ASSISTANT DEPUTY MINISTER (FINANCE AND CORPORATE SERVICES) SOUS-MINISTRE ADJOINT (FINANCES ET...
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Transcript of ASSISTANT DEPUTY MINISTER (FINANCE AND CORPORATE SERVICES) SOUS-MINISTRE ADJOINT (FINANCES ET...
ASSISTANT DEPUTY MINISTER (FINANCE AND CORPORATE SERVICES) SOUS-MINISTRE ADJOINT (FINANCES ET SERVICES DU MINISTÈRE)
Investment PlanningInvestment Planning
Financial Management InstituteFinancial Management Institute
Jonathan HoodJonathan HoodDepartment of National DefenceDepartment of National Defence
Director Corporate Submissions and Financial ArrangementsDirector Corporate Submissions and Financial Arrangements22 Jan 201522 Jan 2015
Outline
• What is investment planning?
• Roles & Responsibilities
• IP Process
• Governance
• Sources of Funds
• Evolution and Way Forward
• Challenges
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 2
What is Investment Planning?
• Departmental investment planning is the function of allocating and reallocating resources to new and existing assets and acquired services that are essential to program delivery and is influenced by and supports departmental strategic planning
• In DND, the highest level policy driver of investment planning is the Canada First Defence Strategy (CFDS)
• CFDS envisions modern, combat-ready forces with the necessary equipment and infrastructure to make them effective and sustainable in the performance of their missions
• Effective departmental investment planning considers the roles, mandate and the four pillars of the CFDS.
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 3
Supports Achievement of Strategic Outcomes
What is Investment Planning?
• Carrying value of department’s non-financial assets in 2013 financial statements ($39B) was over six times that of the second largest, Public Works ($6B)
• Vast real property portfolio including government-owned and leased buildings, works and land
• IP 14 covers an investment portfolio over the next twenty years of $80B
• Largest and most complex capital program in government
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 4
Quantifying DND’s IP Context
What is Investment Planning?
• The ongoing investment challenge is to strike the balance between achieving the military capabilities necessary to achieve the desired strategic outcomes with the realities of limited resources
• Deliberations on investment proposals are informed by distinct elements:– the capability requirements;– The funding required to acquire, sustain and operate; and– the resource envelope available for investments based on
existing defence funding levels.
• Departmental investment planning must ensure that the investment decisions taken today are affordable and sustainable.
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 5
Military Capabilities vs Affordability
Roles and Responsibilities
• DM is responsible for the management of the IP.
• CFO is responsible for the development of the IP. The CFO
advises the Deputy Minister on resource allocations, financial
risk and the ongoing affordability of the IP
• Vice-Chief of Defence Staff has responsibility for the
development of programme and capability requirements within
the IP
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 6
Key Players
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 7
IP Process
Step 1New Investments
CIPPR Process
Policy guidance
Prepare investment proposals to address capability gaps, proposals for capital projects over $5M proceed to CIPPR
Identify gaps between required capabilities & operational state of CF.
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 8
IP Process
• Derive Investment Planning insight through data exploration• Develop integrated portfolios to include equipment, infrastructure and
informatics projects within multi-dimensional constraints• Appreciate the impact of decisions and opportunity costs• Provide responsive, defendable, and understandable input to the
decision making process
Portfolio
Generation
Decision
Processes
Investment
Portfolio
Data
CIPPR IRMC
CIPPR Algorithm: Relative Project Value
• National Defence Act• Other Legislation• Speech from the Throne• Canada First Defence Strategy• Ministerial Announcements• Treaties
• Operational Impact• Capability Based Planning
• Institutional Impact• Program Alignment Architecture• Report on Plans and Priorities• Defence Renewal Initiatives
• Sponsors allocate a pool of points among their projects
9
IP Process
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère)
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 10
IP Process
Banking Day at IRMCReview Process
IP Change Impact Analysts assessing the following:
•capability requirements•cost concurrence•affordability & source of funds•project management capacity•human resource issues
Senior Programme Committee evaluates impact of submitted projects
VCDS & CFO give an update on CIPPR results
IRMC evaluates impact of authorizing submitted projects
Based on IRMC decision:•Investment space is booked•IP is amended•Authorized projects move forward with submissions to MND or TB
Project sponsor receives cost concurrence & submits Investment Plan Change Proposal
Banking Day … From “First In First Out” to Bundling
• The aim of the semi-annual banking day is to avoid considering proposals in isolation and allow allocation to highest priority
• IRMC will be provided with updated information semi annually including:
IRMC exceptional decisions since last banking day revised project forecasts with variance analysis including
contracted information and actuals
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 11
IP Process
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 12
Governance
• Projects <$5M approved at ADM level
• Program Management Board can approve projects between $5
and 50M. It reviews projects >$50M and makes
recommendations to IRMC.
• The Investment and Resource Management Committee (IRMC)
was established to ensure effective allocation and management of
financial resources
• IRMC to approve inclusion in the IP of projects >$50M based on
the advice of PMB
12Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 12
Governance Framework
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 13
Sources of Funds
The Investment Plan has two distinct sources of funds
• Reference Levels
Traditional source of funding Cash based expenditures
• The Accrual Envelope Funding set aside in the Fiscal Framework for Defence but
requiring TB approval to be accessed Investment Cash is provided to purchase assets (Vote 5) in
the year they are purchased Cost is amortized over life of asset in departmental financial
statements Source of operating funds to implement CFDS and sustain
capital investments that provide new capability
Vote 5 A-Base (Cash Basis)
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 14
Uses of the Accrual Envelope
The accrual envelope can be used to finance:
• Equipment and infrastructure acquisitions, with a priority to
major equipment / capability acquisitions announced in
Government policy (CFDS or equivalent); and
• Incremental operating and sustainment costs associated
with acquisitions that establish new capabilities for National
Defence
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 15
Sources of Funds
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère)
Investment Cash
16
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 17
Sources of Funds
• Projects have secured source of funding over life of the project
• Will enable recapitalization of assets (or replacement capabilities)
to be scheduled at end of equipment useful life
• Source of new operating funds to implement CFDS and sustain
new capital investments
• Facilitates better fiscal planning and management by central
agencies
Advantages of the Accrual Envelope
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 18
Sources of Funds
• No escalation or inflation factor
• No carry forward
• Ceiling is set
Disadvantages of the Accrual Envelope
Evolution and Way Forward
• Treasury Board approved the first DND Investment Plan in 2009
for a three year period
• This plan was part of a policy pilot and the scope and reporting
requirements have evolved considerably since this time
• IP 2013/14 to 2017/18 was approved by Treasury Board on 17
June 2014. The Plan, and the governance framework it
promotes, are aligned with evolving policy objectives and
requirements
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 19
Heightened Policy Requirements
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 20
• Communicate implications of new IP
• Develop change management processes including monitoring
and reporting of changes
• Improve integrity of cash flow forecasts
• Develop and implement performance measures
• Strengthen life cycle costing
• Strengthen visibility of Acquired Services
20Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 20
Evolution and Way Forward
IP approval is a beginning…not an end
Operationalizing the IP
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 21
Evolution and Way Forward
• Implement a fully operational IRMC Process
• Improve resource and investment management information
• Enhance the use of life cycle costing
• Improve the IP information base
• Improve strategic analysis of budgets and investments
• Improve strategic analysis of budgets and investments with a particular emphasis on medium and long range affordability
• Enhance the use of the new Program Alignment Architecture
• Continued Improvements to Investment Planning and management
• Strengthen on-going monitoring and oversight of the IP
• Improve on post-implementation assessment of the benefits realized from investments
• Renew the internal project approval process
• Enhance internal budget management practices
Challenges
Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère) 22
Evolution and Way Forward
• In service support costs are increasing and will put increasing pressure on departmental budgets. May be difficult for project sponsor to find a source of funds
• Increasing demands on CFO org for cost concurrence
• Need to rationalize governance to include infrastructure projects and incorporate approvals made at ADM Level (<$5M)
• Need to understand impact of project approvals on operating budgets over time. Using the business planning process to address pressures is not optimal
• Organizational Project Management Capacity Assessment is currently a 2. Getting a 3 would potentially reduce number of TB submissions
• Need to develop performance measures to evaluate processes and overall efficiency and effectiveness