Mismanage Projects and Lose Money

As observed by an alarmed Parliamentary Standing Committee on Defence, the estimated losses accrued due to time and cost overruns in Naval acquisitions/ developmental projects amount to a whopping Rs 29000 crores which exceeds India’s healthcare budget for the year[i]. The 33 member committee headed by Hon’ble Member of Parliament Maj Gen BC Khanduri (Retired), in its 126 page report tabled in the Parliament on 22 Dec 14[ii], has been severely critical of the poor state of equipment readiness of the Indian Armed Forces due to all major acquisition projects suffering from time and cost overruns. Owing to “regular” delays, the indigenous Aircraft Carrier will now cost Rs 19,341 crores from its original cost of Rs 3,241 crores. Similarly, in case of the Stealth Guided Missile Destroyer, the cost has been revised from Rs 3850 crores to Rs 11,662 crores and timelines have been revised from 2010-11 to 2015-16. The report goes on to add in atypically strong terms that India’s security has been compromised because of a fast eroding combat edge vis a vis India’s neighbours’ due to depleting strength of fighter aircraft squadrons.   

The scathing observations spanning all three services made in the report bear a rather uncomfortable similarity to the observations raised by the Parliamentary standing committee report of 2012 and if we go back by half a century, to the post 1962 war enquiry report which read as follows. ‘Shortage of Equipment ; Statement by the Defence Minister Shri YB Chavan regarding NEFA Enquiry. 02 Sep 1963. The enquiry has confirmed that there is indeed an overall shortage of equipment both for training and during operations. The situation was made worse because of overall shortage of vehicles and that our fleet was too old. The enquiry has pinpointed the need to make up deficiency in equipment particularly suited for mountain warfare and to make it available to the troops at the right place at the right time.’[iii].

While one can appreciate the problems in managing complex projects involving niche  technology, what can possibly be the cause that soldiers in high-altitude areas are short of nearly two lakh pairs of High Ankle Leather Boots; more than thirteen lakh pairs of Canvas shoes, one lakh Mosquito Nets and sixty five thousand Balaclavas to keep their faces warm[iv]. One might like to question as to what are the reasons for such a deficiency. After all we have a fairly robust acquisition structure[v] as the Raksha Mantri has assured Rajya Sabha very recently.  The Army too has articulated its contentment about the decisiveness of the new government[vi]. There have been certain visible positive steps with regard to acquisition initiated on ground such as the lifting of ban from Denel ex South Africa[vii] and an assurance by Ministry of Defence (MoD) to promulgate a comprehensive policy on blacklisting of firms[viii]. The Defence Acquisition Council in the past few months has cleared a number of long pending proposals worth Rs 4400 crores in Dec 2014[ix] taking the total proposals cleared by the new government since June 2014 to a staggering figure of Rs 1.23 lac crores[x]. The question however again remains to be answered that, why, despite all the positives, there still is a deficiency of critical equipment in the Services. The malaise obviously lies in the total absence of a Programme Management vertical in India’s defence capital acquisition structure.

How Does the MoD Acquire?

A typical procurement case in the Indian Service Headquarters and MoD in the present day and age is initiated on a ‘noting sheet’ with zero application of technology. It is not subjected to a structured risk management exercise at the Capability Development Group (CDG) level which enables the government to take an informed decision about a capability sought to be inducted. At the Acquisition level too there is a zero application of project management. What then is the result? The result to take just one example is that there is a shortfall ostensibly due to the glitches in transfer of technology of 40 percent in the delivery of T-90 tanks by the Ordnance factories even four years after they were supposed to hand over the entire lot of three hundred tanks to the Army[xi].  Such situations are bound to precipitate given an acquisition ecosystem devoid of risk management, capability management and project management. In this era of nanotechnology are we not unrealistically expecting an archaic acquisition structure to deliver?

Managing Projects in a Multinational Company (MNC)

A mid-sized MNC headquartered, say in Bangalore, uses an Army of home grown MBAs to deliver highly complex projects worth millions of dollars annually. A typical MNC vertical with a single domain specialisation would be handling approximately 200 projects annually with an outlay of USD $15 billion which equals the Rafael deal. Any new project undertaken by a corporate entity in India today is first examined by a committee called the Project Initiation Forum (PIF) or equivalent. The PIF consists of Subject Matter Experts (SMEs) from different verticals such as telecom, banking, finance, and media. The PIF accords the first pass to a project post initial risk analysis. Thereafter the project is allotted to a programme manager not the domain specialist hence making the programme manager responsible for execution of a particular project from the very beginning.  The programme manager in turn has a number of project managers under him and assigns this particular project to one of them. The project manager so detailed interacts with the all the verticals required in the project called the Delivery Project Executives (DPEs) and ask them to assign resources namely line function executives to fulfill the project requirements. Line function executives are assigned by DPEs who also work out detailed time and cost estimates, detailed risk analysis and detailed requirements of resources. The second pass approval is accorded somewhere at this stage. These line function executives will report to the programme manager in addition to their vertical head thus ensuring a projectised organisation in place. In case there is a risk of time and cost overruns, the project manager will exactly know the problem and will resolve it. If the resolution is beyond the project manager the programme manager will be informed who will interact with the senior delivery manager of the concerned vertical for resolution and the escalation loop continues till the risk is mitigated.  Mid-course corrections are carried out by the project team as the project progresses and milestones are charted through in house software developed within the company. Such project management models are commonplace in India and seldom suffer time and cost overruns.

Managing Projects: Australian Defence Forces

How are advanced Armies managing projects? The CDG in the Australian Army for example will develop a submission of the current and future capability gap and prioritise the same for government approval in the form of a duly costed DCP. Each item or project which figures in the DCP would have been tested rigorously for time, cost and risk estimates. Each project figuring in the DCP would be provided with four essential inputs firstly, a description and background, secondly, a likely acquisition strategy, thirdly, thorough life support consideration and fourthly, an anticipated cost range for. The entry of a project into the DCP is done after a two-pass process and a sizeable portion of the project budget is devoted to risk analysis. To quote the Kinnaird review on Australian acquisition reforms “The redirection and expenditure towards a greater emphasis on analysis and project definition before proceeding to tender will return dividends during the acquisition phase through greater certainty of costs and schedule and a better understanding of technology risk. This proportion may be 10 to 15 percent of total project funds in relation to complex projects”[xii]. The final or the second pass approval is accorded only after the responses to tenders have been analysed and it is established that the capability can actually be acquired within the given risk profile. At the acquisition level the project is rigorously monitored by a battery of project managers and real time mid course correction is carried out. As a result, the Australian Defence Materiel Organisation (DMO) which was once in step with the benchmarks of the Indian Acquisition system in terms of time and cost overruns now completes 95 percent of its projects five percent under budget and 70 percent of its projects within the laid down timelines. 

Ushering in Reforms

The recently raised Mountain Strike Corps in the Eastern sector has been equipped by using the war wastage reserves (WWR) held by the Indian Army[xiii] which may affect its operational efficiency during war unless replenishment is fast-tracked. The ammunition held by the Army too is at an all time low and as per the overall Army "ammunition roadmap", the WWR of ammunition will reach 100 percent only by 2019 with a budgetary support of Rs 97,000 crore[xiv]. Acquisition, therefore, needs to be streamlined through greater inputs of industry best practices. The situation is indeed grim and our planners need to be alive to the urgent need for a structural reform in the MoD and induct a programme management vertical into its existing organisation.

The author is Senior Fellow at CLAWS. Views expressed are personal.