It is widely recognised, both at MoD centre and within DE&S, that the estimates of cost made at concept initiation (and subsequently at Initial Gate) are unrealistically optimistic.
Under the current approval process for major projects (i.e., Category A or B), business cases are presented to the IAB having been formulated primarily between IPT and DEC / Head of Capability. These business cases are subject to prior scrutiny from Sec(EC), the Defence Equipment & Support Investment Board ("DESIB") and validation by the DE&S internal assurance processes. Exceptionally large projects may also be required to gain approval by the full Defence Board.
Anecdotal evidence suggests that there has been limited appetite from project teams for independent review of cost / time to deliver estimates. Moreover, the Review team has been told by a wide range of parties that much of the oversight / assurance / scrutiny which is mandated during the run up to IAB submission can be of relatively low value (i.e., "box ticking" rather than "expert review").
DE&S is generally under pressure to deliver more for less, and in some cases, deliver the impossible. Push back on unrealistic expectations from the Capability Sponsor is difficult, particularly once momentum has taken hold of a project. Single Service loyalties permeate down through the DE&S organisation, creating the same perverse incentives as noted in Chapter 6, when putting together the EP. The result is frequent over-specification and under-pricing of Initial Gate (and to a lesser extent Main Gate) business case submissions.
If more realistic estimates of time and cost were available, particularly at Initial Gate, it is likely that alternative means of delivering equipment may have been considered. In some cases, questions as to whether the equipment was affordable at all may even have been raised.
Since business case submissions are rarely subject to independent review, and since incentives on DE&S to provide realistic estimates are relatively weak, it should come as no particular surprise that cost estimates increase as projects mature.
DE&S continues to maintain an in-house, semi-independent cost estimation capability (CAAS team79). Input from this group has until recently generally only been called upon on an ad hoc basis. In 2008, the "independent" validation of cost models and cost estimates was mandated for category A and B projects at both Initial Gate and Main Gates. However, this initiative remains in its early stages. The Review team heard from a number of sources that it had been difficult historically for "independent" cost checks to gain traction, particularly when the results contradicted internal team estimates or threatened the approvals process. A number of high level "benchmark" costings for projects undertaken by the Department have indicated significant underestimates of cost by IPTs80. These benchmark costs were borne out by eventual project performance.
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79 Cost Assurance and Analysis Services, a DE&S team whose main function is the provision of cost estimation models / semi-independent cost estimates to IPTs
80 e.g., HVR study in February 2005