Section 40 (d) of the Public Finance Act 1989 requires the provision of information on the cost-effectiveness of interventions; in the case of the NZDF, the delivery of outputs.
The Defence Capital Asset Management Practice (DCAMP) Review, the recommendations of which were taken by Cabinet on 13 December 2006, noted the difficulties of the concept of cost-effectiveness in a defence context. It noted that without significant technical development the usefulness of the concept of cost-effectiveness as an analytical approach in a defence context is limited. The most valuable approach to determining the cost-effectiveness of interventions is the long-term tracking of cost/benefit trends across mission delivery. This tracking can be undertaken within the Defence Performance Management System (DPMS).
The NZDF treats cost-effectiveness seriously. Indeed, as seen on the NZDF Strategy Map on page 19, “Resource Efficiency” is one of the three core Strategic Themes, and “Making best use of Finance and Resources” is a key Strategic Objective (Objective S3). For the NZDF, making the best use of finance and resources requires clear alignment between stakeholder outcomes, the capabilities we provide, and the available resources. Defence policy prescribes the capabilities that the NZDF is required to maintain. The strategic objective therefore focuses on the next level down; the effective management of available resources to best deliver against Defence policy. The two main aspects of cost-effectiveness that the NZDF can manage are:
- Delivering the optimal output allocation mix (clearly aligning the finance and resources to what we deliver), and
- Delivering efficiencies (reinvesting savings back into output delivery).
Progress against this cost-effectiveness objective will be measured in two ways:
- Relating changes in output delivery, over time to changes in resources allocated to deployments, to Force Elements, to Direct Support elements, and to Indirect Support Units.
- Total savings realised from efficiency and transformation initiatives.
The NZDF Strategic Initiatives that will improve the use of NZDF finance and resources are:
- Activity Based Budgeting, and
- Defence Transformation Programme (DTP)11.
A summary of a comprehensive benefits map for the objective “Making best use of Finance and Resources” is displayed below:
Other cost-effectiveness considerations within the NZDF are as follows:
- There has always been a culture of cost-effectiveness within the NZDF, and this has been and will continue to be encouraged in everything we do. Commanders at all levels are conscious of the need to train as cost-effectively as possible.
- The concept of maintaining force elements at the Directed Level of Operational Capability (DLOC) is, in itself, a major cost-effective measure; noting that maintaining forces at the Operational Level of Operational Capability (OLOC) all the time would be cost-prohibitive (and wasteful).
- It is also relevant to note here that, given the serious nature of employing military force on operations (combat and peace support operations) the NZDF cannot afford to compromise the safety of its personnel by lowering prescribed standards in training (the quality of the output product) in order to achieve a lower cost; to do so would be irresponsible. The aim is to achieve greatest utility in outputs for least cost without compromising safety standards.
- The DCAMP Review Report (2006) recommends that the NZDF and MoD jointly develop a set of metrics for assessing asset efficiency and effectiveness around the following dimensions, which, while not directly related to output production, have a major influence on the ability of the NZDF to produce outputs in a cost-effective manner:
- utility and fitness for purpose (as assessed against Government Outcomes),
- life cycle cost,
- factors affecting asset availability, including maintenance, personnel, and logistic support, and
- estimated balance of useful life.
- The Defence Transformation Programme (DTP), as described later in this Statement of Intent, will be a major driver in promoting a cost-effective NZDF. It is from the DTP that we expect to draw the standards and measures that are required under the Public Finance Act 1989 regarding cost-effectiveness. The following points are relevant:
- The DTP was established in July 2007 to drive economic benefits (cost efficiency) out of several mega processes of Defence, namely Human Resource Management Change Programme, Logistics Change programme, and the Headquarters Change Programme.
- The aim of the programme is to rationalise the costs of delivering the outputs of these processes without materially altering the delivery standards.
Critical to this reform is the ability to measure the activities of the processes in order to track performance of the baseline status at the start of the programme with the performance achieved through the changes and into the future.
- The establishment of robust and informative key performance measures across the mega processes of the NZDF will be the significant enabler of improvement in the cost-efficiency of the processes.
- Central monitoring of the mega processes and the alignment of resources with performance indicators will create a culture of measurement and improvement.
- The establishment of benchmark measures for similar mega processes outside of the NZDF will provide comparative targets for efficiency; the tracking of the costs of these processes over a period of time will form an internal benchmark.
Note
11Discussed within Section 5 of this Statement of Intent
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