ASSISTANT DEPUTY MINISTER (FINANCE AND CORPORATE SERVICES)
SOUS-MINISTRE ADJOINT (FINANCES ET SERVICES DU MINISTÈRE)
Investment Planning
Financial Management Institute
Jonathan Hood
Department of National Defence
Director Corporate Submissions and Financial Arrangements
22 Jan 2015
Outline
• What is investment planning?
• Roles & Responsibilities
• IP Process
• Governance
• Sources of Funds
• Evolution and Way Forward
• Challenges
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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What is Investment Planning?
Supports Achievement of Strategic Outcomes
• Departmental investment planning is the function of allocating and
reallocating resources to new and existing assets and acquired
services that are essential to program delivery and is influenced by and
supports departmental strategic planning
• In DND, the highest level policy driver of investment planning is the
Canada First Defence Strategy (CFDS)
• CFDS envisions modern, combat-ready forces with the necessary
equipment and infrastructure to make them effective and sustainable in
the performance of their missions
• Effective departmental investment planning considers the roles,
mandate and the four pillars of the CFDS.
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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What is Investment Planning?
Quantifying DND’s IP Context
• Carrying value of department’s non-financial assets in
2013 financial statements ($39B) was over six times that
of the second largest, Public Works ($6B)
• Vast real property portfolio including government-owned
and leased buildings, works and land
• IP 14 covers an investment portfolio over the next twenty
years of $80B
• Largest and most complex capital program in government
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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What is Investment Planning?
Military Capabilities vs Affordability
• The ongoing investment challenge is to strike the balance between
achieving the military capabilities necessary to achieve the desired
strategic outcomes with the realities of limited resources
• Deliberations on investment proposals are informed by distinct
elements:
– the capability requirements;
– The funding required to acquire, sustain and operate; and
– the resource envelope available for investments based on existing
defence funding levels.
• Departmental investment planning must ensure that the investment
decisions taken today are affordable and sustainable.
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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Roles and Responsibilities
Key Players
• DM is responsible for the management of the IP.
• CFO is responsible for the development of the IP. The CFO
advises the Deputy Minister on resource allocations, financial
risk and the ongoing affordability of the IP
• Vice-Chief of Defence Staff has responsibility for the
development of programme and capability requirements within
the IP
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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IP Process
Step 1
New Investments
Policy guidance
Identify gaps
between required
capabilities &
operational state of
CF.
Prepare investment
proposals to
address capability
gaps, proposals for
capital projects over
$5M proceed to
CIPPR
CIPPR Process
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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IP Process
DATA
PORTFOLIO
DECISION
INVESTMENT
GENERATION
PROCESSES
PORTFOLIO
CIPPR
IRMC
• Derive Investment Planning insight through data exploration
• Develop integrated portfolios to include equipment, infrastructure and
informatics projects within multi-dimensional constraints
• Appreciate the impact of decisions and opportunity costs
• Provide responsive, defendable, and understandable input to the
decision making process
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Sous-ministre adjoint (Finances et services du Ministère)
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IP Process
CIPPR Algorithm: Relative Project Value
National
Policy
• Operational Impact
• Capability Based Planning
• Institutional Impact
• Program Alignment Architecture
• Report on Plans and Priorities
• Defence Renewal Initiatives
• National Defence Act
• Other Legislation
• Speech from the Throne
• Canada First Defence Strategy
• Ministerial Announcements
• Treaties
• Sponsors allocate a pool of
points among their projects
Project
Value
Departmental
Impact
Assistant Deputy Minister (Finance and Corporate Services)
Sponsor
Priority
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IP Process
Review Process
Banking Day at IRMC
Project sponsor receives
cost concurrence &
submits Investment Plan
Change Proposal
VCDS & CFO give an update
on CIPPR results
IP Change Impact Analysts
assessing the following:
IRMC evaluates impact of
authorizing submitted
projects
• capability requirements
• cost concurrence
• affordability & source of
funds
• project management
capacity
• human resource issues
Based on IRMC decision:
• Investment space is
booked
• IP is amended
• Authorized projects move
forward with submissions
to MND or TB
Senior Programme
Committee evaluates
impact of submitted
projects
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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IP Process
Banking Day … From “First In First Out” to Bundling
• The aim of the semi-annual banking day is to avoid considering
proposals in isolation and allow allocation to highest priority
• IRMC will be provided with updated information semi annually
including:
 IRMC exceptional decisions since last banking day
 revised project forecasts with variance analysis including
contracted information and actuals
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Governance
Governance Framework
• Projects <$5M approved at ADM level
• Program Management Board can approve projects between $5
and 50M. It reviews projects >$50M and makes
recommendations to IRMC.
• The Investment and Resource Management Committee (IRMC)
was established to ensure effective allocation and management of
financial resources
• IRMC to approve inclusion in the IP of projects >$50M based on
the advice of PMB
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Sous-ministre adjoint (Finances et services du Ministère)
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Sources of Funds
The Investment Plan has two distinct sources of funds
• Reference Levels
 Traditional source of funding
 Cash based expenditures
• The Accrual Envelope
 Funding set aside in the Fiscal Framework for Defence but
requiring TB approval to be accessed
 Investment Cash is provided to purchase assets (Vote 5) in
the year they are purchased
 Cost is amortized over life of asset in departmental financial
statements
 Source of operating funds to implement CFDS and sustain
capital investments that provide new capability
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Sous-ministre adjoint (Finances et services du Ministère)
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Vote 5 A-Base (Cash Basis)
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Sources of Funds
Uses of the Accrual Envelope
The accrual envelope can be used to finance:
• Equipment and infrastructure acquisitions, with a priority to
major equipment / capability acquisitions announced in
Government policy (CFDS or equivalent); and
• Incremental operating and sustainment costs associated
with acquisitions that establish new capabilities for National
Defence
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Sous-ministre adjoint (Finances et services du Ministère)
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Investment Cash
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Sous-ministre adjoint (Finances et services du Ministère)
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Sources of Funds
Advantages of the Accrual Envelope
• Projects have secured source of funding over life of the project
• Will enable recapitalization of assets (or replacement capabilities)
to be scheduled at end of equipment useful life
• Source of new operating funds to implement CFDS and sustain
new capital investments
• Facilitates better fiscal planning and management by central
agencies
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Sous-ministre adjoint (Finances et services du Ministère)
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Sources of Funds
Disadvantages of the Accrual Envelope
• No escalation or inflation factor
• No carry forward
• Ceiling is set
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Sous-ministre adjoint (Finances et services du Ministère)
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Evolution and Way Forward
Heightened Policy Requirements
• Treasury Board approved the first DND Investment Plan in 2009
for a three year period
• This plan was part of a policy pilot and the scope and reporting
requirements have evolved considerably since this time
• IP 2013/14 to 2017/18 was approved by Treasury Board on 17
June 2014. The Plan, and the governance framework it
promotes, are aligned with evolving policy objectives and
requirements
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Evolution and Way Forward
IP approval is a beginning…not an end
• Communicate implications of new IP
• Develop change management processes including monitoring
and reporting of changes
• Improve integrity of cash flow forecasts
• Develop and implement performance measures
• Strengthen life cycle costing
• Strengthen visibility of Acquired Services
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Sous-ministre adjoint (Finances et services du Ministère)
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Evolution and Way Forward
Operationalizing the IP
• Implement a fully operational IRMC Process
• Improve resource and investment management information
• Enhance the use of life cycle costing
• Improve the IP information base
• Improve strategic analysis of budgets and investments
• Improve strategic analysis of budgets and investments with a particular
emphasis on medium and long range affordability
• Enhance the use of the new Program Alignment Architecture
• Continued Improvements to Investment Planning and management
• Strengthen on-going monitoring and oversight of the IP
• Improve on post-implementation assessment of the benefits realized from
investments
• Renew the internal project approval process
• Enhance internal budget management practices
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Sous-ministre adjoint (Finances et services du Ministère)
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Evolution and Way Forward
Challenges
• In service support costs are increasing and will put increasing pressure on
departmental budgets. May be difficult for project sponsor to find a source of
funds
• Increasing demands on CFO org for cost concurrence
• Need to rationalize governance to include infrastructure projects and incorporate
approvals made at ADM Level (<$5M)
• Need to understand impact of project approvals on operating budgets over time.
Using the business planning process to address pressures is not optimal
• Organizational Project Management Capacity Assessment is currently a 2.
Getting a 3 would potentially reduce number of TB submissions
• Need to develop performance measures to evaluate processes and overall
efficiency and effectiveness
Assistant Deputy Minister (Finance and Corporate Services)
Sous-ministre adjoint (Finances et services du Ministère)
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