Volume 2, Chapter
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Chapter 1

Overview

This Chapter provides an overview of the DMO, including the purpose and vision of the organisation, as well as opportunities and challenges. The chapter includes a review of the year by the Chief Executive Officer.

Year in Review by the Chief Executive Officer DMO

Dr Stephen Gumley

Dr Stephen J Gumley, CEO

2005–06 was the first year of the DMO as a prescribed agency.

It was also a very successful year, thanks to the professionalism and dedication of our hard working staff, who aggressively managed the fastest business tempo we have seen in Australian defence acquisition and sustainment for decades. Productivity per person increased by over seven per cent in the year, a good figure for any business in Australia, and especially good for a public sector organisation.

In 2005–06, the DMO achieved both its acquisition and sustainment business targets. Six and a half thousand DMO staff at our 50 sites throughout Australia and the 20,000 staff from over 500 of our suppliers in industry deserve congratulations for this outstanding result.

DMO top level goals

One of our themes at the DMO is benchmarking. This is done against like organisations, for example, acquisition and sustainment organisations in the United States of America, United Kingdom and Europe, and in other sectors of the Australian economy. The results are encouraging.

This year the Australian public showed much interest in an Australian icon, the fabulously successful Snowy Mountains Hydro Electricity Scheme, that was built by our grandparents in the years after World War II. Comprising 16 major dams and seven power stations of various sizes and complexities with associated tunnels and aqueducts, the Snowy Scheme was technologically challenging with sophisticated engineering. It was truly nation building in economic and social impact. The overall program cost about $17.5 billion when measured in today's dollars.1 The average annual spend between 1949 and 1974 was about $700 million in today's money.

Compare this with the DMO, which has over two hundred major projects, each costing over $20 million, with the largest, the New Air Combat Capability, at $12 billion. In 2006–07, the DMO's annual budget is more than $8 billion, or over ten times the annual size and scale of the Snowy Scheme. As did the Snowy, the DMO takes a decade-long view of capability, with a strong emphasis on skills formation, in its own organisation and in industry.

Not everyone understands the vast magnitude of what the DMO has been asked to do by the Government. Under the Government's bold Defence Capability Plan 2006–16, we have $60 billion worth of projects under management, each at different stages from initial planning and costing, to implementation, to finalisation and introduction of equipment into service with the ADF. These projects involve some of the most complex technology known. The DMO is responsible for acquiring and maintaining advanced stealthy fighter/strike aircraft, complex surveillance and detection aircraft, sophisticated satellite and terrestrial communications, warships of graded complexity and strike power, stealthy and deadly submarines with advanced surveillance capability, guided missiles and ammunition, armoured vehicles – so our troops are protected as they go about their dangerous duties on deployment – artillery, and a full range of weapons and support equipment.

DMO capital expenditure budget

Historical dollar cost of the whole project was about $818million. $17.5 billion is today's value of this by using average weekly earnings as the value of money deflator for each year's expenditure between 1949 and 1974.

There are major risks to be managed on a daily basis. The DMO intentionally takes on risk, noting that the "safe way" of accepting only low risk projects would leave our warfighters vulnerable and compromise Australia's national security. Our job is not to avoid risk, but to deliberately accept it and then manage that risk intensively. Shortcomings will, and do occasionally occur, but we learn from those and get on with the job.

Like the Snowy, which took 25 years to complete, the timescales for Defence projects can be long. For example, the $6 billion Air Warfare Destroyer project, which is currently going through its design phase, with production expected to start in 2009, has been in planning for eight years and will not be complete until about 2018, 20 years in all. These ships will serve with our Navy for 30–35 years, eventually paying off in about 2050. During that time, the DMO will maintain the three ships and upgrade their weapons systems probably once a decade, so that our warfighters continually have the best technology. Overall, it is a fifty-year responsibility that is hugely technologically challenging for the DMO and Australian industry alike.

This is why the DMO must be an enduring organisation, staffed with experienced professionals, dedicated to serving our country's national security interests. I am proud to report that staff showed they were exactly this in 2005–06, our first year as a semi-independent prescribed agency, connected closely to Defence, but being charged by the Government to be more businesslike, outcome-driven and efficient.

I would like to thank the Secretary of Defence Mr Ric Smith and the Chief of the Defence Force Air Chief Marshal Angus Houston for their consistent strong support for the DMO and their wise counsel when difficult problems have emerged. The support of the service chiefs and deputy secretaries in Defence has also contributed to excellent teamwork, both with projects and sustainment, but also with rapid acquisitions in support of operational deployments. Lieutenant General David Hurley, Chief of the Capability Development Group, has also driven the DMO's successes in 2005–06 and we thank him and his team for the energy with which they have prosecuted new projects.

DMO budget slide

The DMO can only ever be as good as the Australian and international industry that actually does most of the direct work for projects, upgrades and sustainment. We thank them for reducing in-year slippage in major capital project expenditure in 2005–06 to about 14 per cent in aggregate, compared with 2003 when schedule delays on the same measure were around 20 per cent. We are seeking a figure under 10 per cent which is benchmarked from like projects in best practice private-sector organisations; though we note that skills and infrastructure constraints are currently testing such performances in other sections of the economy.

The Minister for Defence, the Hon Dr Brendan Nelson

The Minister for Defence, the Hon Dr Brendan Nelson, with Dr Gumley and Lieutenant General Hurley at the launch of the Defence Capability Plan 2006–16 at the Defence and Industry Conference June 2006.

2006–07 will be exciting and challenging. The Government has requested that the DMO's work output be increased by about 20 per cent compared with 2005–06, a figure that will test the resources available in the economy. We are giving it our best shot.

Dr Stephen J Gumley

Chief Executive Officer
Defence Materiel Organisation

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