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1996 November Report of the Auditor General of Canada

Assistant Auditor General: David Rattray
Responsible Auditor: Peter Kasurak

Main Points

34.1 Operational units of the Canadian Forces are sustained by a national support system of 29 bases that provide support services, which cost $2 billion each year to operate.

34.2 The Department is undergoing significant change because of modifications to defence policy and resource reductions in the last three Budgets. It is cutting personnel and closing bases at the same time as it is implementing a management renewal program. These pressures, coupled with efforts to increase the proportion of resources assigned to combat forces, increase the complexity of managing change. Nevertheless, the Department is committed to implementing most major changes between 1994 and 1999.

34.3 At the corporate level the Department's renewal initiatives are under way, but few concrete results are visible yet. Senior officials told us it was still too early to expect their initiatives to have achieved results.

34.4 Senior management wants staff to think of themselves as active, cost-conscious resource managers rather than "resource custodians". Survey data indicate that while most in the Department are receptive to change, the Department will have to overcome significant obstacles to create an empowered, self-starting labour force. It has taken commendable steps to deal with changing values and beliefs, but more needs to be done to educate staff and to provide incentives.

34.5 Most base managers say they cannot get all the cost information they need when they need it. Performance information is lacking on most bases.

34.6 At the working level, we found that productivity improvements were inconsistent. In some cases productivity has declined:

  • In spite of some major improvement initiatives, labour productivity in base supply declined 10 percent from 1992-93 to 1995-96 because the level of activity fell more rapidly than the level of supply personnel. Senior officials believe this is only a temporary problem and their efforts will result in overall improvements.
  • Kilometres driven per driver by base transportation services varied widely, with drivers at the best-performing bases driving five times more kilometres than those at the lowest-performing bases.
  • Vehicle maintenance productivity was lower than in industry. While military requirements may account for part of the difference, the Department has not calculated how much of a difference such requirements make.
  • Air maintenance is improving, with millions saved on the DASH-8 aircraft and the CF-18 at Cold Lake. However, improvement appears to have stalled, and bureaucracy, lack of financial responsibility and lack of cost information are still problems.
  • The training system's productivity was not competitive with the private sector in 1990 and has become 40 percent less productive since then.
34.7 In order to meet the Minister's goal of producing the defence capabilities described in the 1994 White Paper with 25 percent fewer resources, support productivity must begin to increase now.

Introduction

Why Support Productivity Matters

34.8 The operational ships, land force brigades and air squadrons of the Canadian Forces are sustained by a national support system that provides personnel support, equipment, food, fuel, maintenance and training. The overall support system consists of 29 Canadian Forces bases where operational units are stationed, and national and command headquarters that provide general management of the individual support functions. Support functions consume 46 percent of the National Defence budget each year.

34.9 "Productivity" is the rate at which resources are used to produce or deliver a given quantity and quality of products. The more productive an operation is, the fewer resources it will consume in delivering its products. The more productive support operations are, the more the resources that can be devoted to combat and combat support units. The size of the support effort needed to sustain the Canadian Forces makes productivity particularly important. In the face of fixed budgets and continuing budget cuts, any increase in expenditure on support reduces spending on the size of the combat force, its readiness or its modernization through the purchase of new equipment. In his 1996 Departmental Outlook the Minister of National Defence said that budget cuts are "not expected to affect the roles or capabilities of the Canadian Forces described in the 1994 Defence White Paper." In order to meet this expectation, the productivity of support elements must increase as fewer resources become available to support the same combat capability.

Turning the Department Around

Previous audits showed low productivity
34.10 Over the past six years, we have audited a significant number of National Defence support functions. In general, we found their productivity far below that of other organizations providing similar services, including other public sector organizations. For example:

  • in 1990 we found Canadian Forces hospitals whose costs were 86 percent higher than civilian hospitals of a similar size;
  • the same year we also found that departmental technical schools were much more costly than civilian community colleges; and
  • in 1994 we found that the productivity of construction engineering tradespeople was 33 percent lower than in the private sector.
34.11 In 1994, we also completed an audit of the central management systems in the Department. We found that the Department had recognized the importance of managing its costs and had begun to implement "business planning" to increase managers' focus on objectives and to become more efficient. But managers lacked necessary information and there were few incentives to minimize costs. The lack of information has delayed cost-saving initiatives.

The Department made a commitment to renewal
34.12 The Public Accounts Committee held hearings on our 1994 Report chapters. In testimony to the Committee, senior departmental officials described their organization as bureaucratic and risk-averse. They told the Committee that "truckloads" of regulations had developed over the years. Rules were so extensive that "Mickey Mouse could have been a [Base Construction Engineering Officer] if he could read, because [the regulations] told him every conceivable thing he could do and could not do."

34.13 Officials described their renewal efforts as based on two projects: business planning and operating budgets. The Department intended to use business planning to link results to resource use, and operating budgets to delegate more resources to local managers and allow for greater initiative and flexibility. Local managers were to change from "resource custodians" to active managers. Senior officials said that this would allow the Department to lower overhead, maximize efficiency and simplify service delivery. They believed that this change would be complete in five years, or by 1999.

34.14 In its report, the Public Accounts Committee expressed scepticism that the Department's proposed efforts would be adequate or timely enough. In particular, the Committee called on the Department to develop cost information for management decisions and to track the results of its cost reduction initiatives. The Committee also requested the Auditor General to track the Department's efforts to reform its management structure and practices, and to report to the Committee as appropriate. This chapter provides a report at the two-year point for the Committee.

Program Review made large budget cuts
34.15 Large budget cuts have made it imperative that the Department begin renewal efforts, but have also made it a complicated task. In order to meet deficit reduction targets and to take advantage of the end of the Cold War, the government has greatly reduced the defence budget. Defence spending is projected to fall from about $12 billion a year in 1993-94 to $9.25 billion in 1998-99 ( Exhibit 34.1 ). The Department intends to cut costs by closing bases, reducing by up to 50 percent the resources consumed by major headquarters, reducing support functions by 15 percent by the end of 1997, and reducing staff at bases and commands by 15 percent by the end of 1997. This process is well under way. ( see photograph )

34.16 Budget reductions, the loss of many personnel and the accompanying turbulence have placed a significant burden on management. The Department has been successful in reducing its expenditures and work force by the required amounts. The success of its renewal efforts must be seen in the context of these very large cuts, the effort required to manage them, and the complications of trying to implement renewal in the middle of a program of directed cuts and downsizing.

The Department has recovery initiatives to improve productivity
34.17 As early as 1991, National Defence began to implement initiatives to improve productivity:

  • The Base DelegAAT initiative begun that year was aimed at delegating greater authority and increasing accountability for resource management by base commanders. The Department tested DelegAAT at three bases and communicated the results across the Department.
  • Defence 2000 was launched in 1992 to co-ordinate all renewal initiatives, place them within a strategic framework, and make renewal a priority within the Department. Emphasizing "service, empowerment, innovation and accountability", it generated a number of renewal and re-engineering initiatives at the command and base levels.
  • Operation Excelerate was begun by the Assistant Deputy Minister (Materiel) Group in 1994, to achieve major improvements in the cost effectiveness of materiel operations while providing the same level of service.
  • Operation Renaissance, begun in January 1995, is a re-engineering effort of the Assistant Deputy Minister (Personnel) Group, similar to Operation Excelerate.
  • The Management, Command and Control Re-engineering Team (MCCRT) was intended to rationalize National Defence Headquarters and the various command headquarters, reducing their cost by 50 percent. MCCRT has become the departmental umbrella program co-ordinating all the major re-engineering and renewal efforts, including Defence 2000, Operation Excelerate and Operation Renaissance.
Where is it now?
34.18 The Department has had initiatives in place for five years and began its major renewal effort two years ago, in 1994. The objective of our audit was to identify progress achieved so far, and this chapter reports our findings. Further details on our audit objectives and scope can be found at the end of the chapter (About the Audit) .

Observations and Recommendations

Corporate Management

Change initiatives are difficult to control
34.19 Change needs to be managed . In order to manage a turnaround in an organization as large and diverse as the Department of National Defence, managers must deal with at least three different levels of change:

  • They must manage the change of entire national systems - such as the personnel system or the supply system - to select the best overall strategy for providing support.
  • They must decide how to adapt national systems to local circumstances to ensure that specific requirements are met in the most cost-effective way.
  • They must ensure that they themselves adapt to new ways of doing business and adapt their beliefs and values to the corporate culture.
34.20 National Defence is now facing a tremendous challenge as it attempts to change national and local systems simultaneously, through 15 major initiatives and thousands of local initiatives. In addition, the Department is attempting to make a significant change in its work culture by trying to move from a rule-following, risk-averse "custodial" past to a more entrepreneurial "business" approach in the future.

34.21 We expected, therefore, that the Department would have structures in place to manage and co-ordinate change. Although the Department does have a structure in place, our audit indicates that the management of change needs to be improved.

34.22 The Department needs to improve co-ordination. The Department adopted a philosophy of attempting to incorporate change within its existing management or "command and control" structure. It placed its emphasis on facilitating improvement and removing roadblocks rather than relying on central control. Central control itself was regarded as the root of many existing problems.

34.23 However, by 1995 the Department concluded that its approach, allowing a large number of individual projects, would work better if there were a single co-ordinator of these efforts. The Department's renewal structure begins at the top with the Deputy Minister, the Chief of the Defence Staff and their senior management team. A Management, Command and Control Re-engineering Team (MCCRT) co-ordinates re-engineering teams that are active in all major sectors of the Department. The Department is devoting 110 full-time personnel to MCCRT projects.

34.24 A second major co-ordinative effort is Defence 2000 (D2000). The Department set up this office in 1992 to co-ordinate overall departmental renewal initiatives, place them in a strategic framework, and make renewal efforts a priority within the Department. It is a major corporate initiative that emphasizes "empowerment, innovation, accountability and service." Many command-level projects have begun under D2000. Specific targets for improvement include:

  • planning, budgeting and accountability processes;
  • Department-wide materiel, financial, personnel, information and general administration systems;
  • the work processes and structures employed by units to achieve their missions; and
  • leadership priorities.
D2000 work is co-ordinated by the Chief of Management Renewal Services, and all major organizations have a D2000 cell. The responsibility for both re-engineering and renewal work remains with line managers, who must ensure that changes are implemented.

34.25 We met with senior officials in July 1996 to obtain information on the plans and progress of the MCCRT initiatives. Officials told us that coping with budget and personnel reductions has been a major focus of efforts so far. The Department has been able to attain its objectives for base closures and for the reduction in the size of its major headquarters. Officials noted that they had identified personnel reductions of 45 percent in National Defence Headquarters, exceeding the 33 percent target set in the 1994 White Paper.

34.26 Major renewal projects, however, are still at a "conceptual" stage. MCCRT will end in 1997. Senior management has directed MCCRT to provide a strategic plan by the end of 1996 to address co-ordination requirements and the future role of the Chief of Management Renewal Services. These jobs may well be done in the future by one organization.

34.27 In some areas, personnel are confused by the many overlapping and duplicative renewal efforts. According to a survey done by Air Command, there are so many national, functional, and command projects that duplication is resulting. There appears to be some confusion regarding the demarcation of responsibility among the various levels of command.

34.28 Some initiatives suffered delays. We found that several initiatives have been delayed because of unclear or divided accountability and lack of cost information. For example: ( see photograph )

  • Red Tape Action Team. The Department established the Red Tape Action Team in 1994 to reduce the numbers of directives and procedures by 50 percent. The project was originally intended to be completed within two years and it has been successful in designing a new policy generation process. Due to overambitious objectives, the difficulty of the task and reordering of priorities, officials estimate that the project will take an additional 15 months to complete.
  • Military pay. The Department's military pay system produces salary payments for its 69,000 military members. In 1994 a departmental study indicated that the military pay system was inefficient, requiring more people than necessary to operate. A subsequent internal audit confirmed that at least $14 million a year could be saved by re-engineering the military pay system. The Defence Management Committee approved re-engineering in principle in September 1995. However, the initiative is dependent on other technology and human resource projects and the Department has not established a firm timetable for achieving savings. The Department is also evaluating the potential for contracting out military pay services to the private sector. Officials could not tell us exactly how the Department would meet the target of a 50 percent reduction in the personnel who provide military pay services.
  • Food services. In 1994 the Vice Chief of the Defence Staff ordered staff to investigate the possibility of using the private sector to provide food services to the military. In March 1995, staff completed their study and in October 1995 three bases were selected for trials. The lack of a costing and evaluation policy to allow a fair comparison between departmental and private sector alternatives has delayed action. In July 1996, officials were still developing a new costing model to assess the private sector alternative.
34.29 Base DelegAAT has been a success. The Base DelegAAT project was intended to assess the impact of giving base commanders increased authority for resource management. After the pilot project demonstrated that significant savings could be made through greater delegation of authority, best practices were communicated throughout the Department.

34.30 We selected the Base DelegAAT initiatives that had reported the largest savings - $100,000 per year or more at a single site. We wanted to see whether managers on other bases had heard of these savings opportunities and whether they had used them on their bases. We contacted 19 bases and spoke to officials in charge of specific functional areas or of change initiatives overall.

34.31 We found that while only 30 percent of the responsible managers had learned of relevant initiatives directly from Base DelegAAT communications, about 53 percent had become aware of initiatives through conferences, by word of mouth or by chance. Another 8 percent had "reinvented the wheel" and come up with the same idea locally. Almost 40 percent had implemented related ideas and another 46 percent were either beginning implementation or considering it. The individual managers we talked to had documented annualized savings of almost $12 million. This is more than the savings claimed by the Department in the Main Estimates.

34.32 National Defence should ensure that it maintains a centre for the co-ordination of change. The centre should continue to track the activities of major initiatives, address common problem areas, and report to senior management. In addition, it should continue to ensure that procedures are in place to communicate information on best practices and bring any delays or conflicts to the attention of senior management.

Department's response: The Department is still in the relatively early stages of major change, which is intended to take place during the period from 1994 to 1999. This is considered to be a realistic timeframe to achieve the essence of fundamental transition. Positive results are only now starting to be realized, at about the two-year point. This monumental re-engineering and restructuring demands strong leadership as well as commitment of resources.

The Department strongly supports this recommendation and has every intention of maintaining proper co-ordination of change activities. This will probably be a role for the Chief of Management Renewal Services organization of the future. The foreseen requirement will be to exploit cross-functional lessons learned, identify and resolve common problems, and assist senior management in keeping the renewal initiative on track. It is not currently our intention to create or promote centralized control of change initiatives. This work is rightly the responsibility of those in the chain of command. Accordingly, any corporate-level, centrally focussed organization will adopt a co-ordination, harmonization and facilitation role. It is intended that the mandate for such an organization will be established so as to enable it to take over from the MCCRT when the latter reaches its termination date during the summer of 1997.

The change in values and beliefs has just begun
34.33 As already noted, the Department believes that it must alter its work culture in order to increase its productivity. Senior officials told the Public Accounts Committee in 1995 that the Department up to that point had been "very centralized . . . very hierarchical and . . . risk free . . . . We lived in an environment where we thought there were two ways of doing things: our way and the wrong way." As a result, there had been a proliferation of rules and regulations to remove "the burden from individuals in terms of devoting a lot of time to management." All individuals had to do was "pull the book out and the book [would tell] them what they [had] to do in a step-by-step manner." The Department had "a regulation for every mistake that's been made in the Canadian Armed Forces or the Department for the last hundred years."

34.34 Changing attitudes and beliefs is an extremely difficult task. Some organizations believe it to be so difficult that they practise a "greenfields" approach. That is, rather than attempt to change the values of their existing labour force, they will build a new plant and staff it with new employees - sometimes from outside their industry. One international airline adopted this approach to implement a new concept in the repair and overhaul of aircraft equipment.

34.35 The Department has undertaken four major surveys to find out the attitudes of its military and civilian members. Two studies - one undertaken by the Personnel Group and the other by the D2000 project - were comprehensive, in that they included the entire Department. The other surveys were aimed at members in Materiel and Training. The smallest survey - Training - met all our methodological standards, in that it was based on a validated model with pretested questions, used random sampling and a sample of adequate size, had an adequate response rate and produced results that could be compared with results from other organizations. The D2000 and Materiel surveys were generally adequate, but were unique studies and could not be compared with those of organizations outside the Department. The Personnel study was not based on a theoretical model, questions were not pretested and the response rate was poor. All the surveys were undertaken in 1995 except the Training survey, which was completed in 1996.

34.36 The results of the four studies are highly consistent and, in spite of the limitations noted above, provide valuable information. The three largest studies show that the civil/military "defence team" accepts the need for change and does not want to continue working in the same old way:

  • Most people appear to believe that they personally can cope with the required changes.
  • Most believe their colleagues are dedicated and motivated to do a good job and that their units are operating well.
  • Most members appear to have a high level of commitment to their Department.
34.37 However, the surveys point to problems that the Department will need to work to overcome:

  • Results show that in one group the majority believe that the changes desired by management go against individuals' strongly held beliefs, even though the majority in that same group said they are looking forward to new ways of doing business and do not want to continue the status quo. In another group, the culture is contrary to one that can support high performance, respond to change or achieve change. A Department-wide study indicated that the great majority support the new management values but that, to many, the relationship between military values and the new values is unclear.
  • All the studies indicate that there is a lack of confidence and trust in leadership. One study indicates that about one third believe that civilians and the military work effectively together, another third are neutral and the final third believe that they do not work well together. One survey places overall co-operation and collaboration among a large group of employees at "rock-bottom" levels.
  • The data show that there are difficulties in putting the new management principles into place. While most people say they support the principles, management programs aimed at implementing them are regarded as seeking only cuts rather than seeking to improve program delivery. Only 27 percent of the respondents in one survey said the new management principles were being acted on in their units.
  • There are continued concerns about bureaucracy and rules and procedures that impede efficient use of resources.
34.38 National Defence has taken commendable steps in coming to grips with the problems of changing values and beliefs. The survey results show, however, that the change process has just begun. They also provide warning signs that the process may be long and difficult, and that it will require persistent and credible leadership at all levels to succeed. As of June 1996, a "cultural awareness package" had not yet been completed or approved by senior management, but officials told us that work was in progress on this and other initiatives. The Department is evaluating recommendations made by a joint civilian-military all-ranks group. Air Command has delivered a three-day awareness program to most of its personnel.

34.39 Officials noted that due to restraint, they have been unable to establish many incentives to promote improved performance. A Deputy Minister/Chief of the Defence Staff recognition award has been put in place, but otherwise the scope for action is limited. Even allowing local managers the opportunity to use part of savings to meet local needs has been curtailed by the need to make cuts and reduce the departmental budget overall.

34.40 We believe it would be useful for departmental and Treasury Board officials to further discuss incentives for managers to improve productivity.

34.41 National Defence should continue to monitor those employee beliefs and values on which its new management system depends. It should strengthen measures to ensure that management systems support the desired culture.

Department's response: The Department concurs with this recommendation. It has always been our intention to continue to monitor employee beliefs and values on which the new management system depends. The D2000 Survey instrument was specifically designed with this purpose in mind, and it is planned to re-administer it in 1998 or 1999 as a measure of cultural change progress.

Overall, the surveys indicate that the Department has been able to impart to the Defence team the values underlying renewal. The issue now is to address the deficiencies in those areas that are required to facilitate the implementation of these accepted values. The following areas need attention: trust and confidence between management and staff at every level; reduction in bureaucratic procedures; the manner in which the Department communicates internally; and the stress levels and morale of members of the Defence team.

Efforts also will continue to translate our management principles into practice through changes to management systems and through cultural change activities. The culture has begun to evolve as a result of the re-engineering effort and this evolution will continue as practices such as business planning become more solidly institutionalized. To reinforce this evolution, corporate-level change initiatives will include cultural transition support and an ethics program complementing command and group-level efforts. One very significant example is the three-day session being delivered to Air Command personnel as part of that command's "Flight Plan 97" work .

"Business plans" often lack cost and output data
34.42 According to the Treasury Board, "business planning" is intended to help departments adjust and manage with fewer resources. National Defence defines business planning as an accountability-based process that links activities to performance through contracts between superiors and subordinates. These contracts identify tasks to be performed, the assigned resources and the expected results. The key elements of business planning, therefore, are cost and performance data on which to base a contract.

34.43 In previous audit reports we had noted deficiencies in the information available to senior management for decisions and in reporting on operational readiness. Departmental officials responded that business planning would address these deficiencies and would resolve accountability problems. Officials have described business planning as a "key tool" of their renewal efforts.

34.44 At the time of our present audit, the Department had only its highest-level business plans in place - those at the command and headquarters group levels. The Department has since begun a second cycle of planning, extending business planning throughout groups and commands. We examined the high-level plans to see if they adequately described activities and objectives, linked costs to objectives, had performance measures and set priorities. We found that progress had been made, and that four of seven plans were satisfactory in most respects. Our results are summarized in Exhibit 34.2 .

34.45 Nearly all the business plans describe activities well, but three of the seven lack a description of the intended results. The Department's Operational Readiness and Effectiveness Reporting System, which we found deficient in 1994, is no longer used to report to National Defence Headquarters and a new system is under development. The cost of activities is also frequently missing from business plans. In addition, we found that the Department has not yet approved the funding for its project to create a "data warehouse" to act as a central repository for business planning data.

34.46 Overall, we noted strong effort and some progress in creating business plans. Much effort has been expended on defining activities and objectives, which should provide a valuable base for future efforts. However, until business plans include cost and performance data they cannot act as a tool to improve productivity.

34.47 National Defence should develop and make available cost and performance data to support business planning. It should establish dates by which such data are to be available at each planning level.

Department's response: Developing and making available cost and performance data have been and continue to be priorities in implementing business planning within the Department, and work is well under way on both fronts.

Efforts to cost activities in support of business planning are being pursued through the establishment of a financial and managerial accounting system, of which activity-based costing (ABC) is only one component. Pilot projects are under way in Land Forces Command, Air Command, Assistant Deputy Minister Defence Information Services, Assistant Deputy Minister Materiel and Assistant Deputy Minister Personnel. As well, a Management Accounting Working Group (MAWG) has been established to address ABC at the national level. At present, the MAWG is conducting an evaluation of a commercial off-the-shelf system to determine whether it has the potential to meet our financial and managerial accounting needs. The plan would then be to conduct a pilot project in one of the groups, to be complete by December 1997. If successful, DND would implement the new system Department-wide by June 1998.

In the area of performance measurement (PM), the most significant progress has been achieved through the issue of strategic PM guidance in Defence Planning Guidance (DPG) 97, to be published in October 1996. Chapter 5 of that document clearly describes the overall PM system and presents a "strawman" framework against which performance should be measured. The framework captures the first attempt at identifying the critical success factors, performance measurement areas, and (to a lesser degree of completeness) performance indicators for each of the five National Defence strategic objectives. This guidance is presented not only to condition the concurrent PM development already under way in the commands and groups, but also to generate the feedback necessary to better define the performance indicators and yet-to-be-developed strategic standards. This iterative process will complete the development of a DND PM system that will generate the raw performance data that, once analyzed, will assist in strategic decision making. It will also provide the inputs required for reports to government. One significant performance reporting initiative is the ongoing development of the Resource and Capability Report (RECAP). A prototype of RECAP, potentially a replacement system for ORES, is due for presentation in the November-December 1996 timeframe. Built around capabilities, this new system is intended to fit with business planning and extend the functionality of ORES into new areas. In summary, the PM guidance contained in DPG 97 is expected to produce a partially mature PM system for FY 1997-1998.

Operating budgets have had limited impact so far
34.48 The second key tool in departmental renewal is the use of operating budgets. Treasury Board directed departments to have operating budgets in place by April 1993. National Defence operating budgets include civilian personnel, operations and maintenance funds and capital delegated to managers at commands and bases. The intent behind operating budgets is to allow local managers the initiative to make their operations more efficient by making their own spending choices among minor capital items, personnel and operational activity. A wing commander, for example, could choose to have fewer workers cleaning buildings and more fuel for his aircraft.

34.49 In 1995, senior officials told the Public Accounts Committee that the delegation of funds to base commanders was well under way: 40 percent of the resources they used were under their control and up to 60 percent might be possible in the future. They told the Committee that this would allow local-level managers to make decisions giving greater weight to factors that, although important to sound resource management, tend to be invisible to management at higher levels.

34.50 We reviewed the delegation of funds to local managers to see what had been achieved. We found that the Department has almost achieved its targeted delegation of 40 percent of budget. The two largest National Defence Headquarters groups, Personnel and Materiel, were greatly affected by downsizing and reorganization and have yet to finish implementing operating budgets. Most Headquarters managers believe the delegation of budgets has been beneficial, but no evaluation has been conducted yet.

34.51 We also examined whether the delegation of funds to local managers had resulted in changes in the resource mix used to provide support services, as the Department had originally anticipated. We contacted base maintenance, supply and transport managers at the 22 bases used in our audit; 21 bases responded. We found fewer than half of the managers had transferred money from their personnel account to other accounts. Comments from local managers indicated that most savings from local initiatives have been used to meet the need for budget reductions. Local managers have been forced to reduce their civilian work force and have had little opportunity to use operating budgets to make their operations more efficient.

34.52 We found that in spite of the pressures of budget reductions, net transfers of funds from civilian pay accounted for $38.1 million in 1994-95 and $64.5 million in 1995-96. Officials told us that even though military pay is not yet part of operating budgets, managers will be able to convert military positions into cash when force structure and funding issues are resolved. Officials also said that funds transferred from operations to capital have been used, in large measure to buy information technology in order to reduce personnel and increase productivity.

34.53 While it is clear that some managers are making good use of the flexibility of operating budgets, documentation we reviewed indicated a lack of awareness of discretionary powers to transfer funds. It appears that lack of knowledge in some areas about how to make budget transfers may have inhibited change. Our conclusion is that operating budgets are indeed a useful tool but that their full utility has not yet been realized at the local level.

34.54 National Defence should ensure that managers know how to use operating budgets and should provide them with incentives to do so.

Department's response: National Defence recognizes that in order to continue to meet policy commitments with fewer resources, managers must have the flexibility that is inherent in operating budgets. While information on operating budgets has been promulgated, action will be taken to confirm whether this information is reaching managers in a timely and effective manner, and to rectify any shortcomings. The Department believes that a smoothly functioning system of operating budgets offers flexibilities that are a significant incentive to well-informed managers.

Base Management

What is a base?
34.55 Bases are centres that exist to support operational units of the Canadian Forces, the Reserves, schools and all other departmental activity in their vicinity. Bases provide a generally common range of services for which National Defence Headquarters establishes standards, policies and management systems. Staff at National Defence Headquarters also establish the personnel policies that govern individual skills and set overall resource levels for commands and headquarters groups.

34.56 The Canadian Forces have 29 bases across Canada. The largest is Halifax, with a staff of 2,114, while the smallest is Moncton with a complement of 182. Each year about $2 billion dollars or 24 percent of the Department's operating budget is consumed by bases; about 26 percent of National Defence personnel work in base support. Our audit focussed on the 22 bases that the Department intends to keep open. The bases we selected represent about 82 percent of the Department's spending at the base level. We selected three base support functions for audit: supply, transportation and maintenance (focussing on maintenance of vehicles). ( see photograph )

Much remains to be done to create a businesslike workplace
34.57 As noted above, a major renewal goal of the Department is to change from a rule-following, risk-averse bureaucratic workplace to one that is more businesslike. In the new workplace, managers would be sensitive to cost and efficiency, able to assess costs and benefits and able to exercise initiative. We asked the managers of supply, transportation and maintenance at the 22 bases covered by our audit about progress in this area. Twenty-one bases responded. From their replies, it appears that much remains to be done.

34.58 The majority of base managers reported that they have more control of and accountability for the resources their sections consume. However, over half told us that inflexible personnel regulations limit their ability to manage in a more businesslike way. They were especially concerned about limits imposed by regulations governing civilian employees and, to a lesser degree, by those concerning military personnel.

34.59 Thirteen percent thought the availability of cost information had improved through the introduction of the Cost Centre Management Project, an Air Command initiative to provide comprehensive resource information to its local managers; 32 percent attributed the improvement to the Consumer Consumption Awareness initiative, a second initiative to let consumers know the cost of supplies drawn from the Canadian Forces Supply System. However, only 5 percent of the base managers said they could now get all the relevant information they need when they need it. The Cost Centre Management Project appears to have been abandoned by all but Air Command. Officials told us the Department has recognized the need to improve the availability of cost information and is working on several projects. The Department recognizes a need for better co-ordination of cost information projects and work has begun on a Departmental Management Accounting System to support financial and managerial accounting, business planning and performance measurement.

34.60 Performance management information, however, is still almost totally lacking. Managers knew what their outputs were, and knew where to find output data. However, only 27 percent had attempted to cost their outputs, and only one could give an example of having done so. Seventeen percent had defined a level of service to be provided to customers and 19 percent had done customer satisfaction surveys. No one on the 21 bases responding reported having a computer-based performance management system, and only 43 percent said they had any performance indicators at all. Six percent had made some attempt to benchmark themselves against providers of similar services.

34.61 Seventy-two percent of the base managers we talked to had begun a re-engineering project. More than half had not completed their project and, in most cases, could not provide a completion date.

34.62 It appears that progress is occurring at the level where most work is done. Cost information has not improved substantially since our 1994 audit, although managers want better cost information. Red tape is still a problem. Performance information is seriously lacking. The impact of these deficiencies is reported below.

The productivity of base supply has not yet begun to improve
34.63 Base supply receives, warehouses and distributes all the materiel required by operational units, support units and the base itself. Materiel ranges from office supplies to weapon system components. Most supplies are managed through the national Canadian Forces Supply System, which acquires, provides and accounts for military and specialized materiel. The majority of common commercial items are purchased by the base directly from suppliers. At our sample of 22 bases in 1995-96, base supply employed 2,613 of the 3,497 people employed by the total Supply System, handled 2.6 million orders and cost $99 million in wages to operate.

34.64 The Department recognizes its deficiencies . National Defence recognizes that its current supply system is inefficient, and has already begun improvements. Studies at the base, command and national levels show that changes are required and that savings of up to 40 to 50 percent of 1994 baseline costs may be possible. The Department has made policy changes, and officials believe that costs will be greatly reduced by procuring commercially available items locally. The Department is streamlining bureaucratic management processes.

34.65 Three bases have made improvements. We found that many bases are attempting to improve their efficiency and three bases in particular have made significant improvements. Canadian Forces Base Esquimalt, for example, which services the navy on the West Coast, has cut from 120 to 17 the number of steps required to process certain orders, and has reduced related staff to one third of its former requirement by simplifying work and using just-in-time delivery from local suppliers ( Exhibit 34.3 ). CFB Halifax and 17 Wing (Winnipeg) have also demonstrated productivity gains.

34.66 Overall, the Department has reduced personnel but productivity has fallen. We conducted our own analysis of supply services provided at the base level. We reviewed transaction and personnel data from 1992-93 to 1995-96. We found that, in spite of departmental initiatives to improve productivity and reduce the number of personnel in supply, there has been no overall improvement. The labour cost of filling an order at the base level increased from $27.46 to $33.23. When wage increases are taken into account, this equates to a 10 percent decline in productivity. The number of orders handled by each base supply employee fell from 1,295 a year in 1992-93 to 1,168 in 1995-96, a decline of 10 percent. Officials believe that they are in a transitional period in which gains from changed processes have not yet been realized. While the effects of personnel reductions and decline in activity are visible, savings due to re-engineering and restructuring have yet to materialize. ( see photograph )

34.67 Productivity measures are lacking. We found that the information we required for our study was not available at the base level; computer downloads to provide data from the national level require months of effort. We also noted that the Department does not take into account management practices that affect productivity statistics, such as borrowing personnel from operational units. When additional labour is used but not recorded, productivity measurement is distorted. Similarly, systems in place do not record military overtime. While Canadian Forces members are not paid for overtime, if overtime hours are not recorded it is impossible to say whether changes to the system are actually reducing the amount of labour required. This creates a risk that cost savings predicted by the Department for future changes may be overstated.

34.68 National Defence should move as quickly as possible to communicate information throughout the entire Department on the improvements achieved by the three most successful bases.

Department's response: The Department fully agrees that effective communication is essential for success and will continue to pursue an aggressive communications plan. Individual and corporate initiatives have included quarterly and annual best practices workshops, re-engineering papers, studies and briefings to co-ordinate and communicate the "way ahead" down to the base and unit level. Moreover, our corporate re-engineering authority (MCCRT) has already profiled CFB Esquimalt as a leader in re-engineering. Its example is being used as a model for the major re-engineering efforts under way in the Department. In fact, the Base Supply Officer of CFB Esquimalt was a key member of the MCCRT re-engineering team and has made presentations at various re-engineering and business process review conferences across the country. Also, almost every major base has visited Base Supply at CFB Esquimalt. This type of information on improvements will also be officially communicated as part of the Materiel Support Team Implementation Plan due out in fall 1996. As part of the MCCRT communication strategy, re-engineering initiatives such as those undertaken by CFB Esquimalt were also presented to the Assistant Deputy Minister (Materiel) community in various newsletters. In addition, Chief of Management Renewal Services (CMRS) has prepared a best practices diskette that is widely distributed throughout the Department.

34.69 National Defence should monitor transaction costs and volumes per employee as indicators of performance. Performance data should be readily available to managers.

Department's response: It is fully agreed that relevant performance data and indicators are a fundamental element of the materiel management and operation of the supply system. Transaction costs and volume per employee are important indicators and will be included in the package of performance measurement criteria that is being developed. It should be noted that there are several other indicators that are important and that must also be considered, including customer satisfaction, turnaround times, unit distribution costs, operational effectiveness, operational readiness, and ability to execute military plans. Performance measurement is an important deliverable in the re-engineering and business process reviews that are currently under way. It is also an essential component of the Canadian Forces Supply System Upgrade Project, with particular emphasis on the identification of relevant performance criteria and the availability of performance data for managers.

The number of kilometres driven in transportation sections varies widely
34.70 Base transportation provides local transport for passengers and cargo. It also operates special-purpose vehicles such as forklifts and snowploughs. The Department has over 9,200 civilian pattern vehicles in its fleet. Cars and light trucks account for about half of these vehicles. It assigns operators based primarily on "dispatched hours", or the total time vehicles are checked out, and supervisors based principally on the number of vehicles held by an individual base. Work is considered to be specialized, and drivers generally do not operate vehicles except the types held by their own sections.

34.71 Two bases have improved. The Department has streamlined transportation operations on two bases, Suffield and Montreal. Management at Suffield, with the assistance of a National Defence Headquarters re-engineering team, reduced the need for drivers by analyzing customer requirements and finding less expensive ways to meet their needs. Managers made processes more efficient or found alternative means of providing service. They reduced costs by:

  • adopting a user-drive policy for passenger cars;
  • discontinuing commuter and shift buses and providing soldiers and employees with a commuting allowance; and
  • giving the vehicles to the base functions requiring them rather than letting base transportation manage the vehicles.
The Department has saved over $2 million per annum through these changes.

34.72 Since April 1996, process re-engineering efforts at Base Montreal have resulted in a reduction in overhead personnel from 0.4 to 0.24 overhead staff per driver. Base staff achieved this by eliminating some supervisory levels and all dispatcher positions. The base transportation officer estimates that the productivity of drivers on the base will more than triple as a result of the 1996-97 personnel changes, from 9,196 to 30,420 kilometres per driver annually. Further projected reductions in the number of drivers is expected to increase this figure to 35,635 kilometres per driver annually by September 1996.

34.73 Our audit shows great differences from base to base in the number of kilometres driven. Our audit compared the average number of kilometres driven per driver at each of our 22 bases. This indicator is a commonly used statistic in the industry and provides insight into the amount of work completed. While these were the only data available at the time of our audit, it should be noted that full measurement of transportation productivity would require several indicators. Our analysis included 1,400 drivers during 1995-96, the only year for which data were available. Results are shown in Exhibit 34.4 .

34.74 We found that drivers on the best-performing base drove an average of 21 times farther than drivers on the lowest-performing base. The average of the best five bases was 5.6 times farther than the five lowest-performing bases. The average distance driven by an individual per day ranged from 12 kilometres per day on one base to 259 on another, with a fleet average of 97 kilometres per day.

34.75 Officials suggested that the average number of kilometres driven could be affected by the quality of roads, weather, the number of units and personnel served, the type of driving done, the type of military units served and the overall number of base staff. We found no correlation between productivity and these factors. We concluded that the differences are linked to management factors rather than the type of work or environmental factors. We also concluded that the policy for determining the number of drivers required by a base is inadequate. Officials have told us they are reviewing the policy.

34.76 Supervision and overhead costs are high. We also examined the levels of staff assigned to supervisory and overhead functions related to transportation. Again, we found a wide range among bases, from one overhead employee for every seven drivers to more than one for each driver. Overall, there was one non-driver for every 2.25 drivers. We compared this with a major utility's regional transport organization that had duties and vehicles comparable with those of bases, and found that the utility company required only one non-driver for every 5.4 drivers. The number of supervisors and overhead staff assigned to bases therefore appears to be high.

34.77 The high overhead-to-driver ratios can be attributed, in part, to the Department's method of calculating the number of supervisors and administrative staff required. The Department generally uses the number of vehicles held by each base to determine the overhead requirement. However, compared with vehicle fleet owners studied, National Defence underutilizes its vehicles by 16 to 65 percent. Excess vehicles attract excess personnel.

34.78 National Defence should install productivity measurement in all base transportation sections. It should set a date by which measures will be in place and set goals for raising the productivity of below-average units.

Department's response: The Department acknowledges the requirement to improve transportation productivity and utilization rates. The Department will incorporate improved methods of data collection and refine the data types to permit the measurement of base/wing performance. Automated systems are being updated to collect data and permit benchmarking and productivity goal setting.

34.79 The Department should monitor the productivity of personnel in base transportation operations and adjust the number of personnel according to needs.

Department's response: The Department acknowledges the requirement to improve driver productivity tracking. The Department will redefine the data types being collected in order to permit improved analysis of driver productivity. Automated systems are being updated to collect data and permit benchmarking and productivity goal setting.

Vehicle maintenance productivity is below industry averages
34.80 National Defence owns 9,225 commercial-pattern cars and trucks. We examined the productivity of this fleet.

34.81 We compared data on the Department's performance with United States statistics compiled by the National Association of Fleet Administrators (NAFA) that were based on a survey of 91 public service fleets for the year 1992. We found sufficient data to compare the Department's performance for 5 of 11 NAFA vehicle indicators and one of two fleet performance indicators. National Defence was below the NAFA level of productivity on 4 of the 5 indicators ( Exhibit 34.5 ). Officials told us they intend to further increase vehicle maintenance productivity through re-engineering. While the need to maintain military capability may limit the Department's ability to meet commercial standards, officials could not tell us how much of the difference this accounted for. Additional capacity maintained to meet military needs must be determined before options under its Alternative Service Delivery initiative can be evaluated. The Department intends to determine minimum military essential requirements through its Military Occupational Structure Review, now under way. This study should assist managers to determine which Alternative Service Delivery and re-engineering options to select.

34.82 We note that the Department could reduce its requirement for vehicle maintenance if it could dispose of its vehicles more quickly and reduce the age of its fleet. The average age of the NAFA car fleet is under three years, whereas the Department's average is six years; the NAFA truck fleet averages about four years old while the Department's average is eight years. Not only would newer vehicles require less maintenance, but fewer of them would be required because they would not break down as often. We noted that local managers have few incentives to dispose of vehicles that have reached the end of their economic lives. As a result, older vehicles that require more than average maintenance are kept in service, increasing maintenance costs.

34.83 A departmental study found that disposing of vehicles through the private sector instead of using the services of the Crown Assets Disposal Corporation (the current legislated practice) could provide significantly increased revenues from disposal. Treasury Board has authorized a disposal pilot project at four bases, allowing the Department full flexibility to choose the most cost-effective method of disposing of its surplus assets. The Department estimates that reducing fleet age, speeding the disposal process and using the services of a private sector disposal agency could save over $3 million each year.

34.84 Vehicle maintenance costs could also be reduced if the Department made greater use of warranties. No command uses warranties for more than 10 percent of the work done on eligible vehicles, whereas commercial fleets file claims under warranties for between 50 and 75 percent of the maintenance work done on vehicles during the first three years of ownership. Although maintenance managers must consider factors such as lost driver time, distance to warranty repair facilities and the need to maintain military skills, officials agreed that increased warranty use represents an opportunity worthy of further study and action.

34.85 National Defence should review and manage the impact of the age of its vehicle fleet on overall vehicle maintenance productivity and make whatever changes are necessary to increase productivity.

Department's response: The Department has already taken steps to enhance overall vehicle maintenance productivity. The introduction of Plan Expert and Performa, which are maintenance management software applications, starting in fall 1996 will put significantly improved management tools in the hands of maintenance managers at bases across the Department. These tools will allow managers to measure the effectiveness of maintenance facilities and to gauge how well equipment fleets measure up to performance criteria. Managers will be able to better react to cost and serviceability trends and to take corrective action. These management tools will also give managers the ability to make trade-off decisions (based, in part, on vehicle age) as to the right point at which to buy new vehicles or to repair the existing fleet. In addition, the Department is engaged in extensive re-engineering of its maintenance, acquisition and disposal processes as well as improvements to management information systems and training, which will lead to even greater improvement in productivity.

34.86 The Department should assess the results of the disposal pilot projects and conduct such negotiations with Treasury Board as are necessary to reach the most cost-effective solution, including determining what incentives should be built into the overall system.

Department's response: Certainly the disposal process should be re-engineered as planned by the MCCRT. Negotiations with Treasury Board for a cost-effective solution will be pursued.

34.87 The Department should maximize its use of the vehicle warranties it has purchased.

Department's response: The Department is striving to maximize its use of vehicle warranties in order to minimize maintenance costs. With the devolution of funds to bases, newly re-engineered maintenance processes, and improved cost visibility and maintenance management information, managers will be truly accountable for the effective use of resources. This will include decisions to exercise warranties. It may well prove cost-effective at times to perform repairs in-house due to such factors as distance to dealers and the associated personnel costs of obtaining warranty services. Such decisions, however, will be taken in the context of overall maintenance cost effectiveness.

Other Management Functions

Air maintenance productivity is improving
34.88 The Department spent $1.1 billion on air maintenance in 1993-94. Air maintenance is one of the most expensive functions in the Department, costing $1.1 billion in direct costs each year, including contract costs. The Department has contracted out much of its air maintenance. Our audit focussed solely on the maintenance services provided from directly within National Defence. The CF-18 Hornet fighter consumes 32 percent of maintenance resources, followed by the C-130 Hercules at 13 percent and the Sea King naval helicopter at 9 percent. We addressed only the maintenance units on the bases. We did not assess off-base overhead and management operations.

34.89 Air Command monitors and integrates management renewal efforts. Air Command has set out a plan to integrate and monitor change initiatives. Flight Plan 97 embraces all Air Command re-engineering projects and organizational activities. The plan covers projects designed to change the thinking in Air Command as well as the management tools necessary to support change. Air Command has begun three-day cultural training courses for all personnel. A group of dedicated staff at Air Command Headquarters collects in a database information on re-engineering projects to monitor their progress and to help communicate lessons learned throughout the Command. The database shows achieved and projected savings of some $600 million.

34.90 Management support tools are being developed to establish task/resource contracts among Command levels; link resource consumption to both activities and tasks such as Maritime Sovereignty Patrols or Search and Rescue; and provide performance measurement feedback. The tools are interrelated and are designed to support moving the authority and accountability for resource management as close to the front line as possible. They will also provide a consistent view of costs to support business-case decision making and user-pay concepts. Management tools are being tested in trial projects and most are scheduled to be implemented by the fall of 1996.

34.91 Air Command has achieved impressive results through restructuring and re-engineering. We found that Air Command has already achieved significant savings in air maintenance. The establishment of the Air Force Command and Control Re-engineering Team has led to a reduction of 50 percent in headquarters staff. The process of defining roles has resulted in the identification and elimination of duplication among levels. Integrated equipment management teams at headquarters manage aircraft supply, finance and engineering functions for each fleet.

34.92 In addition, much work has been done on the flight line itself. For example, the number of aircraft technician trades has been reduced from 12 to three. Cross-training required to implement the new trade structure for the most costly fleet to maintain - the fighter fleet - will be completed by the spring of 1997. Other fleets will complete cross-training over the next three years. Through re-engineering, Air Command has reduced the maintenance costs of the DASH-8 aircraft from $2,900 to $1,300 per hour of flight, or by 55 percent. Developments at Cold Lake Air Maintenance Squadron have been particularly impressive, resulting in a 31 percent reduction in staff ( Exhibit 34.6 ). ( see photograph )

34.93 The 1996-2001 Business Plan for Air Command sets out future initiatives designed to produce further savings through reduced operations, automation, consolidation and re-engineering of processes.

34.94 Air Command needs to build on its success. While some maintenance operations have been re-engineered, other units have not yet achieved savings. Officials told us that the delay was due to the need to wait for the completion of other re-engineering projects affecting maintenance personnel. Comparisons of units show wide discrepancies in the effects of re-engineering efforts on downsizing and in the time required to perform similar tasks. Staff believe that the more advanced bases are one to two years ahead of other units. Downsizing and an evaluation of activities have prompted some restructuring rather than a re-engineering of the processes. A 1995 study indicates that streamlining maintenance operations could save $180 million each year.

34.95 Bureaucracy is the problem. The central problem creating low productivity in air maintenance is the way it is organized and controlled. We found, for example:

  • There are too many people involved in approval of work. Change orders and other authorizations can require up to 32 different signatures.
  • There is insufficient delegation of decision making to the air maintenance units. In the commercial sector, Transport Canada uses the concept of regulation by objective, establishing regulations and standards for conduct. Air carriers have the flexibility to establish the most effective processes to meet their needs while conforming to those regulations and standards. At National Defence, the central authority at National Defence Headquarters decides both the "regulations" and the "process". The private sector "bottom line" provides the incentive to work with Transport Canada during the development of requirements. At National Defence there is a disconnect between those responsible for producing policies and those responsible for managing the resources affected by them. As a result, policies tend to be overly conservative. The policies have acted as a disincentive to air maintenance units looking for better methods of maintenance.
34.96 The financial accountability for air maintenance is not clearly defined. No one has an incentive to minimize the use of resources and cost of materiel and, consequently, the wing (base) or squadron levels have not considered the cost of resources in their management of aircraft.

34.97 Cost information and other management support tools are lacking. A second problem is that cost information is lacking. One of the primary requirements to manage the cost of support is access to adequate costing data. This enables well-informed priority/cost benefit judgments to be made prior to the approval of actions. We found that, because computer-based systems are inadequate, maintenance staff calculate by hand the cost of maintaining the DASH-8 and the cost figures in the business plan. We also found that tools like Cost Centre Management are not yet accurate. Costing models contained in the system were constructed prior to downsizing and reorganization. As the organization changes, the tool becomes increasingly inaccurate.

34.98 Although the use of benchmarks is common in industry, the Department has yet to complete the development of the performance indicators proposed in the business plan. Air maintenance units have not yet begun to develop computerized maintenance systems to optimize maintenance tasks and aircraft scheduling.

34.99 Air Command should apply the lessons learned at Cold Lake at all bases possible.

Department's response: In response to the 1994 White Paper on Defence, Air Command created Project Genesis with the mandate of reducing the cost of the fighter force by 25 percent. This project is a joint Materiel Group and Air Command initiative with a scope of flight line to contractor. As a consequence, Cold Lake, a fighter base, was in the vanguard of the effectiveness and efficiency initiatives that now permeate Air Command. Since that time, Maritime Genesis, Transport Genesis, Tactical Helicopter Genesis and Air Training Genesis have begun to address the wings (bases), organizations and fleets in those communities. To ensure that the lessons learned at Cold Lake and other wings are applied across Air Command, a Genesis Initiatives database has been created. Further, Air Command is about to start a Doctrinal Wing project to ensure sufficient standardization across wings to allow integrated air power projection and to incorporate successful initiatives into Air Command Wing doctrine.

34.100 Air Command should provide unit managers with reliable cost information at the earliest possible date in order to improve decision making and accountability.

Department's response: Air Command is currently in the process of instituting Activity Based Costing (ABC) at its wings. A successful proof of the concept has been conducted at 416 Squadron and selection of software tools is complete. The target for implementation at all wings is December 1997. The use of ABC tools at wing level will give cost visibility relative to activities and will provide an options analysis ("what if") capability. Providing this information to wing-level managers is a significant step in improving managers' decision making and accountability.

The training system's productivity has declined
34.101 The training system is large and costly. The Canadian Forces provide individual training to allow personnel to gain knowledge and skills. Much of this training is in technical trades similar to those in civilian industry, taught in community colleges. Other training relates to specific military skills. At the time of our audit, the Department had 54 schools employing more than 5,770 people and producing 1.6 million training days. The overall annual standard cost of delivering this individual training is more than $687 million.

34.102 There have been long-standing productivity problems. In 1990 we reported that National Defence was not competitive with the community college system in the provision of technical training. In one case, we noted that departmental costs were almost four times higher than those of external providers. We recommended that the Department compare its costs with those of civilian colleges and either use the information to reduce its costs or contract out. The Department promised to compare costs to ensure that it selected the most efficient and effective means of training. However, we found no productivity measurement in place during the course of the present audit.

34.103 Training in 1994-95 was 40 percent less productive than in 1990-91. Our audit examined a period during which the government rapidly reduced the size of the Canadian Forces. Support services were required to adjust to this change. Our audit included all 47 schools that have been in existence since 1990 and that have no operational support role other than training. They deliver 75 percent of the Department's individual training, employ 5,067 people and cost over $550 million a year to operate. We carried out our audit by looking at trend data, comparing similar schools with each other, and comparing departmental schools with United States military training centres.

34.104 We found that in most of the Department's schools, productivity has declined since 1990. Overall, each staff member in 1995 produced 61 percent of the training days produced in 1990. While some schools had improved by as much as 300 percent, others had declined to one fifth of their 1990 productivity ( Exhibit 34.7 ). Schools providing similar training sometimes vary widely in their productivity. For example: ( see photograph )

  • at the two language schools, student/instructor ratios ranged from 3.2 to 9.1 students per instructor; and
  • general trades schools (excluding language schools) ranged from 2 to 4.3 students per instructor.
34.105 Productivity has declined more rapidly than in United States government schools. We compared Canadian Forces schools with United States government schools for which the U.S. Bureau of Labor Statistics tracks productivity. Although the two populations are not exactly the same, 40 percent of the U.S. schools were military and others offered similar training. Compared with them, productivity in Canadian Forces schools has lagged. In both countries, due to government cutbacks, the number of students has declined. The American government schools have almost kept pace with their downsizing, productivity having declined only 12 percent. The Canadian Forces schools have suffered a productivity decline of almost 40 percent during the same period ( Exhibit 34.8 ).

34.106 The Department has not taken productivity into account in allocating personnel to schools. It does not have performance measures that allow it to adjust labour requirements depending on the level of output it seeks. Differences among similar schools indicate that cuts might have been imposed in an arbitrary fashion.

34.107 Other aspects of training management have improved . In 1990, we found that about 62 percent of individual training delivered by the Canadian Forces Training System either was not required by graduates on the job or had been learned before they received the training. We recommended that the Department increase its efforts to validate training. During the present audit we found that since 1993 the Canadian Forces Recruiting, Education and Training system has validated 40 percent of its qualifications. We did not examine the adequacy of the validation of the individual courses in each qualification.

34.108 National Defence should assess its need for any instructors and support staff above the 1990 level per student as soon as possible and adjust staff levels on a continuing basis thereafter to meet actual needs.

Department's response: During the audit period, a steady-state forecast of student loads could not be identified due to significant and unprecedented changes to requirements caused by the rapid downsizing of the Canadian Forces. Without the target requirements clearly identified, it was impossible to change training infrastructure appropriately. As reiterated and acknowledged in all previous Auditor General reports, the Canadian Forces trains its personnel to meet validated operational requirements.

Adjustments to instructor and support staff establishment positions are constantly being made to reflect decisions on Force structure, departmental re-engineering initiatives and changes to qualification standards. The lag in adjusting staff levels in the 1991-95 timeframe is now being made up and some of the schools studied in this report, particularly the Canadian Forces Recruiting, Education and Training System, employ far fewer staff than they did in 1994-95. Additional cuts have been determined for 1995-96 and 1996-97.

Reporting to Parliament

34.109 The Department devotes several pages in its Part III of the Estimates and in its May 1996 Outlook document to its renewal efforts. The Department has increased the amount of performance information it provides. The Outlook document reports on the status of almost 140 specific items, including several items regarding renewal, but these are often difficult to interpret. For example, the Department states that it has a goal to "improve resource management through Defence 2000 (and subsequently through the Management, Command and Control Re-engineering initiative)" and reports that this is "ongoing. Restructuring and Alternative Service Delivery initiatives [are] in place." The additional detail represents progress, but much remains to be done. Treasury Board ministers have recently asked that the Department provide a full range of results-oriented performance indicators in its next Business Plan to facilitate results-based evaluation of departmental programs, operations and projects.

34.110 This audit shows that, even with existing data on costs and performance, much more can be done to allow Parliament to assess whether the Department's turnaround effort is succeeding.

34.111 National Defence should develop meaningful measures of its support activities and should include the most significant ones in its reporting to Parliament.

Department's response: Difficulty in developing meaningful and useful performance indicators is being experienced across the public sector; it is not confined to DND. The Department recognizes the importance of performance indicators and is developing them as an integral component of the business planning process and in keeping with the Improved Reporting to Parliament Project, which is sponsored by the Treasury Board Secretariat. This is an iterative process that, in the end, will generate indicators that are meaningful and useful.

Conclusion

A Mid-Course Correction Is Required

34.112 The Department of National Defence has begun its management renewal process, but has of necessity been forced to concentrate on implementing personnel and budget cuts mandated in the 1995 and 1996 Budgets. Major re-engineering initiatives such as Operation Excelerate and Operation Renaissance appear to be on track but are only now entering the implementation stage, and are consequently difficult to assess. The older Base DelegAAT program has achieved the gains claimed for it by the Department.

34.113 Our audit indicates that management needs to reassess the approach taken to renewal by some units. Business planning and operating budgets are only slowly coming into effect and will likely take additional time to affect management behaviour. Although some bases have made considerable progress in improving local productivity in certain functional areas, these best practices have not been put in place in other units.

34.114 Senior management has identified the need to change values and beliefs from a focus on bureaucratic rule-following to one of independent initiative and cost consciousness. The Department has made commendable efforts but needs to do more in this area. The employee surveys that have been done indicate a great gap between the current culture and the one required if the Department is to benefit from business planning and the use of operating budgets. Addressing this challenge is a vital necessity.

34.115 Where productivity can be compared with that of service providers outside the Department, it tends to be low. It appears that budget cuts and downsizing have reduced the need for support services faster than the Department has reduced these functions. Management lacks the information to detect these drops in productivity, is often constrained in its ability to act, lacks incentives and has been preoccupied with implementing budget reductions.

34.116 The Department has built its renewal strategy around freeing up middle management and encouraging initiatives that would improve productivity. Its business planning initiative and operating budgets were meant to provide the basis for doing this. After two years, it is evident that while these steps are necessary, they alone have not been sufficient. Managers still lack cost and performance data with which to make business cases for change. Current values and beliefs conflict with the expectation that "bottom-up" change will occur.

34.117 The Department has become smaller, but its support services have not yet become more productive. Until they do, the Department has no assurance that it can produce the combat capability called for in the 1994 White Paper with the reduced resources available. Until measurement of outputs is in place, it is not possible to say for sure that defence capability is not declining faster than the defence budget is falling.

34.118 The Department needs to place greater emphasis on measuring costs and outputs and on ensuring that tools to do so are in place. It also needs to increase its efforts to ensure that its culture will match the management approach it says it wants to put in place.

Consequences Could Affect Military Capability

34.119 The Minister has said in his Outlook document that budget reductions are not expected to affect the roles and capabilities of the Canadian Forces as described in the 1994 Defence White Paper. The Outlook document says that these cuts amount to a 30 percent reduction in the Department's purchasing power. The only way defence capability can remain the same while resources diminish is for productivity to increase. Our audit indicates that this is not yet occurring. The consequence could be that while the Canadian Forces continue to maintain the same number of combat units, they will be less well-trained and equipped. Our May 1996 chapter on Peacekeeping (Chapter 7) indicates that training and equipment are already suffering from lack of resources. The Minister's Outlook says that by 1998-99 the capital portion of the budget - needed to modernize the Canadian Forces - will decline from 24 percent of the defence budget to 20 percent. Given the Department's requirement for modernization, this is a troublesome trend.

34.120 Our audit indicates that the Department has the capacity to move additional resources from overhead and support to capital and training - from "tail" to "teeth." To do so, the Department should consider the measures recommended in this chapter.

About the Audit

Objectives

The objectives of our audit were to:

  • compare the productivity of defence support functions within the Department and with other external providers of similar services; and
  • report to Parliament the effects of National Defence's renewal efforts begun in response to budget reductions and to commitments made to the Public Accounts Committee in 1994.

Scope

Our audit focussed on two management levels: the corporate level, which manages programs and functions that are national in scope; and the base or unit level, which manages a single location where work is performed.

We reviewed the Department's major initiatives at the corporate level, including major re-engineering and change projects; the Department's business planning reforms; its operating budget initiative; and its management of cultural change. We also looked at three specific change and re-engineering projects managed at the corporate level: the Red Tape Action Team, Military Pay Services and Food Services.

Of 29 existing bases, our audit includes 22 bases the Department intends to keep operating. Bases slated for closure were excluded to avoid biasing the results of the audit. We concentrated on the supply, transportation and vehicle maintenance functions. The bases we included account for 82 percent of base personnel in the Department and the functions we examined account for 35 percent of the personnel on those bases.

We also examined air maintenance and individual training, which are two major support functions not administered through the base organizations. Air maintenance employs 3,900 people, and schools that deliver individual training employ 5,770.

Criteria

In assessing the Department we used goals and standards established by the Department itself, trends over time, and comparisons with others performing similar work in both the public and private sectors. Detailed criteria are discussed in each section along with audit findings.

Audit Team

Mohamad Alkadry
Isabelle Beauvais
Sylvie Blais
Darwyn Kerwin
Sheila Klein
Steven Lofkrantz
Haleem Mughal
Amy Mullins
Crystal Pace
David Saunders
Gordon Smith
Alain Soublière
Wayne Zronik

For information, please contact Peter Kasurak, the responsible auditor.