Defence Mid-point Rebalancing Review (DMRR)

1. Defence Mid-point Rebalancing Review (DMRR) Brief to QCJWC 21 May 2014 Col Brett Rankin

2. Sequence • DMRR Terms of Reference • Funding Tracks • Governance and Management • Key Assumptions • Approach to the ‘Problem’ • Development of Capability Options • Evaluation Conference • Six ‘Defence Forces’ Created • Cabinet Paper and Lessons • Questions

3. Terms of Reference Identify and present to Ministers1 options2 to address the imbalance, and achieve an enduring balance3, between the Government’s defence policy, consequential military capability requirements, and the funding of the NZDF. 1. Ministers get to choose. 2. Presented as costed investment strategies that match funding tracks. 3. The ‘prize’. So, we had to be prepared to live with the option selected. Make explicit the tradeoffs between capability, cost and other considerations

4. Funding Tracks

5. Funding Tracks - What We Learnt • The 2015 to 2020 flat line in some tracks means you never recover things you lose in this period as no track then increases at more than Phase 1 predicted cost inflation – ie: it is a myth that you can grow things back! • Many funding tracks did not have enough variation to add a whole capability or substantively add to a capability • Even Track 2 (above current DMMR Ph 1 track) does not fund current Capabilities, probably mainly due to assumptions made and HR model • Actual costs are highly uncertain and will remain so – we intuitively think there is still a pessimism bias (ie: we are over-budgeted – history supports this)

6. Governance Framework • General oversight by Joint Ministers (Finance and Defence) under the authority of the Terms of Reference. • Governance Board detailed in the Terms of Reference: • Secretary of Defence • Chief of Defence Force • Delegates of the Secretary of the Treasury, the State Services Commissioner and the Chief Executive of the Department of Prime Minister and Cabinet • Associate members – VCDF and MoD Deputy Secretary Policy and Plans • Reporting Members – Review Director, Review Deputy Director and Review Project Manager

7. Governance and Management • Review Governance Board (RGB) • Governance and decision-making • DMRR at the Capability Management Board (CMB). • provided the RGB the opportunity to facilitate consultation with a wider group including external members • Review Management Team (RMT) • The RMT managed the project to ensure progress and milestones were met,

8. Key Assumptions • Breadth over Depth • No Transition costs factored in • Principle of bias towards the FRONT of the organisation • 100% manning and extant personnel model

9. Approach to the ‘Problem’ • Classic ‘wicked problem’ • With Policy held constant, the process had to address funding, capability or both to meet the Terms of Reference • ‘Shadow of DWP 2010’ • Knew that Review could force Capability choices • Needed ‘science’ signoff

10. Military Capability Options Current Military Capabilities Scenarios High-level descriptions of Security Events where the GONZ may consider an NZ military intervention Options to respond to significant Security Events (choices of military interventions that GONZ may make) Government’s Foreign Policy/Security Objectives National Security Strategy National military Strategy Principal Tasks for NZDF Examine options to address critical security events New Zealand Military Tasks Defence Diplomacy Domestic Security Tasks SW Pacific Military Tasks Regional Peace and Security Capacity Building Rest of World Military Tasks Peace and Security (UN) Humanitarian Aid Freedom of Navigation and commerce Factors Informing Future Military Capability Previous studies Current Studies Intelligence community reports Environmental scan/foresight Security Sector inputs Defence Experiment 2012 Capability Branch scaling exercise Defence Capability Plan DMRR Funding tracks Future 35 Alternative Options to Deliver Military Capability Determine appropriate and relevant capabilities and resources Development of ‘tiles’ (capability outcome and cost) To MCDA

11. DMRR Process Criteria Options (Military Capability & Enabling Functions) Increasing Costs Incremental Change to Capability Sensitivity Analysis Outputs EFs (Military Coherency) Development of ‘tiles’ (capability outcome and cost) Military Capability Options

12. Development of Capability Options • Leveraged on-going NZDF Output Review • Developed scalable military capability options • 0 to 1.2 - ‘Step up / Step down’ methodology • Relied on senior judgement, NOT tested against explicit scenarios • Provide the base from which VfM discussion could begin • Trade off methods • Contingency vs Utility • Likelihood vs Severity • Time to Acquire vs Anticipated Warning • Propensity to Commit vs Commitment Options • What things do not have off-ramps

13. 220 mutually exclusive costed options… Tile Tower

14. Multi-criteria Decision Analysis (MCDA) • Allowed analysis of complex problems characterised by mixtures of monetary and non-monetary objectives • Provides ways to break the problem into more manageable pieces, assess options against objectives, weight the objectives, and reassemble the pieces. • Social process combined with software analytics • People make decisions, not computer software

15. Evaluation Conference • Capability options assessed (using MCDA) against 5 x Decision Criteria, to provide both Weighted Benefit Scores & Value for Money • Independently facilitated • 29 hours

16. …evaluated against 5 decision criteria… • Safe and Secure New Zealand • International Order • Significant Relationships • Regional Security • Future Proofing Senior stakeholder ownership of the criteria was critical

17. Results • Cost information kept hidden, conference considered benefit only • Resulted in a list of highest benefit, through to lowest benefit, capabilities and support functions. • Cost information added, to provide value for money list of highest, through to lowest. • High value, medium cost capabilities at the top of list, and medium value, high cost towards the bottom of the list.

18. Value for Money Weighted Benefit Scores Sealift Security and Stability Operations High Airlift Sealift Ready Reserve Rotary-Wing Tactical Air Special Operations Forces Fixed-Wing Tactical Air Fixed-Wing Tactical Air Special Operations Forces Resource and Border Protection Operations Naval Combat Rotary-Wing Tactical Air Land Combat Maritime Air Operations Maritime Air Operations Airlift Naval Combat Resource and Border Protection Operations Security and Stability Operations Land Combat Ready Reserve

19. Value for money overview Sealift High Airlift • Resource and Border protection at least at current provides base capability for all Funding Tracks • Enablers (Airlift, Helos, and Sealift) scored highly but mainly needed to project and sustain Land • SASO valued higher than Land Combat however defaults to equivalent (proxy) Land Combat capability to give both for one price • SoF – size of Land Force is a big limiting factor • Naval Combat – many variations attempted but could not be achieved until Track 3 – all or nothing type capability • The overall highest benefit operational capability –SASO 22, does not appear until Track 1 • Army not even at current capability until Track 1 Ready Reserve Special Operations Forces Fixed-Wing Tactical Air Resource and Border Protection Operations Rotary-Wing Tactical Air Maritime Air Operations Naval Combat Security and Stability Operations Land Combat

20. Ultimately, we wanted to

21. 6 x ‘Defence Forces’ created • Process to derive distinct ‘Defence Forces’ (options) from the results of the Evaluation Conference • Adherence to the Governance Boards’ cleared assumptions, and the priorities / guiding principles that came from the Evaluation Conference • ‘Science’ from the Evaluation Conference and then ‘Art’ to provide coherent options • Provide for the best Defence Force for each Funding Track. • Capability options (to meet Funding Tracks 1-6)

22. What did coherence mean? • Only need this capability if you have that one • Only need this much enabling capability if you have that much force • Why would you do this enabling function if you didn’t do that capability output • Maintain a military flavour to NZDF - it is very easily could become a force of enablers, or just a gendarmerie • Breadth over depth as the first principle

23. ‘Fish hooks’ • Towers are not mutually exclusive but only one benefit scored • Some towers should have been combined • Very cheap or free things always score well in Equity • Compression of scale in Evaluation Conference • Personnel model was flawed • Evaluation Conference had current NZDF ‘in mind’ when allocating scores to enablers • Handling of Capital just as depreciation flow needs thinking out – capabilities come online through the period which distort real cost

24. Investment Strategies for the Funding Tracks 6 4A 4B 2 1 5 3 Naval Combat Naval Combat Force including replacement Naval Combat Force including replacement Naval Combat Force including replacement Naval Combat Force including replacement Littoral Warfare Support Littoral Support Group Littoral Support Group Littoral Support Group Littoral Support Group and Littoral Warfare ship Littoral Support Group Sealift Multi-Role Vessel [Canterbury] Multi-Role Vessel [Canterbury] Multi-Role Vessel [Canterbury] Multi-Role Vessel [Canterbury] Multi-Role Vessel and MPSC with additional LCM Multi-Role Vessel and MPSC with additional LCM Fixed-Wing Tactical/Airlift C130 and 757 replaced with 8 x C130 fleet 5 x C130 fleet plus replacement 5 x C130 fleet plus replacement 5 x C130 fleet plus replacement 5 x C130 fleet plus replacement C130/757 replaced with 5 x C130 and 2 outsized load capable aircraft Rotary-Wing Tactical Deploy NH90/A109 Deploy NH90/A109 Deploy NH90/A109 Deploy NH90/A109 Deploy NH90/A109 Helicopters to support SoF domestically Increased crews and deploy NH90 for 36 months Ready Reserve Ready Reserve Specialists (200) Ready Reserve Specialists (200) Ready Reserve Specialists (200) Ready Reserve Specialists (200) Ready Reserve Specialists (200) Land Combat and SASO DJIATF HQ CATG (CAV) 36 months DJIATF HQ CATG (LT) 12 -18 months DJIATF HQ CATG (LT) 12-18 months DJIATF HQ CATG (CAV) 36 months DJIATF HQ Battalion Group for 36 months DJIATF HQ Battalion Group for 36 months DJIATF HQ Battalion Group for 36 months Special Operations Forces SOTG [Squadron] SOTG [Squadron] SOTG [Squadron] SOTG [Squadron] Maritime Air Operations P-3K2 with SATCOM P-3K2 with SATCOM P-3K2 with SATCOM P-3K2 with SATCOM P-3K2 with SATCOM P-3K2 with SATCOM P-3K2 with SATCOM Resource and Border Protection Operations P-3K2 Orion (with SATCOM) Naval Patrol Fleet P-3K2 Orion (with SATCOM) Enhanced Naval Patrol Fleet P-3K2 Orion (with SATCOM) Enhanced Naval Patrol Fleet P-3K2 Orion (with SATCOM) Enhanced Naval Patrol Fleet P-3K2 Orion (with SATCOM) Enhanced Naval Patrol Fleet P-3K2 Orion (with SATCOM) Enhanced Naval Patrol Fleet DJIATF – Deployable Joint Interagency Task Force Head-Quarters MPSC – Maritime Projection and Sustainment Capability LCM – Landing Craft Medium SOTG – Special Operation Task Group SATCOM – Satellite Communication P-3K2 Orion (with SATCOM) Naval Combat Fleet can conduct limited RBPO

25. ‘Middle & Back’ deductions • Chose different levels of capability for each function to match each proposed track • Scenarios build informed by what was developed in the Front for each track - called this scaling • Stripped out duplication between Front and Middle/Back tiles – still in progress • Rationalisation between operational command functions (SCI / HQJFNZ / DJIATF) • Enhancements were made in some functions to optimise delivery of capability • Used loose principle of 50/50 ratio for lower tracks and 60/40 for higher tracks – otherwise Track 6 would have been 90% middle and back

26. Estate • Lower funding tracks do not need as much estate –reduced NZDF makes a number of locations completely redundant, irrespective of politics. • Retaining more estate will reduce operational capability • Full consolidation had lowest draw on future OPEX but is difficult for CAPEX • Full consolidation was used for all funding tracks (to avoid a skewed view of operational capability – ie: demonstrate maximum bang for buck)

27. Implications, Consequences and Risks • Political and Reputational risks in the NZDF losing capability on lower funding tracks • Consistency with 2010 Defence White Paper and impact of adopting lower levels of capability on National Security Interests and NZDF Tasks • Degree of confidence in the costing numbers from which decisions can be made • Meet overall total Track funding but cash flow will necessitate Capability reductions • Personnel numbers derived from the extant model - these numbers will have to be ‘interrogated’ further • Internal and External discussion as information of potential ‘Defence Forces’ that meeting Funding Tracks become known

28. Post Evaluation Conference Work • To refine ‘Defence Force’ options to meet shortlist Funding Tracks, work required in three inter-related areas: • Capital – 1st principles Portfolio (not a costing exercise) • People – thinking about ‘how’ the NZDF will do business with the Defence Force of that Funding Track to provide realistic establishments • OPEX – activity levels required at that Funding Track, including NZDF BAU and ‘Middle & Back’ scaling • Cabinet guidance (shortlist options) • Cabinet Paper submitted

29. Cabinet Paper and Lessons • Options Analysis Paper – August 2013 • Paper submitted in October 2013 • Cabinet signoff • Public announcement 13 Nov by the Minister of Defence • CDF – ‘ ….this means we have an agreed and sustainable long term funding approach out to 2030 and can now plan our future with certainty’

30. Cabinet Paper - October

31. Restricted Copy # Annex D – Track 1 and 3 Comparison

32. What did we learn? • Discipline, diversity, decisions • Manage the review as a project • Don’t underestimate the benefit of planning • Lock business rules down early • Interdependencies are hard to see • Keep costed options to a realistic number • We now have clear understanding of cost drivers • Value is in the conversations • Independent facilitation was important • Transparency built confidence and buy-in • Central Agency involvement

33. Other Points • Readiness • Reserves • Will, capability and capacity • Successful model and result in 2013 but will it survive …? • Internal and external communications • Understanding, transparency and knowledge

34. Questions

35. DMRR Methodology Brief Process DMRR Terms of Reference Development of Capability Options Evaluation Conference Six ‘Defence Forces’ Created Cabinet Paper • National Security interests and the Principal Tasks for the NZDF held constant. • October 2013 • Methodology, including use of MCDA, developed. • Funding Tracks derived by Treasury. • Two Inter-agency workshops conducted, including testing innovative approaches to deliver capability. • Assessed highest value capability in each of 22 ‘Towers’. • Assessed most valuable capabilities relative to each-other against Decision Criteria. • Determined Decision Criteria precedence and weighting. • Scenarios reviewed for coherence, then costed and refined. • Military Capability and Direct Support Tiles matched with Middle & Back. • Output Categories • Military Diplomacy • Command and Control • Maritime Air Operations • Maritime Surface Operations • Antarctic Operations • Aid to Civil Power • Military Assistance to Civil Authorities • Stability and Support Operations • Land Combat Operations • Project & Sustain Military Operations Offshore • Maritime Combat Operations • Humanitarian Assistance and Disaster Relief • Regional Capacity Building • Decision Criteria • Safe and Secure NZ • International Order • Significant Relationships • Regional Security • Future Proofing