Within DE&S, only around 250 people work under the Director Finance, supervising a spend of around £14bn p.a.. Although there are more financial managers within IPT and cluster structures, the finance function as a whole is felt to be under-resourced to carry any real clout in the department. The finance function's influence is also considered generally weak in comparison to its role in other organisations. Furthermore, financial professionals within the organisation at all levels find themselves outranked in decision processes - for example, Director Finance within DE&S is a 2* role on a 3* board and DG Finance is a 3* on a 4* board. As a result, important decisions can be made without due regard for their financial implications.
Financial discipline needs to be imposed upon DE&S for two distinct reasons. On the one hand, project costs need to be controlled more tightly in order to reduce overruns and, hopefully, reduce project delivery costs in the long-term. DE&S also needs to track the costs associated with its own operations more effectively in order to drive efficiencies.
Since its finance function is weak, DE&S is not able to adequately challenge flawed cost assumptions in the business cases of the projects that it takes on. This problem is exacerbated by the fact that Capability Sponsors do not hold budgets themselves; as a result, they do not suffer any consequences of project overruns. Rather, the blame is apportioned to DE&S, whilst the responsibility for the cost overruns may well actually lie with the unrealistic original estimates or requirements "creep".
One solution to this problem would be to allocate budgetary responsibility to the Capability Sponsor102, who would then be held accountable for initial costings. By introducing a 'hard' interface between the sponsor and DE&S, it would also be possible to incorporate an arrangement by which the customer is explicitly charged for any variations in the project specifications. This approach is entirely consistent with normal commercial practice, and has the benefit of incentivising the customer to determine their needs and state them explicitly at an early stage of the project's lifecycle. This is generally recognised103 as good project management practice, and is therefore behaviour that ought to be encouraged.
If hard charging interfaces were introduced, DE&S would be required to account for the activities that it undertakes as part of its project management remit in much greater detail. In practice, this means that the use of resources would be tracked to activities, which would force the organisation to recognise where its costs lay. Having done this, DE&S would be better able to explore the opportunities for potential efficiency gains. It would also enable more efficient management oversight and control of DE&S's activities.
Anecdotally, the Review team understands that DE&S starts the financial year with planned activity in excess of its budget by 10% as a matter of course. This reflects poor financial control and is also a function of overrunning planning round processes.
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102 Or FLC in the case of support for in-service equipment.
103 See, for example, the discussion in Section 8.2.