2017 Defence Renewal Annual Report : Realizing the Opportunity

Alternate Formats

3. Performance Initiatives

The performance initiative portfolio, or those initiatives that seek to provide a financial or operational impact on the department as measured in either cost savings, productivity gains, or improved performance, is divided into six theme areas:

Operations and Training Portfolio

Portfolio Target: $90 million by FY 2018/19 (Actual target value is pending rule set development, final Environmental and pan-CAF implementation plans and methodology to convert availability to a numeric value). The initial target has proven to be quite aggressive, and while it will not be achieved by FY 2018/2019, significant value will be realised in future years.

Achieved to date $10.8 million

Originally there were four initiatives within the Operations and Training portfolio. One of the initiatives, the RCAF Simulation and Synthetic Environment initiative, has been closed since it has evolved into a capital project and as such is beyond the scope and mandate of Defence Renewal. Of the remaining three initiatives, Initiative 1.1 CAF Operational Force Posture and Readiness and Initiative 1.4 Ammunition Management have progressed to the point whereby their work will be institutionalised into normal business, and as such they too will be closed down over the coming year.

Defence Renewal Initiative 1.3 – CAF Maintenance Execution

This initiative represents a large and complex undertaking, designed to improve the effectiveness of first line maintenance operations, leading to increased serviceability of various CAF systems or fleets. With the completion of an extensive third party review by an outside contractor the initiative was split into 3 sub-initiatives in 2016, one each for the Royal Canadian Navy, the Canadian Army and the Royal Canadian Air Force. The three Services have conducted an in-depth review of their maintenance approaches and are preparing plans to apply improvement opportunities to increase in-service rates through numerous activities and approaches.  Each plan will only focus on those actions that are within their authority or reach to implement. The remainder of the productivity opportunities identified by the contractor require pan CAF coordination (by SJS Strat J4) and leadership by other L1s (ADMs Mat, IE, and IM) before the Services can implement them. Given the complexity and challenging nature of the pan departmental opportunities, limited resourcing and other competing L1 priorities, pan-CAF opportunities will not be achieved within the Defence Renewal mandate and likely will not be achieved in out years either without Departmental direction. It is likely that the achieved results will fall slightly lower than the initial lower limit estimate.

Maintenance and Materiel Portfolio 

Portfolio Target: $400 million in FY 2019/20
Achieved to date $290.1 million

Under the lead of ADM Materiel, the four initiatives of this portfolio constitute over 50% of Defence Renewal’s overall reinvestment opportunities.  The four initiatives under this portfolio continue to mature over time producing significant results for the department.

Defence Renewal Initiative 2.1 - Inventory Management

The Department of National Defence (DND) spends more than $2 billion every year on goods in support of the various marine, air, and land fleets within the Canadian Armed Forces (CAF). These items include everything from day-to-day commodities to highly complex state-of-the-art components for aircraft, ships, and fighting vehicles. Tracking these components within a vast supply chain, and knowing when to buy more to ensure optimum availability while containing costs, is a significant undertaking. One of the key challenges is to ensure that only the most-needed items are procured.

The aim of the Inventory Management Initiative is to reduce unnecessary purchases by identifying dormant, excess or repairable inventory items, estimated at $252.6 million in FY 2012/13 fiscal year, and to optimize the inventory procured and held. The objective is to redirect up to $162 million, or 66% of these annual overbuys, into priority items.

To enable smarter procurement planning, the initiative is using business analytics and intelligence, and increasing inventory accuracy through efforts such as the National Stocktaking Project and the Inventory Management Modernization and Rationalization Project. These efforts will improve materiel visibility and oversight, reduce excess inventory, increase asset availability and reduce overbuys and dormant stock purchases.

Looking forward the initiative will continue to support the effective use of enterprise business intelligence and forecasting tools to enable smart procurement planning, will continue stocktaking and stock verification visits and will continue to rationalize inventory held, and dispose of materiel no longer required. The Automatic Identification Technology Project, now in the options analysis phase, will sustain overbuy expenditure reductions by providing near real-time asset and inventory visibility.

As of April 2017 reporting, this initiative has achieved $138 million in annual recurring savings. By FY 2018/19, this initiative should achieve its upper target of $162 million.

Defence Renewal Initiative 2.2 - Warehousing and Distribution

The Warehousing and Distribution Initiative, led by the Canadian Materiel Support Group, is ensuring that warehouse facilities are right-sized and efficient, and that the materiel distribution process is lean. More than 1,500 military personnel and civilian employees manage Canadian Armed Forces warehousing and distribution operations.

The objective of the initiative is to have the right materiel warehoused at the right location, and then delivered to customers in a timely, efficient and effective fashion. The initiative is expected generate efficiency gains that result in an average annual savings of $8.65 million.

Savings and efficiency gains will be achieved by reducing the required number of warehouse personnel through optimizing warehouse operations, improving materiel management practices, and modernizing materiel information management systems. The initiative will also optimize the distribution network by reducing costs as materiel is delivered from warehouse to user. Savings will be calculated as expenses per category compared with FY 2013/14 baseline expenses for lease and infrastructure, third-line freight and personnel. Performance measures such as order backlog days and percentage of goods at destination on time will ensure that quality of service is maintained.

As of FY 2015/16, this initiative has delivered about $2.5 million in savings through rationalization of distribution. Changes in the way the Department does business have resulted in more limited opportunities to find Reinvestment Opportunity within this initiative and it will be hard pressed to realize significantly higher savings.

Defence Renewal Initiative 2.3 - Maintenance Program Design

Each year the department invests approximately $2.5 billion dollars on sustaining the various fleets of the Canadian Armed Forces (CAF). Sustainment, also known as in-service support, refers to all the activities to support a fleet once it enters service. Improvements in support programs can help ensure that CAF equipment and fleets are available, ready and reliable for CAF missions. They can also result in savings that can be reinvested in additional military capabilities.

Under this initiative, the Department of National Defence (DND) works with Public Services and Procurement Canada (PSPC), Innovation, Science and Economic Development (ISED) Canada, and the Canadian defence industry, to develop mutually beneficial approaches to fleet sustainment based on international best practices. A Sustainment Business Case Analysis helps procurement practitioners and the defence industry work collaboratively to develop tailored sustainment solutions that strike a balance between fleet performance, flexibility, economic benefits and value for money.

There are two principal objectives of the Maintenance Program Design Initiative: to rationalize the maintenance activities supporting equipment fleets; and optimize weapon system performance and value for money through the implementation of sustainment best practices. The initiative will achieve this through a whole-of-government approach, managed by an inter-departmental steering committee, which also includes Industry representatives nominated by the

Canadian Association of Defence and Security Industries and the Aerospace Industry Association of Canada.

The initiative is aligned with the Defence Procurement Strategy. Key aspects include:

  • In-Service Support Procurement (Sustainment Initiative): to adopt best practices for sustainment contracting, and to better balance equipment performance against value for money and economic benefit when developing equipment sustainment solutions.
  • Maintenance Program Rationalization:  to increase cost and personnel efficiencies in maintenance programs.
  • Professional Development: to increase competencies in sustainment procurement best practices.
  • Engineering Flight Test Rationalization: to increase efficiency in the delivery of aerospace engineering test-and-evaluation capabilities.

As of FY 2016/17, this initiative has delivered $86.2 million in efficiency and effectiveness improvements and has already met its expected original set target of between $67 million and $125 million by FY 2018-19.

Going forward sustainment best practices will be implemented for all new and renewed fleet support contracts as of January 2018. Moreover, the principles of the sustainment initiative, now being applied to new in-service support solutions, address a recommendation of the 2016 Auditor General of Canada that National Defence should ensure that future equipment support contracts are based on achievable planning assumptions and allow for adjustments in the contracts based on changing circumstances, where feasible. Flexibility to adjust our contracts to changing circumstances, which is one of the four principles of the Sustainment Initiative, will now be balanced with performance, value for money and economic benefit in new sustainment solutions.

Defence Renewal Initiative 2.4 - Departmental Procurement

The Department of National Defence (DND) spends billions of dollars each year to acquire goods and services in support of the Canadian Armed Forces (CAF). In addition to procuring major military equipment and systems, DND procures a broad spectrum of professional services, minor equipment, and an exhaustive list of goods ranging from medical equipment, to food and beverages to office supplies and everything in between.

The aim of the Departmental Procurement Initiative is to reduce the costs of DND-procured goods and services through innovative procurement approaches, while optimizing expenditures to deliver greater capability within budgetary limitations. Through consolidating approaches and applying smart procurement methods, the initiative has identified an opportunity to reduce expenditures by $110 million, representing a savings of approximately 8%. Approaches to reduced costs include the re-use of existing equipment, the simplification of policies, processes and statements of work, requirements bundling in the form of standing offer agreements, and cost containment strategies embedded in governance and contract management.

As of FY 2015/16, this initiative has delivered $64.1 million in savings and, pending a review of additional approaches potentially can reach savings of $131 million by FY 2019/20.

Information Management/Information Technology Portfolio.

Portfolio Target: $41 million in FY 2019/20
Achieved to date $23.9 million

The role of IM/IT in Defence is increasingly complex and critical. The introduction and evolution of the Defence Chief Information Officer has addressed the challenges posed by a decentralised Defence IM/IT programme, and the three Defence Renewal Initiatives are designed to support the overall effort to implement the IM/IT necessary for the department to realise the modern business reporting and support evidence based decision making required for long term success.  

Defence Renewal Initiative 3.1 - IT Service Management

Prior to the IT Service Management Initiative, the Information Management/Information Technology (IM/IT) environment within the Department of National Defence and Canadian Armed Forces (DND/CAF) was de-centralized and in siloes, following a loosely federated model of IT service delivery under the responsibility of the various Environmental Chiefs of Staff and Level One (ECS/L1) organizations.

This structure, while highly responsive to environmental operational needs, was not conducive to fiscal prudence or efficiencies that could be realized through consolidation (partial or complete) of IT service delivery, supported by the rationalization of service management tools and standardization of IT services, processes and procedures. Under this Defence Renewal initiative, the IM Group has committed to establishing an Enterprise-wide ITSM solution based on common processes and toolset, an enterprise Service Catalogue and the consolidation of 169+ service provision units across the DND/CAF into 22 or less Service Management Centres (SMC). The SMCs will support client units as agreed upon by participating L1s. As well, a National Service Management Centre providing national-level governance, coordination and guidance for SMCs will be established.

To date the program has generated savings worth $3.8 million. The anticipated savings of this consolidation is $5.2 million annually and will be achieved in FY 2018/19.

Defence Renewal Initiative 3.2 - Application Portfolio Management (APM)

Each year the National Defence expenditure on software applications, including procurement, support and manning, is assessed to be in the area of $150 million annually, representing over 5000 applications. The objective of this initiative is to enable IT leaders to better manage and prioritize investments in applications and to better manage the risks associated with maintaining mission critical applications. In order to support this activity, TBS CIOB has worked with the CIO community to develop and validate a GC APM methodology.

Leveraging this methodology, a potential re-investment opportunity was identified of between $12 and $36 million through the reduction/replacement of approximately 25% of the application portfolio. To date, 1816 applications have been decommissioned (either retired or identified as duplicates) representing approximately $10.4 million in cost reductions since the beginning of April 2014.

Defence Renewal Initiative 3.3 - Rationalize Defence IM/IT Programme

The objective of this initiative is to reduce IT expenditures within the IM/IT programme, particularly with respect to hardware purchases which fall within the responsibility of DND (as opposed to that of Shared Services Canada). Each year it is estimated that this represents approximately $84 million in expenditure.

The initiative seeks to optimize the procurement of hardware/software professional services by providing an enhanced governance structure and greater ADM Information Management functional authority. It will enable the implementation of synchronized planning across the Defence Team, resulting in strategic sourcing and the ability to take advantage of in-year timing and product standardization.

To date the initiative has generated $9.7 million in savings and has a target of $17.8 million for FY 2019/20, representing a 20% reduction in cost.

Infrastructure Management Portfolio

Portfolio Target: $95 million in FY 2019/20
Achieved to date $36.9 million

The four initiatives in this portfolio, led by ADM Infrastructure and Environment, continue to advance, driven by the centralisation of real property management under a single Infrastructure and Environment Group custodian. The Infrastructure and Environment Group developed a phased implementation plan to successfully transform the Group into a single strategic and accountable organisation that focuses on delivery and people. National Defence spends $1.5 billion each year on infrastructure and environmental programs in support of the Canadian Armed Forces. This represents 8,000 buildings (including 300 Heritage), 12,000 housing units, over 2.25 million hectares of land and 16,100 sewer and water works systems. In 2013 over 3946 FTE worked in the management of the portfolio through 9 separate management organizations.

Defence Renewal Initiative 4.1 - The Centralization of Real Property Management

The objective of the initiative was to centralize the management of Real Property (RP) under a single authority (ADM (IE)) providing leadership, strategic direction and real property services, reducing the number of custodians from 9 to 1. Centralization is now complete and the benefits of the new governance are having a positive impact. For example, centralization enabled the department to implement a system that provides consistent, reliable and timely information, undertake a nation-wide assessment of facilities, provide consistent strategic direction and tactical delivery, and streamline RP Management: governance, process, systems, tools and training.

To date, the initiative has delivered $15 million in increased productivity, as measured by the increase in the value of services returned into the portfolio per FTE. That is to say, centralization has allowed fewer FTEs to manage more program, reducing overhead costs. This has allowed the initiative to help the program meet existing financial pressures as it strives to sustain a vast and aging infrastructure portfolio.

Defence Renewal Initiative 4.2 - Rationalization of the Real Property Portfolio

The objective of the initiative is to reduce the number of buildings and facilities within the portfolio. An original target of $69 – 127 million worth of annual savings (4-8%) was identified. As the initiative progressed it became apparent that the timing to reduce holdings was far too optimistic. Due to many factors, including age and status of the portfolio, a divesture of such a large percentage of the portfolio is not feasible with the time frame of the Renewal Program.

However significant work has been accomplished.

A realistic target of annual expenditure reductions of $28.7 million has now been identified to be accomplished by FY 2018/19. In addition, the Portfolio rationalization has enabled the department to eliminate or transfer significant liability and risk, collaborate with communities, OGDs and First Nations through the increased protection of the environment, and conformance to evolving environmental obligations, and the transfer non-core infrastructure to municipalities.

The portfolio realised the demolition of 115 structures with a total real property replacement cost of $107 million including: 56 buildings in Goose Bay, a former food services building in Gagetown, 10 Storage buildings in Shilo, and a hangar in Montreal. The divestments of Building 66 in Moncton (former I ESU Building before the unit moved to Kingston) and payments for previously disposed properties also contributed reinvestment opportunities. Additionally, the Defence Portfolio 2030 (formerly the National Real Property Development Plan) has been approved and released. Going forward, the document will provide the guidance -- and momentum -- to strategically rationalize the portfolio.

To date the initiative has realized savings of $14.7 million.

Defence Renewal Initiative 4.3 - Optimize Facilities Management Service Delivery

The objective of the initiative is to leverage private sector capabilities with the re-alignment of internal resources to oversee the right mix of in-house and external Real Property contracts.

Opportunities have been demonstrated through the standardization of maintenance services, elimination of duplication of effort and improved governance and processes. This includes negotiating a 3 year billing rate freeze with DCC (FY 2013/14 – FY 2015/16) for savings of $20.7 million, contract consolidations for Housing Operations, and establishing energy efficiency performance contracts.

To date, the initiative has delivered $7 million in increased productivity, with a potential as high as $23 million worth or recurring savings to be established by FY18/19. This has allowed the initiative to help the infrastructure and environment program to meet existing financial pressures as it strives to sustain a vast and aging infrastructure portfolio.

Defence Renewal Initiative 4.4 Real Property Project Delivery

The objective of the initiative is to improve the delivery of capital projects, ensuring that they meet deadlines, budget, and scope – while at the same time apply modern practices to reduce both management and overall costs. Some examples of changes to the approaches utilised for infrastructure and construction projects are integrated project delivery (which involves early and ongoing engagement and collaboration between owner, designer and contractor), the investigation of Public-Private Partnerships, and increasing delegations of authority from the

MND. Collectively these activities are poised to deliver more than $21 million in recurring savings. However due to the timeframe associated with construction projects these benefits will not occur until after FY 2018/19. A recurring target range of $3-$7 million in additional project value is envisioned to be achieved by FY 2018/19.

Personnel Portfolio 

Original Portfolio Target: $78 million in FY 2019/20
New Anticipated Target: $36.4 million (awaiting final approval)
Achieved To Date: $25.5 million (based on trimestral reporting)

Though diverse in scope and ambition, under the lead of MILPERSCOM the initiatives in this portfolio are at the point where they soon will be closed out, having transitioned into routine operations. Some of the initiatives have not obtained their envisioned targets, while others have generated modest returns. For example, initiative 5.2 - Modernization of Career Management Capability, will not reach its original objective of $15 million in annual savings through reduced relocation costs. Neither will initiative 5.3 - Military Personnel Management Capability Transformation reach its objective of a $25 million savings from the modernization of the military pay system. In the case of the former, a more effective estimating system for military moves has been developed, but no savings have been derived from it. With respect to the GUARDIAN project, originally intended to modernize the military HR and pay systems that project has had its scope significantly revisited, and no savings will occur within the envisioned timeframe of the Defence Renewal program. However the remaining initiatives have delivered significant results, including:

Defence Renewal Initiative 5.1 - Modernization of Individual Training and Education

Through the operation of multiple schools and colleges each year approximately 40,000 members are enrolled in 352 different training courses, representing 41 percent of the CAF population. This includes common trades’ specialty training, professional development and language training.

Through the modernization of the delivery of programs, such as the use of the Defence Learning Network, an online learning system, the opportunity exists to provide greater access to programs, while reducing travel costs and actual time on course. A projected savings of $17.9 million or an increased productivity of approximately 6% is anticipated to be delivered by the initiative by FY 2018/19.

Defence Renewal Initiative 5.4 - Modernization of the CAF Recruiting Process

This initiative has transitioned into a steady state of normal business as it responds to the ongoing need to embrace modern technology and practices to bring in the military members of tomorrow. Significant internal process improvements have been realized. For example the Recruiting Operations Centre has centralized recruiting, with decentralized execution, better geographic coverage through internet applications, quicker response times from recruiters to applicants, improved synchronisation with other L1s in managing personnel awaiting training and recruiting Reserve Force personnel. The CF Recruiting Information System 2 (launched in January 2015) has greatly enabled better file management, thereby improving effectiveness and efficiency.

This initiative has delivered an estimated $7.9 million in increased productivity based upon the increase in the number of recruits for fewer recruiting expenditures.

Defence Renewal Initiative 5.5 - Renewal of the Cadet and Junior Canadian Rangers

The renewal of the Cadet and Junior Rangers initiative will also close in FY 2016/17. The initiative is projecting $9.9 million in efficiencies which will been reinvested into youth programs, including training activities and summer camps. The savings are attributable to such things as: reducing staff, suspending lesser-priority training activities, achieving efficiencies in summer programme transportation, introducing a field training uniform for army cadets, providing additional funding for fitness and sports activities at community-level, developing and delivering a training package for adult staff and volunteers, and funding growth in the JCR Programme.

Management Systems Portfolio

Portfolio Target: $105 million in FY2019/20
Achieved to date $90.8 million

There are two principal initiatives under this portfolio.

Defence Renewal Initiative 6.1 - Lean Headquarters

Over the past decade, as reinvestments into the Defence budget were made, the NDHQ expanded to meet the needs of a growing CAF. After reductions made by the 2010 Strategic Review, in 2012 NDHQ had approximately 17,600 FTE. Further reductions were underway through the Deficit Reduction Action Plan (DRAP). However concerns remained that due to the fluctuations in size, positions had not been strategically managed, that in some areas there were too many levels of management, and that positions had been filled by availability, not by priority.

The objective of the Lean HQ Initiative was to determine opportunities to optimize managerial layers and spans of control in NDHQ, to reduce headquarters structure and costs, improve business agility and generate operating efficiencies. The scope of Lean HQ included all of the NDHQ plus some additional National Level Service Delivery organizations. (NLSD).

By FY 2015/16, the number of FTE, both military and civilian, had been reduced through attrition to 15,357, a reduction of 2,252. Some of these reductions are attributed to the ongoing reductions mandated to the DRAP program, and others were due to a transfer of personnel to Shared Services Canada. However a remaining 946 FTE were reduced beyond those programs and serve to meet the Lean HQ reduction target. This represents a savings of HQ personnel salary of $89.5 million.

An independent consultant review has confirmed that the new number of personnel is now appropriate. Going forward, the NDHQ will be managed by an integrated workforce strategy which will seek to optimize the number and balance of personnel among both military, civilian, and contractor positions. This will ensure that the HQ utilises its human resources in an efficient and effective manner, thereby meeting the objectives of the initiative.

Defence Renewal Initiative 6.2 - Project Approval Process Review (PAPR)

Within the annual major capital DND procurement spend is approximately $2.4 billion. This represents projects which, from inception to delivery typically take 8 -10 years to complete. Given that price inflation in military products is over 4% per year, a significant portion of capital budgets can be lost when delays occur.

PAPR modelling has shown that it is possible to achieve up to 66% time savings in the approval process for submissions within the authority of the MND (currently PCRA level 1 and 2) and up to 33% savings for submissions within the authority of TB (currently PCRA 3 and 4). MND submissions currently account for 50% of the in-year submissions list and 75% of the backlog of departmental submissions.

Therefore, implementation of PAPR towards MND submissions will be the initial approach. In FY 2016/17, the first PAPR Phase 1 project (C.002544 Advanced Sub-Unit Water Purification Systems) obtained project approval, expenditure approval for definition, and conditional expenditure authority for implementation from the Minister of National Defence. At present there are 37 projects identified which are proceeding under the new PAPR approach.

Savings will be determined upon successful completion of each project. It is anticipated that the first phase of projects could potentially yield savings worth $14 million by FY 2019/20, and well over $100 million annually past that date once the process is fully implemented.