In October 2010, the UK’s National Audit Office released it’s detailed annual report on UK Defence Department project progress.
Portfolio Level Decisions
At the portfolio level, the results are unimpressive. To manage cashflow two main decisions have been taken:
1. Projects (such as aircraft carrier construction) were slowed down, which obviously tends to increase costs over the lifetime of the project, although optically reducing them on an annual basis. In some cases these delays can enable time for detailed reconsideration of the project plans, which may improve efficiency but that didn’t appear to happen in this case.
2. For several other projects, the number of required number vehicles required from the project was cut. This is painful decision given the large fixed costs involved, which do not fall if the vehicles produced drops. For example, in the case of Nimrod aircraft the per unit cost has tripled due to reducing the number of aircraft because of the high fixed costs.
Nimrod aircraft flanked by Tornados (source Simon Bradshaw via Flickr)
So, at the portfolio level then the results are mediocre at best. It seems greater financial efficiency can be achieved only by cutting entire projects, not a combination of delaying projects and order size reduction, because both of these may save cash in the short term, but will reduce overall efficiency.
Project Level Decisions
On an annual basis, project management is reasonably good in the past year, with improvement in both reporting and metrics. Some delays are caused by the portfolio decisions above. However, the report focused on the changes that have occurred over the past year where there is relative improvement vs. prior years, nonetheless at the overall project level the average project is 15% over budget and 2 years late over the lifetime of the project though 98% of KPIs are being met.
KPIs as used by UK Ministry of Defence (source NAO)
As previously discussed the Defence Department routinely and necessarily undertakes projects involving projects with unproven technology, which as we have seen can make forecasting problematic. Nonetheless, whilst project management is improving some hard decisions likely still need to be taken at the portfolio level – delays and order reductions are unlikely to be a sustainable or optimal strategy.