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.


Supports Achievement of Strategic Outcomes


• 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


Quantifying DND’s IP Context


• 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.


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


Key Players


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.


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

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IP Process

Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère)


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


IP Process


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


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)


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


Sources of Funds

Assistant Deputy Minister (Finance and Corporate Services) Sous-ministre adjoint (Finances et services du Ministère)

Investment Cash

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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


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


Heightened Policy Requirements


• 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


IP approval is a beginning…not an end

Operationalizing the IP



• 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



• 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

assistant deputy minister (finance and corporate services) sous-ministre adjoint (finances et...

Documents

investment portfolio

investment proposals

investment decisions

ongoing investment challenge

land ip

financial arrangements

financial statements

financial risk