Management in Defence is built around the need to find the best value for money in implementing the Government's Defence policy. In pursuit of this our main principles are:
* a focus on output and resources not inputs and cash: this means planning for results, considering all costs direct and indirect, and matching users' requirements;
* strategic management: the centre must specify clear objectives but managers are responsible for achieving them, and for determining the best means of doing so;
* delegation of responsibility and authority to the lowest possible level: all managers must be given the maximum freedom in the use of resources;
* accountability: managers must be called to account for their performance and the exercise of their delegations.
All managers at all levels are expected to take account of these in dealing with their subordinates.
Management planning is carried out by means of the Departmental Plan and the parallel Efficiency Plan. Organisational units from the highest level downwards have subordinate management plans which must cascade logically from the objectives laid down in the two high-level Plans, and must conform to centrally established policy.
These principles tie in with the introduction of resource-based accounting across all of Government; indeed, they cannot be achieved fully without it. The MOD's Project CAPITAL will introduce a fully-fledged system of resource accounting and budgeting which will provide new information on costs of activities and on consumer-provider relationships. This will give a better insight into the horizontal functional links which must be managed within Defence. We need to combine vertical lines of command and strategic management with the horizontal provision of services and support.
WIDER MANAGEMENT STRUCTURE
The vast bulk of Defence activity takes place outside the MOD Headquarters. It is managed through a structure based on Top Level Budget (click here to see a table describing the Top Level Budgets) areas, or TLBs. Each Service has three separate TLBs for its Personnel, Logistics and Operational commands, and the Army has a fourth for Northern Ireland. They are headed by three and four-star military officers. The budgets range in size from an annual cash allocation of £500m with 13,000 personnel, the General Officer Commanding Northern Ireland, to £3bn a year and 80,000, the Commander-in-Chief Land. There are three central TLBs held by CDP, VCDS and 2nd PUS, which include substantial amounts of executive activity: the PE, the Defence Intelligence Staff, overseas garrisons, tri-Service units and agencies, and a range of centrally-provided services. The thirteen TLBs are listed in figures 6 and 7.
There are three subordinate levels of budgets: Higher (HLB), Intermediate Higher (IHLB) and Basic-Level Budgets (BLB). The thirteen TLBs own about 90 subordinate HLBs, the next tier down.
The PUS grants each TLB holder extensive delegated powers over his resources of cash, personnel, and land. In the LTC process each TLB holder identifies the minimum resources needed to meet the objectives which he or she has been set and allocates those resources to subordinate budget-holders to match the objectives which he or she sets them. During the course of the year TLB holders can switch funding between activities and categories of expenditure within their overall cash allocations. They have delegated powers to approve projects at various levels, subject to a general restriction that anything novel or contentious should be referred to the MOD Headquarters. For example, all TLB holders can approve works projects up to £50M in value.
TLB holders can create new military and civilian posts up the level of colonel and its equivalents and are responsible for the recruitment and career management of all but the most senior of their civilian staff. The career pattern of military staff means that each Service manages its personnel centrally in an overall manning approach designed to make the best use of military skills and experience.
The DCS gave the single-Service Chiefs of Staff and their Service Executive Committees (SECs) a new role in managing four-year operating-cost budgets covering all their Service's TLBs. This is intended to enhance the month-by-month management of each Service in peacetime without detracting from the capacity of the MOD HQ to establish policy and take long-term decisions on resource allocation and the equipment programme. These operating-cost budgets are the means by which the single-Service Chiefs discharge their responsibility for the overall fighting effectiveness of their Service and ensure that it is capable of delivering the military capability which is required by Defence policy.
AGENCIES
Agencies already form a vital element of the delivery of military capability and will continue to do so. By the end of 1997 the creation of Next Steps Agencies in Defence will be largely complete and the six Service support and personnel TLBs will consist almost entirely of Agencies. We have some 47 actual and potential agencies in Defence, employing over 110,000 Service & civilian personnel. 42 were in place at the end of April 1997. Click here to see a table showing Defence Agencies by Top Level Budget.
There is no such thing a typical agency, either in Defence or in Government in general and no standard measure of performance. Nonetheless our Agencies have produced some impressive results in pursuing their purpose of delivering necessary outputs of the right quality at minimum cost. For example:
* the Army Base Repair Organisation has cut its hourly repair cost by 20% and reduced the overhaul time for the Challenger tank from 25 to 18 weeks;
* the Defence Transport & Movement Executive has reduced the annual cost of moving unaccompanied baggage world-wide from £42m to £30m while maintaining levels of volume.
Agencies are not separate in any way from the Department at large but fit into its overall command and management structure. All Agencies, except the three Trading Fund Agencies (see below), belong to a TLB. Thus they are set objectives which ensure they make the best contribution to supporting wider Defence objectives, and ultimately to military operations. The agency process is entirely consistent with the management principles described above. Indeed, as those management principles are applied more widely throughout Defence and resource accounting and budgeting is introduced, the internal distinctions between agencies and non-agency units will diminish.
TRADING FUND AGENCIES
Defence owns three trading fund agencies: the Defence Evaluation and Research Agency (DERA), the Meteorological Office and the Hydrographic Office. These do not fall under the TLBs but are paid cash for their services by budget holders.
DERA was formed in April 1995 and has a turnover of around £1 billion. It is the largest single research organisation of its kind in Western Europe and offers a unique range of services, from the highest level of operational studies and analysis, through various categories of basic and applied research, to consultancy advice on the procurement process and the test and evaluation of specific equipment in the development phase and during operations. It has four operating divisions:
* The Defence Research Agency provides scientific and technological expertise to support MOD and an increasing number of other customers, both within and outside Government.
* The Defence Test and Evaluation Organisation provides ranges and facilities capable of measuring the performance of all types of military systems in a broad range of environments.
* The Chemical and Biological Defence Establishment (CBDE) develops protective measures against the whole spectrum of chemical and biological warfare, and provides services to civil and military customers' research into security equipment, technologies and techniques.
* The Centre for Defence Analysis conducts operational analysis studies to underpin decisions on defence policy and planning, procurement and operations.
The Meteorological Office was founded in 1855 to meet the needs of mariners, and started life as part of the Board of Trade. At the end of the First World War it absorbed the meteorological groups of the individual Services. It then became the responsibility of the Air Ministry as the Department by then making most use of its services.
In 1990 the Office became an Executive Agency under the Next Steps programme and is the United Kingdom's national meteorological service. Its Chief Executive is the UK's Permanent Representative to the United Nations World Meteorological Organisation in Geneva, and the Office participates in its World Weather Watch programme, involving the free exchange of meteorological information between all 130 member nations.
The Meteorological Office provides weather forecasts, severe-weather warnings and other meteorological services to the Armed Forces and the PE, as well as to other Government departments, civil aviation, merchant shipping, much of industry and commerce, and the general public. Advice and services are also given to Government departments on meteorological aspects of climate and environmental pollution. The Office maintains extensive observation and communication networks and a major computing facility, and undertakes research and development in atmospheric physics and dynamics and some aspects of oceanography.
The first Hydrographer of the Navy was appointed in 1795; 195 years later, in 1990, the Hydrographic Office, based at Taunton, became the first Defence Support Agency. Its aim is to supply hydrographic, oceanographic and other such information to the Royal Navy, while also offering charts and publications to the Merchant Marine and other users to allow them to go about their business at sea safely. During the last two centuries the Office has built up a reputation for the high quality of its products and today the Admiralty chart is held in high esteem by users around the globe.
MANAGING THE DEFENCE ESTATE
The Defence Estate exists to meet the needs of the Armed Forces and the organisations supporting them. The aim is to ensure that it is no larger than necessary to meet our requirements. In the United Kingdom about 593,000 acres are owned or leased by the MOD and we have limited rights over a further 302,000 acres for training and other purposes. This makes Defence one of the largest landowners in the country.
Overseas the MOD owns very little land, but some 100,000 acres are made available or leased to the Armed Forces and rights have been granted over a further 250,000 acres.
We welcome public access for recreational purposes to the Defence Estate wherever it is not detrimental to the environment and is consistent with operational requirements, safety, security and the interests of tenants. The Defence Estate contains some of the finest natural habitats in the country and is home to many indigenous species. It also includes well over 200 sites of Special Scientific Interest and a very large number of ancient monuments and listed buildings. The MOD takes care to protect this heritage, and has established a conservation officer with a system of conservation groups run by more than 5,000 volunteers at over 200 sites.
The management of the Defence Estate was examined as part of the Defence Costs Study. In order to improve the Department's ability to take a top-down view the Defence Lands Service, the Defence Works Service and the central secretariat responsible for policy on works and historic buildings, were brought together into a single Defence Estate Organisation (DEO) which became an agency in April 1997.
FINANCIAL MANAGEMENT AND AUDIT
One fundamental function of the MOD as Department of State is to ensure that public money for Defence is spent properly and used in the most economical and effective way for the purposes voted by Parliament. There are four Defence Votes (click here to see a table describing the Defence Votes) whose structure reflects the Department's budgetary system. Each of the TLBs is allocated a section within Vote 1 (operational and support costs), 2 (logistic services) or 3 showing all expenditure and receipts for which the budget holder is directly responsible. Expenditure on procuring equipment is shown in Vote 3, together with CDP's TLB. Vote 4 covers retired pay and pensions for the three Services, although it is not included within the Defence Budget total negotiated in the Public Expenditure Survey.
Each Vote has an Accounting Officer who is personally accountable to Parliament for money spent against the Vote. PUS is the Accounting Officer for Votes 1 and 4, and CDP is the Accounting Officer for Votes 2 and 3. Within the Central Staff the DUS(RP&F) is the MOD's Principal Finance Officer and is responsible for the financial policy and systems within which all budget-holders must work.
Each financial year, the Government sets a cash limit for Votes 1 to 3. These form the Defence block cash limit, which is the maximum amount of money the Government intends to spend on Defence in any particular financial year. Vote 4 is outside the block and has no cash limit.
The actual spending of the Department's money, and the collection of receipts, takes place all over the world, wherever units of the Armed Forces are serving. Strict account is kept of all this expenditure and an annual Appropriation Account is presented to Parliament.
Defence spending falls into three large blocks for accounts purposes:
* the pay and allowances of Service personnel, which are handled by the Armed Forces Pay Administration Agency;
* the pay and allowances of civilian employees, which are dealt with by the Pay & Personnel Agency; and
* payments to the Department's contractors and suppliers, which are made by the Defence Bills Agency.
The process of authorising bill payments has to ensure that money is only paid out for work actually done and equipment supplied as laid down in the contracts. The MOD also itself provides supplies and services and earns receipts, for example from sales of surplus equipment, training of overseas students and meteorological services. It is part of the job of the Defence Bills Agency to ensure that the MOD recovers all money due to it.
The MOD has its own internal audit staff, who carry out independent audits on behalf of the Accounting Officers and as a service to line managers. They report whether the Department's money is properly used and accounted for, whether its assets are efficiently controlled, and whether its management information and accounts can be relied on. Reports on individual audits are submitted to the line managers concerned. An annual audit report is submitted to the Accounting Officers. External audit is conducted by the National Audit Office (NAO) on behalf of Parliament on all aspects of the MOD's financial examines the Accounting Officers on the basis of NAO reports; Agency chief executives and TLB holders can also be examined.
THE FUTURE
We expect the department's organisational structure will continue to evolve along now well-established lines. Tri-Service rationalisation in the interests of military effectiveness and efficiency is a continuing theme, so some existing units and agencies may merge and the extension of external service delivery on value-for-money grounds may also lead to some units and agencies slimming down. Resource-based accounting and budgeting will improve our understanding of how activities and costs link to outputs, and may point us in the direction of further change.
The organisation of Defence may appear now to be more fragmented than in the past, in particular because of the proliferation of agencies and tri-Service bodies. In fact, the development of a hierarchical and delegated budgetary and planning process has created a greater homogeneity of purpose through the clear statement of objectives from the top down. Increasingly, all activity, however executed, can be traced back to Defence-wide objectives and has a clearly defined owner, provider and user. Previously we had a highly standardised organisation in place and sought to bend it do what was needed or to fit new processes to its standard shape. Now we decide what we want to do, and why, and then select the most suitable means of doing it within an intrinsically more flexible framework.
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