variable. According
to Mr Pappas, the quality of detail on the type/level of risk, residual risk
post-treatment, and ownership of risk was also inconsistent. He noted that a
risk register had been in place for some post-Kinnaird projects, but there was
no standardised template. According to the Project Management Manual, a project
risk log should be established in the Needs Phase and is mandatory for second
The log should be used 'to record all project risks, the likelihood,
consequence and level assigned to each, the treatment strategies (if the risk
is unacceptable), the amount of Project Contingency Budget assigned to each
treatment and the individual responsible for managing risk'.
The integrated project team is to review the risk register and treatment
strategies, at least monthly.
Despite the existence of a risk register, Pappas found that 'some
mitigation strategies had not been implemented and lacked a rationale or
timeline indicating when the action was to be implemented and the success of
the mitigation reviewed'. He recommended that technical risks should be
measured and managed through a risk register with a standard format and clear
In its performance audit into acceptance into Service of Navy capability,
the ANAO observed that mis-matched expectations between DMO and Navy had
adversely affected the acceptance into service process. It identified a range
of factors that could result in misunderstandings or disagreements including
instances of projects proceeding with high-level risk because of a lack of
agreed Capability Definition Documents and Certification Plans and Systems
The audit report found:
...without the application of greater discipline by defence in
the implementation of its own policies and procedures, improved communication
and collaboration across the relevant parts of the defence organisation during
a project's life cycle and the maintenance of adequate records to support
appropriate monitoring of capability development performance, the necessary
improvements in acquisition outcomes will not be achieved.
Finally, the committee draws attention to the ANAO's observations in the
annual Major Projects Reviews where it continues to report on a lack of
consistency in the application of policies, practices and systems relevant to
risk management. In the most recent reviews, it noted that the different
practices at a project level 'impact on a consistent and strategic risk
management approach at the whole of the DMO level'.
There could be a number of reasons for this non-compliance, inconsistency
or laxity in applying guidelines including a lack of awareness, complacency, or
no one person or group having responsibility or being accountable for their
part in the process. Assumptions that someone else will check the veracity of
the information before them or an absence of, or ineffective, oversight of the
process may also contribute to the lack of regard shown toward the manuals and
guidelines. A combination of both these cultural and structural factors may be
at work that results in non-compliance. It may well be that the culture took
root and flourished in Defence's environment of ill-defined organisational
Awareness and ownership of risk
A healthy risk management environment is one where all members of an
organisation are fully aware of the risks, controls and tasks for which they
For example, in 2002 the Deputy Director, ANAO, referred to the importance of
having a clear view on what is an acceptable level of risk.
In this regard, Dr Thomson cited the project for 12 new submarines, suggesting
You cannot pretend that risk away, you have to look at that
risk and stare it in the face. It has to be part of your decision making but I
do not think we should throw up our hands and give up on doing things. We
should simply take an objective and sober recognition of the risks that some of
these options carry because of the present state of our engineering and other
DMO's Project Management Manual makes absolutely clear that there is 'ownership
of risks and controls'.
Two of the key principles enunciated in the manual are:
- risks are not avoided, but rather managed at the level at which
people have the authority, responsibility and resources to take action; and
- a risk management culture is promoted and is part of everyone's
In their recent audit of acceptance into service of Navy capability, the
ANAO found some significant issues with Navy projects including 'that Navy, CDG
and DMO did not have a shared understanding of the risks to the generation of
the expected capability from Navy projects and had not taken shared
responsibility for mitigating those risks'.
The Pappas Review also suggested that a 'clearer indication of the most
critical risks would help those tasked with risk management to know where to
focus'. Worryingly, it observed that DSTO's involvement and assessments of
project options were 'not always paid the respect they should be'.
It should be noted that DSTO has a central role in providing technical risk
assessments especially for first and second pass approval.
This devaluing of advice from technical experts by non-experts points to
an organisational weakness. Furthermore, as noted in chapter 2, DSTO is not the
only body of technical experts whose advice may be neglected. Within Defence
the advice of domain experts and operators does not always inform key
decisions, sometimes with unfortunate results. There appears to be no effective
mechanism to ensure that critical technical advice is accurately reflected in
submissions on major acquisitions to senior decision-makers and ultimately to
government—no real contestability; no visibility of risk.
In respect of risk awareness, Mr King expressed concern that some people
in Defence do not fully appreciate the critical importance of risk analysis,
monitoring and management. He stated:
There is a problem we need to deal with in defence more
rigorously than we sometimes do: we become a bit unreactive to red alarms. In
other words, we see a risk and we watch it go through to fruition and say, 'Oh,
yes, indeed it did happen'. That is happening less and less where we are
focusing on what is a risk and what we are doing about it. Unfortunately,
sometimes that materialises in a project of concern, when we have to go and do
a new remediation project to get it right.
Mr King stated that he tells his personnel that there are really only
two sins they could commit—not knowing their risks or problems, and not telling
anybody about it or not doing something about it. He explained that DMO is
trying to encourage its people, when they have this risk, just not to
talk about how they are 'monitoring it' or 'actively checking it', but to have
a real plan to mitigate or treat it. According to him, more often than he would
like, Defence have had a risk that it has 'allowed to come to fruition without
a real remediation plan'. He told the committee that 'we need to work harder at
The Rizzo Report observed that Defence was beginning to develop
mechanisms to quantify its appetite for risk 'in a formal way and to promote
this vertically through the organisation'. It noted, however, that this
practice 'needs to become part of everyday life in Defence, with effective risk
management being adopted and linked throughout'.
Despite Defence's clear commitment to sound risk management and to the
principle of promoting a risk management culture which is seen as 'part of
everyone's job', some personnel fail to own risk and avoid rather than manage
it. Indeed, evidence before the committee presents a compelling case that Defence
must take risk management more seriously. Mr Pappas' description of the 'variable'
approach to recording risk management activities is consistent with Mr King's comments
about some personnel being unresponsive to emerging risks.
The fact that some defence personnel appear inattentive to, or unmindful
of, risk or uncertain about their role in risk management must be symptomatic of
a deeper systemic problem in defence procurement. This failure to own risk is
not a process problem—it is clearly an organisational weakness that effectively
permits people to avoid taking responsibility.
Learning lessons and recordkeeping
As noted in the previous chapter, to be effective, risk management
should be part of a continuous improvement system where experiences in risk
inform revised risk assessment and management strategies. This means that
lessons must be learnt from previous experience and applied to future decisions
and actions regarding risk management.
As Air Marshal Binskin, Vice Chief of the Defence Force, told the committee:
It is only a lesson learnt if you do not repeat it: otherwise
it is just a lesson identified and it is useless.
Industry representatives were of the view, however, that:
At the moment Defence is not capable of being able to capture
lessons learnt and project those lessons learnt forward a decade. What tends to
happen is that they end up repeating a number of mistakes which lead to
relearning of those lessons.
For example, the Defence Teaming Centre stated that the DMO 'appears to
lack any capacity to learn from failings in previous projects'. It suggested
that there does 'not appear to be any drive or motivation within the DMO to
capture lessons learned and pass them on internally and to industry'.
The pattern of repeated shortcomings in projects as detailed in chapter 2
attests to Defence's difficulties in learning from past mistakes.
In its guide to risk management, Standards Australia suggests that the
'results of monitoring and review should be recorded and externally and
internally reported as appropriate, and should also be used as an input to the
review of the risk management framework'.
It stated further that risk management activities should be traceable.
In some cases, however, it was not the absence of records that was the
problem but the quality of the documentation, which reflected a poor
understanding of what was important and what was not. Many witnesses referred
to Defence's procurement of major capital equipment as process bound. One
referred to people in Defence getting 'bogged down' with too much paper work.
A number of independent members of the gate review boards observed that
although improving, the standard of documentation could be lifted.
One noted 'a certain amount of nugatory work...and at times a lack of guidance of
project direction that can occur pre project approval'. In Dr William's view
there was 'an issue of quality and consistency'. He noted:
On some occasions I think there is an enormous amount of work
put in to produce extremely large documents which are probably far more so than
is needed—and it is done with the best will in the world but it must tie up a
lot of resources. I think perhaps in some cases if we could not actually remove
documents we could at least streamline them, and that would be quite a resource
Mr Gallacher was similarly aware of instances where the project team were
'spending enormous amounts of effort on doing detailed work but then missing important
things that were going on'. He supported 'simplifying rather than adding
In the risk management process, records provide the basis for improving
methods and tools, as well as the overall process.
The committee has commented on the haphazard use of the risk register—an
important accountability and learning tool—which not only highlights Defence's
poor record keeping but points to a deeper problem with risk management in the
organisation. The observations about the inability of personnel to discern the
important issues from the less important when producing documentation similarly
suggests that other factors are at work when it comes to effective risk
management. For example, evidence presented later in this report suggests that
even though people are diligent and hard working they may feel disempowered or
unable to effect change, may be the wrong person to make decisions about risk,
or may not have the requisite qualifications and experience to recognise the
significance of risks.
In order to identify deficiencies in the acquisition process, the
committee considered the practical application of Defence's risk management
practices and procedures as set down in its written guidelines and manuals. The
committee found that, if followed correctly, the acquisition process should
ensure that risks are identified early and managed appropriately. Clearly,
however, in some cases problems emerge or are exacerbated in an acquisition
project because of poor implementation of Defence's policy and guidelines. The
committee finds statements indicating that defence personnel are not alert to
risk most disturbing. There can be no excuse for such personnel disregarding
their own procedures, which can result in the organisation being unaware of,
downplaying or ignoring, risks that threaten the success of a major acquisition.
In effect, as stated by Mr King, Defence must not allow situations to develop
where personnel watch risk emerge and come to fruition without a remediation
plan. Poor recordkeeping and inappropriate or incomplete documentation is yet
another indicator of a poor risk management regime. In essence, despite Defence's
risk management policies and guidelines, the evidence is clear and unequivocal
that in practice Defence's risk management in a number of major defence
acquisition projects has:
- failed to identify risk during the early stages of an acquisition
project or, as highlighted in chapter 2, if identified, especially by domain
experts, risk was downplayed, misinterpreted, or ignored;
failed to monitor risk and its treatment on a systematic basis
throughout the procurement process; and
- failed to ensure that senior leaders and government were fully
apprised of the nature and extent of risk resident in a project.
The question must then be asked—who is responsible and accountable for
risk management: for ensuring that 'things do not go wrong', or if they do, for
prompt remedial action. In the following chapters, the committee continues to
seek to understand the reasons for poor performance when it comes to
identifying and/or acting on potential problems. It considers accountability
and responsibility; communication and reporting within the organisation.
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