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Wednesday, 24 August 2011
Page: 5471

Defence: Budget Audit Review

(Question No. 814)

Senator Johnston asked the Minister representing the Minister for Defence, upon notice, on 5 July 2011:

In regard to the levels of employment in the Non-Equipment Procurement area, if the Gap to Average Performance could be achieved, as identified in the Budget Audit Review, what yearly savings could have been made since 2008-09 at each of the following levels: (a) below E-1; (b) at E-1 and E-2; (c) at SES 1; (d) at SES 2; and (e) at SES 3.

Senator Chris Evans: The Minister for Defence has provided the following answer to the honourable senator's question:

These questions have already been answered in the Budget Estimates response on the Budget Audit Review asked in writing by Senator Johnston. The Minister's answer stated that,

The "performance gaps" described in sections 7.3 and 7.4 of the 2008 Defence Budget Audit (DBA) Report are based on a comparison of the delivery of Defence enterprise support functions against a database compiled by McKinsey and Company (which is based on employee data for more than 500 international organisations across a range of industries and locations). The authors of the Report note that the methodology is subject to significant limitations to the

"direct applicability of broad benchmarks to the Defence environment (given its specific characteristics…"

The Report recommends that the "performance gaps" identified by the benchmarking exercise be regarded only as a guide to potential opportunities for savings costs across the functions examined, and not as firm targets to be implemented immediately. The DBA Report advised Defence to perform

"detailed work on translating…potential opportunity [identified by the benchmarking exercise] to specific targets, as part of an implementation planning effort…"

Defence undertook the diagnostic work recommended in the Report. This exhaustive process led to the ten-year cost reduction targets under the various SRP streams (including those that capture HR, Non-equipment Procurement and ICT support functions) that were agreed by Government and have previously been published by Defence. Defence therefore reports against these more robust targets, rather than against the gaps (or potential opportunities) initially identified.

Defence is reporting bi-annually to government on progress towards agreed SRP outcomes, including the achievement of annual cost reductions. The achievement during first year of SRP implementation is detailed in the 2009-10 Defence Annual Report. Defence is due to report to Government on its SRP performance during 2010-11 in the second half of this year, following finalisation of its financial statements. Details on the achievement of 2010-11 cost reduction targets will be included in the 2010-11 Annual Report.

Defence notes that the Government has committed to a five-year rolling program of White Papers. As part of this process a new DBA will be commissioned to inform the development of the next paper. It is likely that this audit would re-consider the performance of support functions against appropriate benchmarks, and thus provide an update on improvements in Defence efficiency.