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.
The NZDF treats cost-effectiveness seriously. As seen on the NZDF Strategy Map within Section 3 of this Statement of Intent, “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 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)10
A summary of a comprehensive benefits map for the objective “Making best use of Finance and Resources” is displayed below:
Please use this pdf file to print the Benefits Map.
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 NZDF is required to operate with reducing funding levels as increased depreciation from the introduction into service of new and upgraded capabilities has the effect of crowding out other operating expenditure (including personnel growth.)
- 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), military operations are complex, uncertain and volatile, and are conducted in the world’s most dangerous places. New Zealand cannot afford to compromise the safety of its military 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.
Linked with the above ‘cost-effectiveness’ information is the Government’s 2009 Value for Money initiative on Performance Improvement Actions, as explained below.
Performance Improvement Actions
As part of the Government’s 2009 Value for Money initiatives, departments have been required to develop Performance Improvement Actions (PIAs) and, where relevant, show how these are related to existing cost-effectiveness/value for money programmes. In the case of the NZDF, the PIAs developed were already part of existing programmes; the Defence Transformation Programme in particular. In addition, the outcomes of the Defence Review are expected to have an impact on capability by changing the mix and improving the cost-effectiveness of services (outputs) produced by the NZDF - and hence the value of NZDF activities to our stakeholders.
The following diagram shows the NZDF’s three PIAs and their makeup. The Government expects robust monitoring of the PIAs over the next three to five years, and the NZDF is developing the required measures to support this.
The above should be considered as a ‘living diagram’. The action areas and target savings continue to be refined as actions are developed and more accurate information comes to hand.
Please use this pdf file to print the Performance Improvement Actions.
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