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Surely Some Mistake


I must admit, this almost passed me by.

The annual ‘kick the MoD in the balls’ report from the National Audit Office (NAO), properly known as the Major Projects Report was published over a week ago.

The National Audit Office has today published its examination of the assumptions made by the Ministry of Defence in its annual statement of the affordability of its 10-year equipment plan.

The forecast cost of the Equipment Plan 2015 to 2025 is £3.5 billion higher than the forecast cost of the 2014 to 2024 Plan (£166.4 billion compared with £162.9 billion), mainly due to the effect of bringing 2025 into the 10-year planning period. Today’s report found that the Plan appears more stable than last year and that progress has been maintained, but that the Department will need to remain vigilant with regard to uncertainties about future cost increases in high-value projects that are still at an early stage.

The Department was prudent in planning its 10-year Equipment Plan funding in March 2015. However the amounts it actually has to spend in future years will be dependent on the results of the government’s spending review and Strategic Defence and Security Review, due later in 2015.

According to the NAO, the Department’s Affordability Statement should be clearer about uncertainties in the costs within the Plan. The Statement does not explain the range of possible cost outcomes across projects, even though it is good practice to recognize risk and uncertainty when forecasting project costs.

The NAO carries out an annual review of the forecast cost of a range of major defence projects. The spending watchdog’s review of the forecast cost of 13 major projects shows that in aggregate, the cost and performance of these projects have remained stable during 2014-15. The forecast cost of these projects has reduced by £247 million (0.4%) largely due to an accounting adjustment on the Typhoon fighter jet project. Forecast costs reduced on five other projects and increased in three, notably the Astute submarine project.

The spending watchdog found that the amount of time slippage across the major projects was lower than the previous year, with one notable exception. In-year time variations during 2014-15 totalled a net 60 months for five out of 12 projects. Most of this was a net 52-month deferment of the final stage of the Core Production Capability Project, to accommodate the production of an additional reactor core for HMS Vanguard and to maintain the capability to supply a further core for HMS Victorious, if required. This could not have been foreseen by the project team and was beyond their control.

The Department spent £14.47 billion in 2014-15, an underspend of £41 million against its original equipment budget, compared with an overspend of £185 million in 2013-14. There is evidence that the Department and its contractors are still underspending as they struggle to carry out planned activities on schedule, which could indicate future slippage in delivering these projects.

Surely this is some mistake!

Stability and lower slippage, cautious optimism and progress.

The MoD is finally crawling out of the legacy of being considered as financially competent as ‘sailor on shore leave’ and this is a great thing, we should all be pleased that tough decisions and hard work over the last five years are starting to yield results.

A financially credible MoD is the best kind of MoD there can be.

Click to read more…

FireShot Capture 48 - Major Projects Report 2015 and the Equ_ -

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8 Responses

  1. TD,

    But everyone said…..back in the ‘olden days’ that Hammond was a disgusting, cold blooded bean counter who cared little for tradition and how he just thought about all about the numbers and stuff like that instead of what super-duperest toys the MoD wanted from the catalogue come Christmas…..

    ….are you suggesting the icy blooded SoS Defence was right in his thinking are you? That won’t half upset the ‘bestest toys at all costs brigade’.

  2. That’s all very well but surely you must agree that Adam Ant sports a collection of really bad hats.

  3. MoD spending within 0.3% of the annual equipment budget target and an underspend at that? The commercial world should take note. Good job there were no unexpected additional costs or some ‘accounting adjustments’ would have been necessary…

    oh, there were?

  4. The EU has failed for years to have its accounts successfully audited. HM Treasury publishes its Red Book each year, supposedly proof the budgets balance but in such contorted terms that a reader can’t really identify costs missed or credits double-accounted. No doubt HMG’s bestest friends at PWC and KPMG tell them its just peachy. In 2010 the coalition announced there was a gaping £38bn ‘black hole’ in the MOD accounts, and yet within three years (and with few substantive spend reductions) Spreadsheet Phil told us it had all gone away. That was a chunk of funds greater than the overall Successor budget, found from nowhere.

    What all this means is that budgetary accounts say exactly what the author wants – changing assumptions or redefining what elements are included or excluded dramatically change the conclusions. (Just like the newly included elements of MOD’s responsibilities that miraculously take the MOD funds above the 2% GDP line.) This is not the dry ledger entry book-keeping of actual costs and actual receipts, but grand woolly statements of costs to completion and future economic conditions.

    I’m really not sure they tell us anything concrete.

  5. There are lies, damn lies and ………. lots of stuff. When I used to work at the insurance coy I had to calculate group pension scheme funding levels for the Actuary to pontificate upon. Often, they came out to show Company X had to increase it’s payments, which the actuary would wish to contain by sending us away to use another set of assumptions (salary growth, investment return, etc.). We would come back with a figure showing a decrease in payments. Mr. Actuary would not like that as our cut would also go down. So back we’d go to calculate on a mid-level set of assumptions until the figure came out much the same as the existing figure. Since then, I always take anything on a spreadsheet with a pinch of salt.

  6. The very week that report came out the wheels starting coming off the MoD wagon due to collossal over-commitment of funds by a Service which shall remain nameless. (I gather everyone is now lost at sea, very pissed off and drowning in an ocean of paperwork…)

    Apparently this has been the case 3 years out of the last 4. Fiscally responsible my arse!

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