Why do so many MOD projects end in cost and time overruns?
One of the main reasons is “entryism”. What I mean by that is unrealistically low cost projections are put forward which mean that large MOD projects such as the Eurofighter Typhoon and the Nimrod MRA4 aircraft are given the green light. Then these artificially low estimates inevitably increase and are aggravated by poor contract and project management, the effect of which is massive cost escalation, significant delays and, in the case of the Nimrod, cancellation!
For the Eurofighter Typhoon this has meant that the number of aircraft that will enter service has reduced by 30% from 232 to 160 aircraft. Despite this large reduction in numbers, the National Audit Office (NAO) estimates that the cost of the project has already risen significantly and will reach £37 billion by the time all of the Typhoons eventually go out of service. The NAO stated that “If the development and production costs are taken into account, the unit cost of each aircraft ordered has risen by 75 per cent.” and that “Typhoon investment decisions were made using over-optimistic and immature cost data.”
The balance between costs, amount of equipment and the importance of the operational capability to be provided should be the factors considered when the MOD is deciding whether a project offers sufficient value for it to invest in.
Ultimately, I think that Liam Fox and the MOD need to focus on answering the question: Why did the overspend occur? Was it due to the estimation of cost being wrong or was it mismanagement during the project that led to the budget being unachievable?
I think that it is a little of both…however, I am more concerned about the use of artificially low figures which show that a project will come in within a certain budget and time, just so that it will be given the go-ahead, only for the cost and time estimates to be breached.
Liam Fox says that future programmes should not be included unless there is a clear budgetary line for development, procurement and deployment and I agree with this, however, the folly of his plan is that it does not take all MOD projects into consideration. It outlines that quarterly checks should be applied to the top 20 projects by value to see if they are still within budget, which feels a little like locking the stable door…
Numerous reports and politicians have criticised the way that the MOD procures, but the only things that seem to change are the reports and the politicians themselves! What are the drivers for this ever present issue: lack of political pressure for change; poor procurement; or poor suppliers? Once there is an answer to this we can perhaps look forward to a solution.
What are your views on the way the MOD estimates it’s capital acquisitions? Join the debate by hitting the comment button below.