2.19 The Department has forecast the likely costs and savings of the headcount reduction programme, using different methods for civilian and military. For both methods, the outputs are sensitive to the assumptions made and will also need updating and adjusting to consider changing expectations and experience. Given the size and complexity of the headcount reduction programme the need for adjustment is expected, however, the change in assumptions will have a financial impact. The financial implications of these adjustments are explored in Part Three. The Department has begun to calculate the impact on its forecasted savings to consider its experience of tranche one and also needs to calculate the impact of removing tranche three for the Royal Navy and RAF and subsequent changes to tranche two.
2.20 The forecast savings calculations do not consider wider costs such as equipment, or accommodation used by personnel leaving. As these costs are largely fixed it is appropriate to exclude them from the analysis in the short term. We would expect the Department to find wider savings, for example by selling surplus property, in the medium term. The key features of the civilian and military methodologies are outlined below.
Civilian
• Uses a robust model.
• Assumes average capitation rates (cost per person including salary, pension contributions and benefits); predicts how many people will go by business area each year although the actual numbers have not been agreed; and assumes that the grade profile of people leaving under the Voluntary Early Release Scheme will match the current grade profile of the workforce.
Military
• Uses several tools including financial analysis and project management tools. While less sophisticated than the civilian modelling, it is adequate and follows accepted good practice.10
• The main sensitivities include the capitation rate, pension rights and the ratio between applicants and non-applicants for redundancy.
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10 Comptroller and Auditor General, Cabinet Office: the Efficiency and Reform's Group role in improving public sector value for money, Session 2010-11, HC 887, National Audit Office, March 2011.