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THE EFFECTIVE, TRANSPARENT AND ECONOMICALLY VIABLE MANAGEMENT OF DEFENCE SPENDING Adrian Kendry

2005 PARTNERSHIP ACTION PLAN ON DEFENCE INSTITUTIONS BUILDING (PAP-DIB) TRAINING COURSE FOR THE CAUCASUS AND REPUBLIC OF MOLDOVA SESSION III: FINANCIAL, PLANNING AND RESOURCE ALLOCATION PROCEDURES IN THE DEFENCE AREA AND THE MANAGEMENT OF DEFENCE SPENDING.

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THE EFFECTIVE, TRANSPARENT AND ECONOMICALLY VIABLE MANAGEMENT OF DEFENCE SPENDING Adrian Kendry

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  1. 2005 PARTNERSHIP ACTION PLAN ON DEFENCE INSTITUTIONS BUILDING (PAP-DIB) TRAINING COURSE FOR THE CAUCASUS AND REPUBLIC OF MOLDOVA SESSION III: FINANCIAL, PLANNING AND RESOURCE ALLOCATION PROCEDURES IN THE DEFENCE AREA AND THE MANAGEMENT OF DEFENCE SPENDING THE EFFECTIVE, TRANSPARENT AND ECONOMICALLY VIABLE MANAGEMENT OF DEFENCE SPENDING Adrian Kendry Senior Defence Economist DSED, PASP Division NATO HQ, 1110 Brussels a.kendry@hq.nato.int PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  2. THE SIZE AND MEASUREMENT OF DEFENCE EXPENDITURES • PAP-DIB Objective on Defence Expenditures and Budgets • What is meant by defence expenditure? The NATO definition and experience. Usability, Input and Output Indicators • Measurement and Interpretation of Defence Expenditure data. • Efficiency and Value for Money PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  3. THE SIZE AND MEASUREMENT OF DEFENCE EXPENDITURES • Reducing the 2.5 million size of the European armed forces (ending conscription and reshaping the armed forces) • Modernization and Transformation of Armed Forces and the shift toward a higher capital-labor ratio in European armed forces • Transparency in defence and security planning, budgets and expenditures; the link to closer integration and co-operation with the Alliance • Accountability for, and Auditing of, the Defence Budget. PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  4. WHAT ARE THE PURPOSES OF DEFENCE BUDGETING? The Process: • PLANNING: Identify force requirements and capabilities • PROGRAMMING: Assess (i) how and (ii) when capabilities will be acquired and (iii) their estimated costs and (iv) their affordability • BUDGETING: Allocate appropriate funds to programmes (subject to competing demands both across the Government Sector and within the Ministry of Defence) PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  5. PLANNING : THE FUNDAMENTALS • Identify National Economic Position/Prospects and Foreign/Security Policy Interests/Threats and Priorities • Define Missions/Objectives and Military Tasks • Analyse Required Forces and Capabilities • Assess the “Gap”: the difference between projected Requirements and Availability PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  6. PROGRAMMING: THE FUNDAMENTALS From Planning, estimate the required: • Equipment Acquisition: level and rate (assessing the trade-off between the various Services of the Armed Forces) • Manpower: How is the reorganisation and downsizing to be implemented? • Logistics and Infrastructure: Can domestic suppliers meet the requirements? Can they provide low-cost and reliable systems ? • Operational Requirements, Recruitment Targets and Maintenance Schedules • Investment Appraisal to assess Options and Alternatives: the role of cost-benefit analysis PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  7. BUDGETING: THE FUNDAMENTALS • Develop Budgetary Estimates based upon the costing of: • Equipment procurement • R&D commitment • Operations and Maintenance, including logistics • Military and Civilian Personnel • Assess life cycle cost implications of different programmes • Evaluate the type of contracts that will ensure credible, reliable and cost-effective supply of the required capabilities, materials and manpower PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  8. THE FINANCING OF EQUIPMENT • Allocating funds toward defence modernisation (new equipment, adequate R&D effort) • Controlling the Operations and Maintenance (upkeep) component of the defence budget • Ensuring a capable and competitive supplier base • Defence transformation and C4ISR PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  9. TRANSPARENCY AND GOOD GOVERNANCE IN DEFENCE BUDGETING • Government Budgets and Allocations: • Scrutiny by Parliament • Appraisal by Parliament (Select Committees) • Appraisal by Independent Bodies (National Audit Office/Government Accounting Office) • Feedback to Parliament/Legislature and the Accountability of Government PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  10. FINANCING DEFENCE REFORM • Financing improvements in existing force structures, training and equipment • Defence transformation and the financing of more integrated and connected capabilities PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  11. DEFENCE TRANSFORMATION IN A CONNECTED WORLD • The Revolution in Military Affairs and Changing Threat Perceptions: • Network Centric Warfare • Battlefield Digitization • Jointness in C4ISR • The Revolution in Industry/Technology Affairs: • Platforms, Software and Systems Integration • Traditional and New Firms entering the Defence Supply Chain • Consolidation and Reorganization within the Defence Industrial Base PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  12. DEFENCE TRANSFORMATION IN A CONNECTED WORLD DEFENCE TRANSFORMATION IN A CONNECTED WORLDDEFENCE TRANSFORMATION IN A CONNECTED WORLD The Revolution in Business Affairs: • Modernization in Acquisition • Competitive Sourcing • Outsourcing • Public-Private Partnerships and PFI • The Revolution in Procurement Affairs: • Multi-sourced environment • Incentives for timely delivery with quality assurance • Promoting Interoperability • Increasing competitiveness in the supplier base PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  13. Transformational Warfare Transformational Management Defence Globalisation • Cost reduction • Competition • Consolidation • Commercialisation • Cooperation • International industrial integration (I3) • Value for money • Input output analysis • Lean logistics • Smart acquisition • Doctrine • C4ISR • Mobility • Asymmetrical threats TRANSFORMATION AND EFFECTIVE DEFENCE SPENDING PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  14. SELF-SUFFICIENCY Indigenous Research, Development, Production R&D AND DEFENCE EXPENDITURE FINANCING R&D AND DEFENCE TRANSFORMATION: COLLABORATION Joint Research, Development and Production LICENSED PRODUCTION / CO-OPERATION No Indigenous R&D Indigenous Manufacture OFF-THE-SHELF No Indigenous Development or Production PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  15. DEFENCE INSTITUTION BUILDING AND THE ECONOMIC DIMENSIONS OF DEFENCE RESOURCE MANAGEMENT % OF DEFENCE EXPENDITURES 2003 PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  16. THE FINANCING OF PERSONNEL • Incentives for military recruitment • Contract forces and competitive wages • Funding the reduction and re-organisation of military personnel • Realistic assessment of the funding of personnel in the context of the overall budget PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

  17. FINANCING OPERATIONS AND MAINTENANCE • Improving the supply chains • National and trans-national consolidation of industry • Improving the armaments regulatory framework • Continuous improvement strategy for ensuring that the “tail” does not undermine the “teeth” PAP-DIB TRAINING COURSE, TBILISI, GEORGIA

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